<PAGE>
As filed with the Securities and Exchange Commission on July 27, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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CAITHNESS COSO FUNDING CORP.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
Delaware 525990 94-3328762
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
<TABLE>
<S> <C> <C> <C>
Coso Finance Partners California 221119 68-0133679
Coso Energy Developers California 221119 94-3071296
Coso Power Developers California 221119 94-3102796
(Exact names of (State or other (Primary Standard
Registrants as jurisdiction of Industrial (I.R.S. Employer
specified in their incorporation or Classification Code
charters) organization) Number) Identification No.)
</TABLE>
1114 Avenue of the Americas, 41st Floor
New York, New York 10036-7790
(212) 921-9099
(Address, including zip code, and telephone number, including area code, of
Caithness Coso Funding Corp.'s principal executive offices)
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Christopher T. McCallion
Executive Vice President and Chief Financial Officer
Caithness Coso Funding Corp.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036-7790
(212) 921-9099
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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With a Copy to:
Mitchell S. Cohen, Esq.
Riordan & McKinzie
300 South Grand Avenue, 29th Floor
Los Angeles, California 90071
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered per Security(1) Offering Price(1) Registration Fee
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<S> <C> <C> <C> <C>
6.80% Senior Secured Notes due 2001.. $110,000,000 100% $110,000,000 $30,580
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9.05% Senior Secured Notes due 2009.. $303,000,000 100% $303,000,000 $84,234
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Guarantees(2)........................ (3) (3) (3) (3)
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Total............................... $413,000,000 100% $413,000,000 $114,814
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
(2) Coso Finance Partners, Coso Energy Developers and Coso Power Developers
are each registering guarantees of the payment of the principal of,
premium, if any, and interest on the Senior Secured Notes being registered
hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, as
amended, no registration fee is required with respect to the guarantees.
(3) Not applicable.
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The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
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<PAGE>
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS
Caithness Coso Funding Corp.
Offer to Exchange
Any and All Outstanding 6.80% Series A Senior Secured Notes due 2001
for
6.80% Series B Senior Secured Notes due 2001
and
Any and All Outstanding 9.05% Series A Senior Secured Notes due 2009
for
9.05% Series B Senior Secured Notes due 2009
This is an offer to exchange any and all outstanding, unregistered Caithness
Coso Funding Corp. 6.80% Series A Senior Secured Notes due 2001 you now hold
for new, substantially identical 6.80% Series B Senior Secured Notes due 2001
and any and all outstanding, unregistered Caithness Coso Funding Corp. 9.05%
Series A Senior Secured Notes due 2009 for new, substantially identical 9.05%
Series B Senior Secured Notes due 2009. The 6.80% Series A Senior Secured Notes
due 2001 and the 9.05% Series A Senior Secured Notes due 2009 are called the
Series A notes, and the new 6.80% Series B Senior Secured Notes due 2001 and
the new 9.05% Series B Senior Secured Notes due 2001 are called the Series B
notes. The Series B notes will be free of the transfer restrictions that apply
to the Series A notes.
This exchange offer will expire at 5:00 p.m., New York City time, on ,
1999, unless we extend the expiration date. You must tender your Series A notes
before the exchange offer expires to obtain the respective Series B notes and
the liquidity benefits they offer. Only Series B notes due 2001 may be
exchanged for tendered Series A notes due 2001, and only Series B notes due
2009 may be exchanged for tendered Series A notes due 2009. We will exchange
Series A notes only in integral multiples of $1,000.
We agreed with the initial purchaser of the Series A notes to make this
exchange offer and register the issuance of the Series B notes following the
closing of the issuance and sale of the Series A notes to the initial purchase
of those notes. This exchange offer applies to any and all outstanding Series A
notes tendered before the exchange offer expires.
The Series B notes will not trade on any established exchange. The Series B
notes will have the same financial terms and covenants as the Series A notes,
and are subject to the same business and financial risks.
A description of those risks begins on page 34.
The terms of the exchange offer will include the following:
. We will exchange any and all outstanding Series A notes that are validly
tendered and not withdrawn before the exchange offer expires;
. You may withdraw your tender of Series A notes at any time before the
exchange offer expires; and
. We will not receive any proceeds from the exchange offer.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS
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<CAPTION>
Page
<S> <C>
Forward-Looking Statements............................................... i
Prospectus Summary....................................................... 1
Risk Factors............................................................. 34
The Exchange Offer....................................................... 49
Capitalization........................................................... 59
Selected Historical and Pro Forma Financial and Operating Data........... 61
Unaudited Pro Forma Financial Data....................................... 66
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 82
Business................................................................. 101
Summary Descriptions of Principal Agreements Relating to the Coso
Projects................................................................ 124
Regulation............................................................... 136
Management............................................................... 141
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Ownership.................................................................. 147
Certain Relationships and Related Transactions............................. 150
Description of Series B Notes.............................................. 155
Material Federal Income Tax Consequences of the Exchange Offer............. 204
Plan of Distribution....................................................... 205
Legal Matters.............................................................. 205
Change in Independent Accountants.......................................... 205
Experts.................................................................... 206
Available Information...................................................... 207
Index to Financial Statements.............................................. F-1
Exhibit A--Independent Engineer's Report
Exhibit B--Energy Markets Consultant's Report
Exhibit C--Geothermal Consultant's Report
</TABLE>
FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical facts
included in this prospectus regarding industry prospects, our prospects and our
financial position are forward-looking statements. Although we believe that our
expectations reflected in these forward-looking statements are reasonable, we
cannot assure you that our expectations will prove to be correct. We have based
these forward-looking statements on our beliefs, assumptions and expectations
and on information currently available to us. These statements involve known
and unknown risks, uncertainties and other important factors that could cause
actual results, performance or achievements to differ materially from the
results, performance or achievements expressed or implied by these statements.
Forward-looking statements are not guarantees of performance.
Under the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995, we have identified some of these risks, uncertainties and other
important factors in "Risk Factors," in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and in the assumptions made
by our independent engineer, our energy markets consultant and our geothermal
consultant in their respective reports, copies of which are included in the
prospectus. You should also consider, among others, the following important
factors:
. general economic and business conditions in the United States;
. changes in governmental regulations affecting us and our affiliates, our
and their businesses and operations and the United States electric power
industry;
i
<PAGE>
. general industry trends;
. changes to the competitive environment;
. power costs and resource availability;
. changes in business strategy, development plans or vendor or customer
relationships;
. availability, terms and deployment of capital; and
. availability of qualified personnel.
These forward-looking statements speak only as of the date of this
prospectus. We undertake no obligation to publicly update or revise any
forward-looking statements to reflect events or circumstances after the date of
this prospectus, and we do not assume any responsibility to do so.
ii
<PAGE>
PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important to
you. We encourage you to read this entire prospectus, including the financial
data and the related notes, before deciding to tender your Series A notes in
the exchange offer. Whenever this prospectus uses the terms "we," "us," "our"
"ourselves" or "Funding Corp.," it is referring to Caithness Coso Funding
Corp., the issuer of the Series A notes and the Series B notes, which we
collectively call the senior secured notes.
The Issuer
We are a special purpose corporation and a wholly owned subsidiary of Coso
Finance Partners, which we call the Navy I partnership, Coso Energy Partners,
which we call the BLM partnership, and Coso Power Developers, which we call the
Navy II partnership. We call the Navy I partnership, the BLM partnership and
the Navy II partnership the Coso partnerships. We were formed for the purpose
of issuing the senior secured notes for ourselves and on behalf of the Coso
partnerships. The Coso partnerships have guaranteed our obligations to repay
the senior secured notes.
On May 28, 1999, we and the Coso partnerships completed the following
transactions:
. We sold $110,000,000 of our 6.80% Series A Senior Secured Notes due 2001
and $303,000,000 of our 9.05% Series A Senior Secured Notes due 2009 to
Donaldson, Lufkin & Jenrette Securities Corporation, which we call the
initial purchaser of the Series A notes, under a purchase agreement,
dated May 21, 1999, among the initial purchaser, the Coso partnerships
and us. We call the sale of the Series A notes to the initial purchaser
the Series A notes offering;
. We loaned all of the proceeds from the Series A notes offering to the
Coso partnerships; and
. The Coso partnerships, in turn, caused the net proceeds from the Series A
notes offering, together with cash on their balance sheets and funds from
other sources, to (1) retire all Coso project debt that existed prior to
the Series A notes offering, including the payment of accrued and unpaid
interest and premiums, of approximately $150.7 million, (2) initially
fund the Debt Service Reserve Account established under a Deposit and
Disbursement Agreement dated as of May 28, 1998, which we call the
Depositary Agreement, in the amount of $50.0 million, (3) repay
approximately $216.9 million of short term debt, including accrued
interest, incurred by one of our affiliates to purchase all of the
remaining interests in the Coso projects as described under "The
Purchase" below and (4) make distributions of the remaining balance to
the owners of the Coso partnerships other than the beneficial owners of
Caithness Energy, LLC, the sponsor of the Coso projects and which we call
Caithness Energy.
We have no other material assets, other than the loans we made to the Coso
partnerships, and do not conduct any business, other than issuing the senior
secured notes and making the loans to be Coso partnerships. Our principal
executive offices are located at 1114 Avenue of the Americas, 41st floor, New
York, New York 10036-7790, and our telephone number is (212) 921-9099.
1
<PAGE>
The Coso Projects
The Coso projects consist of three 80 megawatt (MW) geothermal power plants,
which we call Navy I, BLM and Navy II, and their transmission lines, wells,
gathering system and other related facilities. The Coso projects are located
near one another in the Mojave Desert approximately 150 miles northeast of Los
Angeles, California, and have been generating electricity since the late 1980s.
Unlike fossil fuel-fired power plants, the Coso projects' power plants use
geothermal energy derived from the natural heat of the earth's interior to
generate electricity. Since geothermal power plants have no fossil fuel costs,
we believe our plants enjoy higher and more stable gross operating margins than
fossil fuel-fired power plants with similarly rated capacities.
The Navy I partnership owns Navy I and its related facilities, the BLM
partnership owns BLM and its related facilities and the Navy II partnership
owns Navy II and its related facilities. The Coso partnerships and their
affiliates own the exclusive right to explore, develop and use, currently
without any known interference from any other power developers, a portion of
the Coso Known Geothermal Resource Area. Since 1991, the Coso partnerships have
drilled 56 geothermal wells, approximately 91% of which have contributed to the
commercial production of geothermal energy.
The geothermal power plants, each of which has three separate turbine
generator units, have consistently operated above their nominal capacities, and
the combined average capacity factor for the plants has exceeded 100%, for each
of the last six years. For the three months ended March 31, 1999, the plants
operated at a combined average capacity factor of approximately 99.3%.
The Coso partnerships sell 100% of the electrical energy generated at the
plants to Southern California Edison Company, which we call Edison, under three
long-term Standard Offer No. 4 power purchase agreements. Each power purchase
agreement expires after the last maturity date of the senior secured notes.
Edison is one of the largest investor-owned electric utilities in the United
States. As of December 31, 1998, Edison reported in its 1998 annual report
total assets of $16.9 billion and operating revenues of $8.8 billion. Edison is
currently rated A1 by Moody's and A+ by Standard & Poor's.
Under the power purchase agreements, the Coso partnerships receive the
following payments:
. Capacity payments for being able to produce electricity at certain
levels. Capacity payments are fixed throughout the lives of the power
purchase agreements;
. Capacity bonus payments if they are able to produce electricity above a
specified higher level. The maximum capacity bonus payment available is
also fixed throughout the lives of the power purchase agreements; and
. Energy payments which are based on the amount of electricity their
respective plants actually produce.
Energy payments are fixed for the first ten years of "firm operation" under
the power purchase agreements. Firm operation was achieved for each Coso
partnership when Edison and that Coso partnership agreed that each generating
unit at that Coso partnership's plant was a reliable source of generation and
could reasonably be expected to operate continuously at its effective rating.
After the first ten years of firm operation and until a Coso partnership's
power purchase agreement expires,
2
<PAGE>
Edison makes energy payments to the Coso partnership based on Edison's "avoided
cost of energy." Edison's avoided cost of energy is Edison's cost to generate
electricity if Edison were to produce it itself or buy it from another power
producer rather than buy it from the relevant Coso partnership. The Navy I
partnership and the BLM partnership currently receive energy payments from
Edison based on Edison's avoided cost of energy. The Navy II partnership
receives energy payments from Edison based on higher fixed energy prices
provided for in its power purchase agreement and will continue to do so until
at least January 2000.
The Edison power purchase agreements will expire:
. in August 2011 for the Navy I partnership;
. in March 2019 for the BLM partnership; and
. in January 2010 for the Navy II partnership.
In addition to receiving payments under the power purchase agreements, the
Navy I partnership and the BLM partnership currently qualify for and receive
subsidy payments from a special purpose state fund established under California
Assembly Bill 1890, which we call AB1890. The California Energy Commission
administers the fund. AB1890 provides in part for subsidy payments from 1998
through 2001 to power generators using renewable sources of energy, including
geothermal energy, and who are being paid based on an avoided cost of energy
basis. Under AB1890, the Navy I partnership and the BLM partnership are
expected to continue to receive in the future subsidy payments for energy
delivered to Edison by the Navy I partnership or the BLM partnership, as the
case may be, whenever Edison's avoided cost of energy falls below 3.0c per
kilowatt hour (kWh). This subsidy is capped at 1.0c per kWh. We expect the Navy
II partnership to also qualify for these subsidy payments through 2001 once the
fixed energy price period under its power purchase agreement expires.
As of March 31, 1999, the unaudited combined net book value of the property,
plant and equipment of the Coso partnerships was approximately $471.0 million,
including approximately $158.4 million at the Navy I partnership, $163.2
million at the BLM partnership and $149.4 million at the Navy II partnership.
Operating Strategy
The Coso partnerships seek to maximize cash flow at the Coso projects through
active management of the Coso projects' cost structure and the Coso geothermal
resource. As a result of the closing of the purchase described in "--The
Purchase" below:
. The Coso partnerships have retained two new operators at the Coso
projects: FPL Energy Operating Services, Inc., which we call FPL
Operating, and Coso Operating Company, LLC, which we call Coso Operating
Company. FPL Operating currently operates and maintains all three plants,
the transmission lines and the geothermal fields at the Coso projects
under three short-term operations and maintenance, or O&M, agreements.
Coso Operating Company, which is one of our affiliates, currently manages
the geothermal resource, including well drilling, under three additional
O&M agreements. Also:
. FPL Operating and Coso Operating Company have retained substantially
the same employees who were employed by the prior operator.
Approximately 70% of the
3
<PAGE>
employees who currently work at the Coso projects' sites have been
employed there since 1992; and
. As a result of the change in operators and the restructuring of
operator fees, the aggregate annual fees to be paid by the Coso
partnerships to FPL Operating and Coso Operating Company have been
reduced from approximately $7.5 million, which had been paid to the
prior operator in 1998, to approximately $2.0 million. Payment of
these reduced operator fees are subordinated to all payments to be
made under the senior secured notes;
. One of our affiliates, which recently purchased the managing partners of
the Coso partnerships, has caused any management committee fees payable
by each Coso partnership to its partners to be subordinated to all
payments to be made under the senior secured notes;
. The Coso partnerships expect to reduce annual non-fee related costs at
the Coso projects, including insurance, maintenance and other costs, by
approximately $1.9 million. However, the pro forma financial data
included in this prospectus does not give effect to this cost savings;
and
. The Coso partnerships are expanding a steam sharing program they
previously implemented among the Coso projects to enhance the management,
and to optimize the overall use, of the Coso geothermal resource. As part
of this program, the Coso partnerships plan to conserve the geothermal
resource whenever possible by, among other things:
. Transferring steam between and among the Coso projects and from an
adjoining site, which we call BLM North, rather than drilling new
wells at the Coso projects' sites prematurely; and
. Expanding the flexible field-wide water reinjection program.
4
<PAGE>
The Purchase
In late 1998, CalEnergy Company, Inc., which is now known as MidAmerican
Energy Holdings Company and which we call CalEnergy, announced that it was
planning to merge with MidAmerican Energy. As a consequence of the planned
merger, the Federal Energy Regulatory Commission, which we call FERC, required
CalEnergy to divest itself of at least a portion of its approximately 48%
equity interest in the Coso projects if the Coso projects were to continue to
qualify as "Qualifying Facilities," or QFs, under the Public Utility Regulatory
Policies Act of 1978, which we call PURPA. See "--The Independent Power
Industry." Each Coso partnership is required to operate and maintain its Coso
project as a QF under its power purchase agreement and under the Indenture
described below.
On February 25, 1999, one of our affiliates, Caithness Acquisition Company,
LLC, which we call Caithness Acquisition, purchased all of CalEnergy's
interests in the Coso projects. Caithness Acquisition is a wholly owned
subsidiary of Caithness Energy. See "--The Sponsor." The purchase price
consisted of $205.0 million in cash, plus $5.0 million in contingent payments,
plus the assumption of CalEnergy's and its affiliates' share of debt
outstanding at the Coso projects which then totaled approximately $67.0
million. In order to complete the purchase, Caithness Acquisition arranged for
short-term debt financing in the principal amount of approximately $211.5
million. Caithness Acquisition used a portion of the net proceeds from the
Series A notes offering that it received from the Coso partnerships, together
with funds from other sources, to repay all amounts owed under this short-term
debt facility.
The Sponsor
Caithness Energy, the principal operating subsidiary of Caithness
Corporation, is a developer and owner of independent power projects and is the
sponsor of the Coso projects. Since 1966, the current owners of Caithness
Corporation have been involved in the development of long-term investment
opportunities involving natural resources. Caithness Corporation is one of the
two original sponsors of the Coso projects and formed Caithness Energy in 1995
to consolidate its ownership of independent power projects.
Caithness Energy believes that it is currently the second largest owner of
geothermal power projects in the United States, based on the total electrical
generating capacity of its power projects. Through its controlled affiliates,
Caithness Energy owns interests in seven geothermal plants, including the Coso
projects, totaling 420 MW. Caithness Energy is also seeking to develop two
additional geothermal power projects with a total potential electrical
generating capacity of over 400 MW, and has interests in other operating power
generating facilities, including solar, wind and natural gas, totaling an
additional 400 MW.
5
<PAGE>
Caithness Energy typically partners with strategic investors in its power
project investments. The largest such investors in the Coso projects currently
are:
. a subsidiary of FPL Energy, Inc., the independent power subsidiary of FPL
Group, Inc., which is the parent company of Florida Power & Light
Company, one of the largest investor-owned utilities in the United
States; and
. Dominion Energy, Inc., a subsidiary of Dominion Resources, Inc., which
also is a large investor-owned utility.
Caithness Energy is headquartered in New York City and has additional offices
in California, Colorado and Florida.
The Coso Partnerships
Affiliates of Caithness Energy and CalEnergy formed the Coso partnerships
during the 1980s to develop, own and operate Navy I, BLM and Navy II. As we
described in "--The Purchase" above, Caithness Acquisition recently purchased
all of CalEnergy's interests in the Coso projects. Caithness Energy now
indirectly controls the BLM partnership and the Navy II partnership, while
Caithness Energy and FPL Energy, Inc. indirectly share control of the Navy I
partnership. You should read "Management" for more details regarding who
manages and controls the Coso partnerships.
6
<PAGE>
Recent Developments
Purchase of 1992 Notes
Concurrently with the closing of the Series A notes offering, Coso Funding
Corp., one of our other affiliates, purchased for cash all of its then
outstanding 8.53% Senior Secured Notes due 1999 and 8.87% Senior Secured Notes
due 2001, which we collectively call the 1992 Notes. The proceeds of the 1992
Notes were originally loaned by Coso Funding Corp. to the Coso partnerships,
and these loans constituted the existing project debt that was repaid with a
portion of the proceeds from the Series A notes offering.
Return to Service of Navy I Unit
In January 1999, one of Navy I's three turbine generator units, known as Unit
1, automatically shut down when the stator coils attached to it experienced a
ground fault. The stator coil was repaired, and Unit 1 was scheduled to return
to service in March 1999. However, electrical faults recurred during the start-
up testing stage of Unit 1's generators, and the Navy I partnership postponed
Unit 1's return to service while it repaired the unit. Unit 1 returned to
service prior to June 1, 1999, and is currently in service. The Navy I
partnership had filed a claim in connection with Unit 1's shutdown under its
business interruption and casualty insurance policies. It expects that any
losses resulting from this shutdown will be covered by insurance, subject to a
deductible of $500,000 for property damage and a 25-day deductible for business
interruption. We have included amounts expected to be recovered under these
insurance policies in the Navy I partnership's total revenues for the three
months ended March 31, 1999. See "--Summary Selected Historical and Pro Forma
Financial and Operating Data" and "Business--Overview of the Coso Projects--
Plants--Navy I." The other two turbine generator units at Navy I and the three
generator units at BLM and Navy II are also currently in service.
Negotiations with FPL Operating and its Affiliates
The Coso partnerships and Coso Operating Company, one of the two existing
operators of the Coso projects and our affiliate, have been negotiating with
FPL Operating and its affiliates to acquire all of the equity interests in the
Navy I partnership held by one of FPL Operating's affiliates and to terminate
the existing O&M agreements with FPL Operating. Subject to reaching a final
agreement on terms, we currently expect that the Coso partnerships will sign
definitive documentation prior to the end of 1999. At this time, Caithness
Energy and the Coso partnerships are considering whether to engage a new
independent operator to assume the operational and maintenance functions that
FPL Operating currently has or whether to have Coso Operating Company assume
those functions and engage additional personnel as appropriate.
7
<PAGE>
Geothermal Energy
Geothermal energy is:
. an established and generally sustainable source of energy that
releases significantly lower levels of emissions than result when
energy is generated by burning fossil fuels;
. derived from the natural heat of the earth when water comes
sufficiently close to hot molten rock to heat the water to
temperatures of 400 degrees Fahrenheit or more. The heated water then
ascends toward the surface of the earth where, if geological
conditions are suitable, it can be extracted for commercial use by
drilling geothermal wells; and
. a renewable source of energy so long as natural ground water flows and
reinjection of extracted geothermal fluids are adequate over the long
term to replenish the geothermal reservoir after geothermal fluids
have been withdrawn.
Compared to fossil fuel-fired power plants, geothermal energy facilities
typically have higher capital costs, primarily as a result of wellfield
development, but tend to have significantly lower variable operating costs.
The Independent Power Industry
The Coso projects are part of the growing domestic independent power
industry. Utilities in the United States have been the predominant producers of
electric power since the early 1900s. In 1978, however, Congress enacted PURPA,
which removed regulatory constraints relating to the production and sale of
electricity by certain non-utility power producers. PURPA requires electric
utilities to buy electricity from non-utility power producers that use
renewable energy sources, known as Small Power QFs, or that produce both
electrical energy and useful thermal energy used for industrial, commercial,
heating or cooling purposes, known as Cogeneration QFs. This encouraged
companies other than electric utilities to enter the electric power production
market. Under PURPA, electric utilities are required to comply with state law
guidelines and, in general, must interconnect with and buy capacity and energy
offered by non-utility power producers meeting certain ownership and, in the
case of Small Power QFs, fuel use standards established by FERC if there is a
need for such electricity and if it is priced at or below the utility's avoided
cost of energy at the time of the agreements.
The Coso projects qualify as Small Power QFs under PURPA and the rules and
regulations promulgated under PURPA by FERC. PURPA exempts the Coso projects
from certain federal and state regulations. The Coso projects must continue to
satisfy certain ownership and fuel-use standards to maintain their QF status.
Since their inception, the Coso projects have satisfied these standards and we
expect that they will continue to do so.
8
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
On May 28, 1999, we completed the Series A notes offering. The initial
purchaser subsequently resold the Series A notes in reliance on Rule 144A and
other available exemptions under the Securities Act of 1933. As part of the
completion of the Series A notes offering, we, the Coso partnerships and the
initial purchaser entered into a registration rights agreement dated May 28,
1999, which we call the registration rights agreement, in which we agreed,
among other things, to deliver this prospectus to you and complete an exchange
offer for the Series A notes. Set forth below is a summary of the terms of the
exchange offer. See "The Exchange Offer."
The Exchange Offer.......... We are offering to exchange (1) up to
$110,000,000 aggregate principal amount of our
6.80% Series B Senior Secured Notes due 2001,
which have been registered under the Securities
Act, for up to $110,000,000 aggregate principal
amount of any and all outstanding 6.80% Series A
Senior Secured Notes due 2001 and (2) up to
$303,000,000 aggregate principal amount of our
9.05% Series B Senior Secured Notes due 2009,
which have been registered under the Securities
Act, for up to $303,000,000 aggregate principal
amount of any and all outstanding 9.05% Series A
Senior Secured Notes due 2009. Only Series B
notes due 2001 may be exchanged for tendered
Series A notes due 2001, and only Series B notes
due 2009 may be exchanged for tendered Series A
notes due 2009. We will exchange Series A notes
only in integral multiples of $1,000.
In order to be exchanged, the Series A notes must
be properly tendered and accepted. Subject to
certain exceptions, we will accept for exchange
any and all Series A notes that are properly
tendered and not withdrawn before the exchange
offer expires. As of the date of this prospectus,
there is $413,000,000 aggregate principal amount
of Series A notes outstanding. We will issue the
Series B notes promptly after the exchange offer
expires.
Expiration Date; Withdrawal
Rights..................... The exchange offer will expire at 5:00 p.m., New
York City time, on , 1999, unless we
extend the expiration date. You may withdraw your
tender of Series A notes at any time before the
exchange offer expires. If we terminate this
exchange offer and do not accept for exchange any
Series A notes, we will promptly return tendered
Series A notes to their holders.
Conditions to the Exchange
Offer...................... The exchange offer is subject to customary
conditions, any or all of which we may waive in
our sole discretion. See "The Exchange Offer--
Conditions to the Exchange Offer."
9
<PAGE>
Accrued Interest on the
Notes...................... The Series B notes will bear interest from and
including the date of issuance of the Series A
notes. Accordingly, if you receive Series B notes
in exchange for your tendered Series A notes, you
will forego accrued but unpaid interest on your
exchanged Series A notes for the period from and
including the date of issuance of the Series A
notes to the date of the exchange. Instead, you
will be entitled to such interest under the
Series B notes. See "The Exchange Offer--Terms of
the Exchange Offer."
Procedures for Tendering
Series A Notes............. If you wish to tender your Series A notes, you
must complete, sign and date the letter of
transmittal, or a facsimile of it, in accordance
with the instructions contained therein, and
submit the letter of transmittal, and all other
documents required by the letter of transmittal,
to the exchange agent identified below on or
prior to the expiration date of the exchange
offer. By executing the letter of transmittal,
you will represent to us that you are acquiring
the Series B notes in the ordinary course of your
business, that you are not participating, do not
intend to participate and have no arrangement or
understanding with any person to participate, in
any distribution of the Series B notes, and that
you are not an "affiliate" of ours. See "The
Exchange Offer--Procedures for Tendering."
Guaranteed Delivery
Procedures.................. If you wish to tender your Series A notes and
your Series A notes are not immediately available
or you cannot deliver your Series A notes and the
letter of transmittal and any documents required
by the letter of transmittal to the exchange
agent prior to the expiration of the exchange
offer, you must tender your Series A notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Guaranteed
Delivery Procedures."
Material Federal Income Tax
Considerations............. We believe that your exchange of Series A notes
for Series B notes pursuant to the exchange offer
will not result in a taxable event for federal
income tax purposes. See "The Exchange Offer--
Material Federal Income Tax Consequences of the
Exchange Offer."
Rights of Dissenting
Holders..................... Holders of Series A notes do not have any
appraisal or dissenters' rights under Delaware
General Corporation Law in connection with this
exchange offer.
10
<PAGE>
Exchange Agent.............. U.S. Bank Trust National Association is serving
as the exchange agent for the exchange offer.
Use of Proceeds; Expenses... We will not receive any proceeds from the
issuance of Series B notes pursuant to the
exchange offer. We will pay all expenses incident
to the completion of the exchange offer.
Consequences of exchanging Series A notes pursuant to this Exchange Offer
Based on interpretative rulings by the staff of the Securities and Exchange
Commission (SEC) set forth in several no-action letters issued to unrelated
third parties, if you exchange your Series A notes for Series B notes pursuant
to this exchange offer, we believe that you generally may offer for resale,
resell or otherwise transfer your Series B notes without complying with the
registration and prospectus delivery requirements of the Securities Act,
provided that (1) you acquired the Series B notes in the ordinary course of
your business, (2) you are not participating, do not intend to participate and
have no arrangement or understanding with any person to participate, in a
distribution of your Series B notes and (3) you are not our "affiliate" within
the meaning of Rule 405 under the Securities Act. If you are not acquiring the
Series B notes in the ordinary course of business, are engaged in or intend to
engage in or have any arrangement or understanding with any person to
participate in the distribution of the Series B notes or are our affiliate,
then (1) you cannot rely on the applicable interpretations of the staff of the
SEC and (2) you must comply with the registration requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives Series B notes for its own account in exchange for Series A notes
that were acquired as a result of market-making or other trading activities
must acknowledge that it will deliver a prospectus in connection with any
resale of the Series B notes. See "Plan of Distribution." In addition, to
comply with the securities laws of certain jurisdictions, if applicable, the
Series B notes may not be offered or sold unless they have been registered or
qualified for sale in such jurisdiction or an exemption from registration or
qualification is available and the conditions thereto have been met. See "The
Exchange Offer--Purpose of the Exchange Offer."
11
<PAGE>
Summary of the Terms of the Series B Notes
The form and terms of the Series B notes will be identical in all material
respects to the form and terms of the Series A notes, except that (1) the
Series B notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof and (2)
holders of the Series B notes will not be and, upon the completion of the
exchange offer, certain holders of Series A notes will no longer be, entitled
to certain rights under the registration rights agreement intended for holders
of transfer restricted notes, except in limited circumstances. See "The
Exchange Offer--Termination of Certain Rights." The Series B notes will
evidence the same debt as the Series A notes and will be governed by the
Indenture.
Issuer...................... Caithness Coso Funding Corp., a Delaware
corporation.
Guarantors.................. The Navy I partnership, the BLM partnership and
the Navy II partnership. Each Coso partnership is
a California general partnership.
Securities Offered.......... The Series B notes, consisting of the following:
$110,000,000 aggregate principal amount of
Series B Senior Secured Notes due 2001; and
$303,000,000 aggregate principal amount of
Series B Senior Secured Notes due 2009.
Maturity Dates.............. The Series B notes due 2001 will mature on
December 15, 2001, and the Series B notes due
2009 will mature on December 15, 2009. For more
details, see "Description of Series B Notes--
Principal, Maturity and Interest."
Average Life................ The average life of the Series B notes due 2001
is 1.2 years, and the average life of the Series
B notes due 2009 is 7.2 years.
Interest.................... The Series B notes due 2001 will accrue interest
at the rate of 6.80% per annum. We will pay
interest on these notes semi-annually in arrears
on December 15 and June 15, commencing December
15, 1999, to holders of record on the immediately
preceding December 1 and June 1.
The Series B notes due 2009 will accrue interest
at the rate of 9.05% per annum. We will pay
interest on these notes semi-annually in arrears
on December 15 and June 15, commencing December
15, 1999, to holders of record on the immediately
preceding December 1 and June 1. For more
details, see "Description of Series B Notes--
Principal, Maturity and Interest."
12
<PAGE>
Scheduled Principal
Payments................... We will pay the principal of the Series B notes
due 2001 in semi-annual installments, commencing
December 15, 1999, as follows:
<TABLE>
<CAPTION>
Scheduled Percentage of Principal
Payment Date Amount Payable
<S> <C>
December 15,
1999........... 47.8773%
June 15, 2000... 11.0736%
December 15,
2000........... 16.4427%
June 15, 2001... 10.1900%
December 15,
2001........... 14.4164%
</TABLE>
We will pay the principal of the Series B notes
due 2009 in semi-annual installments, commencing
June 15, 2002, as follows:
<TABLE>
<CAPTION>
Scheduled Percentage of Principal
Payment Date Amount Payable
<S> <C>
June 15, 2002... 2.8743%
December 15,
2002........... 4.3109%
June 15, 2003... 3.6564%
December 15,
2003........... 5.4584%
June 15, 2004... 4.1363%
December 15,
2004........... 6.2043%
June 15, 2005... 4.6838%
December 15,
2005........... 7.0257%
June 15, 2006... 5.0541%
December 15,
2006........... 7.5815%
June 15, 2007... 6.2601%
December 15,
2007........... 9.3898%
June 15, 2008... 6.4927%
December 15,
2008........... 9.7650%
June 15, 2009... 6.8231%
December 15,
2009........... 10.2835%
</TABLE>
Ratings of Series B Notes... The Series B notes due 2001 have been rated "Ba1"
by Moody's, "BB" by S&P and "BB+" by Duff &
Phelps, and the Series B notes due 2009 have been
rated "Ba2" by Moody's, "BB" by S&P and "BB" by
Duff & Phelps. See "Description of Series B
Notes--Ratings."
Senior Secured Notes
Guarantees................. The Coso partnerships have fully and
unconditionally guaranteed on a joint and several
basis all of our obligations under the Indenture
and the Series B notes, subject to fraudulent
conveyance limitations. If we cannot make
payments on the Series B notes when due, the Coso
partnerships must make them instead.
The Coso partnerships' guarantees are secured by:
. a perfected, first priority lien on
substantially all of the assets of the
Coso partnerships; and
13
<PAGE>
. a perfected, first priority pledge of all
ownership interests in the Coso
partnerships.
For more details, see "Description of Series B
Notes--Brief Description of Series B Notes and
Guarantees."
Senior Secured Notes
Collateral................. The Series B notes are secured by:
. a perfected, first priority pledge of the
promissory notes, which we call the
project notes, evidencing the Coso
partnerships' obligations to repay the
loans made by us to the Coso partnerships;
. a perfected, first priority lien on the
funds deposited in the accounts which we
established under the Depositary
Agreement; and
. a perfected, first priority pledge of all
of our outstanding capital stock.
In addition, our affiliates (other than the Coso
partnerships) that hold any material assets
related to the Coso projects have provided a lien
on these assets to secure the Series B notes. For
more details, see "Description of Series B
Notes--Security."
Ranking..................... The Series B notes will rank senior in right of
payment to all of our subordinated indebtedness
issued in the future, if any. The Series B notes
will rank equally in right of payment with our
future senior borrowings, if any. See
"Description of Series B Notes--Brief Description
of the Series B Notes and Guarantees."
Debt Service Reserve
Account.................... We established a Debt Service Reserve Account for
the benefit of the holders of the senior secured
notes under the Depositary Agreement. We
initially funded the Debt Service Reserve Account
at the closing of the Series A notes offering by
depositing into that account $50.0 million from
the proceeds of the Series A notes offering. The
Depositary Agreement requires us to deposit cash
in and/or post a letter of credit for the Debt
Service Reserve Account in an amount equal to the
aggregate amount of principal and interest due on
the Series B notes on the next succeeding semi-
annual scheduled payment date. For more details,
see "Description of Series B Notes--Debt Service
Reserve Account."
14
<PAGE>
Capital Expenditure Reserve
Account.................... We established a Capital Expenditure Reserve
Account for the benefit of the holders of senior
secured notes under the Depositary Agreement. The
Capital Expenditure Reserve Account will be
funded from the Coso partnerships' revenues in
accordance with the terms of the Depositary
Agreement and in accordance with the operating
budgets for the Coso projects as approved by
Sandwell Engineering Inc., our independent
engineer. Amounts on deposit in the Capital
Expenditure Reserve Account will be used for
capital expenditures to be made in accordance
with prudent industry practice and as may be
required pursuant to the terms of the Indenture
and each of the three Credit Agreements between
the Coso partnerships and us, respectively. For
more details, see "Description of Series B
Notes--Capital Expenditure Reserve Account."
Optional Redemption......... We may not redeem the Series B notes due 2001.
We may redeem the Series B notes due 2009 at our
option at any time and from time to time, in
whole or in part, upon not less than 30 nor more
than 60 days notice to each holder of these
notes. If we choose to redeem the Series B notes
due 2009, the redemption price will be at par,
plus accrued interest through the date of
redemption, plus a premium calculated to "make
whole" the holder of these notes to comparable
U.S. Treasury securities plus 50 basis points.
For more details, see "Description of Series B
Notes--Optional Redemption."
Mandatory Redemption........ We will be required to redeem the Series B notes
under certain circumstances, in whole or in part,
ratably among each series at a redemption price
equal to the principal amount of the Series B
notes being redeemed plus accrued and unpaid
interest to the redemption date. For more
details, see "Description of Series B Notes--
Mandatory Redemption."
Change of Control........... If a change of control occurs, each holder of
Series B notes would be able to require us to
repurchase its Series B notes, in whole or in
part, at a price equal to 101% of the principal
amount of those notes, plus any accrued and
unpaid interest thereon. See "Description of
Series B Notes--Repurchase at the Option of
Holders upon Change of Control."
15
<PAGE>
Principal Covenants......... The Indenture contains certain restrictive
covenants that, among other things, limit our
ability to:
. incur additional indebtedness;
. release funds from reserve accounts
established under the Depositary
Agreement;
. become liable in connection with
guarantees;
. create liens;
. pay dividends or make distributions;
. take certain actions with respect to the
Credit Agreements; and
. enter into any transaction of merger or
consolidation or change our form of
organization or our business.
For a more detailed description of these
covenants, see "Description of Series B Notes--
Certain Covenants."
Principal Credit Agreement
Covenants.................. The Credit Agreement with each Coso partnership
contains certain restrictive covenants that,
among other things, limit that Coso partnership's
ability to:
. incur additional indebtedness;
. release funds from reserve accounts
established under the Depositary
Agreement;
. create liens;
. sell assets;
. sell partnership interests in the Coso
partnerships;
. pay dividends or make distributions;
. enter into certain transactions with
affiliates;
. take certain actions with respect to the
material agreements to which they are a
party;
. become liable in connection with
guarantees (other than their guarantees of
the Series B notes); and
. enter into any transaction of merger or
consolidation or change their form of
organization or business.
For a more detailed description of these
covenants, see "Description of Credit
Agreements--Certain Covenants" under the heading
"Description of Series B Notes."
16
<PAGE>
Certain Accounts............ In accordance with the Depositary Agreement, we
and the Coso partnerships have established
certain accounts, including:
. the Revenue Account;
. the Principal Account;
. the Interest Account;
. the Debt Service Reserve Account;
. the Capital Expenditure Reserve Account;
. the Operating and Maintenance Fees
Account;
. the Management Fees Account;
. the Distribution Account;
. the Distribution Suspense Account;
. the Loss Proceeds Account; and
. the Redemption Account.
The Coso partnerships have limited rights to
withdraw funds from these accounts in accordance
with the terms and conditions set forth in the
Depositary Agreement. For more information
regarding these accounts, see "Description of
Series B Notes--Flow of Funds."
Absence of Public Market
for Notes.................. There has been no public market for the Series A
notes and no active public market for the Series
B notes is currently anticipated. We currently do
not intend to apply for the listing of the Series
B notes on any securities exchange or to seek
approval for quotation through any automated
quotation system. Donaldson, Lufkin & Jenrette
Securities Corporation, the initial purchaser of
the Series A notes, has advised us that it
currently intends to make a market in the Series
B notes; however, it is not obligated to do so
and it may discontinue any market making at any
time without notice. Accordingly, we cannot
assure you as to the liquidity or the trading
market for the Series B notes.
Risk Factors
The "Risk Factors" section contains a discussion of certain factors that you
should consider in evaluating an investment in the Series B notes.
17
<PAGE>
The Independent Engineer's Report
Exhibit A of this prospectus contains a report prepared by Sandwell
Engineering Inc. dated May 20, 1999. We also call Sandwell Engineering Inc. our
independent engineer. We included this report, which we call the independent
engineer's report, to help you understand and evaluate the Coso projects.
Sandwell Engineering Inc. performed an independent engineer's review of the
Coso projects. The independent engineer's report assesses, as of its date,
technical, environmental and economic aspects of the Coso projects, including
certain financial and operational estimates and projections of the Coso
projects' revenue generation capacity and associated costs. These estimates and
projections were prepared by us and are our responsibility. They have not been
examined, compiled or subjected to any procedures by either KPMG LLP, our
independent accountants, or PricewaterhouseCoopers LLP, the former independent
accountants of the Coso projects. Accordingly, neither KPMG LLP nor
PricewaterhouseCoopers LLP expresses any opinion or other form of assurance
with respect to these estimates and projections. The PricewaterhouseCoopers LLP
reports included in this prospectus relate to the Coso partnerships' historical
financial information. The KPMG LLP report included in this prospectus relates
to our historical balance sheet as of April 22, 1999 (our date of inception).
These reports do not extend to the estimates and projections included in the
independent engineer's report and should not be read to do so.
For purposes of preparing the estimates and projections, we relied upon
assumptions about material contingencies and other matters that are not within
our control nor the control of any other person. You should be aware that
actual results will differ, perhaps materially, from those estimated or
projected. No one can assure you that the assumptions used are correct or that
the estimates and projections will match actual results of operations.
Therefore, we do not make, nor intend to make, nor should you infer, any
representation with respect to the likelihood of any future outcome. If actual
results are materially less favorable than those shown or if the assumptions
used in formulating the estimates and projections prove to be incorrect, the
Coso partnerships' ability to make payments to us under their project notes,
our ability to make payments of principal, premium, if any, and interest on the
Series B notes when due, and the Coso partnerships' ability to meet their
obligations under their guarantees could be materially and adversely affected.
You should read "Risk Factors--Uncertainties of Estimates, Projections and
Assumptions" for additional information about the assumptions, estimates and
projections in the independent engineer's report.
We retained Sandwell Engineering Inc. based upon its expertise in industrial
and power plant engineering. It has provided services to the Coso partnerships
for approximately ten years and continues to provide services to the Coso
projects. Sandwell Engineering Inc. has no affiliation with Caithness Energy,
the Coso partnerships or us. We did not impose any limitations on the scope of
the independent engineer's investigation, nor did Caithness Energy or the Coso
partnerships.
On the basis of Sandwell Engineering Inc.'s review of the Coso projects'
facilities, including the plants, wellfields and gathering system, the
information provided to it on our behalf and the assumptions set forth in the
independent engineer's report, Sandwell Engineering Inc. was of the opinion
that:
. The current operations and maintenance practices employed by FPL
Operating as operator of the Coso projects' facilities are reasonable for
operation and maintenance of facilities of this type, to maintain
compliance with all relevant environmental and other permits and
approvals that are required, and to produce the predicted revenues and
cash flow of the facilities.
18
<PAGE>
. FPL Operating, as operator, has the geothermal plant operating experience
and resources necessary to operate the facilities so as to produce the
predicted revenues and cash flow for the Coso projects' facilities.
. The 1999 operating and maintenance financial projections and capital
expenditures forecasts proposed by us or on our behalf for the Coso
projects' facilities are consistent with the operating and
maintenance needs of the facilities, are prudent, and are reasonably
designed to produce the predicted revenues and cash flow of the
facilities.
. If the Coso projects' facilities are maintained and operated in
accordance with current practices, and if the quality and quantity of
the geothermal resources for these facilities are as projected by us
or on our behalf, then the eleven-year financial projections of
operating and maintenance expenditures, and of capital expenditures,
for these facilities are consistent with the operating and
maintenance needs of these facilities. Based on these operating
assumptions, the projected revenues and cash flows of these
facilities, as shown in the financial projections, are reasonable.
. All major permits and approvals required from federal, state and
local agencies for current operation of the Coso projects' facilities
have been obtained, and all required environmental reporting is being
carried out.
. The management organization for operating the Coso projects is
acceptable. The attention given to safety matters, and the safety
programs being implemented are reasonable and acceptable. The
training and certification program for plant operators and
maintenance staff is acceptable.
. Assuming annual rates of interest of 6.80% for the senior secured
notes due 2001 and of 9.05% for the senior secured notes due 2009,
the debt service coverage ratios, or DSCR, would be:
For the period 1999 through 2001:
<TABLE>
<S> <C> <C>
Navy I partnership: Minimum DSCR 1.32
Average DSCR 1.32
BLM partnership: Minimum DSCR 1.28
Average DSCR 1.32
Navy II partnership: Minimum DSCR 1.32
Average DSCR 1.34
For the period 2002 through 2009:
Navy I partnership: Minimum DSCR 1.50
Average DSCR 1.58
BLM partnership: Minimum DSCR 1.49
Average DSCR 1.58
Navy II partnership: Minimum DSCR 1.53
Average DSCR 1.59
</TABLE>
You should read "Exhibit A--The Independent Engineer's Report" for a more
complete discussion of the methodology used by Sandwell Engineering Inc. and
the assumptions underlying the foregoing opinions.
19
<PAGE>
The Energy Markets Consultant's Report
Exhibit B of this prospectus contains a report prepared by Henwood Energy
Services, Inc. dated May 20, 1999. We also call Henwood Energy Services, Inc.
our energy markets consultant. We included this report, which we call the
energy markets consultant's report, to help you understand and evaluate the
Coso projects. The energy markets consultant prepared its report to, among
other things, provide:
. an independent forecast of energy prices in the Southern California
market for the period 1999 through 2009,
. an assessment of the competitive position of the Coso projects in the
Southern California market, and
. confirmation of the reasonableness of our AB1890 payment forecasts in our
projections.
These projections were prepared by us and are our responsibility. They have not
been examined, compiled or subjected to any procedures by either KPMG LLP or
PricewaterhouseCoopers LLP. Accordingly, neither KPMG LLP nor
PricewaterhouseCoopers LLP expresses any opinion or other form of assurance
with respect to these projections. The PricewaterhouseCoopers LLP reports
included in this prospectus relate to the Coso partnerships' historical
financial information. The KPMG LLP report included in this prospectus relates
to our historical balance sheet as of April 22, 1999 (our date of inception).
These reports do not extend to the projections included in the energy markets
consultant's report and should not be read to do so.
The assumptions contained in the projections and evaluated by the energy
markets consultant concern a number of matters that are not within our control
nor the control of any other person. You should be aware that actual results
will differ, perhaps materially, from those projected. No one can assure you
that the assumptions used are correct or that the projections will match actual
results of operations. Therefore, we do not make, nor intend to make, nor
should you infer, any representation with respect to the likelihood of any
future outcome. If actual results are materially less favorable than those
shown or if the assumptions evaluated in the energy markets consultant's report
and utilized in preparing the projections prove to be incorrect, the Coso
partnerships' ability to make payments to us under their project notes, our
ability to make payments of principal, premium, if any, and interest on the
Series B notes when due, and the Coso partnerships' ability to meet their
obligations under their guarantees could be materially and adversely affected.
You should read "Risk Factors--Uncertainties of Estimates, Projections and
Assumptions" for more information.
We retained Henwood Energy Services, Inc. based upon its expertise in power
market price forecasting. It has no affiliation with Caithness Energy, the Coso
partnerships or us. We did not impose any limitations on the scope of the
energy markets consultant's investigation, nor did Caithness Energy or the Coso
partnerships.
Based on its analyses in the energy markets consultant's report, Henwood
Energy Services, Inc. expressed the following major conclusions in its report:
. Henwood Energy Services, Inc.'s market clearing prices forecast indicates
that the Southern California annual average power price will increase
from $26.9 per MW hour (MWh) in 2000 to $44.3/MWh by 2009--which
translates into an average annual rate of increase of approximately 5.7%
over that period (inflation is included in all prices and is equal to
3.0% per year).
20
<PAGE>
. However, there are three distinct periods of price movement. Between 2000
and 2002 in California, which Henwood Energy Services, Inc. calls the
Transition Period, prices increase at an annual average rate of 12.6%.
During the Transition Period, prices bid into the California Power
Exchange reflect short-run marginal fuel costs because most utility-owned
generators receive payments for capacity from "must-run" contracts, if in
California, or through traditional tariffs, if outside of California.
. After the Transition Period ends in March 2002, the California Power
Exchange should cease to behave as a marginal cost pool. This change is
reflected in the forecast. The average market-clearing prices increase
from $34.1/MWh in 2002 to $40.4/MWh by 2005--an average rate of increase
of about 5.7% per year. Price increases in this period reflect attempts
by generators in California to recover at least a portion of fixed
capacity costs through market sales.
. Beyond 2005, prices are forecast to increase gradually but steadily,
about 2.3% per year, which is less than the inflation rate. The growth
rate during the 2005 to 2009 period is influenced largely by the
introduction into the generation market of high efficiency gas-fired
combined cycle plants. These plants are frequently on the margin. That
is, they establish the market-clearing price, and thus are in a position
to push power prices down gradually over time as they replace less
efficient thermal generation plants.
. Based on Henwood Energy Services, Inc.'s long-run natural gas price
forecast and a 3.0% annual inflation rate, the energy markets consultant
estimates Edison's short-run avoided cost of energy prices to be
$31.3/MWh for the remaining months of 1999 (May through December),
$32.4/MWh in 2000 and $33.4/MWh in 2001. These prices are higher than
Henwood Energy Services, Inc.'s forecast of power prices on the
California Power Exchange during the same period.
. The energy markets consultant expects the Coso projects to be a low-cost
producer in all of the years of the study. According to data provided by
us or on our behalf, the annual average operating cost in 2005 is
$10.83/MWh. About 70.0% of the electricity produced in the Western
Systems Coordinating Council in 2005--the first year of full
competition--is generated from units with higher costs. Of all the
generation in the region, only hydro and wind generators have lower
operating costs (hydro and wind power account for about 24.0% and 1.0%,
respectively, of all electric generation in California).
. The Coso projects' annual average operating costs are about 69.0% below
annual Southern California power prices, averaged over all years of the
forecast. In fact, the Coso partnerships' operating costs are
significantly below even the off-peak market-clearing prices in all
forecasted years.
. The low-cost relationship between Henwood Energy Services, Inc.'s market
clearing prices forecast and our operating costs continues in the Low Gas
Price sensitivity cases set forth in the energy markets consultant's
report. Under the worst-case scenario set forth in the energy markets
consultant's report, Low Gas Price Case 2, the Coso partnerships'
operating costs are, on average, about 58.0% below off-peak prices.
. The energy markets consultant estimates that the Southern California
market clearing prices will be greater than or equal to $19.7/MWh in
about 96.0% of all hours in 2005. This means that the Coso partnerships,
with an average operating cost of $10.8/MWh, will be below the market-
clearing prices in each of those hours and, in the absence of a power
purchase agreement, would be dispatched accordingly.
21
<PAGE>
. The Coso partnerships are eligible to receive AB1890 sponsored renewable
energy subsidies under Tier 3 of the Existing Renewable Energy category.
However, based on the assumptions made by us or on our behalf and by
Henwood Energy Services, Inc., the Transition Period short-run avoided
cost of energy price exceeds 3.0c per kWh (the floor price guaranteed by
AB1890) during most months of 2000 and 2001. Consequently, although
subsidy funds are available, short-run avoided cost of energy prices are
forecast to be sufficiently high that Tier 3 producers will not require a
subsidy in most months. In the event that future short-run avoided cost
of energy prices are lower than forecast in the energy markets
consultant's report, Henwood Energy Services, Inc. believes that the
AB1890 program has ample funds to ensure that Tier 3 producers receive a
minimum of 3.0c per kWh until the end of 2001.
. Henwood Energy Services, Inc. has reviewed the methodology and
assumptions used by us to estimate the AB1890 subsidy payments and it
believes that our assumptions are reasonable and our methodology and
calculations are consistent with and similar to its own procedures.
You should read "Exhibit B--The Energy Markets Consultant's Report" for a
more complete discussion of the conclusions expressed by Henwood Energy
Services, Inc.
The Geothermal Consultant's Report
Exhibit C of this prospectus contains a report prepared by GeothermEx, Inc.
dated May 1999. We call GeothermEx, Inc. our geothermal consultant. We included
this report, which we call the geothermal consultant's report, to help you
understand and evaluate the Coso projects. The geothermal consultant's work
consisted of:
. a review of the status of the steam supply from the geothermal resource,
. a review of resource-related capital and operating costs, and
. an assessment of the reasonableness of the forecasts of power production
and resource-related costs contained in the projections provided by us or
on our behalf.
These projections have not been examined, compiled or subjected to any
procedures by either KPMG LLP or PricewaterhouseCoopers LLP. Accordingly,
neither KPMG LLP nor PricewaterhouseCoopers LLP expresses any opinion or other
form of assurance with respect to these projections. The PricewaterhouseCoopers
LLP reports included in this prospectus relate to the Coso partnerships'
historical financial information. The KPMG LLP report included in this
prospectus relates to our historical balance sheet as of April 22, 1999 (our
date of inception). These reports do not extend to the projections included in
the geothermal consultant's report and should not be read to do so.
We omitted from Exhibit C of this prospectus Appendices A through F of the
geothermal consultant's report. Appendices A through F include the production
histories for Navy I, BLM and Navy II production wells and the injection
histories for Navy I, BLM and Navy II injection wells. You can obtain copies of
Appendices A through F of the geothermal consultant's report from us upon
request (subject to possible confidentiality restrictions). See "Available
Information."
22
<PAGE>
The geothermal consultant's report contains assumptions concerning material
contingencies and other matters that are not within our control or the control
of any other person. You should be aware that actual results will differ,
perhaps materially, from those projected. No one can assure you that these
assumptions are correct or that the conclusions in geothermal consultant's
report will match actual results of operations. Therefore, we do not make, or
intend to make, nor should you infer, any representation with respect to the
likelihood of any future outcome. If actual results are materially less
favorable than those shown or if the assumptions evaluated in the geothermal
consultant's report prove to be incorrect, the Coso partnerships' ability to
make payments to us under their project notes, our ability to make payments of
principal, premium, if any, and interest on the Series B notes when due, and
the Coso partnerships' ability to meet their obligations under their guarantees
could be materially and adversely affected. You should read "Risk Factors--
Uncertainties of Estimates, Projections and Assumptions" for more information.
We retained GeothermEx, Inc. based upon its expertise in the field of
geothermal energy. It has no affiliation with Caithness Energy, the Coso
partnerships or us.
Based upon its review, GeothermEx, Inc. reached the following main
conclusions in its report:
. The resource data supplied to GeothermEx, Inc. by us or on our behalf
appear reasonable based upon GeothermEx, Inc.'s long familiarity with the
Coso projects.
. The Coso geothermal resource has supplied steam to the plants for more
than ten years and has proven to be one of the most reliable geothermal
reservoirs in the United States.
. Geothermal energy reserves at the Coso geothermal resource are more than
sufficient to support the plants for 30 years. However, as in all
geothermal fields, make-up well drilling will be necessary to maintain
power output.
. Development of leaseholds adjacent to the Coso projects' acreage is
unlikely, and the possibility of any impact of offsetting development on
the performance of the Coso geothermal resource is remote.
. The financial projections provided to GeothermEx, Inc. by us or on our
behalf show a combined generation capacity of about 264 MW until year
2006 and declining thereafter. The forecasts of the generation decline
trend after year 2006 made by us are reasonable and very similar to
GeothermEx, Inc.'s forecasts.
. The well drilling and workover programs assumed in the financial
projections provided by us or on our behalf are reasonable and should
result in steam supply sufficient to maintain the generation capacity
forecast in our financial projections.
. Resource-related capital and operating costs assumed in our financial
projections are reasonable and consistent with the historical trend and
industry practice.
You should read "Exhibit C--The Geothermal Consultant's Report" for a more
complete discussion of the conclusions reached by GeothermEx, Inc.
23
<PAGE>
Summary Selected Historical and Pro Forma Financial and Operating Data
Because we were only recently formed, we have no financial or operating
history. The following tables set forth summary selected historical and pro
forma financial and operating data for each of the Coso partnerships on a
stand-alone basis, and summary selected pro forma financial and operating data
for the Coso partnerships on a combined basis, as of and for the periods
presented. The summary selected historical financial data for each of the five
years ended December 31, 1998 is derived from the audited financial statements
of each of the Coso partnerships. The summary selected historical financial
data as of and for the three months ended March 31, 1998 and 1999 is unaudited.
The pro forma financial data for the three months ended March 31, 1999 and as
of March 31, 1999 is also unaudited.
The unaudited statement of operations data for the three months ended March
31, 1998 and the two months ended February 28, 1999, have been prepared on the
same basis as the audited financial statements included elsewhere in this
prospectus. The unaudited statement of operations data for the one month ended
March 31, 1999, has been prepared on a new basis of accounting adopted by the
Coso partnerships in connection with Caithness Acquisition's purchase of all of
CalEnergy's interests in the Coso projects. See "--The Purchase." In the
opinion of management, the unaudited statement of operations data contain all
adjustments, consisting only of normally recurring adjustments, necessary for a
fair presentation of such financial information. The unaudited financial
information set forth below is not necessarily indicative of results to be
expected for any future periods and should be read in conjunction with the
historical financial statements of the Coso partnerships, including the related
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included elsewhere
in this prospectus.
The energy revenues received by the Coso partnerships during the five-year
period ended December 31, 1998 and the three month periods ended March 31, 1998
and 1999, as reflected in the tables below, should not be viewed as an
indicator of energy revenues to be received by the Coso partnerships during any
future periods. During the periods reflected in the tables below, Edison made
energy payments to the Coso partnerships based on the fixed energy prices
provided for in the power purchase agreements, except that, since August 1997,
Edison has been making energy payments to the Navy I partnership based on
Edison's avoided cost of energy and, in March 1999, Edison began making
payments to the BLM partnership based on Edison's avoided cost of energy.
Edison's avoided cost of energy has been and is expected to be in the future
substantially lower than the fixed energy prices received by the Coso
partnerships in the past. Once the fixed energy price period for the Navy II
partnership expires, Edison is also expected to make energy payments to the
Navy II partnership based on Edison's avoided cost of energy. See "Risk
Factors--Impact of Avoid Cost of Energy Pricing" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Since the information in the following tables is only a summary, you should
read the historical financial statements of each of the Coso partnerships,
including the related notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Unaudited Pro Forma Financial
Data" and the other financial information included elsewhere in this
prospectus.
24
<PAGE>
Navy I Partnership
(Stand-alone)(a)
<TABLE>
<CAPTION>
Pro Forma
Year Ended December 31, Year Ended
------------------------------------------------- December 31,
1994 1995 1996 1997 1998 1998(c)
(In thousands, except ratio data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Energy revenues........ $ 87,223 $ 92,797 $103,940 $ 86,586(b) $39,580(b) $39,580
Capacity revenues(f)... 14,258 14,266 14,266 13,845 13,573 13,573
Interest and other
income................ 2,529 2,893 3,286 1,980 585 585
-------- -------- -------- -------- ------- -------
Total revenues....... 104,020 109,956 121,492 102,411 53,738 53,738
Operating expenses..... 36,512 37,145 36,147 33,992 31,894 29,835
-------- -------- -------- -------- ------- -------
Operating income....... $ 67,508 $ 72,811 $ 85,345 $ 68,419 $21,844 $23,903
======== ======== ======== ======== ======= =======
Additional Financial
Data:
Net cash flows from
operating
activities............ $ 74,516 $ 70,192 $ 83,779 $ 88,540 $32,163
Net cash flows from
investing
activities............ (14,954) (7,922) (3,149) 17,948 (7,728)
Net cash flows from
financing
activities............ (23,499) (55,846) (109,999) (119,324) (27,323)
Ratio of earnings to
fixed charges(g)...... 5.2x 6.4x 9.6x 10.9x 5.0x 1.8x
EBITDA before
cumulative effect of
accounting
change(h)............. $ 79,617 $ 85,581 $ 98,670 $ 81,233 $33,616 $35,259
Capital expenditures... 14,417 6,965 2,294 4,589 6,683 6,683
-------- -------- -------- -------- ------- -------
EBITDA before
cumulative effect of
accounting change
less capital
expenditures.......... $ 65,200 $ 78,616 $ 96,376 $ 76,644 $26,933 $28,576
======== ======== ======== ======== ======= =======
Ratio of EBITDA before
cumulative effect of
accounting change to
fixed charges(i)...... 6.1x 7.5x 11.1x 13.0x 7.8x 2.6x
Ratio of EBITDA before
cumulative effect of
accounting change
less capital
expenditures to fixed
charges(i)............ 5.0x 6.9x 10.9x 12.2x 6.2x 2.1x
Operating Data:
Operating capacity
factor(j)(k).......... 114.0% 112.1% 112.1% 103.2% 94.6%
kWh produced........... 799,200 785,400 787,688 723,116 662,560
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
---------------------------------
Two Months One Month Pro Forma
Three Months Ended Ended Three Months
Ended February 28, March 31, Ended
March 31, 1999 1999 March 31,
1998 (prior basis) (new basis)(d) Total 1999(e)
(In thousands, except ratio data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Energy revenues........ $ 9,993 $ 8,098 $4,399 $12,497 $12,497
Capacity revenues(f)... 813 474 237 711 711
Interest and other
income................ 136 824 827 1,651 1,651
------- ------- ------ ------- -------
Total revenues....... 10,942 9,396 5,463 14,859 14,859
Operating expenses..... 7,423 5,716 2,692 8,408 8,079
------- ------- ------ ------- -------
Operating income....... $ 3,519 $ 3,680 $2,771 $ 6,451 $ 6,780
======= ======= ====== ======= =======
Additional Financial
Data:
Net cash flows from
operating
activities............ $ 7,804 $ 6,592 $2,665 $9,257
Net cash flows from
investing
activities............ (24) (538) (397) (935)
Net cash flows from
financing
activities............ (108) (1,926) -- (1,926)
Ratio of earnings to
fixed charges(g)...... 3.1x 5.6x 1.7x(p) 2.8x 2.0x
EBITDA(h).............. $ 6,476 $ 5,284 $3,554 $ 8,838 $ 9,112
Capital expenditures... 24 538 271 809 809
------- ------- ------ ------- -------
EBITDA less capital
expenditures.......... $ 6,452 $ 4,746 $3,283 $ 8,029 $ 8,303
======= ======= ====== ======= =======
Ratio of EBITDA to
fixed charges(i)...... 5.8x 8.0x 2.2x 3.9x 2.7x
Ratio of EBITDA less
capital expenditures
to fixed charges(i)... 5.7x 7.2x 2.0x 3.5x 2.4x
Operating Data:
Operating capacity
factor(j)(k).......... 83.0% 73.4% 77.4% 75.4%
kWh produced........... 143,400 83,100 46,041 129,141
</TABLE>
See Footnotes to Summary Selected Historical and Pro Forma Financial and
Operating Data
25
<PAGE>
BLM Partnership
(Stand-alone)
<TABLE>
<CAPTION>
Pro Forma
Year Ended December 31, Year Ended
------------------------------------------------ Dec 31,
1994 1995 1996 1997 1998 1998(c)
(In thousands, except ratio data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Energy revenues........ $ 76,134 $ 86,596 $ 87,985 $ 88,929 $ 93,352 $ 93,352
Capacity revenues(f)... 13,929 13,938 13,938 13,939 13,847 13,847
Interest and other
income................ 2,509 2,644 2,520 1,712 1,181 1,181
-------- -------- -------- -------- -------- --------
Total revenues....... 92,572 103,178 104,443 104,580 108,380 108,380
Operating expenses..... 41,289 40,418 40,017 43,193 44,687 40,654
-------- -------- -------- -------- -------- --------
Operating income....... $ 51,283 $ 62,760 $ 64,426 $ 61,387 $ 63,693 $ 67,726
======== ======== ======== ======== ======== ========
Additional Financial
Data:
Net cash flows from
operating
activities............ $ 60,603 $ 63,426 $ 64,335 $ 60,948 $ 75,520
Net cash flows from
investing
activities............ (17,916) (8,480) (5,798) 19,280 (20,302)
Net cash flows from
financing
activities............ (21,194) (46,311) (85,590) (92,521) (56,091)
Ratio of earnings to
fixed charges(g)...... 3.2x 4.2x 4.9x 6.7x 10.2x 6.9x
EBITDA before
cumulative effect of
accounting
change(h)............. $ 63,575 $ 75,930 $ 78,357 $ 75,644 $ 78,001 $ 80,383
Capital expenditures
(reimbursements)...... 17,437 8,425 6,033 3,728 20,302 20,302
-------- -------- -------- -------- -------- --------
EBITDA before
cumulative effect of
accounting change
less capital
expenditures.......... $ 46,138 $ 67,505 $ 72,324 $ 71,916 $ 57,699 $ 60,081
======== ======== ======== ======== ======== ========
Ratio of EBITDA before
cumulative effect of
accounting change to
fixed charges(i)...... 4.0x 5.0x 6.0x 8.3x 12.4x 8.2x
Ratio of EBITDA before
cumulative effect of
accounting change
less capital
expenditures to fixed
charges(i)............ 2.9x 4.5x 5.5x 7.9x 9.2x 6.1x
Operating Data:
Operating capacity
factor(j)(k).......... 99.5% 107.5% 107.9% 99.6% 104.4%
kWh produced........... 697,000 753,200 758,115 697,794 731,767
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
------------------------------------
Two Months One Month Pro Forma
Three Months Ended Ended March Three Months
Ended February 28, 31, Ended
March 31, 1999 1999 March 31,
1998 (prior basis) (new basis)(d) Total 1999(e)
(In thousands, except ratio data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Energy revenues........ $21,592 $16,716 $3,434 $20,150 $20,150
Capacity revenues(f)... 1,136 817 410 1,227 1,227
Interest and other
income................ 217 78 118 196 196
------- ------- ------ ------- -------
Total revenues....... 22,945 17,611 3,962 21,573 21,573
Operating expenses..... 11,242 8,181 3,126 11,307 10,643
------- ------- ------ ------- -------
Operating income....... $11,703 $ 9,430 $ 836 $10,266 $10,930
======= ======= ====== ======= =======
Additional Financial
Data:
Net cash flows from
operating
activities............ $18,478 $10,367 $6,595 $16,962
Net cash flows from
investing
activities............ (3,556) 120 (294) (174)
Net cash flows from
financing
activities............ (413) 425 (198) 227
Ratio of earnings to
fixed charges(g)...... 6.6x 15.3x 0.7x(p) 5.6x 4.5x
EBITDA(h).............. $15,327 $11,980 $2,011 $13,991 $14,388
Capital expenditures
(reimbursements)...... 3,556 (120) 311 191 191
------- ------- ------ ------- -------
EBITDA less capital
expenditures.......... $11,771 $12,100 $1,700 $13,800 $14,197
======= ======= ====== ======= =======
Ratio of EBITDA to
fixed charges(i)...... 8.6x 19.4x 1.6x 7.6x 5.9x
Ratio of EBITDA less
capital expenditures
to fixed charges(i)... 6.6x 19.6x 1.4x 7.5x 5.8x
Operating Data:
Operating capacity
factor(j)(k).......... 98.0% 109.8% 112.0% 110.9%
kWh produced........... 169,400 124,400 66,656 191,056
</TABLE>
See Footnotes to Summary Selected Historical and Pro Forma Financial and
Operating Data
26
<PAGE>
Navy II Partnership
(Stand-alone)
<TABLE>
<CAPTION>
Pro Forma
Year Ended December 31, Year Ended
------------------------------------------------- Dec. 31,
1994 1995 1996 1997 1998 1998(c)
(In thousands, except ratio data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Energy revenues........ $ 81,210 $ 94,372 $101,108 $ 98,778 $105,546 $105,546
Capacity revenues(f)... 14,008 14,018 14,018 14,018 14,018 14,018
Interest and other
income................ 3,072 3,040 3,174 2,187 1,799 1,799
-------- -------- -------- --------- -------- --------
Total revenues....... 98,290 111,430 118,300 114,983 121,363 121,363
Operating expenses..... 31,620 39,168 37,911 37,749 41,120 38,940
-------- -------- -------- --------- -------- --------
Operating income....... $ 66,670 $ 72,262 $ 80,389 $ 77,234 $ 80,243 $ 82,423
======== ======== ======== ========= ======== ========
Additional Financial
Data:
Net cash flows from
operating
activities............ $ 68,432 $ 70,158 $ 74,611 $ 80,660 $ 84,762
Net cash flows from
investing
activities............ (15,091) (6,437) (3,883) 14,399 (6,939)
Net cash flows from
financing
activities............ (29,219) (60,843) (97,316) (112,044) (78,153)
Ratio of earnings to
fixed charges(g)...... 4.5x 5.2x 6.6x 7.3x 9.9x 6.3x
EBITDA before
cumulative effect of
accounting
change(h)............. $ 78,470 $ 85,110 $ 93,443 $ 90,588 $ 93,987 $ 95,937
Capital expenditures... 18,894 6,367 4,333 7,992 6,939 6,939
-------- -------- -------- --------- -------- --------
EBITDA before
cumulative effect of
accounting change
less capital
expenditures.......... $ 59,576 $ 78,743 $ 89,110 $ 82,596 $ 87,048 $ 88,998
======== ======== ======== ========= ======== ========
Ratio of EBITDA before
cumulative effect of
accounting change to
fixed charges(i)...... 5.3x 6.1x 7.7x 8.6x 11.6x 7.3x
Ratio of EBITDA before
cumulative effect of
accounting change
less capital
expenditures to fixed
charges(i)............ 4.0x 5.7x 7.3x 7.8x 10.7x 6.8x
Operating Data:
Operating capacity
factor(j)............. 105.9% 111.3% 110.6% 108.9% 108.6%
kWh produced........... 742,400 779,800 777,243 762,821 760,659
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
------------------------------------ Pro Forma
Three Two Months Three
Months Ended One Month Months
Ended February 28, Ended March Ended
March 31, 1999 31, 1999 March 31,
1998 (prior basis) (new basis)(d) Total 1999(e)
(In thousands, except ratio data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Energy revenues........ $25,415 $16,687 $6,716 $23,403 $23,403
Capacity revenues(f)... 1,234 822 412 1,234 1,234
Interest and other
income................ 319 150 156 306 306
------- ------- ------ ------- -------
Total revenues....... 26,968 17,659 7,284 24,943 24,943
Operating expenses..... 10,629 7,340 3,545 10,885 10,560
------- ------- ------ ------- -------
Operating income....... $16,339 $10,319 $3,739 $14,058 $14,383
======= ======= ====== ======= =======
Additional Financial
Data:
Net cash flows from
operating
activities............ $19,352 $12,016 $6,265 $18,281
Net cash flows from
investing
activities............ (808) (1,126) (218) (1,344)
Net cash flows from
financing
activities............ 273 1,766 518 2,284
Ratio of earnings to
fixed charges(g)...... 7.3x 10.8x 2.1x(p) 5.1x 4.4x
EBITDA(h).............. $19,832 $12,658 $4,927 $17,585 $17,910
Capital expenditures... 808 1,126 191 1,317 1,317
------- ------- ------ ------- -------
EBITDA less capital
expenditures.......... $19,024 $11,532 $4,736 $16,268 $16,593
======= ======= ====== ======= =======
Ratio of EBITDA to
fixed charges(i)...... 8.9x 13.3x 2.7x 6.4x 5.5x
Ratio of EBITDA less
capital expenditures
to fixed charges(i)... 8.5x 12.1x 2.6x 5.9x 5.1x
Operating Data:
Operating capacity
factor(j)............. 109.9% 112.7% 112.6% 112.7%
kWh produced........... 190,800 127,700 67,018 194,718
</TABLE>
See Footnotes to Summary Selected Historical and Pro Forma Financial and
Operating Data
27
<PAGE>
The Coso Partnerships
(Combined)(l)
<TABLE>
<CAPTION>
Pro Forma
Three
Pro Forma Months
Year Ended Ended
Dec. 31, March 31,
1998(c) 1999(e)
(In thousands,
except ratio data)
<S> <C> <C>
Statement of Operations Data:
Energy revenues.......................................... $238,478 $56,050
Capacity revenues(f)..................................... 41,438 3,172
Interest and other income................................ 3,565 2,153
-------- -------
Total revenues......................................... 283,481 61,375
Operating expenses....................................... 109,429 29,282
-------- -------
Operating income......................................... $174,052 $32,093
======== =======
Additional Financial Data:
Ratio of earnings to fixed charges(g).................... 4.8x 3.5x
EBITDA before cumulative effect of accounting
change(h)............................................... $211,579 $41,410
Capital expenditures..................................... 33,924 2,317
-------- -------
EBITDA before cumulative effect of accounting change
less capital expenditures............................... $177,655 $39,093
======== =======
Ratio of EBITDA before cumulative effect of accounting
change to fixed charges(i).............................. 5.8x 4.5x
Ratio of EBITDA before cumulative effect of accounting
change less capital expenditures to fixed charges(i).... 4.9x 4.3x
</TABLE>
See Footnotes to Summary Selected Historical and Pro Forma Financial and
Operating Data
28
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
As of December 31, As of As of As of
-------------------------------------------- March 31, March 31, March 31,
1994 1995 1996 1997 1998 1998 1999 1999(m)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Navy I Partnership (stand-alone)(a)
Cash.................. $ 38,669 $ 45,093 $ 15,724 $ 2,888 $ -- $ 10,560 $ 6,397 $ --
Restricted cash and
investments.......... 27,204 28,161 29,016 6,479 7,524 6,731 7,808 26,155
Property, plant and
equipment, net....... 211,453 205,648 194,617 186,392 180,380 183,459 158,367 158,367
Power purchase
agreement, net....... -- -- -- -- -- -- 14,573 14,573
Total assets.......... 298,684 301,436 264,209 209,390 201,888 213,639 198,326 212,442
Project loans:
Existing project
debt, payable to
Coso Funding
Corp. .............. $154,432 $127,340 $ 76,056 $ 45,666 $ 40,566 $ 45,666 $ 40,566 $ --
Project notes(n)..... -- -- -- -- -- -- -- 151,550
Acquisition debt(o)... -- -- -- -- -- -- 77,610 --
Partners' capital..... 131,880 164,581 167,834 155,568 149,933 158,618 66,763 49,043
-------- -------- -------- -------- -------- -------- -------- --------
Total capitalization.. $286,312 $291,921 $243,890 $201,234 $190,499 $204,284 $184,939 $200,593
======== ======== ======== ======== ======== ======== ======== ========
BLM Partnership (stand-
alone)
Cash.................. $ 31,584 $ 40,219 $ 13,166 $ 873 $ -- $ 15,382 $ 17,015 $ --
Restricted cash and
investments.......... 23,478 23,533 23,298 290 290 290 247 13,310
Property, plant and
equipment, net....... 220,881 216,136 208,238 197,709 201,600 197,641 163,269 163,269
Power purchase
agreement, net....... -- -- -- -- -- -- 20,498 20,498
Total assets.......... 298,893 305,106 269,318 224,912 228,087 236,843 223,739 221,330
Project loans:
Existing project
debt, payable to
Coso Funding
Corp. .............. $155,661 $137,748 $105,990 $ 76,654 $ 37,958 $ 76,654 $ 37,958 $ --
Project notes(n)..... -- -- -- -- -- -- -- 107,900
Acquisition debt(o)... -- -- -- -- -- -- 55,256 --
Partners' capital..... 100,261 119,560 112,666 124,113 163,191 134,686 105,606 89,800
-------- -------- -------- -------- -------- -------- -------- --------
Total capitalization.. $255,922 $257,308 $218,656 $200,767 $201,149 $211,340 $198,820 $197,700
======== ======== ======== ======== ======== ======== ======== ========
Navy II Partnership (stand-alone)
Cash.................. $ 41,843 $ 44,721 $ 18,133 $ 1,148 $ 818 $ 19,965 $ 20,039 $ --
Restricted cash and
investments.......... 22,771 22,841 22,391 -- -- -- -- 18,590
Property, plant and
equipment, net....... 219,047 212,566 203,845 198,483 188,862 195,798 149,380 149,380
Power purchase
agreement, net....... -- -- -- -- -- -- 29,656 29,656
Total assets.......... 309,212 307,537 270,522 226,949 218,965 243,895 230,653 231,400
Project loans:
Existing project
debt, payable to
Coso Funding
Corp. .............. $173,413 $156,043 $124,361 $ 97,267 $ 61,323 $ 97,267 $ 61,323 $ --
Project notes(n)..... -- -- -- -- -- -- -- 153,550
Acquisition debt(o)... -- -- -- -- -- -- 78,634 --
Partners' capital..... 125,161 140,082 126,092 125,413 153,661 140,172 82,392 71,527
-------- -------- -------- -------- -------- -------- -------- --------
Total capitalization.. $298,574 $296,125 $250,453 $222,680 $214,984 $237,439 $222,349 $225,077
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See Footnotes to Summary Selected Historical and Pro Forma Financial and
Operating Data
29
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
As of
March 31,
1999(m)
(In thousands)
<S> <C>
Balance Sheet Data:
The Coso partnerships (combined)(l)
Cash.......................................................... $ --
Restricted cash............................................... 58,055
Property, plant and equipment, net............................ 471,016
Power purchase agreement, net................................. 64,727
Total assets.................................................. 665,172
Project loans:
Existing project debt, payable to Coso Funding Corp. ........ $ --
Project notes(n)............................................. 413,000
Acquisition debt(o)........................................... --
Partners' capital............................................. 210,370
--------
Total capitalization.......................................... $623,370
========
</TABLE>
See Footnotes to Summary Selected Historical and Pro Forma Financial and
Operating Data
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Footnotes to Summary Selected Historical and Pro Forma Financial and Operating
Data
(a) Reflects the combined financial results of the Navy I partnership and Coso
Finance Partners II, a California general partnership ("CFP II"). The Navy
I partnership and CFP II were first formed as separate entities to
facilitate the initial bank financing for the construction and development
of Navy I. Initially, the Navy I partnership acquired all of the assets
relating to the first turbine generator unit at Navy I and CFP II acquired
all of the assets of Navy I relating to the second and third generator
units at Navy I. In 1988, CFP II assigned all of its rights and interests
in the second and third generator units at Navy I to the Navy I partnership
in return for a 5.0% royalty to be paid based on the Navy I partnership's
steam production. Since the Navy I partnership and CFP II operate under
common ownership and management control, the historical financial
statements of the entities have been combined after elimination of
intercompany amounts related to the royalty arrangement. At the closing of
the Series A notes offering, CFP II merged with and into the Navy I
partnership and the accrued royalty was extinguished. In addition, the
royalty will no longer accrue from and after the Series A notes offering.
See Note 1 to Notes to Combining and Combined Financial Statements of Coso
Finance Partners and Coso Finance Partners II.
(b) The decrease in energy revenues is due to the fact that Edison paid the
Navy I partnership energy payments based on Edison's position that the
fixed energy price period expired for the Navy I partnership in August
1997. Edison has also taken the position that the fixed energy price period
for the BLM partnership expired in March 1999 and will expire for the Navy
II partnership in January 2000. The Coso partnerships believe that under
the power purchase agreements each of the three turbine generator units at
each Coso project has its own ten-year fixed energy price period. This
issue is one of several currently in dispute and subject to an ongoing
lawsuit between, among others, the Coso partnerships and Edison. You should
read "Business--Legal Proceedings" for more information regarding this
issue and the lawsuit.
(c) Pro forma financial information is based upon the historical financial
statements of each of the Coso partnerships on a stand-alone basis or the
Coso partnerships on a combined basis, as the case may be, for the year
ended December 31, 1998, adjusted for (1) a reduction in O&M and management
committee fees, (2) a net reduction in depreciation and amortization
expenses relating to Caithness Acquisition's purchase of all of CalEnergy's
interests in the Coso projects and (3) an increase in interest expense
relating to the offering, as if such transactions had occurred on January
1, 1998. See "Unaudited Pro Forma Financial Data."
(d) After Caithness Acquisition's purchase of all of CalEnergy's interests in
the Coso projects, the Coso partnerships adopted a new basis of accounting.
The purchase price was allocated to the portion of the assets and
liabilities purchased from CalEnergy based on their fair values, with the
amount of fair value of net assets in excess of the purchase price being
allocated to long-lived assets on a pro-rata basis.
(e) Pro forma financial information is based upon the historical financial
statements of each of the Coso partnerships on a stand-alone basis or the
Coso partnerships on a combined basis, as the case may be, for the three
months ended March 31, 1999, adjusted for (1) a reduction in O&M and
management committee fees, (2) a net reduction in depreciation and
amortization expenses relating to Caithness Acquisition's purchase of all
of CalEnergy's interests in the Coso projects and (3) an increase in
interest expense relating to the offering, as if such transactions had
occurred on January 1, 1999. See "Unaudited Pro Forma Financial Data."
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(f) Includes capacity payments and capacity bonus payments paid to the
applicable Coso partnership under its power purchase agreement.
(g) For purposes of computing the ratio of earnings to fixed charges, fixed
charges consist of interest expense and amortization of debt issuance
costs. Earnings used in computing the ratio of earnings to fixed charges
consist of net income plus fixed charges.
(h) EBITDA is defined as earnings before interest expense, depreciation and
amortization and the cumulative effect of the accounting change for start-
up costs (for the year ended December 31, 1998 only). The Coso partnerships
are general partnerships and therefore do not pay income taxes. We believe
that EBITDA provides useful information regarding the Coso partnerships'
ability to service its indebtedness, but it should not be considered in
isolation or as a substitute for operating income or cash flow from
operations (in each case as determined in accordance with GAAP), as an
indicator of the Coso partnerships' operating performance or as a measure
of the Coso partnerships' liquidity. Other companies may calculate EBITDA
in a different manner than the Coso partnerships. EBITDA does not take into
consideration substantial costs and cash flows of doing business, such as
interest expense, depreciation, and amortization. EBITDA does not represent
funds available for discretionary use by the Coso partnerships because
those funds are required for debt service, capital expenditures to replace
fixed assets, working capital and other commitments and contingencies.
EBITDA is not an accounting term.
(i) For purposes of computing the ratio of EBITDA before cumulative effect of
accounting change to fixed charges and EBITDA before cumulative effect of
accounting change less capital expenditures to fixed charges, fixed charges
consist of interest expense and amortization of debt issuance costs. We
believe that these ratios provide useful information regarding the Coso
partnerships' ability to service its indebtedness, but they should not be
considered in isolation or as a substitute for operating income or cash
flow from operations (in each case as determined in accordance with GAAP)
or the ratio of earnings to fixed charges, as an indicator of the Coso
partnerships' operating performance or as a measure of the Coso
partnerships' liquidity. Other companies may calculate these ratios in a
different manner than the Coso partnerships. These ratios are not
accounting terms.
(j) Based on a generating capacity of 80 MW.
(k) The reduction in the operating capacity factor for the Navy I partnership
and the increase in the operating capacity factor for the BLM partnership
is due to the transfer of steam from the Navy I partnership to the BLM
partnership and the Navy II partnership under the steam sharing program.
See "Business--Steam Sharing Program" and "Summary Descriptions of
Principal Agreements Relating to the Coso Projects--Steam Exchange and
Cotenancy Agreements."
(l) Reflects the mathematical summation of pro forma financial information of
the Coso partnerships on a combined basis as of and for the year ended
December 31, 1998, and as of and for the three months ended March 31, 1999.
These combined amounts are unaudited. The combined presentation does not
necessarily reflect the financial condition or results of operations that
would have occurred had the Coso partnerships constituted a single entity
as of or during the same period. Because the Coso partnerships are under
common management and have jointly and severally guaranteed all of our
obligations under the Indenture and the senior secured notes, such
guarantees being secured by (1) a perfected, first priority lien on
substantially all of the assets of the Coso partnerships and (2) a
perfected, first priority pledge of all of the ownership interests in the
Coso partnerships, the combined financial information of the Coso
partnerships has been presented.
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(m) Reflects (1) the completion of the Series A notes offering and the
application of the proceeds therefrom and (2) certain related adjustments,
as if such transactions had occurred on March 31, 1999. See "Unaudited Pro
Forma Financial Data."
(n) Reflects indebtedness owed to us. We loaned all of the proceeds from the
offering to the Coso partnerships at interest rates and maturities
identical to the interest rates and maturities of the senior secured notes.
(o) In order to complete the purchase, Caithness Acquisition arranged for
short-term debt financing in the principal amount of approximately $211.5
million. Caithness Acquisition used a portion of the proceeds from the
Series A notes offering that it received from the Coso partnerships,
together with funds from other sources, to repay all amounts owed under
this short-term debt facility. As a result of "push down" accounting, a
portion of this short-term debt has been reflected in the financial
statements of each Coso partnerships on a stand-alone basis, and the entire
amount of this short-term debt has been reflected in the combined financial
statements of the Coso partnerships.
(p) The decrease in the ratio of earnings to fixed charges for the one month
ended March 31, 1999 is primarily due to the amortization of debt issuance
costs of approximately $2.0 million, $1.4 million and $2.0 million for the
Navy I partnership, BLM partnership and Navy II partnership, respectively,
related to the short-term debt financing associated with Caithness
Acquisition's purchase of CalEnergy's interests in the Coso projects over
the three-month estimated life of the short-term debt.
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<PAGE>
RISK FACTORS
In addition to the other information set forth in this prospectus, you
should carefully consider the risks described below before deciding to tender
your Series A notes in the exchange offer. These risks are not the only ones
facing the Coso partnerships and us. Additional risks not presently known to
us or that we deem immaterial may also impair the Coso partnerships'
operations and our ability to make payments to you under the Series B notes.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our and the Coso partnerships' actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including the risks faced by the Coso partnerships
and us described below and elsewhere in this prospectus. You should read
"Forward-Looking Statements" for more information regarding these forward-
looking statements.
Your failure to exchange your Series A notes for Series B notes could have
adverse consequences to you.
The Series A notes were not registered under the Securities Act or under the
securities laws of any state and may not be resold, offered for resale or
otherwise transferred unless they are subsequently registered or resold
pursuant to an exemption from the registration requirements of the Securities
Act and applicable state securities laws. If you do not exchange your
unregistered Series A notes for registered Series B notes pursuant to the
exchange offer, you will not be able to resell, offer to resell or otherwise
transfer the Series A notes unless they are registered under the Securities
Act or unless you resell them, offer to resell or otherwise transfer them
under an exemption from the registration requirements of, or in a transaction
not subject to, the Securities Act. In addition, we and the Coso partnerships
will not be obligated to register the Series A notes under the Securities Act
after the Exchange Offer except in the limited circumstances provided under
the registration rights agreement. In addition, to the extent that Series A
notes are tendered for exchange and accepted in the exchange offer, the market
for the untendered and tendered but unaccepted Series A notes could be
materially and adversely affected.
Your recourse if a default occurs will be limited to the assets and cash flow
of the Coso projects.
We are a special purpose company formed for the purpose of issuing the
senior secured notes for ourselves and on behalf of the Coso partnerships. At
the closing of the Series A notes offering, we loaned all of the proceeds from
the offering to the Coso partnerships. We do not conduct any business, other
than issuing the senior secured notes and making the loans to the Coso
partnerships. Our ability to make payments to you under the Series B notes
will be entirely dependent on the performance of the Coso partnerships under
their project notes. As is common in non-recourse, project finance structures,
the assets and cash flow of the Coso partnerships are the sole source of
payment under their project notes and guarantees.
The Coso partnerships own no significant assets other than those related to
the ownership and operation of the Coso projects. If a Coso partnership
defaults under its project note, credit agreement or guarantee, our remedies
under the Coso partnerships' project notes, credit agreements and guarantees,
including foreclosure of that Coso partnership's assets, may not provide
sufficient funds to pay that Coso partnership's, or any other Coso
partnership's, obligations under its project notes, credit agreements and
guarantees. None of our shareholders, partners or affiliates (other than the
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<PAGE>
Coso partnerships), none of the partners or affiliates of the Coso partnerships
(other than the partners of the Coso partnerships solely with respect to their
ownership interests in the Coso partnerships) and none of our, Caithness
Energy's or the Coso partnerships' directors, officers or employees will
guarantee or be in any way liable for payment of the Series B notes, the
project notes or the guarantees. See "Description of Series B Notes--Brief
Description of the Series B Notes and Guarantees."
Our ability to make payments to you under the Series B notes will depend
entirely on the successful operation of the Coso projects.
Our ability to make payments of principal, premium, if any, and interest on
the Series B notes depends entirely on our receipt of payments from the Coso
partnerships under their project notes and guarantees, and their ability to
make payments under their project notes and guarantees depends entirely on the
successful operation of the Coso projects. If one or more Coso partnerships
cannot make payments under their project notes and guarantees, we might not
have sufficient funds to pay you.
Operating the Coso projects involves, among other things, general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control. Changes in these factors could make it more expensive for
the Coso partnerships to operate the Coso projects, could require additional
capital expenditures or could reduce certain benefits currently available to
the Coso partnerships. A variety of other risks affect the Coso projects, some
of which are beyond our control, including:
. One or more of the Coso projects could perform below expected levels of
output or efficiency;
. The Coso geothermal resource could be interrupted or unavailable;
. Operating costs could increase;
. Energy prices paid by Edison could decrease;
. Delivery of electrical energy to Edison could be disrupted;
. Environmental problems could arise which could lead to fines or a
shutdown of one or more plants;
. Plant units and equipment have broken down or failed in the past and
could break down or fail in the future;
. The operators of the Coso projects could suffer labor disputes;
. The government could change permit or governmental approval requirements;
. Third parties could fail to perform their contractual obligations to the
Coso partnerships; and
. Catastrophic events, such as fires, earthquakes, explosions, floods,
severe storms or other occurrences, could affect one or more of the Coso
projects or Edison.
No one can assure you that none of these events will happen. For some
information regarding the recent shutdown of Unit 1 at Navy I resulting from
equipment failure, see "Business--Overview of Coso Projects--Plants--Navy I."
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<PAGE>
Further, no one can assure you that the Coso partnerships' operations will
generate sufficient cash, that currently anticipated cost savings or capital or
other operating improvements will be realized on schedule or that the Coso
partnerships will be successfully operated in the future to enable the Coso
partnerships to make payments under their project notes and guarantees. In
addition, no one can assure you that the Coso partnerships' financial condition
or results of operations in the future will match those of the past.
In addition, the Coso partnerships must meet specified performance
requirements under their power purchase agreements during the months of June
through September to continue to qualify for the maximum capacity and capacity
bonus payments. If one or more of the events listed above occur and
substantially affect the performance of one or more of the plants during these
months, operating revenues would significantly decrease. If operating revenues
decrease, one or more of the Coso partnerships may not be able to make payments
under their project notes and guarantees. This would impair our ability to make
payments to you under the Series B notes.
Future energy payments paid by Edison to the Coso partnerships will most likely
be less than historical energy payments because they will be paid based on
Edison's avoided cost of energy.
The Coso partnerships sell 100% of the electrical energy generated at the
plants to Edison under the power purchase agreements. For more information
regarding the power purchase agreements, see "Summary Descriptions of Principal
Agreements Relating to the Coso Projects--Power Purchase Agreements."
Under the power purchase agreements, Edison must pay to the Coso partnerships
capacity payments which are fixed throughout the lives of these agreements.
Edison must also pay capacity bonus payments under the power purchase
agreements. The maximum annual capacity bonus payment available is also fixed
throughout the lives of the power purchase agreements. Edison must also pay to
the Coso partnerships energy payments which are fixed for only the first ten
years of the terms of the power purchase agreements. Thereafter, energy
payments will depend on Edison's avoided cost of energy, as determined under
certain legislation being implemented by the California Public Utilities
Commission. Edison has taken the position that the fixed energy price period
expired in August 1997 for the Navy I partnership and in March 1999 for the BLM
partnership, and will expire in January 2000 for the Navy II partnership. See
"--The Coso partnerships and their managing partners are currently involved in
material litigation with Edison, their sole customer" and "Business--Legal
Proceedings."
Edison has made energy payments to the Navy I partnership since the end of
August 1997 based upon Edison's avoided cost of energy. For the year ended
December 31, 1998, Edison's average avoided cost of energy paid to the Navy I
partnership was 3.0c per kWh, which is substantially below the fixed energy
prices earned by the Navy I partnership prior to August 1997 and by the BLM
partnership and the Navy II partnership in 1998. The BLM partnership is now
receiving energy payments based on Edison's avoided cost of energy and will
likely receive energy payments in the future which are substantially less than
the fixed energy prices it earned in 1998. We also expect that, after the Navy
II partnership's fixed energy price period expires, Edison's avoided cost of
energy payable to the Navy II partnership will be substantially below the fixed
energy prices currently being paid by Edison to the Navy II partnership under
its power purchase agreement. You should read "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for more information
regarding energy payments received by the Coso partnerships.
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<PAGE>
Although Edison pays the Navy I partnership and the BLM partnership energy
payments based on 100% of its currently published avoided cost of energy, as
determined by a methodology approved by, and subject to change by, the
California Public Utilities Commission (currently based on a formula tied to
the price of natural gas), this will change within the next two to three years.
Under AB1890, the comprehensive restructuring legislation enacted in California
in September 1996, the California Public Utilities Commission is required to
calculate short-term avoided cost of energy for payments made to non-utility
power generators, such as the Coso partnerships, based on the clearing price
paid by the California Power Exchange when certain conditions are met. These
conditions include that (1) the California Public Utilities Commission has
issued an order determining that the California Power Exchange is "functioning
properly" and (2) either:
(a) the fossil-fired generation units owned by the purchasing utility
(such as Edison) are authorized to charge market-based rates and
the variable costs of such units are being recovered solely through
clearing prices being paid by the California Power Exchange or from
contracts with the independent system operator discussed under "--
The operations of the Coso projects could be adversely affected by
an inability to comply with regulatory standards--Changes in
California Electric Market"; or
(b) the purchasing utility has divested ninety percent of its gas-fired
generation facilities that were operated to meet load in 1994 and
1995.
For more information regarding the California Power Exchange, you should read
"--The operations of the Coso projects could be adversely affected by an
inability to comply with regulatory standards--Changes in California Electric
Market" and "Business--Power Sales--Energy Payments." Divestiture of such gas-
fired generation facilities by Edison and the other two large California
utilities is expected to be complete by the end of 1999.
It is likely that within the next two years, pursuant to AB1890, Edison's
short-term avoided cost of energy will equal the then-prevailing market
clearing price for wholesale energy at the California Power Exchange. Whether
this pricing will be on an hourly basis, a daily or block average basis
(i.e., a daily average, daily off-peak or daily on-peak time period averages)
or some other variation has not been determined. The market clearing prices for
wholesale energy on the California Power Exchange have occasionally for brief
periods exceeded current energy prices paid by Edison under the power purchase
agreements based on its short-term avoided cost of energy. This has occurred
most often during high load conditions, warm weather and other daily or
seasonal peak periods. At other times, the market clearing prices have been
lower than Edison's short-term avoided cost of energy. No one can predict the
outcome of the final implementation of this change in computing short-term
avoided cost of energy, or the performance of California Power Exchange
clearing prices over time. See "--The operations of the Coso projects could be
adversely affected by an inability to comply with regulatory standards--Changes
in California Electric Market."
In addition, under AB1890, the Navy I partnership has been eligible to
receive since 1998 subsidy payments for energy delivered by it to Edison. Going
forward, the Navy I partnership and the other Coso partnerships should at times
qualify to receive subsidy payments through 2001 for energy delivered to
Edison. Subsidy payments are made if Edison's avoided cost of energy falls
below 3.0c per kWh, subject to a maximum subsidy of 1.0c per kWh. No one can
assure you that the AB1890 fund will have funds sufficient to continue to make
their subsidy payments to the Coso partnerships through 2001. See "Business--
AB1890 Energy Subsidy Payments."
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The Navy could terminate the Coso partnerships' rights to use the Coso
geothermal resource at any time.
Under a Geothermal Power Development Service Contract with the United States
Government acting through the United States Navy (the "Navy"), the Navy I
partnership and the Navy II partnership have exclusive contractual rights to
explore, develop and use, currently without any known interference from any
other power developers, a portion of the Coso Known Geothermal Resource Area at
and around Navy I and Navy II. We call this contract the Navy Contract. The
Navy Contract expires in December 2009, the same month and year in which the
maturity date of the Series B notes due 2009 occurs.
The Navy has the right to terminate the Navy Contract at any time for reasons
of national security, national defense preparedness or national emergency, or
for any other reasons that are in the best interests of the United States
Government. If the Navy were to terminate the Navy Contract, the United States
Government would be obligated to pay the Navy I partnership a maximum amount of
approximately $165.0 million and the Navy II partnership a maximum amount of
approximately $187.5 million, or a maximum aggregate amount of approximately
$352.5 million, to compensate it or them for the unamortized portion of their
exploratory investment and for the investment in their installed power plant
facilities. Such payment would not take into consideration the loss of
anticipated future profits resulting from such termination and may be
insufficient to enable the Coso partnerships to repay their project notes and
guarantees fully. This would materially adversely affect our ability to make
payments to you under the Series B notes. In addition, the Navy would not make
any payments to the BLM partnership, which might not be able to continue to
operate BLM and its facilities following such termination. For more
information, you should read "Summary Descriptions of Principal Agreements
Relating to the Coso Projects--The Navy Contract."
In addition to its right to terminate the Navy Contract, the Navy may, from
time to time, impose certain access and operational restrictions on all three
Coso partnerships for purposes of national security, personnel safety,
protection of property or protection of the environment, and under certain
circumstances may impose emissions standards. The Navy has periodically ordered
all personnel at the Coso projects to evacuate the plant sites and fields.
Evacuation periods have typically continued for three-to-four hours, although
the periods have continued for up to 12 hours. During such evacuation periods,
the plants must be operated via a remote station located at the outskirts of
the Navy base. This station currently utilizes rights of way obtained from the
Bureau of Land Management. These rights of way are still held by CalEnergy, and
CalEnergy has agreed to transfer them to the Coso partnerships once the consent
of the Bureau of Land Management has been obtained. No one can assure you that
this consent will be obtained. Periodic evacuations will likely recur in the
future. We cannot assure you that the Coso partnerships will always be able to
operate the plants from this remote station during evacuation periods. For more
information regarding this station, you should read "Summary Descriptions of
Principal Agreements Relating to the Coso Projects--The Navy Contract."
The Coso partnerships rely on certain contractual arrangements among them
relating to the transfer of steam among the Coso projects, which we call the
steam sharing agreement. Each of the Navy and the Bureau of Land Management has
reserved the right in its sole discretion to suspend or limit the transfer of
steam among the Coso projects under certain circumstances. See "Business--Steam
Sharing Program" and "Summary Description of Principal Agreements Relating to
the Coso Projects--Steam Sharing and Co-Tenancy Agreements."
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Our ability to repay the Series B notes will depend on unrelated third parties
fulfilling their commitments to the Coso partnerships.
The viability of the Coso projects, the Coso partnerships' ability to make
payments under their project notes and guarantees, and our ability to make
payments of principal, premium, if any, and interest on the Series B notes when
due, may be materially and adversely affected by the performance of third
parties whom we do not control under commercial agreements to which the Coso
partnerships are parties. These third parties include, among others:
. the Navy under the Navy Contract and the steam sharing agreement;
. the Bureau of Land Management under the BLM lease, the steam sharing
agreement and the leases on which BLM North is located, which we call the
LADWP leases;
. FPL Operating under its O&M agreements; and
. Edison under the power purchase agreements.
We call these commercial agreements, together with the other documents and
agreements relating to the Coso projects, the project documents.
If any of these third parties:
. claim that there was a defect in proceedings with respect to the approval
of their project documents,
. claim that their project documents were not duly authorized by them,
. disavow their obligations under their project documents,
. fail to perform their contractual or other obligations, or
. are excused from performing their obligations because the Coso
partnerships have failed to perform theirs or because an event has
occurred outside of our or their control,
then the Coso partnerships may not be able to obtain alternate customers, goods
or services to cover these third parties' non-performance. In particular, if
Edison fails to fulfill its contractual obligations under any power purchase
agreement, it would have a material adverse effect on the Coso projects'
revenues and would materially and adversely affect the Coso partnerships'
ability to make payments under their project notes and guarantees. This would
materially and adversely affect our ability to make payments of principal,
premium, if any, and interest on the Series B notes when due.
The Coso partnerships depend on Edison's purchases of all electrical energy
generated by the plants for substantially all of their operating revenues. The
payments being made by Edison to the Navy II partnership for energy under its
power purchase agreement currently exceed Edison's actual avoided cost of
energy by a substantial margin. If this situation continues, or if Edison
experiences financial, regulatory or other pressures, Edison could try to amend
the Navy II partnership's power purchase agreement. Edison could also attempt,
as it has in the past, to terminate the power purchase agreements. The
provisions of the power purchase agreements do not permit Edison to amend or
terminate any of the agreements early without the consent of the applicable
Coso partnership, and the Indenture prohibits the Coso partnerships from giving
such consent if the effect on the holders of the senior secured notes would be
materially adverse. Nonetheless, it is possible that, upon a change in
applicable legislation, case law and/or regulations, a court or governmental
authority could order or allow such an amendment or termination of one or more
power purchase agreements. Such an
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amendment or termination would materially and adversely affect the revenues of
the affected Coso partnership or partnerships and consequently the cash flow
available to make payments under its or their project notes and guarantees.
This would materially and adversely affect our ability to make payments to you
under the Series B notes. It would probably also constitute an event of default
under the Indenture. See "--The Coso partnerships and their managing partners
are currently involved in material litigation with Edison, their sole customer"
and "Business--Legal Proceedings."
The Coso partnerships and their managing partners are currently involved in
material litigation with Edison, their sole customer.
The Coso partnerships, the Coso partnerships' managing partners and
CalEnergy, which we collectively refer to as the Coso Parties, are involved in
an ongoing lawsuit with Edison. Edison is the Coso partnerships' sole customer.
Edison asserts a number of breach of contract claims that relate to the alleged
surreptitious venting of certain non-condensable gases from unmonitored
reinjection wells located adjacent to the plants. The Coso Parties have filed a
cross-complaint against Edison asserting, among others, breach of contract
claims, violations of state law and of decisions of the California Public
Utilities Commission and that Edison's lawsuit is barred by a settlement
agreement entered into in 1993. In addition, the Coso partnerships have filed a
separate lawsuit against Edison seeking restitution and injunctive relief for
unfair competition and false advertising. You should read "Business--Legal
Proceedings" for a more thorough discussion of the issues and claims in this
lawsuit.
No one can predict at this time whether Edison will prevail on its claims
against any or all of the Coso Parties or whether any or all of the Coso
Parties will prevail on their claims against Edison, in part because pre-trial
discovery has not been completed and in part because of the complexity of the
factual and legal issues involved. While the parties to the lawsuits have
signed a stipulation agreeing to a moratorium on all ongoing activities in the
lawsuit to explore the possibility of a negotiated settlement, no one can
assure you that the parties will be able reach a settlement or, if they do,
what the terms of that settlement would be. The moratorium was originally set
to expire on May 30, 1999. By agreement of the parties, this moratorium has
been extended to September 30, 1999, and the parties have agreed to hold a
mediation session before a former California supreme court justice during the
week of September 7, 1999.
It is possible that the parties will be unable to reach a settlement and
Edison could recover significant damages in the lawsuit. Edison has not yet
provided the Coso Parties with any calculation or estimate of its alleged
damages, but the Coso Parties expect Edison to seek damages in an amount which
would be material to the financial condition and results of operations of the
Coso partnerships, either individually or taken as a whole.
Our substantial debt and our ability to incur additional debt in the future
could adversely affect our financial health and prevent us from satisfying our
obligations under the Series B notes.
We have now and, after this exchange offer, will continue to have a
significant amount of debt and interest expense. Assuming, as of March 31,
1999, the completion of the Series A notes offering and the Coso partnerships'
use of the proceeds of the Series A notes offering, the Coso partnerships'
total aggregate debt would have been $413.0 million and partners' aggregate
capital would have been $210.4 million. This would have resulted in a total
debt to total capitalization ratio of 0.66x as of March 31, 1999.
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Our substantial indebtedness could have important consequences to you. For
example, it could:
. make it more difficult for the Coso partnerships to make payments to
us under their project notes and for us to make payments to you under
the Series B notes;
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate; and
. limit, along with the financial and other restrictive covenants in
our debt documents, among other things, our ability to borrow
additional funds.
In addition, failure to comply with covenants in our debt documents could
result in an event of default which, if not cured or waived, could have a
material adverse effect on us.
In addition, we and the Coso partnerships will be able to incur additional
debt from time to time in the future. The terms of the Indenture do not fully
prohibit us or the Coso partnerships from doing so. If new debt is added to our
current debt levels, the related risks that we now face could intensify. See
"Capitalization" and "Selected Historical and Pro Forma Financial and Operating
Data."
Exploring and developing geothermal resources is inherently risky.
Geothermal exploration, development and operations are subject to
uncertainties which vary among different geothermal reservoirs and are similar
to those typically associated with oil and gas exploration and development,
including unproductive wells and uncontrolled releases. The geographic area and
sustainable output thereof can only be estimated and cannot be definitively
established because of the geological complexities of geothermal reservoirs.
Consequently, the Coso partnerships could experience an unexpected decline in
the capacity of their geothermal wells, and the Coso geothermal reservoir might
not be sufficient for the sustained production of steam and electricity
throughout the maturity dates of the Series B notes.
The operations of the Coso projects could be adversely affected by the Coso
partnerships' and their operators' inability to comply with regulatory
standards.
Permitting; Environmental
The Coso partnerships and their operators are required to comply with many
federal, state and local statutory and regulatory standards and to maintain
numerous permits and governmental approvals required to operate the Coso
projects. Some of these permits and governmental approvals contain specific
conditions. Over the years, there have been numerous violations of these
permits, governmental approvals and conditions, as well as of regulations of
governmental authorities charged with enforcing these matters. If any Coso
partnership fails to satisfy applicable permits, governmental approval,
conditions or regulations, it could be prevented from operating its Coso
project and incur additional costs. No one can assure you that the Coso
partnerships and their operators will be able to operate the Coso projects in
the future in accordance with applicable permits, governmental approvals,
conditions or regulations, or that the conditions contained in these permits or
governmental approvals will not change.
In addition, the Coso partnerships usually have several applications for new
permits and governmental approvals, or renewals of existing permits and
governmental approvals, pending before certain governmental authorities. These
governmental authorities can sometimes take up to several
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years to approve an application. No one can assure you that the Coso
partnerships will be able to obtain, renew or maintain the permits and
governmental approvals required to operate the Coso projects through the
maturity dates of the Series B notes. If any Coso partnership fails to obtain,
renew or maintain any required permit or governmental approval or is unable to
satisfy any conditions, its operations could be limited or suspended.
In addition, you can expect that the laws and regulations affecting the Coso
projects, the Coso partnerships and us will change while the Series B notes are
outstanding, and those changes could adversely affect the Coso projects, the
Coso partnerships and us. For example, changes in laws or regulations
(including, but not limited to, taxes and environmental laws) could impose more
stringent or comprehensive requirements on the operation or maintenance of the
Coso projects, resulting in increased compliance costs, the need for additional
capital expenditures or the reduction of certain benefits currently available
to the Coso projects, or could expose the Coso partnerships or us or both to
liabilities for previous actions taken in compliance with laws in effect at the
time or for actions taken by or conditions caused by third parties. In
addition, the Coso partnerships could become liable for the investigation and
removal of hazardous materials that may be found at the Coso projects, no
matter what the source of such hazardous materials. Failure to comply with any
such statutes or regulations or any change in the requirements of such statutes
or regulations could result in civil or criminal liability, imposition of
cleanup liens and fines and large expenditures to bring the Coso projects into
compliance. You should read "Business--Environmental Matters" for more
information regarding environmental requirements.
Qualifying Facility Status
PURPA provides QFs, such as the Coso projects, with certain exemptions from
federal and state law and regulation, including regulation of the rates at
which electricity can be sold. If:
. any Coso project fails to maintain its QF status,
. PURPA is repealed or amendments to PURPA are enacted that substantially
reduce the benefits currently afforded QFs, or
. the requirements for the Coso projects to maintain their status as QFs
are made more burdensome,
then, operations at the Coso projects or compliance with the terms of the power
purchase agreements could be made much more difficult. The Coso partnerships'
ability to make payments under their project notes and guarantees and our
ability to make payments to you under the Series B notes when due may be
materially and adversely affected by any of these events.
Changes in California Electric Market
The electric industry in California has changed dramatically as a result of
recent decisions by the California Public Utilities Commission and the
enactment of AB1890 in September 1996. The new California electric market
structure, including the independent system operator/power exchange system,
which we call the ISO PX system, began operations on March 31, 1998. The
California Power Exchange portion of the ISO PX system, through which Edison is
required to sell power generated by QFs, is responsible for managing the
transactions for all power auctioned through, and purchased by, market
participants except those bound by contract. The ISO portion of the ISO PX
system is responsible for scheduling, transmission access and operation of the
transmission assets formerly operated by Edison, San Diego Gas & Electric
Company and Pacific Gas & Electric
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Company. The complex grid operation, software, forecasting, bidding and market
clearing mechanism of the ISO PX system has a limited operating history. Many
elements of the new market structure present novel regulatory issues that have
not yet been resolved, as well as many practical issues of implementation such
as the development of systems, software and procedures for the California Power
Exchange, the ISO and all of the market participants who will transact with the
ISO PX system.
If the still-developing ISO PX system fails or does not operate as
anticipated, electricity generation, transmission and distribution in
California may be materially and adversely affected. Edison's business may also
be materially and adversely affected. Furthermore, since Edison's avoided cost
of energy ultimately will be tied to the clearing price of the California Power
Exchange, the ISO PX system's functionality will have a significant effect on
the Coso partnerships.
When the California Power Exchange began operations on March 31, 1998, the
only available clearing mechanism was for day-ahead bidding. In August 1998,
the California Power Exchange began hour-ahead trading. The hour-ahead
mechanism has not operated during a full year of seasonal transitions, maximum
load conditions and other relevant factors, and the limited operating history
of the ISO PX system makes it impossible to predict how the markets or
transmission systems will perform over time with any certainty. During the
summer of 1998, spot prices "spiked" in several recently deregulated markets,
including those in California and Illinois, creating short-term situations in
which certain market participants asserted that the markets had "failed." Both
FERC and the California Public Utilities Commission are reviewing pricing
policies and market mechanisms in light of these experiences, and modifications
to the market may occur as a result.
In addition, a number of substantial issues remain undecided in California
that will require ongoing regulatory involvement by FERC and the California
Public Utilities Commission. One of these issues is the final mechanism for
local reliability contracts and pricing for ancillary services from so-called
"reliability must-run" plants, which are required to operate at certain times
and provide certain services to maintain transmission system reliability. The
Coso projects have not been designated as "reliability must-run" plants.
Furthermore, as part of the California restructuring legislation,
California's investor-owned utilities were permitted to recover certain
authorized transition costs, primarily related to above-market costs associated
with nuclear generation assets and with long-term power purchases, including
from QFs such as the Coso projects, that are currently included in the rates
paid by ratepayers, which we call stranded costs. One of these investor-owned
utilities, San Diego Gas & Electric Company, has recently announced its
intention to eliminate the majority of the charges for stranded costs. These
continuing issues, along with ongoing monitoring by FERC and the California
Public Utilities Commission of the markets and the ISO PX system, leave the
deregulated market subject to potential regulatory action and revisions, with
concomitant consequences both to Edison and to the payments received from
Edison by the Coso partnerships under their power purchase agreements. For more
information, you should read "--Future energy payments paid by Edison to the
Coso partnerships will most likely be less than historical energy payments
because they will be paid based on Edison's avoided cost of energy" and
"Regulation."
In addition to actions taken by the California Legislature and regulation by
the California Public Utilities Commission, bills have been introduced into the
United States Congress mandating the deregulation of the electric utility
industry on the state level. On April 16, 1999, the Clinton Administration's
latest restructuring plan was introduced. In general, the bills provide for
open
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competition in the furnishing of electricity to all customers. No one can
predict whether these bills, or any future legislation relating to the
deregulation of the electric industry, will become law or, if they become law,
what their final effect will be. Changes in the existing legal structure
regulating the electric utility industry, particularly in California, will most
likely have an impact on the manner in which electricity is distributed and
payments are collected or on Edison and its business. This may affect Edison's
ability to fulfill its obligations to the Coso partnerships under the power
purchase agreements. For more information, you should read "--Our ability to
repay the Series B notes will depend on unrelated third parties fulfilling
their commitments to the Coso partnerships" and "Regulation--Energy
Regulation--California Deregulation."
Although the Coso partnerships currently maintain insurance, loss proceeds
might not be enough to satisfy our obligations under the Series B notes.
The Coso partnerships currently maintain property, business interruption,
earthquake, catastrophic and general liability insurance for the Coso projects.
If an insurable loss occurs, the proceeds of insurance will be paid to the
Depositary for the Coso partnerships' account and will be applied as required
under the Indenture and the Depositary Agreement. No one can give you any
assurance that this insurance coverage will be available in the future at
commercially reasonable costs or terms or that the amounts for which the Coso
projects are or will be insured will cover all potential losses.
As part of the Series A notes offering, the Coso partnerships obtained title
insurance policies in the aggregate amount of $200.0 million in favor of U.S.
Bank Trust National Association, which we call the Trustee. Primarily because
of the nature of the rights obtained by one or more of the Coso partnerships
from the Navy and the Bureau of Land Management, the insurance coverage
afforded by these policies is narrower, and the exceptions to coverage are
broader, than those which are commonly provided to companies that are engaged
in activities similar to those of the Coso partnerships. No one can assure you
that the title insurer or its reinsurers will be willing or able to satisfy any
claims which may be made under those policies. Also, the coverage amounts under
these policies may not be sufficient to satisfy amounts outstanding under the
senior secured notes at any given time. See "Business--Insurance."
Geothermally active areas, such as the area in which the Coso projects are
located, are subject to frequent low-level seismic disturbances. Serious
seismic disturbances in that area are possible. The Coso partnerships currently
have business interruption and property damage insurance to address certain
losses which may be caused by these disturbances. This insurance coverage
currently includes $200.0 million of earthquake insurance. This amount of
insurance coverage is substantially less than the aggregate principal amount of
the senior secured notes, and no one can assure you that seismic disturbances
of a nature and magnitude so as to cause material damage to Navy I, BLM or Navy
II, the transmission lines, wells, gathering system or other related
facilities, or a material change in the nature of the geothermal resource, will
not occur. Also, no one can assure you that insurance proceeds will be adequate
to cover all losses sustained, or that insurance will continue to be available
in the future in the amounts presently carried or other amounts adequate to
insure against losses from seismic disturbances.
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The Trustee's ability to foreclose on the Coso partnerships' assets depends on
it being able to obtain the consents of third parties who do not have to
consent and it being able to obtain new permits and governmental approvals.
Certain assets comprising the collateral securing the senior secured notes
require the consent of third parties as a condition to their transfer or
utilization upon or following a foreclosure. Since the Coso projects are
located on Navy and Bureau of Land Management property, this would include
their consents as well. No one can give you any assurance that these third
parties will give their consents or cooperation when asked to facilitate a
transfer of assets or operating rights to the Trustee or any other person upon
or following a foreclosure. Accordingly, although the Coso partnerships'
obligations under their guarantees are secured by a pledge of all of their
ownership interests in the Coso partnerships and liens on all of the material
rights and assets of the Coso partnerships, the Trustee may not have the
ability to foreclose upon all of these pledges and liens without these consents
or, following a foreclosure, to operate or utilize such assets. Further, no one
can assure you that the Navy or the Bureau of Land Management will permit a
receiver to take control of or operate such assets pending foreclosure.
Some of the permits and governmental approvals that serve as collateral for
the senior secured notes are not transferable. In the event of a foreclosure,
the acquiror of the Coso projects would have to apply for new permits and
governmental approvals in order to continue the operations at the Coso
projects. Any delays or inability in obtaining such new permits or appeals
could reduce the proceeds available to the holders of senior secured notes in
the event of a foreclosure.
In addition, contract rights under certain project documents serve as
collateral for the senior secured notes, including rights that stem from
agreements to which the Coso partnerships are parties. If a bankruptcy case
were commenced by or against a Coso partnership, all or part of the project
documents could possibly be rejected by that Coso partnership or a trustee
appointed in a bankruptcy case pursuant to section 365 and section 1123 of the
federal bankruptcy code and, therefore, not be specifically enforceable.
The Coso projects are being managed by new managing partners and operators.
Prior to Caithness Acquisition's purchase of all of CalEnergy's interests in
the Coso projects on February 25, 1999, CalEnergy owned and controlled the
managing partners of the Coso partnerships and operated the Coso projects. As a
result, CalEnergy made most of the day-to-day business decisions relating to
the management and the operations of the Coso projects. Since Caithness
Acquisition purchased CalEnergy's interests in the Coso projects, Caithness
Energy has indirectly owned and controlled the managing partners of the Coso
partnerships, and FPL Operating and Coso Operating Company have been operating
the Coso projects under their respective O&M agreements. If the Coso projects
are not managed effectively, the financial health of the Coso partnerships
could be materially and adversely affected. You should read "--Our ability to
repay the Series B notes will depend on unrelated third parties fulfilling
their commitments to the Coso partnerships" and "Management" for some related
information.
Our estimates, projections and assumptions could prove to be incorrect.
In connection with the issuance of the Series A notes, we prepared certain
estimates, projections and assumptions for the revenue generation capacity of
the Coso partnerships and the associated costs, and provided them to Sandwell
Engineering Inc. and GeothermEx, Inc. Sandwell Engineering Inc. evaluated the
reasonableness of these projections in light of the technical operating
parameters of
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the Coso projects, the operations and maintenance budgets of the Coso projects
and the related assumptions and forecasts contained therein. GeothermEx, Inc.
evaluated the reasonableness of these projections with respect to the wellfield
capital expenditures and production levels. These evaluations were based upon
an inspection and review of certain technical, environmental, economic and
regulatory aspects at the Coso projects. These projections incorporated energy
payments and AB1890 subsidy payments which were based on the energy markets
consultant's report. Sandwell Engineering Inc.'s report attached as Exhibit A
to this prospectus and GeothermEx, Inc.'s report attached as Exhibit C to this
prospectus contain some discussion of the assumptions and forecasts used in
preparing the projections, which concern the operations and maintenance budgets
of the Coso projects. We urge you to read these reports and the energy markets
consultant's report attached as Exhibit B to this prospectus. However, you
should be aware that the three consultant's reports were prepared in connection
with the Series A notes offering and have not been updated since then.
For purposes of preparing the projections, we made certain assumptions about
general business and economic conditions, such as real property and sales taxes
payable by the Coso partnerships and other persons, and about numerous other
material contingencies and matters that are not within our control or the
control of any other person and the outcome of which cannot be predicted by us
or any other person with any expectation of complete accuracy. We also made
assumptions concerning operations and maintenance costs under the applicable
O&M agreements. You should be aware that assumptions are inherently subject to
significant uncertainties, and actual results will differ, perhaps materially,
from those projected. Accordingly, the projections are not necessarily
indicative of future performance, and neither we nor the Coso partnerships
assume any responsibility for the accuracy of the projections. If, for example,
sales of revenues generated by the Coso projects from sales of electricity to
Edison decline below those assumed in the projections contained in the
independent engineer's report, this could impair the Coso partnerships' ability
to make payments under their project notes and guarantees and our ability to
make payments of principal, premium, if any, and interest on the Series B notes
when due.
We do not make, or intend to make, any representation or warranty, nor should
any representation be inferred, about the likely existence of any particular
future set of facts or circumstances, and you should not place undue reliance
on the projections, the independent engineer's report, the energy markets
consultant's report or the geothermal engineer's report. If actual results are
less favorable than those shown or if the estimates and assumptions used in
formulating the projections prove to be incorrect, each Coso partnership's
financial performance may be less favorable than that set forth in the
projections. As a consequence, the Coso partnerships' ability to make payments
under their project notes and guarantees, and our ability to make payments of
principal, premium, if any, and interest on the Series B notes when due could
be materially and adversely affected.
We prepared the projections contained in the independent engineer's report
based on our knowledge at the time of the Series A notes offering and on
certain assumptions we made. The projections have not been examined, compiled
or subjected to any procedures by either KPMG LLP or by PricewaterhouseCoopers
LLP. Accordingly, neither KPMG LLP nor PricewaterhouseCoopers LLP expresses any
opinion or other form of assurance with respect thereto. The
PricewaterhouseCoopers LLP reports included in this prospectus relate solely to
the Coso partnerships' historical financial information. The KPMG LLP report
included in this prospectus relates to an historical balance sheet as of April
22, 1999 (date of inception). Those reports do not extend to the projections
contained in the independent engineer's report and the geothermal
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engineer's report and should not be read to do so. Neither we, Sandwell
Engineering Inc. nor GeothermEx, Inc. intend to provide to the holders of the
senior secured notes any projections or to evaluate any projections other than
the projections set forth in the independent engineer's report and the
geothermal engineer's report.
The Coso partnerships could be materially adversely affected by unanticipated
Year 2000 compliance problems.
At the end of 1999, the operations of the Coso partnerships' computer systems
could be disrupted because these systems might interpret the Year 2000 as
"1900." The Coso partnerships have been working to resolve the potential impact
of the Year 2000 issue on the processing of information in their computer
systems. No one can assure you, however, that the Coso partnerships will not
experience material disruptions in their operations as a result of Year 2000
non-compliance.
The Coso partnerships have also been working with third parties, including
Edison, to identify and assess the potential impact that this issue may have on
its relationship with these parties. If Edison fails to fulfill its contractual
obligations under the power purchase agreements because it failed to resolve
its own Year 2000 issues, it could have a material adverse effect on the Coso
partnerships' revenues and their ability to make payments under their project
notes and guarantees. While the Coso partnerships intend to continue to work
with Edison and other third parties to minimize any potential Year 2000
problems, no one can assure you that these issues will be resolved to the Coso
partnerships' satisfaction or that the Coso partnerships will not experience a
material adverse effect to their operations from unanticipated Year 2000 issues
or problems, including failure to resolve Year 2000 issues in a timely manner,
or delays or changes in the estimated time of their compliance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Issue."
We may not have the funds necessary to finance a change of control offer which
may be required under the Indenture.
If certain specific kinds of change of control events occur, we will be
required under the Indenture to offer to repurchase all outstanding senior
secured notes. No one can assure you that we will have sufficient funds at the
time of a change of control to be able to make the required repurchases of the
senior secured notes, or that restrictions contained in documents governing our
other indebtedness will allow those repurchases. You should note that certain
important corporate events, such as leveraged recapitalizations that would
increase the level of our indebtedness, would not constitute a change of
control under the Indenture. See "Description of Series B Notes-- Repurchase at
the Option of Holders upon a Change of Control."
Federal and state statutes allow courts, under specific circumstances, to void
guarantees and require noteholders to return payments received from guarantors.
One or more Coso partnerships' guarantees could be voided under federal
bankruptcy law and comparable provisions of state law if the guarantees are
deemed to involve a fraudulent conveyance. Under the federal bankruptcy law and
comparable provisions of state fraudulent transfer laws, a guarantee could be
voided, or claims in respect of a guarantee could be subordinated to all other
debts of that guarantor, if, among other things, the guarantor, at the time it
incurred the indebtedness evidenced by its guarantee:
. received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee and either:
. one, was insolvent or rendered insolvent by reason of such
incurrence; or
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. two, was engaged in a business or transaction for which the
guarantor's remaining assets constituted unreasonably small capital;
or
. three, intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could be
voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
. the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets; or
. if the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
. it could not pay its debts as they become due.
If one or more Coso partnerships' guarantees were voided, you may be required
to return payments made by the Coso partnerships to you under the guarantees.
There is no established market for the Series B notes and they will not be
listed on any securities exchange.
The Series A notes are eligible for trading in the PORTAL market. The Series
B notes are a new issue of securities with no established trading market and
will not be listed on any securities exchange. The initial purchaser of the
Series A notes has informed us that it intends to make a market in the Series B
notes. However, it may discontinue making a market at any time without notice.
The liquidity of any market for the Series B notes will depend upon the
number of holders of the Series B notes, our performance, the market for
similar securities, the interest of securities dealers in making a market in
the Series B notes and other factors. A liquid trading market may not develop
for the Series B notes.
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THE EXCHANGE OFFER
Purpose of the Exchange Offer
The exchange offer is designed to provide holders of Series A notes with
an opportunity to acquire Series B notes which, unlike the Series A notes, will
be freely tradable at all times, subject to any restrictions on transfer
imposed by state securities or "blue sky" laws, provided that the holder is not
our "affiliate" within the meaning of the Securities Act and represents that
the Series B notes are being acquired in the ordinary course of the holder's
business and the holder is not engaged in, and does not intend to engage in, a
distribution of the Series B notes. The outstanding Series A notes in the
aggregate principal amount of $413.0 million were originally issued and sold on
May 28, 1999 to the initial purchaser. The sale of the Series A notes to the
initial purchaser was not registered under the Securities Act in reliance upon
the exemption provided by Section 4(2) of the Securities Act. The concurrent
resale of the Series A notes to investors was not registered under the
Securities Act in reliance upon the exemption provided by Rule 144A of the
Securities Act. The Series A notes may not be reoffered, resold or transferred
other than pursuant to a registration statement filed pursuant to the
Securities Act or unless an exemption from the registration requirements of the
Securities Act is available. Pursuant to Rule 144, Series A notes may generally
be resold:
. commencing one year after their original issue date, in an amount up
to, for any three-month period, the greater of 1% of the Series A
notes then outstanding or the average weekly trading volume of the
Series A notes during the four calendar weeks immediately preceding
the filing of the required notice of sale with the commission; or
. commencing two years after the original issue date, in any amount and
otherwise without restriction by a holder who is not, and has not
been for the preceding 90 days, our affiliate. The Series A notes are
eligible for trading in the PORTAL market, and may be resold to
certain qualified institutional buyers pursuant to Rule 144A. Other
exemptions may also be available under other provisions of the
federal securities laws for the resale of the Series A notes.
At the closing of the Series A notes offering, we entered into a
registration rights agreement pursuant to which we agreed to file with the
commission a registration statement covering the exchange by us of the Series B
notes for the Series A notes. The registration rights agreement provides that:
. unless the exchange offer would not be permitted by applicable law or
commission policy, we will file a registration statement with the SEC
no later than 90 days after the closing date of the Series A notes
offering,
. unless the exchange offer would not be permitted by applicable law or
commission policy, we will use our best efforts to have the
registration statement declared effective by the SEC no later than
180 days after the closing date of the Series A notes offering,
. unless the exchange offer would not be permitted by applicable law or
commission policy, we will commence the exchange offer no later than
30 business days after the date that the exchange offer registration
statement becomes effective, and
. if obligated to file a shelf registration statement covering the
Series B notes, we will use our best efforts to file the shelf
registration statement with the commission no later than 45 days
after such filing obligation arises and use our best efforts to cause
the shelf registration statement to be declared effective by the
commission on or prior to 90 days after the date we are required to
file the shelf registration statement.
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We will pay liquidated damages to each holder of transfer restricted
notes, as described below, if any of the following occurs:
. we fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for
such filing,
. the commission does not declare any of the registration statements
effective on or prior to the date specified for effectiveness,
. we fail to consummate this exchange offer within 30 business days
after the date on which the registration statement covering the
exchange of notes for Series A notes is first declared effective, or
. any registration statement filed by us pursuant to the terms of the
registration rights agreement is declared effective but thereafter,
subject to limited exceptions, ceases to be effective or usable in
connection with resales of transfer restricted notes without being
succeeded immediately by a post-effective amendment that cures such
failure.
We will pay liquidated damages to each holder of transfer restricted
notes, with respect to the first 90-day period immediately following the
occurrence of the first such default in an amount equal to $.05 per week per
$1,000 principal amount of Series A notes. The amount of liquidated damages
will increase by an additional $.05 per week per $1,000 principal amount of
Series A notes with respect to each subsequent 90-day period, or portion
thereof, until all defaults have been cured, up to a maximum amount of
liquidated damages for all defaults of $.25 per week per $1,000 principal
amount of Series A notes. "Transfer restricted notes" means each Series A note
until the earliest to occur of:
. the date on which such Series A note has been exchanged by a person
other than a broker-dealer for a Series B note in the exchange offer,
. following the exchange by a restricted broker-dealer in the offering
of a Series B note for a Series A note, the date on which the Series
B note is sold to a purchaser who receives from such restricted
broker-dealer on or prior to the date of said sale, a copy of this
prospectus,
. the date on which the Series A note has been effectively registered
under the Securities Act and disposed of in accordance with the shelf
registration statement, or
. the date on which the Series A note is distributed to the public
pursuant to Rule 144(k) under the Securities Act.
The staff of the SEC has issued certain interpretive letters that
concluded, in circumstances similar to those contemplated by this exchange
offer, that new debt securities issued in a registered exchange for outstanding
debt securities, which new securities are intended to be substantially
identical to the securities for which they are exchanged, may be offered for
resale, resold and otherwise transferred by a holder thereof, other than a
broker-dealer who purchases such securities from the issuer to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or a
person who is an affiliate of the issuer within the meaning of Rule 405 under
the Securities Act, without compliance with the registration and prospectus
delivery provision of the Securities Act; provided that the new securities are
acquired in the ordinary course of such holder's business and such holder has
no arrangement with any person to participate in the distribution of the new
securities. However, a broker-dealer who holds outstanding debt securities that
were acquired for its own account as a result of market-making or other trading
activities may be deemed to be an
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"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of the new securities received by the broker-dealer
in any such exchange. See "--Resales of Notes."
We have not requested or obtained an interpretive letter from the SEC
staff with respect to this exchange offer. Neither the holders of Series A
notes nor we are entitled to rely on interpretive advice provided by the staff
to other persons, which advice was based on the facts and conditions
represented in such letters. However, this exchange offer is being conducted in
a manner intended to be consistent with the facts and conditions represented in
such letters. If any holder of Series A notes has any arrangement or
understanding with respect to the distribution of the Series B notes to be
acquired pursuant to this exchange offer, such holder:
. may not rely on the applicable interpretations of the SEC's the
staff; and
. must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction.
In addition, each broker-dealer that receives Series B notes for its own
account in exchange for Series A notes, where such Series A notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Series B notes. See "Plan of Distribution." By
delivering the letter of transmittal, you will represent and warrant to us that
you are acquiring the Series B notes in the ordinary course of your business
and that your are not engaged in, and do not intend to engage in, a
distribution of the Series B notes. If you are using this exchange offer to
participate in a distribution of the Series B notes, you must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. If you do not exchange your
Series A notes pursuant to this exchange offer, you will continue to hold
Series A notes that are subject to restrictions on transfer. See "Risk
Factors--Your failure to exchange your Series A notes for Series B notes could
have advance consequences to you."
It is expected that the Series B notes will be freely transferable by the
holders thereof, subject to the limitations described in the immediately
preceding paragraph. Sales of Series B notes acquired in this exchange offer by
holders who are our "affiliates" within the meaning of the Securities Act will
be subject to certain limitations on resale under Rule 144 of the Securities
Act. Such persons will only be entitled to sell Series B notes in compliance
with the volume limitations set forth in Rule 144, and sales of Series B notes
by affiliates will be subject to certain Rule 144 requirements as to the manner
of sale, notice and the availability of our current public information. The
foregoing is a summary only of Rule 144 as it may apply to our affiliates. If
you are an affiliate, you must consult your own legal counsel for advice as to
any restrictions that might apply to the resale of your Series B notes.
The Series B notes otherwise will be substantially identical in all
material respects, including interest rate, maturity, security and restrictive
covenants, to the Series A notes for which they may be exchanged pursuant to
this exchange offer.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will exchange $1,000
principal amount of Series B notes due 2001 for each $1,000 principal amount of
our outstanding Series A notes due 2001, and $1,000 principal amount of Series
B notes due 2009 for each $1,000 principal amount of Series B notes due
51
<PAGE>
2009. Only Series B notes due 2001 may be exchanged for tendered Series A notes
due 2001, and only Series B notes due 2009 may be exchanged for tendered Series
A notes due 2009. Series B notes will be issued only in integral multiplies of
$1,000 to each tendering holder of Series A notes whose Series A notes are
accepted in this exchange offer.
The Series B notes will bear interest from and including the original
issue date of the Series A notes. Accordingly, if you receive Series B notes in
exchange for your tendered Series A notes, you will forego accrued but unpaid
interest on your exchanged Series A notes for the period from and including the
issue date of the Series A notes to the date of their exchange for Series B
notes, but will be entitled to such interest under the Series B notes.
As of 1999, $110.0 million aggregate principal amount of Series A
notes due 2001 were outstanding and $303.0 million aggregate principal amount
of Series A notes due 2009 were outstanding. This prospectus and the letter of
transmittal are being sent to all registered holders of Series A notes as of
that date. You will not be required to pay brokerage commissions or fees or,
subject to the instructions in the letter of transmittal, transfer taxes with
respect to your exchange of Series A notes pursuant to this exchange offer. We
will pay all charges and expenses, other than certain transfer taxes which may
be imposed, in connection with this exchange offer. See "--Payment of Expenses"
below.
As a holder of Series A notes, you do not have any appraisal or
dissenters' rights under the Delaware General Corporation Law in connection
with this exchange offer.
Expiration Date; Extensions; Termination
This exchange offer will expire at 5:00 P.M., New York City time, on
, 1999 subject to our extension by notice to U.S. Bank Trust National
Association, N.A., the exchange agent. We reserve the right to extend this
exchange offer in our discretion, in which event the expiration date will be
the time and date on which this exchange offer as so extended shall expire. We
will notify the exchange agent of any extension by oral or written notice and
shall mail to you an announcement thereof, each prior to 9:00 A.M., New York
City time, on the next business day after the previously scheduled expiration
date.
We reserve the right to extend or terminate this exchange offer and not
accept for exchange any Series A notes if any of the events set forth below
under "--Conditions to the Exchange Offer" occur and are not waived by us, by
giving oral or written notice of such delay or termination to the exchange
agent. See "--Conditions to the Exchange Offer." The rights we reserve in this
paragraph are in addition to our rights set forth below under the caption "--
Conditions to the Exchange Offer."
Procedures for Tendering
Your tender of Series A notes pursuant to one of the procedures set forth
below and our acceptance will constitute an agreement between you and us in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
52
<PAGE>
Except as set forth below, if you wish to tender your Series A notes for
exchange pursuant to this exchange offer, you must transmit a properly
completed and duly signed letter of transmittal, including all other documents
required by such letter of transmittal, to the exchange agent at the address
set forth below under "--Exchange Agent" on or prior to the expiration date. In
addition, either:
. certificates for such Series A notes must be received by the exchange
agent along with the letter of transmittal; or
. a timely confirmation of a book-entry transfer of such Series A
notes, if such procedure is available, into the exchange agent's
account at DTC pursuant to the procedure of book-entry transfer
described below, must be received by the exchange agent prior to the
expiration date; or
. you must comply with the guaranteed delivery procedures described
below. Letters of transmittal and Series A notes should not be sent
to us. We are not asking you for a proxy and you are requested not to
send us a proxy.
Signatures on a letter of transmittal must be guaranteed unless the
Series A notes tendered pursuant thereto are tendered:
. by a registered holder of Series A notes who has not completed the
box entitled "Special Issuance and Delivery Instructions" on the
letter of transmittal, or
. for the account of any firm that is a member of a registered national
securities exchange or a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having
an office in the United States, sometimes referred to as an eligible
institution.
In the event that signatures on a letter of transmittal are required to be
guaranteed, such guarantee must be by an eligible institution.
Your method of delivery of Series A notes and other documents to the
exchange agent is at your election and risk, but if delivery is by mail, we
suggest that the mailing be made sufficiently in advance of the expiration date
to permit delivery to the exchange agent before the expiration date.
If the letter of transmittal is signed by a person other than a
registered holder of any Series A note tendered therewith, such Series A note
must be endorsed or accompanied by appropriate bond powers, in either case
signed exactly as the name or names of the registered holder or holders appear
on the Series A note.
If the letter of transmittal or any Series A notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
us, you must submit proper evidence satisfactory of their authority to so act.
We will resolve all questions as to the validity, form, eligibility,
including time of receipt, and acceptance of tendered Series A notes, which
determination will be final and binding. We reserve the absolute right to
reject any or all tenders that are not in proper form or the acceptance of
which would, in the opinion of our counsel be unlawful. We also reserve the
right to waive any irregularities or conditions of tender as to particular
Series A notes. Our interpretation of the terms and conditions of this exchange
offer, including the instructions in the letter of transmittal, will be
53
<PAGE>
final and binding. Unless waived, any irregularities in connection with tenders
must be cured within such time as we shall determine. Neither the exchange
agent nor we are under any duty to give notification of defects in such tenders
or shall incur liabilities for failure to give such notification. Tenders of
Series A notes will not be deemed to have been made until such irregularities
have been cured or waived. Any Series A notes received by the exchange agent
that are not properly tendered and as to which the irregularities have not been
cured or waived will be returned by the exchange agent to the tendering holder,
unless otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
Our acceptance for exchange of Series A notes tendered pursuant to this
exchange offer will constitute a binding agreement between the tendering person
and us upon the terms and subject to the conditions of this exchange offer.
Guaranteed Delivery Procedures
If you wish to tender your Series A notes and your Series A notes are not
immediately available or you cannot deliver your Series A notes, the letter of
transmittal or any other required documents to the exchange agent prior to the
expiration date, you may effect a tender if:
. your tender is made through an eligible institution;
. prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed notice of
guaranteed delivery by facsimile transmission, mail or hand delivery
setting forth your name and address, the certificate number or
numbers of your tendered Series A notes and the principal amount of
your Series A notes tendered, stating that the tender is being made
thereby and guaranteeing that, within five New York Stock Exchange
trading days after the expiration date, the letter of transmittal or
facsimile thereof together with the certificate(s) representing the
Series A notes, or a book-entry confirmation, as the case may be, and
any other documents required by the letter of transmittal will be
deposited by the eligible institution with the exchange agent within
five New York Stock Exchange trading days after the expiration date;
and
. such properly completed and executed letter of transmittal or
facsimile thereof, as well as the certificate(s) representing all
your tendered Series A notes in proper form for transfer, or a book-
entry confirmation, as the case may be, and all other documents
required by the letter of transmittal are received by the exchange
agent within five New York Stock Exchange trading days after the
expiration date.
Upon request of the exchange agent, a notice of guaranteed delivery will
be sent to you if you wish to tender your Series A notes according to the
guaranteed delivery procedures set forth above.
Conditions to the Exchange Offer
Notwithstanding any other provisions of this exchange offer, or any
extension of this exchange offer, we will not be required to issue Series B
notes in respect of any properly tendered Series A notes not previously
accepted, and may terminate this exchange offer by oral or written notice to
the exchange agent and the holders, or at our option, modify or otherwise amend
this
54
<PAGE>
exchange offer, if any material change occurs that is likely to affect this
exchange offer, including, but not limited to, the following:
. there shall be instituted or threatened any action or proceeding
before any court or governmental agency challenging this exchange
offer or otherwise directly or indirectly relating to this exchange
offer or otherwise affecting us;
. there shall occur any development in any pending action or proceeding
that, in our sole judgment, would or might have an adverse effect on
our business, prohibit, restrict or delay consummation of this
exchange offer, or impair the contemplated benefits of this exchange
offer;
. any statute, rule or regulation shall have been proposed or enacted,
or any action shall have been taken by any governmental authority
which, in our sole judgment, would or might have an adverse effect on
our business, prohibit, restrict or delay consummation of this offer,
or impair the contemplated benefits of this exchange offer; or
. there exists, in our sole judgment, any actual or threatened legal
impediment including a default or prospective default under an
agreement, indenture or other instrument or obligation to which we
are a party or by which we are bound to the consummation of the
transactions contemplated by this exchange offer.
We expressly reserve the right to terminate this exchange offer and not
accept for exchange any Series A notes upon the occurrence of any of the
foregoing conditions. In addition, we may amend this exchange offer at any time
prior to 5:00 P.M., New York City time, on the expiration date if any of the
conditions set forth above occur. Moreover, regardless of whether any of such
conditions has occurred, we may amend the exchange offer in any manner which,
in our good faith judgment, is advantageous to you.
The foregoing conditions are for our sole benefit and may be waived by
us, in whole or in part, in our sole discretion. Any determination we make
concerning an event, development or circumstance described or referred to above
will be final and binding on all parties.
Acceptance of Series A Notes for Exchange; Delivery of Series B Notes
Upon the terms and subject to the conditions of this exchange offer, we
will accept all Series A notes validly tendered prior to 5:00 P.M., New York
City time, on the expiration date. We will deliver Series B notes in exchange
for Series A notes promptly following the expiration date.
For purposes of this exchange offer, we shall be deemed to have accepted
validly tendered Series A notes when, as and if we have given oral or written
notice thereof to the exchange agent. The exchange agent will act as agent for
the tendering holders for the purpose of receiving the Series A notes. Under no
circumstances will interest be paid by us or the exchange agent by reason of
any delay in making such payment or delivery.
If any tendered Series A notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Series A notes will be returned, at our expense,
to you as promptly as practicable after the expiration or termination of this
exchange offer.
55
<PAGE>
Withdrawal Rights
Your tenders of Series A notes may be withdrawn at any time prior to the
expiration date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at the address set forth below under "--
Exchange Agent." Any notice of withdrawal must specify the name of the person
having tendered the Series A notes to be withdrawn, identify the Series A
notes to be withdrawn, including the principal amount of such Series A notes,
and, where certificates for Series A notes have been transmitted, specify the
name in which such Series A notes are registered, if different from that of
the withdrawing holder. If certificates for Series A notes have been delivered
or otherwise identified to the exchange agent, then, prior to the release of
such certificates, the withdrawing holder must also submit the serial numbers
of the particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an eligible institution unless such
holder is an eligible institution. If Series A notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice
of withdrawal must specify the name and number of the account at DTC to be
credited with the withdrawn Series A notes and otherwise comply with the
procedures of such facility. We will determine all questions as to the
validity, form and eligibility, including time of receipt, of such notices
which determination shall be final and binding on all parties.
Any Series A notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of this exchange offer. Any Series A notes
which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder, or,
in the case of Series A notes tendered by book-entry transfer into the
exchange agent's account at DTC pursuant to the book-entry transfer procedures
described above, such Series A notes will be credited to an account maintained
with DTC for the Series A notes, as soon as practicable after withdrawal,
rejection of tender or termination of the exchange offer. Properly withdrawn
Series A notes may be retendered by following one of the procedures described
under "--Procedures for Tendering" above at any time on or prior to the
expiration date.
Material Federal Income Tax Consequences
The following discussion summarizing the material federal income tax
consequences of this exchange offer. This discussion is not binding on the
Internal Revenue Service or the courts, and we cannot assure you that the IRS
will not take, and that a court would not sustain, a position contrary to that
described below. Moreover, the following discussion is for general information
only and does not constitute comprehensive tax advice to any particular holder
of Series A notes. This summary is based on the current provisions of the
Internal Revenue Code of 1986, as amended, and applicable Treasury
regulations, judicial authority and administrative pronouncements. The tax
consequences described below could be modified by future changes in the
relevant law, which could have retroactive effect. You should consult your own
tax adviser as to these and any other federal income tax consequences of this
offer as well as any tax consequences to it under foreign, state, local or
other law.
Exchanges of Series A notes for Series B notes pursuant to this exchange
offer should be treated as a modification of the Series A notes that does not
constitute a material change in their terms, and we intend to treat the
exchanges in that manner. Under that approach, a Series B note is treated as a
continuation of the corresponding Series A note. An exchanging holder's
holding period for a Series B note would include the holder's holding period
for the Series A note. The holder
56
<PAGE>
would not recognize any gain or loss, and the holder's basis in the Series B
note would be the same as such holder's basis in the Series A note. This
exchange offer will result in no federal income tax consequences to a non-
exchanging holder. See "Material Federal Income Tax Considerations of the
Exchange Offer."
Exchange Agent
U.S. Bank Trust National Association has been appointed as exchange agent
for this exchange offer. All correspondence in connection with this exchange
offer and the letter of transmittal should be addressed to the exchange agent
as follows:
To: U.S. Bank Trust National Association
<TABLE>
<S> <C> <C>
By Registered or Certified By Overnight Delivery or
Mail: By Hand: Courier:
U.S. Bank Trust National U.S. Bank Trust U.S. Bank Trust National
Association National Association Association
180 East Fifth Street 180 East Fifth Street 180 East Fifth Street
St. Paul, MN 55101 St. Paul, MN 55101 St. Paul, MN 55101
</TABLE>
Attention:
4th Floor Bond Drop Window
Facsimile Transmission Number:
(For Eligible Institutions Only)
(651) 244-1537
Confirm by Telephone:
Bondholder Communications
(800) 934-6802
You may request additional copies of this prospectus or the letter of
transmittal from the exchange agent or us.
Payment of Expenses
We have not retained any dealer-manager or similar agent in connection
with this exchange offer and will not make any payments to brokers, dealers or
others for soliciting acceptances of this exchange offer. We, however, will pay
reasonable and customary fees and reasonable out-of-pocket expenses to the
exchange agent in connection with the solicitation of acceptances. We will also
pay the cash expenses to be incurred in connection with this exchange offer,
including accounting, legal, printing, and related fees and expenses.
Accounting Treatment
The Series B notes will be recorded at the same carrying value as the
Series A notes, as reflected in our accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. Our expenses of this exchange offer will be capitalized for
accounting purposes.
Resales of Notes
For resales of Series B notes, based on certain interpretive letters
issued by the staff of the SEC to unrelated third parties, we believe that a
holder of Series B notes who exchanges Series A notes for Series B notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in a distribution of the Series B notes, will be allowed to resell
the Series B notes to the public without
57
<PAGE>
further registration under the Securities Act and without delivering to the
purchasers of the Series B notes a prospectus that satisfies the requirements
of the Securities Act, except for:
. a broker-dealer who purchases Series B notes directly from us to
resell pursuant to Rule 144A or any other available exemption under
the Securities Act, or
. a person who is our "affiliate" within the meaning of Rule 405 under
the Securities Act.
However, a broker-dealer who holds Series A notes that were acquired for
its own account as a result of market-making or other trading activities may be
deemed to be an underwriter within the meaning of the Securities Act and must,
therefore, deliver a prospectus meeting the requirements of the Securities Act.
If any other holder is deemed to be an underwriter within the meaning of the
Securities Act or acquires Series B notes in this exchange offer for the
purpose of distributing or participating in a distribution of the Series B
notes, such holder must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless an exemption from registration is otherwise available. We
have agreed that for a period of 180 days from the expiration date, we will
make this prospectus, as amended or supplemented, available to any broker-
dealer for use in connection with any such resale.
58
<PAGE>
CAPITALIZATION
Because we were only recently formed, we have no historical balance sheet or
capitalization as of March 31, 1999. The following tables set forth, as of
March 31, 1999, the cash and cash equivalents, long-term debt and
capitalization of (1) each Coso partnership on a stand-alone basis, on an
historical basis and as adjusted to give effect to (a) the completion of the
Series A notes offering and the application of the proceeds therefrom and (b)
certain related adjustments, as if the Series A notes offering had occurred on
March 31, 1999, and (2) the Coso partnerships on a combined basis, as adjusted
to give effect to the foregoing transactions as if such transactions had
occurred on March 31, 1999. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements, including the related notes thereto,
found elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of
March 31, 1999
--------------------
(In thousands)
Actual As Adjusted
<S> <C> <C>
Capitalization of the Navy I Partnership (stand-alone)(a)
Cash...................................................... $ 6,397 $ --
Restricted cash and investments(b)........................ 7,808 26,155
======== ========
Project loans:
Existing project debt, payable to Coso Funding Corp..... $ 40,566 $ --
Project notes, payable to Funding Corp.................. -- 151,550
Acquisition debt(c)....................................... 77,610 --
-------- --------
Total debt.............................................. 118,176 151,550
Partners' capital......................................... 66,763 49,043
-------- --------
Total capitalization.................................... $184,939 $200,593
======== ========
Capitalization of the BLM Partnership (stand-alone)
Cash...................................................... $ 17,015 $ --
Restricted cash and investments........................... 247 13,310
======== ========
Project loans:
Existing project debt, payable to Coso Funding Corp..... $ 37,958 $ --
Project notes, payable to Funding Corp.................. -- 107,900
Acquisition debt(c)....................................... 55,256 --
-------- --------
Total debt.............................................. 93,214 107,900
Partners' capital......................................... 105,606 89,800
-------- --------
Total capitalization.................................... $198,820 $197,700
======== ========
Capitalization of the Navy II Partnership (stand-alone)
Cash...................................................... $ 20,039 $ --
Restricted cash and investments........................... -- 18,590
======== ========
Project loans:
Existing project debt, payable to Coso Funding Corp..... $ 61,323 $ --
Project notes, payable to Funding Corp.................. -- 153,550
Acquisition debt(c)....................................... 78,634 --
-------- --------
Total debt.............................................. 139,957 153,550
Partners' capital......................................... 82,392 71,527
-------- --------
Total capitalization.................................... $222,349 $225,077
======== ========
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
March 31, 1999
--------------------
(in thousands)
Actual As Adjusted
<S> <C> <C>
Capitalization of the Navy I Partnership, BLM Partnership
and Navy II Partnership (combined)(d)
Cash..................................................... $ 43,451 $ --
Restricted cash and investments.......................... 8,055 58,055
======== ========
Project loans:
Existing project debt, payable to Coso Funding Corp.... $139,847 $ --
Project notes, payable to Funding Corp................. -- 413,000
Acquisition debt(c)...................................... 211,500 --
-------- --------
Total debt............................................. 351,347 413,000
Partners' capital........................................ 254,761 210,370
-------- --------
Total capitalization................................... $606,108 $623,370
======== ========
</TABLE>
- ---------------------
(a) Reflects the combined capitalization of the Navy I partnership and CFP II.
The Navy I partnership and CFP II were first formed as separate entities to
facilitate the initial bank financing for the construction and development
of Navy I. Initially, the Navy I partnership acquired all of the assets
relating to the first turbine generator unit at Navy I and CFP II acquired
all of the assets of Navy I relating to the second and third generator
units at Navy I. In 1988, CFP II assigned all of its rights and interests
in the second and third generator units at Navy I to the Navy I partnership
in return for a 5.0% royalty to be paid based on the Navy I partnership's
steam production. Since the Navy I partnership and CFP II operate under
common ownership and management control, the historical financial
statements of the entities have been combined after elimination of
intercompany amounts related to the royalty arrangement. At the closing of
the Series A notes offering, CFP II was merged with and into the Navy I
partnership and the accrued royalty was extinguished. In addition, the
royalty will no longer accrue from and after the closing of the Series A
notes offering. See Note 1 to Notes to Combining and Combined Financial
Statements of Coso Finance Partners and Coso Finance Partners II.
(b) Includes funds on deposit in the sinking fund established for the benefit
of the Navy. See "Business--Royalty and Revenue-Sharing Arrangements--Navy
I."
(c) In order to complete the purchase of all of CalEnergy's interests in the
Coso projects, Caithness Acquisition arranged for short-term debt financing
in the principal amount of approximately $211.5 million. Caithness
Acquisition used a portion of the proceeds from the Series A notes offering
that it received from the Coso partnerships, together with funds from other
sources, to repay all amounts owed under this short-term debt facility. As
a result of "push down" accounting, a portion of this short-term debt has
been reflected in the capitalization of each Coso partnership on a stand-
alone basis, and the entire amount of this short-term debt has been
reflected in the combined capitalization of the Coso partnerships.
(d) Reflects the mathematical summation of the Coso partnerships on a combined
basis as of March 31, 1999. These combined amounts are unaudited. The
combined presentation does not necessarily reflect the financial position
that would have occurred had the Coso partnerships constituted a single
entity as of March 31, 1999. Because the Coso partnerships are under common
management and are jointly and severally guaranteeing all of Funding
Corp.'s obligations under the Indenture and the senior secured notes, such
guarantees being secured by (1) a perfected, first priority lien on
substantially all of the assets of the Coso partnerships and (2) a
perfected, first priority pledge of all of the ownership interests in the
Coso partnerships, the combined financial information of the Coso
partnerships has been presented.
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SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
The following tables set forth selected historical financial and operating
data for each of the Coso partnerships on a stand-alone basis as of and for the
periods presented. The selected historical financial data for each of the five
years ended December 31, 1998, is derived from the audited financial statements
of each of the Coso partnerships. The financial and operating data presented
below should be read in conjunction with the financial statements of the Coso
partnerships, including the related notes thereto, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the other
financial information found elsewhere in this prospectus.
The selected historical financial and operating data for the three months
ended March 31, 1998 and 1999 is unaudited. The unaudited statement of
operations data and balance sheet data as of and for the three months ended
March 31, 1998 and the unaudited statement of operations data for the two
months ended February 28, 1999, have been prepared on the same basis as the
audited financial statements included elsewhere in this prospectus. The
unaudited statement of operations data and balance sheet data as of and for the
one month ended March 31, 1999, has been prepared on a new basis of accounting
adopted by the Coso partnerships after Caithness Acquisition purchased all of
CalEnergy's interests in the Coso projects. In the opinion of management, the
unaudited financial data contains all adjustments, consisting only of normally
recurring adjustments, necessary for a fair presentation of such financial
presentation. The unaudited financial information set forth below is not
necessarily indicative of results to be expected for any future periods.
The energy revenues received by the Coso partnerships during the five-year
period ended December 31, 1998 and the three month periods ended March 31, 1998
and 1999, as reflected in the tables below, should not be viewed as an
indicator of energy revenues to be received by the Coso partnerships during any
future periods. During the periods reflected in the tables below, Edison made
energy payments to the Coso partnerships based on the fixed energy prices
provided for in the power purchase agreements, except that, since August 1997,
Edison has been making energy payments to the Navy I partnership based on
Edison's avoided cost of energy and, in March 1999, Edison began making
payments to the BLM partnership based on Edison's avoided cost of energy.
Edison's avoided cost of energy has been and is expected to be in the future
substantially lower than the fixed energy prices received by the Coso
partnerships in the past. Once the fixed energy price period for the Navy II
partnership expires, Edison is also expected to make energy payments to the
Navy II partnership based on Edison's avoided cost of energy. See "Risk
Factors--Future energy payments paid by Edison to the Coso partnerships will
most likely be less than historical energy payments because they will be paid
based on Edison's avoided cost of energy" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
61
<PAGE>
Navy I Partnership(a)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
------------------------------------
Two Months
Three Months Ended One Month
Year Ended December 31, Ended February 28, Ended
------------------------------------------------ March 31, 1999 March 31, 1999
1994 1995 1996 1997 1998 1998 (prior basis) (new basis)(c) Total
(In thousands, except ratio data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Energy revenues... $ 87,233 $92,797 $103,940 $ 86,586(b) $39,580(b) $ 9,993 $8,098 $4,399 $12,497
Capacity
revenues(d)...... 14,258 14,266 14,266 13,845 13,573 813 474 237 711
Interest and other
income........... 2,529 2,893 3,286 1,980 585 136 824 827 1,651
-------- ------- -------- -------- ------- ------- ------ ------ -------
Total revenues... 104,020 109,956 121,492 102,411 53,738 10,942 9,396 5,463 14,859
-------- ------- -------- -------- ------- ------- ------ ------ -------
Plant operations.. 14,007 13,565 11,763 11,329 13,298 3,571 3,125 1,458 4,583
Royalty expense... 10,396 10,810 11,059 9,849 6,824 895 987 451 1,438
Depreciation and
amortization..... 12,109 12,770 13,325 12,814 11,772 2,957 1,604 783 2,387
-------- ------- -------- -------- ------- ------- ------ ------ -------
Total cost of
operations...... 36,512 37,145 36,147 33,992 31,894 7,423 5,716 2,692 8,408
-------- ------- -------- -------- ------- ------- ------ ------ -------
Operating income.. 67,508 72,811 85,345 68,419 21,844 3,519 3,680 2,771 6,451
Interest expense.. 12,991 11,356 8,868 6,260 4,333 1,124 663 1,630 2,293
Cumulative effect
of accounting
change........... -- -- -- -- 923 -- -- -- --
-------- ------- -------- -------- ------- ------- ------ ------ -------
Net income........ $ 54,517 $61,455 $ 76,477 $ 62,159 $16,588 $ 2,395 $3,017 $1,141 $ 4,158
======== ======= ======== ======== ======= ======= ====== ====== =======
Ratio of earnings
to fixed
charges(e)....... 5.2x 6.4x 9.6x 10.9x 5.0x 3.1x 5.6x 1.7x(g) 2.8x
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of As of
-------------------------------------------- March 31, March 31,
1994 1995 1996 1997 1998 1998 1999
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash--unrestricted.... $ 38,669 $ 45,093 $ 15,724 $ 2,888 $ -- $ 10,560 $ 6,397
Cash and investments--
restricted........... 27,204 28,161 29,016 6,479 7,524 6,731 7,808
Total assets.......... 298,684 301,436 264,209 209,390 201,888 213,639 198,326
Acquisition debt(f)... -- -- -- -- -- -- 77,610
Project loan.......... 154,432 127,340 76,056 45,666 40,566 45,666 40,566
Total liabilities..... 166,804 136,855 96,375 53,822 51,955 55,021 131,563
Total partners'
capital.............. 131,880 164,581 167,834 155,568 149,933 158,618 66,763
</TABLE>
- --------------------
(a) Reflects the combined financial results of the Navy I partnership and CFP
II. The Navy I partnership and CFP II were first formed as separate
entities to facilitate the initial bank financing for the construction and
development of Navy I. Initially, the Navy I partnership acquired the
assets of Navy I as they related to first turbine generator unit at Navy I
and CFP II acquired the assets of Navy I as they related to the second and
third generator units at Navy I. In 1988, CFP II assigned all of its rights
and interests in the second and third generator units at Navy I to the
Navy I partnership in return for a 5.0% royalty based on the Navy I
partnership's steam production. Since the Navy I partnership and CFP II
operate under common ownership and management control, the historical
financial statements of the entities have been combined after elimination
of intercompany amounts related to the royalty arrangement. At the Series A
notes closing, CFP II merged with and into the Navy I partnership and the
accrued royalty was extinguished. In addition, the royalty will no longer
accrue from and after the closing of the Series A notes offering. See Note
1 to Notes to Combining and Combined Financial Statements of Coso Finance
Partners and Coso Finance Partners II.
(b) The decrease in energy revenues is due to the fact that Edison paid the
Navy I partnership energy payments based on its position that the fixed
energy period expired in August 1997. Edison has also taken the position
that the fixed energy price period for the BLM partnership expired in March
1999 and will expire for the Navy II partnership in January 2000. The Coso
partnerships believe that under the power purchase agreements each of the
three turbine generator units at each Coso project has its own ten-year
fixed energy price period. This issue is one of several currently in
dispute and subject to an ongoing lawsuit between, among others, the Coso
partnerships and Edison. See "Business--Legal Proceedings."
(c) After Caithness Acquisition's purchase of all of CalEnergy's interests in
the Coso projects, the Coso partnerships adopted a new basis of accounting.
The purchase price was allocated to the portion of the assets and
liabilities purchased from CalEnergy based on their fair values, with the
amount of fair value of net assets in excess of the purchase price being
allocated to long-lived assets on a pro-rata basis.
62
<PAGE>
(d) Includes capacity payments and capacity bonus payments paid to the Navy I
partnership under its power purchase agreement.
(e) For purposes of computing the ratio of earnings to fixed charges, fixed
charges consist of interest expense and amortization of debt issuance
costs. Earnings used in computing the ratio of earnings to fixed charges
consist of net income plus fixed charges.
(f) In order to complete the purchase of all of CalEnergy's interests in the
Coso projects, Caithness Acquisition arranged for short-term debt financing
in the principal amount of approximately $211.5 million. Caithness
Acquisition used a portion of the proceeds from the Series A notes offering
that it received from the Coso partnerships, together with funds from other
sources, to repay all amounts owed under this short-term debt facility. As
a result of "push down" accounting, the short-term debt has been reflected
in the financial statements of the Coso partnerships, and a portion thereof
was allocated to the Navy I partnership in the amount of $77.6 million.
(g) The decrease in the ratio of earnings to fixed charges for the one month
ended March 31, 1999 is primarily due to the amortization of debt issuance
costs of approximately $2.0 million related to the short-term debt
financing associated with Caithness Acquisition's purchase of all of
CalEnergy's interests in the Coso projects over the three-month estimated
life of the short-term debt.
63
<PAGE>
BLM Partnership
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
------------------------------------
Two Months
Three Months Ended One Month
Year Ended December 31, Ended February 28, Ended March
----------------------------------------------- March 31, 1999 31, 1999
1994 1995 1996 1997 1998 1998 (prior basis) (new basis)(b) Total
(In thousands, except ratio data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Energy revenues........ $76,134 $ 86,596 $ 87,985 $ 88,929 $ 93,352 $21,592 $16,716 $3,434 $20,150
Capacity revenues
(a)................... 13,929 13,938 13,938 13,939 13,847 1,136 817 410 1,227
Interest and other
income................ 2,509 2,644 2,520 1,712 1,181 217 78 118 196
------- -------- -------- -------- -------- ------- ------- ------ -------
Total revenues....... 92,572 103,178 104,443 104,580 108,380 22,945 17,611 3,962 21,573
------- -------- -------- -------- -------- ------- ------- ------ -------
Plant operations....... 19,651 17,564 18,266 18,830 19,887 5,517 4,039 1,604 5,643
Royalty expense........ 9,346 9,684 7,820 10,106 10,492 2,101 1,592 347 1,939
Depreciation and
amortization.......... 12,292 13,170 13,931 14,257 14,308 3,642 2,550 1,175 3,725
------- -------- -------- -------- -------- ------- ------- ------ -------
Total cost of
operations.......... 41,289 40,418 40,017 43,193 44,687 11,242 8,181 3,126 11,307
------- -------- -------- -------- -------- ------- ------- ------ -------
Operating income....... 51,283 62,760 64,426 61,387 63,693 11,703 9,430 836 10,266
Interest expense....... 16,040 15,063 13,162 9,105 6,267 1,786 616 1,233 1,849
Cumulative effect of
accounting change..... -- -- -- -- 953 -- -- -- --
------- -------- -------- -------- -------- ------- ------- ------ -------
Net income............. $35,243 $ 47,697 $ 51,264 $ 52,282 $ 56,473 $ 9,917 $ 8,814 $ (397) $ 8,417
======= ======== ======== ======== ======== ======= ======= ====== =======
Ratio of earnings to
fixed charges (c)..... 3.2x 4.2x 4.9x 6.7x 10.2x 6.6x 15.3x 0.7x(e) 5.6x
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of As of
-------------------------------------------- March 31, March 31,
1994 1995 1996 1997 1998 1998 1999
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash--unrestricted...... $ 31,584 $ 40,219 $ 13,166 $ 873 $ -- $ 15,382 $ 17,015
Cash and investments--
restricted............. 23,478 23,533 23,298 290 290 290 247
Total assets............ 298,893 305,106 269,318 224,912 228,087 236,843 223,739
Acquisition debt(d)..... -- -- -- -- -- -- 55,256
Project loan............ 155,661 137,748 105,990 76,654 37,958 76,654 37,958
Total liabilities....... 198,632 185,546 156,652 100,799 64,896 102,157 118,133
Total partners'
capital................ 100,261 119,560 112,666 124,113 163,191 134,686 105,606
</TABLE>
- --------------------
(a) Includes capacity payments and capacity bonus payments paid to the BLM
partnership under its power purchase agreement.
(b) After Caithness Acquisition's purchase of all of CalEnergy's interests in
the Coso projects, the Coso partnerships adopted a new basis of accounting.
The purchase price was allocated to the portion of the assets and
liabilities purchased from CalEnergy based on their fair values, with the
amount of fair value of net assets in excess of the purchase price being
allocated to long-lived assets on a pro-rata basis.
(c) For purposes of computing the ratio of earnings to fixed charges, fixed
charges consist of interest expense and amortization of debt issuance
costs. Earnings used in computing the ratio of earnings to fixed charges
consist of net income plus fixed charges.
(d) In order to complete the purchase of all of CalEnergy's interests in the
Coso projects, Caithness Acquisition arranged for short-term debt financing
in the principal amount of approximately $211.5 million. Caithness
Acquisition used a portion of the proceeds from the Series A notes offering
that it received from the Coso partnerships, together with funds from other
sources, to repay all amounts owed under this short-term debt facility. As
a result of "push down" accounting, the short-term debt has been reflected
in the financial statements of the Coso partnerships, and a portion thereof
was allocated to the BLM partnership in the amount of $55.3 million.
(e) The decrease in the ratio of earnings to fixed charges for the one month
ended March 31, 1999 is primarily due to the amortization of debt issuance
costs of approximately $1.4 million related to the short-term debt
financing associated with Caithness Acquisition's purchase of all of
CalEnergy's interests in the Coso projects over the three-month estimated
life of the short-term debt.
64
<PAGE>
Navy II Partnership
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
------------------------------------
Two Months
Three Months Ended One Month
Year Ended December 31, Ended February 28, Ended
---------------------------------------------- March 31, 1999 March 31, 1999
1994 1995 1996 1997 1998 1998 (prior basis) (new basis)(b) Total
(In thousands, except ratio data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Energy revenues........ $81,210 $94,372 $101,108 $ 98,778 $105,546 $25,415 $16,687 $6,716 $23,403
Capacity revenues
(a)................... 14,008 14,018 14,018 14,018 14,018 1,234 822 412 1,234
Interest and other
income................ 3,072 3,040 3,174 2,187 1,799 319 150 156 306
------- ------- -------- -------- -------- ------- ------- ------ -------
Total revenues....... 98,290 111,430 118,300 114,983 121,363 26,968 17,659 7,284 24,943
------- ------- -------- -------- -------- ------- ------- ------ -------
Plant operations....... 15,893 15,179 13,371 13,146 15,508 4,356 3,195 1,293 4,488
Royalty expense........ 3,927 11,141 11,486 11,249 11,868 2,780 1,806 1,064 2,870
Depreciation and
amortization.......... 11,800 12,848 13,054 13,354 13,744 3,493 2,339 1,188 3,527
------- ------- -------- -------- -------- ------- ------- ------ -------
Total cost of
operations.......... 31,620 39,168 37,911 37,749 41,120 10,629 7,340 3,545 10,885
------- ------- -------- -------- -------- ------- ------- ------ -------
Operating income....... 66,670 72,262 80,389 77,234 80,243 16,339 10,319 3,739 14,058
Interest expense....... 14,736 13,868 12,149 10,532 8,122 2,235 953 1,792 2,745
Cumulative effect of
accounting change..... -- -- -- -- 1,664 -- -- -- --
------- ------- -------- -------- -------- ------- ------- ------ -------
Net income............. $51,934 $58,394 $ 68,240 $ 66,702 $ 70,457 $14,104 $ 9,366 $1,947 $11,313
======= ======= ======== ======== ======== ======= ======= ====== =======
Ratio of earnings to
fixed charges (c)..... 4.5x 5.2x 6.6x 7.3x 9.9x 7.3x 10.8x 2.1x(e) 5.1x
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of As of
-------------------------------------------- March 31, March 31,
1994 1995 1996 1997 1998 1998 1999
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash--unrestricted..... $ 41,843 $ 44,721 $ 18,133 $ 1,148 $ 818 $ 19,965 $ 20,039
Cash and investments--
restricted............ 22,771 22,841 22,391 -- -- -- --
Total assets........... 309,212 307.537 270.522 226,949 218,965 243,895 230,653
Acquisition debt (d)... -- -- -- -- -- -- 78,634
Project loan........... 173,413 156,043 124,361 97,267 61,323 97,267 61,323
Total liabilities...... 184,051 167,455 144,430 101,536 65,304 103,723 148,261
Total partners'
capital............... 125,161 140,082 126,092 125,413 153,661 140,172 82,392
</TABLE>
- --------------------
(a) Includes capacity payments and capacity bonus payments paid to the Navy II
partnership under its power purchase agreement.
(b) After Caithness Acquisition's purchase of all of CalEnergy's interests in
the Coso projects, the Coso partnerships adopted a new basis of accounting.
The purchase price was allocated to the portion of the assets and
liabilities purchased from CalEnergy based on their fair values, with the
amount of fair value of net assets in excess of the purchase price being
allocated to long-lived assets on a pro-rata basis.
(c) For purposes of computing the ratio of earnings to fixed charges, fixed
charges consist of interest expense and amortization of debt issuance
costs. Earnings used in computing the ratio of earnings to fixed charges
consist of net income plus fixed charges.
(d) In order to complete the purchase all of CalEnergy's interests in the Coso
projects, Caithness Acquisition arranged for short-term debt financing in
the principal amount of approximately $211.5 million. Caithness Acquisition
used a portion of the proceeds from the Series A notes offering that it
received from the Coso partnerships, together with funds from other
sources, to repay all amounts owed under this short-term debt facility. As
a result of "push down" accounting, the short-term debt has been reflected
in the financial statements of the Coso partnerships, and a portion thereof
was allocated to the Navy II partnership in the amount of $78.6 million.
(e) The decrease in the ratio of earnings to fixed charges for the one month
ended March 31, 1999 is primarily due to the amortization of debt issuance
costs of approximately $2.0 million related to the short-term debt
financing associated with Caithness Acquisition's purchase of all of
CalEnergy's interests in the Coso projects over the three-month estimated
life of the short-term debt.
65
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma statement of operations for each of the
Coso partnerships and the following unaudited combined pro forma statement of
operations of the Coso partnerships for the year ended December 31, 1998, and
for the three months ended March 31, 1999, give effect to (1) the completion of
the Series A notes offering and the application of the proceeds therefrom,
(2) Caithness Acquisition's purchase of all of CalEnergy's interests in the
Coso projects and (3) certain related adjustments, under the assumptions and
adjustments set forth in the notes accompanying the unaudited pro forma
statements of operations and unaudited combined statements of operations, and
assume that all such transactions occurred at the beginning of the periods
presented. The unaudited pro forma financial data set forth below is based on
the historical financial statements of the Coso partnerships.
The following unaudited pro forma balance sheet for each of the Coso
partnerships and the following unaudited combined pro forma balance sheet of
the Coso partnerships as of March 31, 1999, give effect to (1) the completion
of the Series A notes offering and the application of the proceeds therefrom
and (2) certain related adjustments, as if such transactions occurred on March
31, 1999. The unaudited pro forma financial data set forth below is based on
the historical financial statements of the Coso partnerships.
The unaudited combined pro forma financial data reflects the mathematical
summation of the Coso partnerships on a combined basis as of and for the three
months ended March 31, 1999 and for the year ended December 31, 1998. Since the
Coso partnerships are under common management and have jointly and severally
guaranteed all of our obligations under the Indenture and the senior secured
notes, such guarantees being secured by (1) a perfected, first priority lien on
substantially all of the assets of the Coso partnerships and (2) a perfected,
first priority pledge of all of the ownership interests in the Coso
partnerships, the combined pro forma financial information of the Coso
partnerships has been presented.
The unaudited combined pro forma financial data does not purport to represent
what the financial position or results of operations of the Coso partnerships
would have been had Caithness Acquisition's purchase of CalEnergy's interests
and the completion of the Series A notes offering occurred on the dates
specified below. Furthermore, the unaudited combined pro forma financial data
does not purport to reflect the financial position or results of operations of
the Coso partnerships as if they constituted a single entity or for any future
period or date. The unaudited combined pro forma financial information should
not be considered in isolation or as a substitute for the pro forma financial
information of each of the Coso partnerships on a stand-alone basis included
herein.
The pro forma adjustments reflected below are based upon currently available
information and certain assumptions that we believe are reasonable under the
circumstances. In our opinion, all adjustments have been made that are
necessary to present fairly the pro forma financial data.
The adjustments contained in the unaudited pro forma financial data do not
give effect to any non-recurring costs directly associated with the Caithness
Acquisition's purchase of CalEnergy's interests in the Coso projects and the
completion of the Series A notes offering. You should read the unaudited pro
forma financial data in conjunction with the historical financial statements of
the Coso partnerships, including the related notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
66
<PAGE>
THE NAVY I PARTNERSHIP (a)
Unaudited Pro Forma Statement of Operations
for the Navy I Partnership
for the Three Months Ended March 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
Two Months Ended One Month Ended ------------------------
February 28, 1999 March 31, 1999 Total Adjustments As Adjusted
(prior basis) (new basis)(b)
<S> <C> <C> <C> <C> <C>
Energy revenues......... $8,098 $4,399 $12,497 $ -- $12,497
Capacity revenues (c)... 474 237 711 -- 711
Interest income......... 824 827 1,651 -- 1,651
------ ------ ------- ----- -------
Total revenues........ 9,396 5,463 14,859 -- 14,859
Plant operations........ 3,125 1,458 4,583 (274)(d) 4,309
Royalty expense......... 987 451 1,438 -- 1,438
Depreciation and
amortization........... 1,604 783 2,387 (55)(e) 2,332
------ ------ ------- ----- -------
Total operating
expenses............. 5,716 2,692 8,408 (329) 8,079
Operating income........ 3,680 2,771 6,451 329 6,780
Interest expense........ 663 1,630 2,293 1,104 (f) 3,397
------ ------ ------- ----- -------
Income from continuing
operations(g).......... $3,017 $1,141 $ 4,158 $(775) $ 3,383
====== ====== ======= ===== =======
</TABLE>
- ---------------------
(a) Reflects the combined financial results of the Navy I partnership and CFP
II. The Navy I partnership and CFP II were first formed as separate
entities to facilitate the initial bank financing for the construction and
development of Navy I. Since the Navy I partnership and CFP II operate
under common ownership and management control, the historical financial
statements of the entities have been combined after elimination of
intercompany amounts related to the royalty arrangement. At the closing of
the Series A notes offering, CFP II was merged with and into the Navy I
partnership and the accrued royalty was extinguished. In addition, the
royalty will no longer accrue from and after Series A notes offering. See
Note 1 to Notes to Combining and Combined Financial Statements of Coso
Finance Partners and Coso Finance Partners II.
(b) After Caithness Acquisition's purchase of all of CalEnergy's interests in
the Coso projects, the Coso partnerships adopted a new basis of accounting.
The purchase price was allocated to the portion of the assets and
liabilities purchased from CalEnergy based on their fair values, with the
amount of fair value of net assets in excess of the purchase price being
allocated to long-lived assets on a pro-rata basis.
(c) Includes capacity payments and capacity bonus payments paid to the Navy I
partnership under its power purchase agreement.
(d) Adjusts for a reduction in O&M and management committee fees of
approximately $274,000. The adjustment represents the difference between
the amounts previously expensed for O&M and management committee fees and
the amounts which are expected to be expensed based on the terms of the new
O&M and management committee fee agreements. See "Summary Descriptions of
Principal Agreements Relating to the Coso Projects" and "Certain
Relationships and Related Transactions--O&M Fees; Reduction in Fees" and
"--Management Committee Fees."
(e) Adjusts for a change in depreciation and amortization expense relating to
Caithness Acquisition's purchase of all of CalEnergy's interests in the
Navy I project. Calculated as if Caithness Acquisition's purchase had
occurred on January 1, 1999, depreciation decreased by approximately
$250,000 based on the lower carrying values of property, plant and
equipment, offset by an increase in amortization expense of approximately
$195,000 based on the higher carrying value of the power purchase
agreement. The carrying values resulted from the allocation of purchase
price to the portion of assets and liabilities acquired from CalEnergy
based on their fair values, with the amount of fair value of net assets
acquired in excess of the purchase price allocated to long lived assets on
a pro-rata basis.
(f) Adjusts for the elimination of historical interest expense due to the
application of a portion of the proceeds from the Series A notes offering
to repay the existing project debt and the acquisition debt, offset by the
interest expense relating to the new project notes and amortization of
deferred financing costs as if the Series A notes offering had occurred on
January 1, 1999. The interest expense related to the senior secured notes
is based on estimated indebtedness of approximately $29.0 million of senior
secured notes due 2001 assuming a rate of interest per annum of 6.80% and
of approximately $122.6 million of senior secured notes due 2009, assuming
a rate of interest per annum of 9.05%. The adjustment for amortization of
debt issuance costs of approximately $130,000 is based on estimated
underwriting discounts and commissions and offering expenses of $3.5
million, amortized over the terms of the related project notes.
(g) To retire the existing project debt, the Navy I partnership paid premiums
of approximately $2.2 million. These premiums are not included in income
before cumulative effect of accounting change on a pro forma basis because
the amounts will be recorded as an extraordinary item which is not a
component of income from continuing operations.
67
<PAGE>
THE BLM PARTNERSHIP
Unaudited Pro Forma Statement of Operations
for the BLM Partnership
for the Three Months Ended March 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Two Months Ended One Month Pro forma
February 28, Ended ------------------------
1999 March 31, 1999 Total Adjustments As adjusted
(prior basis) (new basis)(b)
<S> <C> <C> <C> <C> <C>
Energy revenues......... $16,716 $3,434 $20,150 $ -- $20,150
Capacity revenues(a).... 817 410 1,227 -- 1,227
Interest and other
income................. 78 118 196 -- 196
------- ------ ------- ----- -------
Total revenues...... 17,611 3,962 21,573 -- 21,573
Plant operations........ 4,039 1,604 5,643 (397)(c) 5,246
Royalty expense......... 1,592 347 1,939 -- 1,939
Depreciation and
amortization........... 2,550 1,175 3,725 (267)(d) 3,458
------- ------ ------- ----- -------
Total operating
expenses........... 8,181 3,126 11,307 (664) 10,643
Operating income........ 9,430 836 10,266 664 10,930
Interest expense........ 616 1,233 1,849 605 (e) 2,454
------- ------ ------- ----- -------
Income from continuing
operations(f).......... 8,814 (397) 8,417 59 8,476
======= ====== ======= ===== =======
</TABLE>
- ---------------------
(a) Includes capacity payments and capacity bonus payments paid to the BLM
partnership under its power purchase agreement.
(b) After Caithness Acquisition's purchase of all of CalEnergy's interests in
the Coso projects, the Coso partnerships adopted a new basis of accounting.
The purchase price was allocated to the portion of the assets and
liabilities purchased from CalEnergy based on their fair values, with the
amount of fair value of net assets in excess of the purchase price being
allocated to long-lived assets on a pro-rata basis.
(c) Adjusts for a reduction in O&M and management committee fees of
approximately $397,000. The adjustment represents the difference between
the amounts previously expensed for O&M and management committee fees and
the amounts which are expected to be expensed based on the terms of the new
O&M and management committee fee agreements.
(d) Adjusts for a change in depreciation and amortization expense due to
Caithness Acquisition's purchase of all of CalEnergy's interests in the BLM
project. Calculated as if Caithness Acquisition's purchase had occurred on
January 1, 1999, depreciation decreased by approximately $439,000, based on
the lower carrying values of property, plant and equipment, partially
offset by an increase in amortization expense of approximately $172,000
based on the higher carrying value of the power purchase agreement. The
carrying values resulted from the allocation of purchase price to the
portion of assets and liabilities acquired from CalEnergy based on their
fair values, with the amount of fair value of net assets acquired in excess
of the purchase price allocated to long lived assets on a pro-rata basis.
(e) Adjusts for the elimination of historical interest expense due to the
application of a portion of the use of proceeds from the Series A notes
offering to repay the existing project debt and the acquisition debt,
offset by the interest expense relating to the new project notes and
amortization of deferred financing costs as if the Series A notes offering
had occurred on January 1, 1999. The interest expense related to the senior
secured notes is based on estimated indebtedness of approximately $11.7
million of senior secured notes due 2001 assuming a rate of interest per
annum of 6.80% and of approximately $96.3 million of senior secured notes
due 2009 assuming a rate of interest per annum of 9.05%. The adjustment for
amortization of debt issuance costs of approximately $76,000 is based on
estimated underwriting discounts and commissions and offering expenses of
$2.5 million, amortized over the terms of the related project notes.
(f) To retire the existing project debt, the BLM partnership paid premiums of
approximately $1.7 million. These premiums are not included in income
before cumulative effect of accounting change on a pro forma basis because
the amounts will be recorded as an extraordinary item which is not a
component of income from continuing operations.
68
<PAGE>
THE NAVY II PARTNERSHIP
Unaudited Pro Forma Statement of Operations
for the Navy II Partnership
for the Three Months Ended March 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Two Months
Ended One Month
February 28, Ended Pro Forma
1999 March 31, 1999 ------------------------
(prior basis) (new basis)(b) Total Adjustments As Adjusted
<S> <C> <C> <C> <C> <C>
Energy revenues......... $16,687 $ 6,716 $23,403 $ -- $23,403
Capacity revenues (a)... 822 412 1,234 -- 1,234
Interest and other
income................. 150 156 306 -- 306
------- ------- ------- ----- -------
Total revenues........ 17,659 7,284 24,943 -- 24,943
Plant operations........ 3,195 1,293 4,488 (325)(c) 4,163
Royalty expense......... 1,806 1,064 2,870 -- 2,870
Depreciation and
amortization........... 2,339 1,188 3,527 -- (d) 3,527
------- ------- ------- ----- -------
Total operating
expenses............. 7,340 3,545 10,885 (325) 10,560
Operating income........ 10,319 3,739 14,058 325 14,383
Interest expense........ 953 1,792 2,745 539 (e) 3,284
------- ------- ------- ----- -------
Income from continuing
operations (f)......... $ 9,366 $ 1,947 $11,313 $(214) $11,099
======= ======= ======= ===== =======
</TABLE>
- ---------------------
(a) Includes capacity payments and capacity bonus payments paid to the Navy II
partnership under its power purchase agreement.
(b) After Caithness Acquisition's purchase of all of CalEnergy's interests in
the Coso projects, the Coso projects, the Coso partnerships adopted a new
basis of accounting. The purchase price was allocated to the portion of the
assets and liabilities purchased from CalEnergy based on their fair values,
with the amount of fair value of net assets in excess of the purchase price
being allocated to long-lived assets on a pro-rata basis.
(c) Adjusts for a reduction in O&M and management committee fees of
approximately $325,000. The adjustment represents the difference between
the amounts previously expensed for O&M and management fees and the amounts
which are expected to be expensed based on the terms of the new O&M and
management committee fee agreements.
(d) Adjusts for a change in depreciation and amortization expense due to
Caithness Acquisition's purchase of all of CalEnergy's interests in the
Navy II project. Calculated as if Caithness Acquisition's purchase had
occurred on January 1, 1999, depreciation decreased by approximately
$453,000, based on the lower carrying values of property, plant and
equipment, partially offset by an increase in amortization expense of
approximately $453,000 based on the higher carrying value of the power
purchase agreement. The carrying values resulted from the allocation of
purchase price to the portion of assets and liabilities acquired from
CalEnergy based on their fair values, with the amount of fair value of net
assets acquired in excess of the purchase price allocated to long lived
assets on a pro-rata basis.
(e) Adjusts for the elimination of historical interest expense due to the
application of a portion of the proceeds from the Series A notes offering
to repay the existing project debt and the acquisition debt, offset by the
interest expense relating to the new project notes and amortization of
deferred financing costs as if the Series A notes offering had occurred on
January 1, 1999. The interest expense related to the senior secured notes
is based on estimated indebtedness of approximately $69.4 million of senior
secured notes due 2001 assuming a rate of interest per annum of 6.80% and
of approximately $84.2 million of senior secured notes due 2009 assuming a
rate of interest per annum of 9.05%. The adjustment for amortization of
debt issuance costs of approximately $200,000 is based on estimated
underwriting discounts and commissions and offering expenses of $3.5
million, amortized over the terms of the related project notes.
(f) To retire the existing project debt, the Navy II partnership paid premiums
of approximately $2.0 million. These premiums are not included in income
before cumulative effect of accounting change on a pro forma basis because
the amounts will be recorded as an extraordinary item which is not a
component of income from continuing operations.
69
<PAGE>
THE COSO PARTNERSHIPS
Unaudited Combined Pro Forma Statement of Operations(a)
for the Coso Partnerships
for the Three Months Ended March 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Two Months Ended One Month Ended Pro Forma
February 28, 1999 March 31, 1999 -------------------------
(prior basis) (new basis)(b) Total Adjustments As Adjusted
<S> <C> <C> <C> <C> <C>
Energy revenues......... $41,501 $14,549 $56,050 $ -- $56,050
Capacity revenues (c)... 2,113 1,059 3,172 -- 3,172
Interest and other total
revenues income........ 1,052 1,101 2,153 -- 2,153
------- ------- ------- ------- -------
Total revenues...... 44,666 16,709 61,375 -- 61,375
Plant operations........ 10,359 4,355 14,714 (996)(d) 13,718
Royalty expense......... 4,385 1,862 6,247 -- 6,247
Depreciation and
amortization........... 6,493 3,146 9,639 (322)(e) 9,317
------- ------- ------- ------- -------
Total operating
expenses........... 21,237 9,363 30,600 (1,318) 29,282
Operating income........ 23,429 7,346 30,775 1,318 32,093
Interest expense........ 2,232 4,655 6,887 2,248 (f) 9,135
------- ------- ------- ------- -------
Income from continuing
operations (g)......... $21,197 $ 2,691 $23,888 $ (930) $22,958
======= ======= ======= ======= =======
</TABLE>
- ---------------------
(a) Reflects the mathematical summation of financial information of the Coso
partnerships on a combined basis for the three months ended March 31, 1999.
These combined amounts are unaudited. The combined presentation does not
necessarily reflect the results of operations that would have occurred had
the Coso partnerships constituted a single entity during the same period.
Because the Coso partnerships are under common management and have jointly
and severally guaranteed all of our obligations under the Indenture and the
senior secured notes, such guarantees being secured by (1) a perfected,
first priority lien on substantially all of the assets of the Coso
partnerships and (2) a perfected, first priority pledge of all of the
ownership interests in the Coso partnerships, the unaudited combined
financial information of the Coso partnerships has been presented.
(b) After Caithness Acquisition's purchase of all of CalEnergy's interests in
the Coso projects, the Coso partnerships adopted a new basis of accounting.
The purchase price was allocated to the portion of the assets and
liabilities purchased from CalEnergy based on their fair values, with the
amount of fair value of net assets in excess of the purchase price being
allocated to long-lived assets on a pro-rata basis.
(c) Includes capacity payments and capacity bonus payments paid to the Coso
partnerships on a combined basis under the power purchase agreements.
(d) Adjusts for a reduction in O&M and management committee fees of
approximately $274,000, $397,000 and $325,000 for the Navy I partnership,
the BLM partnership and the Navy II partnership, respectively. The
adjustment represents the difference between the amounts previously
expensed for O&M and management committee fees and the amounts which are
expected to be expensed based on the terms of the new O&M and management
committee agreements.
(e) Adjusts for a change in depreciation and amortization expense due to
Caithness Acquisition's purchase of all of CalEnergy's interests in the
Coso projects. Calculated as if Caithness Acquisition's purchase had
occurred on January 1, 1999, depreciation decreased by approximately
$250,000 for the Navy I partnership, $439,000 for the BLM partnership and
$453,000 for the Navy II partnership, based on the lower carrying values of
property, plant and equipment, offset or partially offset by an increase in
70
<PAGE>
amortization expense of approximately $195,000 for the Navy I partnership,
$172,000 for the BLM partnership and $453,000 for the Navy II partnership,
based on the higher carrying values of the power purchase agreements. The
carrying values resulted from the allocation of purchase price to the
portion of assets and liabilities acquired from CalEnergy based on their
fair values, with the amount of fair value of net assets acquired in excess
of the purchase price allocated to long lived assets on a pro-rata basis.
(f) Adjusts for the elimination of historical interest expense due to the
application of a portion of the proceeds from the Series A notes offering
to repay the existing project debt and the acquisition debt, offset by the
interest expense relating to the new project notes and amortization of
deferred financing costs as if the Series A notes offering had occurred on
January 1, 1999. The interest expense related to the senior secured notes
is based on the following estimated indebtedness from the offering
assuming a rate of interest per annum on the senior secured notes due 2001
of 6.80% and a rate of interest on the senior secured notes due 2009 of
9.05%:
<TABLE>
<CAPTION>
Senior Secured Senior Secured
Notes Due 2001 Notes Due 2009
(In thousands)
<S> <C> <C>
Navy I partnership......................... $ 29,000 $122,550
BLM partnership............................ 11,650 96,250
Navy II partnership........................ 69,350 84,200
-------- --------
$110,000 $303,000
======== ========
</TABLE>
The adjustment for amortization of debt issuance costs of $130,000, $76,000
and $200,000 is based on estimated underwriting discounts and commissions
and offering expenses of $3.5 million, $2.5 million and $3.5 million for
the Navy I partnership, the BLM partnership and the Navy II partnership,
respectively, amortized over the terms of the related project notes.
(g) To retire the existing project debt, premiums were paid of approximately
$2.2 million, $1.7 million and $2.0 million for the Navy I partnership,
the BLM partnership and the Navy II partnership, respectively. These
premiums are not included in income before cumulative effect of accounting
change on a pro forma basis because the amounts will be recorded as an
extraordinary item which is not a component of income from continuing
operations.
71
<PAGE>
THE NAVY I PARTNERSHIP (a)
Unaudited Pro Forma Statement of Operations
for the Navy I Partnership
for the Year Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
--------------------------
Actual Adjustments As Adjusted
<S> <C> <C> <C>
Energy revenues............................ $39,580 $ -- $39,580
Capacity revenues (b)...................... 13,573 -- 13,573
Interest income............................ 585 -- 585
------- -------- -------
Total revenues........................... 53,738 -- 53,738
Plant operations........................... 13,298 (1,643)(c) 11,655
Royalty expense............................ 6,824 -- 6,824
Depreciation and amortization.............. 11,772 (416)(d) 11,356
------- -------- -------
Total operating expenses................. 31,894 (2,059) 29,835
Operating income........................... 21,844 2,059 23,903
Interest expense........................... 4,333 9,254 (e) 13,587
------- -------- -------
Income before cumulative effect of
accounting change(f)...................... $17,511 $ (7,195) $10,316
======= ======== =======
</TABLE>
- ---------------------
(a) Reflects the combined financial results of the Navy I partnership and CFP
II. The Navy I partnership and CFP II were first formed as separate
entities to facilitate the initial bank financing for the construction and
development of Navy I. Since the Navy I partnership and CFP II operate
under common ownership and management control, the historical financial
statements of the entities have been combined after elimination of
intercompany amounts related to the royalty arrangement. At the closing of
the Series A notes offering, CFP II was merged with and into the Navy I
partnership and the accrued royalty was extinguished. In addition, the
royalty will no longer accrue from and after the Series A notes offering.
See Note 1 to Notes to Combining and Combined Financial Statements of Coso
Finance Partners and Coso Finance Partners II.
(b) Includes capacity payments and capacity bonus payments paid to the Navy I
partnership under its power purchase agreement.
(c) Adjusts for a reduction in O&M and management committee fees of
approximately $1.6 million. The adjustment represents the difference
between the amounts previously expensed for O&M and management committee
fees and the amounts which are expected to be expensed based on the terms
of the new O&M and management committee fee agreements. See "Summary
Descriptions of Principal Agreements Relating to the Coso Projects" and
"Certain Relationships and Related Transactions--O&M Fees; Reduction in
Fees" and "--Management Committee Fees."
(d) Adjusts for a change in depreciation and amortization expense relating to
Caithness Acquisition's purchase of all of CalEnergy's interests in the
Navy I project. Calculated as if Caithness Acquisition's purchase had
occurred on January 1, 1998, depreciation decreased by approximately $1.5
million based on the lower carrying values of property, plant and
equipment, offset by an increase in amortization expense of approximately
$1.1 million based on the higher carrying value of the power purchase
agreement. The carrying values resulted from the allocation of purchase
price to the portion of assets and liabilities acquired from CalEnergy
based on their fair values, with the amount of fair value of net assets
acquired in excess of the purchase price allocated to long lived assets on
a pro-rata basis.
(e) Adjusts for the elimination of historical interest expense due to the
application of a portion of the proceeds from the Series A notes offering
to repay the existing project debt offset by the interest expense relating
to the new project notes and amortization of deferred financing costs as if
the Series A notes offering had occurred on January 1, 1998. The interest
expense related to the senior secured notes is based on estimated
indebtedness of approximately $29.0 million of senior secured notes due
2001 assuming a rate of interest per annum of 6.80% and of approximately
$122.6 million of senior secured notes due 2009, assuming a rate of
interest per annum of 9.05%. The adjustment for amortization of debt
issuance costs of $520,000 is based on estimated underwriting discounts and
commissions and offering expenses of $3.5 million, amortized over the terms
of the related project notes.
(f) To retire the existing project debt, the Navy I partnership paid premiums
of approximately $2.2 million. These premiums are not included in income
before cumulative effect of accounting change on a pro forma basis because
the amounts will be recorded as an extraordinary item which is not a
component of income before cumulative effect of accounting change.
72
<PAGE>
THE BLM PARTNERSHIP
Unaudited Pro Forma Statement of Operations
for the BLM Partnership
for the Year Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
-------------------------
Actual Adjustments As Adjusted
<S> <C> <C> <C>
Energy revenues............................. $93,352 $ -- $93,352
Capacity revenues(a)........................ 13,847 -- 13,847
Interest and other income................... 1,181 -- 1,181
------- ------- -------
Total revenues.......................... 108,380 -- 108,380
Plant operations............................ 19,887 (2,382)(b) 17,505
Royalty expense............................. 10,492 -- 10,492
Depreciation and amortization............... 14,308 (1,651)(c) 12,657
------- ------- -------
Total operating expenses................ 44,687 (4,033) 40,654
Operating income............................ 63,693 4,033 67,726
Interest expense............................ 6,267 3,549 (d) 9,816
------- ------- -------
Income before cumulative effect of
accounting change(e)....................... $57,426 $ 484 $57,910
======= ======= =======
</TABLE>
- ---------------------
(a) Includes capacity payments and capacity bonus payments paid to the BLM
partnership under its power purchase agreement.
(b) Adjusts for a reduction in O&M and management committee fees of
approximately $2.4 million. The adjustment represents the difference
between the amounts previously expensed for O&M and management committee
fees and the amounts which are expected to be expensed based on the terms
of the new O&M and management committee fee agreements.
(c) Adjusts for a change in depreciation and amortization expense due to
Caithness Acquisition's purchase of all of CalEnergy's interests in the BLM
project. Calculated as if Caithness Acquisition's purchase had occurred on
January 1, 1998, depreciation decreased by approximately $2.6 million,
based on the lower carrying values of property, plant and equipment,
partially offset by an increase in amortization expense of approximately
$900,000 based on the higher carrying value of the power purchase
agreement. The carrying values resulted from the allocation of purchase
price to the portion of assets and liabilities acquired from CalEnergy
based on their fair values, with the amount of fair value of net assets
acquired in excess of the purchase price allocated to long lived assets on
a pro-rata basis.
(d) Adjusts for the elimination of historical interest expense due to the
application of a portion of the use of proceeds from the Series A notes
offering to repay the existing project debt offset by the interest expense
relating to the new project notes and amortization of deferred financing
costs as if the Series A notes offering had occurred on January 1, 1998.
The interest expense related to the senior secured notes is based on
estimated indebtedness of approximately $11.7 million of senior secured
notes due 2001 assuming a rate of interest per annum of 6.80% and of
approximately $96.3 million of senior secured notes due 2009 assuming a
rate of interest per annum of 9.05%. The adjustment for amortization of
debt issuance costs of $305,000 is based on estimated underwriting
discounts and commissions and offering expenses of $2.5 million, amortized
over the terms of the related project notes.
(e) To retire the existing project debt, the BLM partnership paid premiums of
approximately $1.7 million. These premiums are not included in income
before cumulative effect of accounting change on a pro forma basis because
the amounts will be recorded as an extraordinary item which is not a
component of income before cumulative effect of accounting change.
73
<PAGE>
THE NAVY II PARTNERSHIP
Unaudited Pro Forma Statement of Operations
for the Navy II Partnership
for the Year Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
-------------------------
Actual Adjustments As Adjusted
<S> <C> <C> <C>
Energy revenues............................ $105,546 $ -- $105,546
Capacity revenues (a)...................... 14,018 -- 14,018
Interest and other income.................. 1,799 -- 1,799
-------- ------- --------
Total revenues........................... 121,363 -- 121,363
Plant operations........................... 15,508 (1,950)(b) 13,558
Royalty expense............................ 11,868 -- 11,868
Depreciation and amortization.............. 13,744 (230)(c) 13,514
-------- ------- --------
Total operating expenses................. 41,120 (2,180) 38,940
Operating income........................... 80,243 2,180 82,423
Interest expense........................... 8,122 5,015 (d) 13,137
-------- ------- --------
Income before cumulative effect of
accounting change (e)..................... $ 72,121 $(2,835) $ 69,286
======== ======= ========
</TABLE>
- ---------------------
(a) Includes capacity payments and capacity bonus payments paid to the Navy II
partnership under its power purchase agreement.
(b) Adjusts for a reduction in O&M and management committee fees of
approximately $2.0 million. The adjustment represents the difference
between the amounts previously expensed for O&M and management fees and the
amounts which are expected to be expensed based on the terms of the new O&M
and management committee fee agreements.
(c) Adjusts for a change in depreciation and amortization expense due to
Caithness Acquisition's purchase of all of CalEnergy's interests in the
Navy II project. Calculated as if Caithness Acquisition's purchase had
occurred on January 1, 1998, depreciation decreased by approximately $2.7
million, based on the lower carrying values of property, plant and
equipment, partially offset by an increase in amortization expense of
approximately $2.5 million based on the higher carrying value of the power
purchase agreement. The carrying values resulted from the allocation of
purchase price to the portion of assets and liabilities acquired from
CalEnergy based on their fair values, with the amount of fair value of net
assets acquired in excess of the purchase price allocated to long lived
assets on a pro-rata basis.
(d) Adjusts for the elimination of historical interest expense due to the
application of a portion of the proceeds from the Series A notes offering
to repay the existing project debt offset by the interest expense relating
to the new project notes and amortization of deferred financing costs as if
the Series A notes offering had occurred on January 1, 1998. The interest
expense related to the senior secured notes is based on estimated
indebtedness of approximately $69.4 million of senior secured notes due
2001 assuming a rate of interest per annum of 6.80% and of approximately
$84.2 million of senior secured notes due 2009 assuming a rate of interest
per annum of 9.05%. The adjustment for amortization of debt issuance costs
of $798,000 is based on estimated underwriting discounts and commissions
and offering expenses of $3.5 million, amortized over the terms of the
related project notes.
(e) To retire the existing project debt, the Navy II partnership paid premiums
of approximately $2.0 million. These premiums are not included in income
before cumulative effect of accounting change on a pro forma basis because
the amounts will be recorded as an extraordinary item which is not a
component of income before cumulative effect of accounting change.
74
<PAGE>
THE COSO PARTNERSHIPS
Unaudited Combined Pro Forma Statement of Operations(a)
for the Coso Partnerships
for the Year Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
--------------------------
Actual Adjustments As Adjusted
<S> <C> <C> <C>
Energy revenues........................... $238,478 $ -- $238,478
Capacity revenues (b)..................... 41,438 -- 41,438
Interest and other total revenues income.. 3,565 -- 3,565
-------- -------- --------
Total revenues........................ 283,481 -- 283,481
Plant operations.......................... 48,693 (5,975)(c) 42,718
Royalty expense........................... 29,184 -- 29,184
Depreciation and amortization............. 39,824 (2,297)(d) 37,527
-------- -------- --------
Total operating expenses.............. 117,701 (8,272) 109,429
Operating income.......................... 165,780 8,272 174,052
Interest expense.......................... 18,722 17,818(e) 36,540
-------- -------- --------
Income before cumulative effect of
accounting change (f).................... $147,058 $ (9,546) $137,512
======== ======== ========
</TABLE>
- ---------------------
(a) Reflects the mathematical summation of financial information of the Coso
partnerships on a combined basis for the year ended December 31, 1998.
These combined amounts are unaudited. The combined presentation does not
necessarily reflect the results of operations that would have occurred had
the Coso partnerships constituted a single entity during the same period.
Because the Coso partnerships are under common management and have jointly
and severally guaranteed all of our obligations under the Indenture and the
senior secured notes, such guarantees being secured by (1) a perfected,
first priority lien on substantially all of the assets of the Coso
partnerships and (2) a perfected, first priority pledge of all of the
ownership interests in the Coso partnerships, the unaudited combined
financial information of the Coso partnerships has been presented.
(b) Includes capacity payments and capacity bonus payments paid to the Coso
partnerships on a combined basis under the power purchase agreements.
(c) Adjusts for a reduction in O&M and management committee fees of
approximately $1.6 million, $2.4 million and $2.0 million for the Navy I
partnership, the BLM partnership and the Navy II partnership, respectively.
The adjustment represents the difference between the amounts previously
expensed for O&M and management committee fees and the amounts which are
expected to be expensed based on the terms of the new O&M and management
committee fee agreements.
(d) Adjusts for a change in depreciation and amortization expense due to
Caithness Acquisition's purchase of all of CalEnergy's interests in the
Coso projects. Calculated as if Caithness Acquisition's purchase had
occurred on January 1, 1998, depreciation decreased by approximately $1.5
million for the Navy I partnership, $2.6 million for the BLM partnership
and $2.7 million for the Navy II partnership, based on the lower carrying
values of property, plant and equipment, offset or partially offset by an
increase in amortization expense of approximately $1.1 million for the Navy
I partnership, $900,000 for the BLM partnership and $2.5 million for the
Navy II partnership, based on the higher carrying values of the power
purchase agreements. The carrying values resulted from the allocation of
purchase price to the portion of assets and liabilities acquired from
CalEnergy based on their fair values, with the amount of fair value of net
assets acquired in excess of the purchase price allocated to long lived
assets on a pro-rata basis.
75
<PAGE>
(e) Adjusts for the elimination of historical interest expense due to the
application of a portion of the proceeds from the Series A notes offering
to repay the existing project debt offset by the interest expense relating
to the new project notes and amortization of deferred financing costs as
if the Series A notes offering had occurred on January 1, 1998. The
interest expense related to the senior secured notes is based on the
following estimated indebtedness from the offering assuming a rate of
interest per annum on the senior secured notes due 2001 of 6.80% and a
rate of interest on the senior secured notes due 2009 of 9.05%:
<TABLE>
<CAPTION>
Senior Secured Senior Secured
Notes Due 2001 Notes Due 2009
(In thousands)
<S> <C> <C>
Navy I partnership......................... $ 29,000 $122,550
BLM partnership............................ 11,650 96,250
Navy II partnership........................ 69,350 84,200
-------- --------
$110,000 $303,000
======== ========
</TABLE>
The adjustment for amortization of debt issuance costs of $520,000,
$305,000 and $798,000 is based on estimated underwriting discounts and
commissions and offering expenses of $3.5 million, $2.5 million and $3.5
million for the Navy I partnership, the BLM partnership and the Navy II
partnership, respectively, amortized over the terms of the related project
notes.
(f) To retire the existing project debt, premiums were paid of approximately
$2.2 million, $1.7 million and $2.0 million for the Navy I partnership,
the BLM partnership and the Navy II partnership, respectively. These
premiums are not included in income before cumulative effect of accounting
change on a pro forma basis because the amounts will be recorded as an
extraordinary item which is not a component of income before cumulative
effect of accounting change.
76
<PAGE>
THE NAVY I PARTNERSHIP(a)
Unaudited Pro Forma Balance Sheet
for the Navy I Partnership
as of March 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
-----------------------------------
Adjustments
Actual(a) -------------------- As Adjusted
<S> <C> <C> <C> <C>
Assets
Cash........................... $ 6,397 $148,064(b) $ -- $ --
-- 2,189(c)
-- 18,347(d)
-- 133,925(e)
Restricted cash and
investments................... 7,808 18,347(d) -- 26,155
Accounts receivable............ 5,520 -- -- 5,520
Prepaids and other assets...... 185 -- -- 185
Amounts due to related
parties....................... 42 -- -- 42
Property, plant & equipment.... 158,367 -- -- 158,367
Investment..................... 4,114 -- -- 4,114
Power purchase agreement....... 14,573 -- -- 14,573
Deferred financing costs, net.. 1,320 3,486(b) 1,320(f) 3,486
-------- -------- -------- --------
$198,326 $169,897 $155,781 $212,442
======== ======== ======== ========
Liabilities and partners' capital
Accounts payable and accrued
liabilities................... $ 13,387 $ 1,538(e) $ -- $ 11,849
Amounts due to related
parties....................... -- -- -- --
Acquisition debt............... 77,610 77,610(e) -- --
Project loan................... 40,566 40,566(e) 151,550(b) 151,550
-------- -------- -------- --------
131,563 119,714 151,550 163,399
Partners' capital.............. 66,763 2,189(c) -- 49,043
14,211(e) --
1,320(f) --
-------- -------- -------- --------
$198,326 $137,434 $151,550 $212,442
======== ======== ======== ========
</TABLE>
- ---------------------
(a) Reflects the combined financial results of the Navy I partnership and CFP
II. The Navy I partnership and CFP II were first formed as separate
entities to facilitate the initial bank financing for the construction and
development of Navy I. Since the Navy I partnership and CFP II operate
under common ownership and management control, the historical financial
statements of the entities have been combined after elimination of
intercompany amounts related to the royalty arrangement. At the closing of
the Series A notes offering, CFP II was merged with and into the Navy I
partnership and the accrued royalty was extinguished, in addition, the
royalty will no longer accrue from and after the Series A notes offering.
See Note 1 to Notes to Combining and Combined Financial Statements of Coso
Finance Partners and Coso Finance Partners II.
(b) Reflects the estimated net proceeds of $151.6 million from the Series A
notes offering, net of underwriting discounts and commissions and offering
expenses estimated to be approximately $3.5 million. These costs are being
amortized over the terms of the related debt.
(c) Reflects the estimated premiums to retire the existing project debt.
(d) Adjusts restricted cash for the Debt Service Reserve Account required by
the Series A notes offering.
(e) Adjusts for the payment of existing project debt of approximately $40.6
million and related accrued interest of approximately $891,000 and the
payment of the acquisition debt of approximately $77.6 million and related
accrued interest of approximately $647,000. Subsequent to the Series A
notes offering, distributions of approximately $21.0 million are expected
to be paid to the owners of the Navy I partnership other than beneficial
owners of Caithness Energy. The balance of the distributions expected to be
paid to the Navy I partners in excess of the Navy I partnership's pro forma
distributable cash of $14.2 million is expected to be paid from cash
generated from the Navy I partnership's operations after March 31, 1999 and
from equity contributions expected to be received from Caithness Energy and
its affiliates.
(f) Adjusts for the write off of deferred financing costs associated with the
acquisition debt.
77
<PAGE>
THE BLM PARTNERSHIP
Unaudited Pro Forma Balance Sheet
for the BLM Partnership
as of March 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
--------------------------------
Adjustments As
Actual -------------------- Adjusted
<S> <C> <C> <C> <C>
Assets
Cash............................... $ 17,015 $105,418(a) -- $ --
-- 1,692(b)
-- 13,063(c)
-- 107,678(d)
Restricted cash and investments.... 247 13,063(c) -- 13,310
Accounts receivable................ 15,799 -- -- 15,799
Prepaids and other assets.......... 333 -- -- 333
Amounts due to related parties..... 304 -- -- 304
Property, plant & equipment........ 163,269 -- -- 163,269
Investment......................... 5,335 -- -- 5,335
Power purchase agreement........... 20,498 -- -- 20,498
Deferred financing costs, net...... 939 2,482(a) 939(e) 2,482
-------- -------- -------- --------
$223,739 $120,963 $123,372 $221,330
======== ======== ======== ========
Liabilities and partners' capital
Accounts payable and accrued
liabilities....................... $ 3,129 $ 1,289(d) $ -- $ 1,840
Amounts due to related parties..... 21,790 -- -- 21,790
Acquisition debt................... 55,256 55,256(d) -- --
Project loan....................... 37,958 37,958(d) 107,900(a) 107,900
-------- -------- -------- --------
118,133 94,503 107,900 131,530
Partners' capital.................. 105,606 1,692(b) -- 89,800
939(e) --
13,175(d) -- --
-------- -------- -------- --------
$223,739 $110,309 $107,900 $221,330
======== ======== ======== ========
</TABLE>
- ---------------------
(a) Reflects the estimated net proceeds of $107.9 million from the Series A
notes offering, net of underwriting discounts and commissions and offering
expenses estimated to be $2.5 million. These costs are being amortized over
the term of the related debt.
(b) Reflects the estimated premiums to retire the existing project debt.
(c) Adjusts restricted cash for the Debt Service Reserve Account required by
the Series A notes offering.
(d) Adjusts for the payment of existing project debt of $38.0 million and
related accrued interest of approximately $829,000 and the payment of the
acquisition debt of $55.3 million and related accrued interest of
approximately $460,000. Subsequent to the Series A notes offering,
distributions of approximately $17.9 million are expected to be paid to the
owners of the BLM partnership other than beneficial owners of Caithness
Energy. The balance of the distributions expected to be paid to the BLM
partners in excess of the BLM partnership's pro forma distributable cash of
$13.2 million is expected to be paid from cash to be generated from the BLM
partnership's operations after March 31, 1999 and from equity contributions
expected to be received from Caithness Energy and its affiliates.
(e) Adjusts for the write off of deferred financing costs associated with the
acquisition debt.
78
<PAGE>
THE NAVY II PARTNERSHIP
Unaudited Pro Forma Balance Sheet
for the Navy II Partnership
as of March 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
-------------------------------------
Adjustments
Actual --------------------- As Adjusted
<S> <C> <C> <C> <C>
Assets
Cash.......................... $ 20,039 $150,018 (a) -- $ --
-- 1,962 (b)
-- 18,590 (c)
-- 149,505 (d)
Restricted cash and
investments.................. -- 18,590 (c) -- 18,590
Accounts receivable........... 19,778 -- -- 19,778
Prepaids and other assets..... 294 -- -- 294
Amounts due to related
parties...................... 3,352 -- -- 3,352
Property, plant & equipment... 149,380 -- -- 149,380
Investment.................... 6,818 -- -- 6,818
Power purchase agreements .... 29,656 -- -- 29,656
Deferred financing costs,
net.......................... 1,336 3,532 (a) 1,336 (e) 3,532
-------- -------- -------- --------
$230,653 $172,140 $171,393 $231,400
======== ======== ======== ========
Liabilities and partners'
capital
Accounts payable and accrued
liabilities.................. $ 6,764 $ 1,981 (d) $ -- $ 4,783
Amounts due to related
parties...................... 1,540 -- -- 1,540
Acquisition debt.............. 78,634 78,634 (d) -- --
Project loan.................. 61,323 61,323 (d) 153,550 (a) 153,550
-------- -------- -------- --------
148,261 141,938 153,550 159,873
Partners' capital............. 82,392 1,962 (b) -- 71,527
1,336 (e) --
7,567 (d) --
-------- -------- -------- --------
$230,653 $152,803 $153,550 $231,400
======== ======== ======== ========
</TABLE>
- ---------------------
(a) Reflects the estimated net proceeds of $153.5 million from the Series A
notes offering, net of underwriting discounts and commissions and offering
expenses estimated to be $3.5 million. These costs are being amortized over
the term of the related debt.
(b) Reflects the estimated premiums to retire the existing project debt.
(c) Adjusts restricted cash for the Debt Service Reserve Account required by
the Series A notes offering.
(d) Adjusts for the payment of existing project debt of $61.3 million and
related accrued interest of approximately $1,326,000 and the payment of the
acquisition debt of $78.6 million and related accrued interest of
approximately $655,000. Subsequent to the Series A notes offering,
distributions of approximately $35.3 million are expected to be paid to the
owners of the Navy II partnership other than beneficial owners of Caithness
Energy. The balance of the distributions expected to be paid to the Navy II
partners in excess of the Navy II partnership's pro forma distributable
cash of $7.6 million is expected to be paid from cash to be generated from
the Navy II partnership's operations after March 31, 1999 and from equity
contributions expected to be received from Caithness Energy and its
affiliates.
(e) Adjusts for the write off of deferred financing costs associated with the
acquisition debt.
79
<PAGE>
THE COSO PARTNERSHIPS (a)
Unaudited Combined Pro Forma Balance Sheet
for the Coso Partnerships as of March 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
-----------------------------------
Adjustments
Actual(a) -------------------- As Adjusted
<S> <C> <C> <C> <C>
Assets
Cash............................ $ 43,451 $403,500(b) $ -- $ --
-- 5,843(c)
-- 50,000(d)
-- 391,108(e)
Restricted cash and
investments.................... 8,055 50,000(d) -- 58,055
Accounts receivable............. 41,097 -- -- 41,097
Prepaids and other assets....... 812 -- -- 812
Amounts due to related parties.. 3,698 -- -- 3,698
Property, plant & equipment..... 471,016 -- -- 471,016
Investment...................... 16,267 -- -- 16,267
Power purchase agreements....... 64,727 -- -- 64,727
Deferred financing costs, net... 3,595 9,500(b) 3,595(f) 9,500
-------- -------- -------- --------
$652,718 $463,000 $450,546 $665,172
======== ======== ======== ========
Liabilities and partners'
capital
Accounts payable and accrued
liabilities.................... $ 23,280 $ 4,808(e) $ -- $ 18,472
Amounts due to related parties.. 23,330 -- -- 23,330
Acquisition debt................ 211,500 211,500(e) -- --
Project loan.................... 139,847 139,847(e) 413,000(b) 413,000
-------- -------- -------- --------
397,957 356,155 413,000 454,802
Partners' capital............... 254,761 5,843(c) -- 210,370
34,953(e) --
3,595(f) --
-------- -------- -------- --------
$652,718 $400,546 $413,000 $665,172
======== ======== ======== ========
</TABLE>
- ---------------------
(a) Reflects the mathematical summation of the Coso partnerships on a combined
basis as of December 31, 1998. These combined amounts are unaudited. The
combined presentation does not necessarily reflect the financial position
that would have occurred had the Coso partnerships constituted a single
entity as of March 31, 1999. Because the Coso partnerships are under common
management and jointly and severally guaranteed all of our obligations
under the Indenture and the senior secured notes, such guarantees being
secured by (1) a perfected, first priority lien on substantially all of the
assets of the Coso partnerships and (2) a perfected, first priority pledge
of all of the ownership interests in the Coso partnerships, the unaudited
combined pro forma balance sheet has been presented.
(b) Reflects the estimated net proceeds of $151.6 million for the Navy I
partnership, $107.9 million for the BLM partnership and $153.5 million for
the Navy II partnership from the Series A notes offering, net of
underwriting discounts and commissions and offering expenses estimated to
be $3.5 million for the Navy I partnership, $2.5 million for the BLM
partnership and $3.5 million for the Navy II partnership. These costs will
be amortized over the term of the related debt.
(c) Reflects the estimated premiums to retire the existing project debt.
80
<PAGE>
(d) Adjusts restricted cash for the Debt Service Reserve Account required by
the Series A notes offering of approximately $18.3 million, $13.1 million
and $18.6 million for the Navy I partnership, the BLM partnership and the
Navy II partnership, respectively.
(e) Adjusts for the payment of existing project debt of $40.6 million and
related accrued interest of approximately $891,000 and the payment of the
acquisition debt of $77.6 million and related accrued interest of
approximately $647,000 for the Navy I partnership, $38.0 million and
related accrued interest of approximately $829,000 and the payment of the
acquisition debt of $55.3 million and related accrued interest of
approximately $460,000 for the BLM partnership and $61.3 million and
related accrued interest of approximately $1.3 million and the payment of
the acquisition debt of $78.6 million and related accrued interest of
approximately $655,000 for the Navy II partnership. Subsequent to the
offering, distributions of approximately $21.0 million for the Navy I
partnership, $17.9 million for the BLM partnership and $35.3 million for
the Navy II partnership are expected to be paid to the owners of these
partnerships other than beneficial owners of Caithness Energy. The balance
of the distributions expected to be paid to the owners of the Coso
partnerships in excess of the Coso partnerships' pro forma distributable
cash of $35.0 million is expected to be paid from cash to be generated from
the Coso partnerships' operations after March 31, 1999 and from equity
contributions expected to be received from Caithness Energy and its
affiliates.
(f) Adjusts for the write off of deferred financing costs associated with the
acquisition debt.
81
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis relates to the financial condition and
results of operations of each of the Coso partnerships. It should be read in
conjunction with "Selected Historical Financial and Operating Data" and the
financial statements of each of the Coso partnerships, including the notes
thereto, included elsewhere in this prospectus. Because we were only recently
formed, we have no financial history. Except for the historical financial
information contained herein, this prospectus contains certain forward-looking
statements that involve risks and uncertainties, such as statements of the Coso
partnerships' plans, objectives, expectations and intentions. The Coso
partnerships' actual financial results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include those discussed under the headings "Forward-Looking Statements" and
"Risk Factors" as well as those discussed elsewhere in this prospectus.
General
The Coso projects consist of three 80 MW geothermal power plants, which we
call Navy I, BLM and Navy II, and their transmission lines, wells, gathering
system and other related facilities. The Coso projects are located near one
another at the United States Naval Air Weapons Center at China Lake,
California. The Navy I partnership owns Navy I and its related facilities. The
BLM partnership owns BLM and its related facilities. The Navy II partnership
owns Navy II and its related facilities. Affiliates of Caithness Corporation
and CalEnergy formed the Coso partnerships in the 1980s to develop, construct,
own and operate the Coso projects. On February 25, 1999, Caithness Acquisition
purchased all of CalEnergy's interests in the Coso projects for $205.0 million
in cash, plus $5.0 million in contingency payments, plus the assumption of
CalEnergy's and its affiliates' share of debt outstanding at the Coso projects
which then totaled approximately $67.0 million. As of December 31, 1998, the
book values of CalEnergy's interests in the Navy I partnership, the BLM
partnership and the Navy II partnership purchased by Caithness Acquisition were
approximately $71.8 million, $75.3 million and $76.8 million, respectively.
Each Coso partnership sells 100% of the electrical energy generated at its
plant to Edison under a long-term Standard Offer No. 4 power purchase
agreement. Each power purchase agreement expires after the last maturity date
of the senior secured notes. Edison is one of the largest investor-owned
electric utilities in the United States. As of December 31, 1998, Edison
reported in its 1998 annual report total assets of $16.9 billion and operating
revenues of $8.8 billion. Edison is currently rated A1 by Moody's and A+ by
Standard & Poor's.
Each Coso partnership receives the following payments under its power
purchase agreement:
. Capacity payments for being able to produce electricity at certain
levels. Capacity payments are fixed throughout the life of each power
purchase agreement;
. Capacity bonus payments if the Coso partnership is able to produce above
a specified higher level. The maximum annual capacity bonus payment
available is also fixed throughout the life of each power purchase
agreement; and
. Energy payments which are based on the amount of electricity the Coso
partnership's plant actually produces.
Energy payments are fixed for the first ten years of firm operation under
each power purchase agreement. Firm operation was achieved for each Coso
partnership when Edison and that Coso
82
<PAGE>
partnership agreed that each generating unit at that Coso partnership's plant
was a reliable source of generation and could reasonably be expected to operate
continuously at its effective rating. After the first ten years of firm
operation and until a Coso partnership's power purchase agreement expires,
Edison makes energy payments to the Coso partnership based on Edison's avoided
cost of energy. Edison's avoided cost of energy is Edison's cost to generate
electricity if Edison were to produce it itself or buy it from another power
producer rather than buy it from the relevant Coso partnership. See "Risk
Factors--Future energy payments paid by Edison to the Coso partnerships will
most likely be less than historical energy payments because they will be paid
based on Edison's avoided cost of energy." The power purchase agreement for the
Navy I partnership will expire in August 2011, the power purchase agreement for
the BLM partnership will expire in March 2019, and the power purchase agreement
for the Navy II partnership will expire in January 2010.
Edison has taken the position that the fixed energy price period expired in
August 1997 for the Navy I partnership and in March 1999 for the BLM
partnership, and will expire in January 2000 for the Navy II partnership. The
Coso partnerships believe that the power purchase agreements provide that each
of the three separate turbine generator units at each Coso project has its own
full ten-year fixed energy price period. This issue is one of several currently
in dispute and subject to an ongoing lawsuit between, among others, the Coso
partnerships and Edison. Without making any statement as to the outcome of this
or any other dispute with Edison, for purposes of this prospectus only,
including the financial information included herein, we have assumed that the
fixed energy price period expires ten years after the first of the three
turbine generator units at each respective Coso project established firm
operation. We believe that this assumption is conservative and reasonable for
purposes of this prospectus given that we cannot predict the outcome of this
issue. See "Risk Factors--The Coso partnerships and their managing partners are
currently involved in material litigation with Edison, their sole customer" and
"Business--Legal Proceedings."
The Coso partnerships have implemented and intend to expand a steam sharing
program which they established under a Coso Geothermal Exchange Agreement they
entered into in 1994. The purpose of the steam sharing program is to enhance
the management of the Coso geothermal resource and to optimize the resource's
overall benefits to the Coso partnerships by transferring steam among the Coso
projects. The Navy I partnership recorded steam transfer revenues from the Navy
II partnership and the BLM partnership of approximately $8.5 million for the
three months ended March 31, 1999, approximately $19.0 million for the year
ended December 31, 1998, approximately $11.1 million for the year ended
December 31, 1997 and approximately $4.5 million for the year ended December
31, 1996. The Navy II partnership recorded steam transfer revenues from the BLM
partnership of zero for the three months ended March 31, 1999, approximately
$292,000 for the year ended December 31, 1998, zero for the year ended December
31, 1997 and approximately $3.1 million for the year ended December 31, 1996.
The BLM partnership incurred steam transfer revenues in the aggregate to the
Navy I partnership and the Navy II partnership approximately $3.5 million for
the three months ended March 31, 1999, $13.5 million for the year ended
December 31, 1998, $6.0 million for the year ended December 31, 1997 and
$7.6 million for the year ended December 31, 1996, and the Navy II partnership
incurred to the Navy I partnership approximately $5.0 million for the three
months ended March 31, 1999, $5.5 million for the year ended December 31, 1998,
$5.1 million for the year ended December 31, 1997 and zero for the year ended
December 31, 1996. See "Business--Steam Sharing Program" and "Summary
Descriptions of Principal Agreements Relating to the Coso Projects--Steam
Sharing and Co-Tenancy Agreements."
83
<PAGE>
For the three months ended March 31, 1999 and for the year ended December 31,
1998, Edison's average avoided cost of energy paid to the Navy I partnership
was 3.0c and 3.0c per kWh, respectively, which is substantially below the fixed
energy prices earned for the three months ended March 31, 1998 and for the year
ended December 31, 1998 by the BLM partnership and the Navy II partnership.
Edison is now making energy payments to the BLM partnership based on its
avoided cost of energy, which payments are likely to be substantially less than
the fixed energy prices the BLM partnership earned through February 1999.
Estimates of Edison's future avoided cost of energy vary significantly, and no
one can predict the likely level of avoided cost of energy prices following the
end of the fixed energy price period under the Navy II partnership's power
purchase agreement in January 2000. Edison's avoided cost of energy is
currently substantially below the fixed energy prices previously paid by Edison
during the fixed energy price periods under the power purchase agreement for
the Navy I partnership and the BLM partnership. We expect that Edison's avoided
cost of energy will remain so over at least the near term for the Navy I
partnership and the BLM partnership. The revenues generated by the Coso
partnerships will probably decline significantly after the expiration of the
fixed energy price period for the Navy II partnership. See "Risk Factors--
Future energy payments paid by Edison to the Coso partnerships will most likely
be less than historical energy payments because they will be paid based on
Edison's avoided cost of energy."
Capacity Utilization
For purposes of consistency in financial presentation, the plant capacity
factor for each of the Coso partnerships is based on a nominal capacity amount
of 80 MW (240 MW in the aggregate). The Coso partnerships have a gross
operating margin that allows for the production of electricity in excess of
their nominal capacity amounts. Utilization of this operating margin is based
upon a number of factors and can be expected to vary throughout the year under
normal operating conditions.
The following data includes the operating capacity factor, capacity and
electricity production (in kWh) for each Coso partnership on a stand-alone
basis:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
---------------------------------
Three Months Two Months One Month
Ended Ended Ended
Year Ended December 31, March 31, February 28, March 31, Total
----------------------- ------------ ------------ --------- -------
1996 1997 1998 1998 1999 1999 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Navy I Partnership
(stand-alone)
Operating capacity
factor(a)............ 112.1% 103.2% 94.6%(a) 83.0% 73.4%(c) 77.4%(c) 75.4%(c)
Capacity (MW)
(average)............ 89.92 82.55 75.63 (a) 66.39 58.69 (c) 61.90(c) 60.29(c)
kWh produced (000s)... 787,688 723,116 662,560 (a) 143,400 83,100 (c) 46,041(c) 129,141(c)
BLM Partnership (stand-
alone)
Operating capacity
factor............... 107.9% 99.6% 104.4%(b) 98.0% 109.8%(b) 112.0%(b) 110.9%(b)
Capacity (MW)
(average)............ 86.54 79.66 83.54 (b) 78.43 87.85 (b) 89.6(b) 88.72(b)
kWh produced (000s)... 758,115 697,794 731,767 (b) 169,400 124,400 (b) 66,656(b) 191,056(b)
Navy II Partnership
(stand-alone)
Operating capacity
factor............... 110.6% 108.9% 108.6% 109.9% 112.7%(d) 112.6%(d) 112.7%(d)
Capacity (MW)
(average)............ 88.73 87.08 86.83 88.33 90.18(d) 90.1 (d) 90.14(d)
kWh produced (000s)... 777,243 762,821 760,659 190,800 127,700(d) 67,018 (d) 194,718(d)
</TABLE>
- ---------------------
(a) The reduction in the operating capacity factor is due to the transfer of
steam from Navy I to Navy II and indirectly to BLM under the steam sharing
program. See "Business-- Steam Sharing Program" and "Summary Description of
Principal Agreements Relating to the Coso Projects--Steam Exchange and Co-
Tenancy Agreements."
(b) The increase in the operating capacity factor is due to the transfer of
steam from Navy II to BLM under the steam sharing program. See "Business--
Steam Sharing Program."
(c) The reduction in the operating capacity factor is due to the shutdown of
one of Navy I's three turbine generator units, known as Unit 1. See
"Prospectus Summary--Recent Developments--Return to Service of Navy I Unit"
and "Business--Overview of the Coso Projects--Plants--Navy I."
(d) The increase in the operating capacity factor is due to the transfer of
steam from Navy I to Navy II under the steam sharing program. See
"Business--Steam Sharing Program."
84
<PAGE>
Results of Operations for the Three Months Ended March 31, 1998 and the Three
Months Ended March 31, 1999
The following discussion sets forth the results of operations of the Coso
partnerships for the three months ended March 31, 1998 and 1999. Due to
Caithness Acquisition's purchase of all of CalEnergy's interests in the Coso
projects at the end of February 1999, we have disaggregated the results of
operations set forth in the tables below for the three months ended March 31,
1999 to show the results of operations for the two months ended February 28,
1999 and the results of operations for the one month ended March 31, 1999. See
"Business--Purchase of CalEnergy's Interests." We prepared this presentation
because the Coso partnerships adopted a new basis of accounting after Caithness
Acquisition purchased all of CalEnergy's interests in the Coso projects, and
this new basis of accounting is reflected below in the results of operations
for the one month ended March 31, 1999. We have also included a total for the
results of operations for the three months ended March 31, 1999.
Total Operating Revenues
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
----------------------------------------------------
Three Months Two Months Ended One Month Ended
Ended March 31, February 28, March 31, Total
----------------- ----------------- ---------------- -----------------
1998 1999 1999 1999
$ c per kWh $ c per kWh $ c per kWh $ c per kWh
(In thousands, except per kWh data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Navy I partnership...... $10,806 7.5c $ 8,572 10.3c $4,636 10.1c $13,208 10.2c
BLM partnership......... 22,728 13.4 17,533 14.1 3,844 5.8 21,377 11.2
Navy II partnership..... 26,649 14.0 17,509 13.7 7,128 10.6 24,637 12.7
</TABLE>
Capacity and Capacity Bonus Revenues
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
------------------------------------------------
Two Months
Three Months Ended Ended One Month Ended
March 31, February 28, March 31, Total
-------------------------------------- --------------- ----------------
1998 1999 1999 1999
$ c per kWh $ c per kWh $ c per kWh $ c per kWh
(In thousands, except per kWh data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Navy I partnership...... $ 813 0.6c $ 474 0.6c $ 237 0.5c $ 711 0.6c
BLM partnership......... 1,136 0.7 817 0.7 410 0.6 1,227 0.6
Navy II partnership..... 1,234 0.7 822 0.6 412 0.6 1,234 0.6
</TABLE>
Energy Revenues
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
----------------------------------------------------
Three Months Two Months Ended One Month Ended
Ended March 31, February 28, March 31, Total
----------------- ----------------- ---------------- -----------------
1998 1999 1999 1999
$ c per kWh $ c per kWh $ c per kWh $ c per kWh
(In thousands, except per kWh data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Navy I partnership...... $ 9,993 7.0c $ 8,098 9.7c $4,399 9.6c $12,497 9.7c
BLM partnership......... 21,592 12.8 16,716 13.4 3,434 5.2 20,150 10.6
Navy II partnership..... 25,415 13.3 16,687 13.1 6,716 10.0 23,403 12.0
</TABLE>
Total operating revenues for the Navy I partnership, which consist of
capacity payments, capacity bonus payments and energy payments made by Edison,
increased to $13.2 million for the three months ended March 31, 1999, from
$10.8 million for the three months ended March 31, 1998, an increase of 22.2%.
The Navy I partnership's energy revenues increased to $12.5 million for the
85
<PAGE>
three months ended March 31, 1999, from $10.0 million for the three months
ended March 31, 1998, an increase of 25%. This significant increase was due to
the Navy I partnership's ability to transfer geothermal steam to the BLM
partnership and the Navy II partnership, both of which were still receiving
higher fixed energy payments under their respective power purchase agreements.
For the three months ended March 31, 1999, the Navy I partnership recorded
steam transfer revenues of approximately $3.5 million from the BLM partnership
and $5.0 million from the Navy II partnership.
The BLM partnership's total operating revenues decreased to $21.4 million for
the three months ended March 31, 1999, from $22.7 million for the three months
ended March 31, 1998, a decrease of 5.9%. The BLM partnership's energy revenues
decreased to $20.1 million for the three months ended March 31, 1999, from
$21.6 million for the three months ended March 31, 1998, a decrease of 6.7%.
Total operating and energy revenues decreased despite an 12.8% increase in kWh
produced over the same period due to increased steam transfers from the Navy I
partnership. Also, the decrease in energy revenues is attributable to the
expiration of the fixed energy price period under the BLM partnership's power
purchase agreement in March 1999.
The Navy II partnership's total operating revenues decreased to $24.6 million
for the three months ended March 31, 1999, from $26.6 million for the three
months ended March 31, 1998, a decrease of 7.6%. The Navy II partnership's
energy revenues decreased to $23.4 million for the three months ended March 31,
1999, from $25.4 million for the three months ended March 31, 1998, a decrease
of 7.9%. Total operating and energy revenues decreased despite a 2.0% increase
in kWh produced over the same period due to increased steam transfers from the
Navy I partnership.
Interest and Other Income
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
---------------------------------------
Three Months Ended Two Months Ended One Month Ended
March 31, February 28, March 31, Total
------------------ ---------------- --------------- ------
1998 1999 1999 1999
(In thousands)
<S> <C> <C> <C> <C>
Navy I partnership.. $136 $824 $827 $1,651
BLM partnership..... 217 78 118 196
Navy II
partnership........ 319 150 156 306
</TABLE>
The Navy I partnership's interest and other income increased to $1.7 million
for the three months ended March 31, 1999, from $136,000 for the three months
ended March 31, 1998. The increase is attributable to the recording of a $1.6
million business loss insurance receivable during the three months ended March
31, 1999, in connection with the shutdown of one of Navy I's turbine generator
units. See "Business--Overview of the Coso Projects--Plants--Navy I." The BLM
partnership's interest income decreased to $196,000 for the three months ended
March 31, 1999, from $217,000 for the three months ended March 31, 1998, a
decrease of 9.7%. The Navy II partnership's interest income decreased to
$306,000 for the three months ended March 31, 1999, from $319,000 for the three
months ended March 31, 1998, a decrease of 4.1%. These two decreases were due
to a generally lower interest rate environment.
86
<PAGE>
Plant Operations
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
--------------------------------------------------
Three Months Ended Two Months Ended One Month Ended
March 31, February 28, March 31, Total
------------------ ----------------- ---------------- ----------------
1998 1999 1999 1999
$ c per kWh $ c per kWh $ c per kWh $ c per kWh
(In thousands, except per kWh data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Navy I partnership...... $ 3,571 2.5c $3,125 3.8c $1,458 3.2c $4,583 3.5c
BLM partnership......... 5,517 3.3 4,039 3.2 1,604 2.4 5,643 3.0
Navy II partnership..... 4,356 2.3 3,195 2.5 1,293 1.9 4,488 2.3
</TABLE>
The Navy I partnership's operating expenses, including operating and general
and administrative expenses, increased to $4.6 million for the three months
ended March 31, 1999, from $3.6 million for the three months ended March 31,
1998, an increase of 28.3%. The BLM partnership's operating expenses, including
operating and general and administrative expenses, increased to $5.6 million
for the three months ended March 31, 1999, from $5.5 million for the three
months ended March 31, 1998, an increase of 2.3%. The Navy II partnership's
operating expenses, including operating and general and administrative
expenses, increased to $4.5 million for the three months ended March 31, 1999,
from $4.4 million for the three months ended March 31, 1998, a 3.0% increase.
These increases in operating expenses were due primarily to legal expenses
incurred by each of the Coso partnerships in connection with the Edison
litigation described in "Business--Legal Proceedings." The Navy I partnership's
operating expenses, exclusive of these legal expenses, increased to $2.8
million for the three months ended March 31, 1999, from $2.4 million for the
three months ended March 31, 1998, an increase of 14.7%. This increase was
caused by an increase in maintenance, engineering and selling, general and
administrative costs. The BLM partnership's operating expenses, exclusive of
these legal expenses, decreased to $3.8 million for the three months ended
March 31, 1999, from $4.1 million for the three months ended March 31, 1998, a
decrease of 8.5%. This decrease was caused by a decrease in maintenance,
engineering and selling, general and administrative costs. The Navy II
partnership's operating expenses, exclusive of these legal expenses, decreased
to $2.5 million for the three months ended March 31, 1999, from $3.2 million
for the three months ended March 31, 1998, a decrease of 20.8%. This decrease
was caused by a decrease in maintenance, engineering and selling, general and
administrative costs.
Royalty Expenses
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
------------------------------------------
Two Months
Three Months Ended Ended One Month Ended
March 31, February 28, March 31, Total
--------------------------------------------------- ----------
1998 1999 1999 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Navy I partnership.... $ 895 0.6c $ 987 1.2c $ 451 1.0c $1,438 1.1c
BLM partnership....... 2,101 1.2 1,592 1.3 347 0.5 1,939 1.0
Navy II partnership... 2,780 1.5 1,806 1.4 1,064 1.6 2,870 1.5
</TABLE>
The Navy I partnership's royalty expense increased to $1.4 million for the
three months ended March 31, 1999, from $895,000 for the three month period
ended March 31, 1998, a 60.7% increase. This increase was due to the Navy I
partnership's increase in steam sharing revenues over the same period. The BLM
partnership's royalty expense decreased to $1.9 million for the three months
ended March 31, 1999, from $2.1 million for the three months ended March 31,
1998, a 7.7% decrease. This decrease was due to a decrease in revenues
generated by the BLM partnership over the period. The BLM partnership's royalty
expense for the three months ended March 31, 1999 includes
87
<PAGE>
approximately $508,000 of royalties payable to Coso Land Company. The BLM
partnership's royalty expense for the three months ended March 31, 1998
included approximately $633,000 of royalties payable to Coso Land Company. Coso
Land Company is one of our affiliates. The accrued royalties payable by the BLM
partnership to Coso Land Company were $21.2 million as of March 31, 1999 and
$18.3 million as of March 31, 1998. No portion of the accrued royalties that
are payable to Coso Land Company has been paid. The royalties owed by the BLM
partnership to Coso Land Company are subordinated to all payments made under
the senior secured notes. The Navy II partnership's royalty expense increased
to $2.9 million for the three months ended March 31, 1999, from $2.8 million
for the three month period ended March 31, 1998, a 3.2% increase. This increase
was caused by an increase in the Navy II partnership's operating revenues over
the same period.
Depreciation and Amortization
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
--------------------------------------------------
Three Months Ended Two Months Ended One Month Ended
March 31, February 28, March 31, Total
--------------------------------------- ---------------- ----------------
1998 1999 1999 1999
$ c per kWh $ c per kWh $ c per kWh $ c per kWh
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Navy I partnership.... $ 2,957 2.1c $1,604 1.9c $ 783 1.7c $2,387 1.9c
BLM partnership....... 3,624 2.1 2,550 2.1 1,175 1.8 3,725 2.0
Navy II partnership... 3,493 1.8 2,339 1.8 1,188 1.8 3,527 1.8
</TABLE>
The Navy I partnership's depreciation and amortization expenses decreased to
$2.4 million for the three months ended March 31, 1999, from $2.9 million for
the three months ended March 31, 1998, a decrease of 19.3%. This decrease was
primarily due to the cessation of depreciation expenses for certain wells which
became fully depreciated during these periods. The BLM partnership's
depreciation and amortization expenses increased to $3.7 million for the three
months ended March 31, 1999, from $3.6 million for the three months ended March
31, 1998, an increase of 2.8%. The Navy II partnership's depreciation and
amortization expenses increased to $3.5 million for the three months ended
March 31, 1999, from $3.5 million for the three months ended March 31, 1998, an
increase of 1.0%.
Interest Expense
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
------------------------------------------------------
Three Months Ended Two Months Ended One Month Ended
March 31, February 28, March 31, Total
------------------------------------------------------------ ----------------
1998 1999 1999 1999
$ c per kWh $ c per kWh $ c per kWh $ c per kWh
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Navy I partnership.... $ 1,124 0.8c $ 663 0.8c $1,630 3.5c $2,293 1.8c
BLM partnership....... 1,786 1.1 616 0.5 1,233 1.9 1,849 0.9
Navy II partnership... 2,235 1.2 953 0.8 1,792 2.7 2,745 1.4
</TABLE>
The Navy I partnership's interest expense increased to $2.3 million for the
three months ended March 31, 1999, from $1.1 million for the three months ended
March 31, 1998, an increase of 104.0%. The BLM partnership's interest expense
remained consistent at $1.8 million for the three months ended March 31, 1999,
and $1.8 million for the three months ended March 31, 1998. The Navy II
partnership's interest expense increased to $2.7 million for the three months
ended March 31, 1999, from $2.2 million for the three months ended March 31,
1998, an increase of 22.8%. These increases were due to an increase in the
interest expense and amortization of debt issuance costs related to the
acquisition debt. Debt issuance costs related to the acquisition debt of
approximately $2.0 million for the Navy I partnership, $1.4 million for the BLM
partnership and $2.0 million for the Navy II partnership, are being amortized
over the estimated life of the acquisition debt of three months.
88
<PAGE>
Net Income
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
----------------------------------------------------
Three Months Ended Two Months Ended One Month Ended
March 31, February 28, March 31, Total
---------------------------------------- ----------------- -----------------
1998 1999 1999 1999
$ c per kWh $ c per kWh $ c per kWh $ c per kWh
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Navy I partnership.... $ 2,395 1.7c $3,017 3.6c $1,141 2.5c $ 4,158 3.2c
BLM partnership....... 9,917 5.9 8,814 7.1 (397) 0.6 8,417 4.4
Navy II partnership... 14,104 7.4 9,366 7.3 1,947 2.9 11,313 5.8
</TABLE>
The Navy I partnership's net income increased to $4.2 million for the three
months ended March 31, 1999, from $2.4 million for the three months ended March
31, 1998, an increase of 73.6%. This increase in net income was primarily due
to increases in the Navy I partnership's steam sharing revenues during this
period. The BLM partnership's net income decreased to $8.4 million for the
three months ended March 31, 1999, from $9.9 million for the three months ended
March 31, 1998, a decrease of 15.1%. The decrease in net income was caused by
the decrease in operating revenues during this period. The Navy II
partnership's net income decreased to $11.3 million for the three months ended
March 31, 1999, from $14.1 million for the three months ended March 31, 1998, a
decrease of 19.8%. The decrease in net income was primarily due to a decrease
in Navy II's operating revenues during this period.
89
<PAGE>
Results of Operations for the Years Ended December 31, 1996, 1997 and 1998
Total Operating Revenues
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1996 1997 1998
$ c per kWh $ c per kWh $ c per kWh
(In thousands, except per kWh data)
<S> <C> <C> <C> <C> <C> <C>
Navy I partnership...... $118,206 15.0c $100,431 13.9c $ 53,153 8.0c
BLM partnership......... 101,923 13.4 102,868 14.7 107,199 14.6
Navy II partnership..... 115,126 14.8 112,796 14.8 119,564 15.7
</TABLE>
Capacity and Capacity Bonus Revenues
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1996 1997 1998
$ c per kWh $ c per kWh $ c per kWh
(In thousands, except per kWh data)
<S> <C> <C> <C> <C> <C> <C>
Navy I partnership.... $14,266 1.8c $13,845 1.9c $13,573 2.0c
BLM partnership....... 13,938 1.8 13,939 2.0 13,847 1.9
Navy II partnership... 14,018 1.8 14,018 1.8 14,018 1.8
</TABLE>
Energy Revenues
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1996 1997 1998
$ c per kWh $ c per kWh $ c per kWh
(In thousands, except per kWh data)
<S> <C> <C> <C> <C> <C> <C>
Navy I partnership.. $103,940 13.2c $86,586 12.0c $ 39,580 6.0c
BLM partnership..... 87,985 11.6 88,929 12.7 93,352 12.8
Navy II
partnership........ 101,108 13.0 98,778 12.9 105,546 13.9
</TABLE>
Total operating revenues for the Navy I partnership, which consist of
capacity payments, capacity bonus payments and energy payments made by Edison,
decreased to $53.2 million for the year ended December 31, 1998, from $100.4
million in 1997, a decrease of 47.1%. The Navy I partnership's energy revenues
decreased to $39.6 million for the year ended December 31, 1998, from $86.6
million in 1997, a decrease of 54.3%. These decreases were attributable to the
expiration of the fixed energy price period under the Navy I partnership's
power purchase agreement and are the result of a full year of energy payments
based upon Edison's avoided cost of energy after the fixed energy price period
expired in August 1997. During the final year of its fixed energy price period,
the Navy I partnership received approximately 14.6c per kWh for energy
delivered. Under the avoided cost of energy formula, since August 1997, the
Navy I partnership has been receiving an average of approximately 3.0c per kWh
for energy delivered. This significant decrease in energy payments was
partially offset by the Navy I partnership's ability to transfer geothermal
steam to the BLM partnership and the Navy II partnership, both of which were
still receiving fixed energy payments under their respective power purchase
agreements through December 31, 1998. For the year ended December 31, 1998, as
a result of its transfers of steam under the steam sharing program, the Navy I
partnership received steam transfer payments of approximately $13.5 million
from the BLM partnership and $5.5 million from the Navy II partnership.
The BLM partnership's total operating revenues increased to $107.2 million
for the year ended December 31, 1998, from $102.9 million in 1997, an increase
of 4.2%. The BLM partnership's energy revenues increased to $93.4 million for
the year ended December 31, 1998, from
90
<PAGE>
$88.9 million in 1997, an increase of 5.0%. These increases were due to a 1.0c
per kWh increase in the rate paid by Edison under the BLM partnership's power
purchase agreement. In addition, kWh produced increased, primarily due to
increased steam transfers from the Navy I partnership. However, the impact from
such increased production was offset by steam sharing payments paid by the BLM
partnership to the Navy I partnership.
The Navy II partnership's total operating revenues increased to $119.6
million for the year ended December 31, 1998, from $112.8 million in 1997, an
increase of 6.0%. The Navy II partnership's energy revenues increased to $105.5
million for the year ended December 31, 1998, from $98.8 million in 1997, an
increase of 6.9%. These increases were due primarily to an increase in the rate
paid by Edison under the Navy II partnership's power purchase agreement. The
Navy II partnership was paid 14.6c per kWh in 1998 for the energy component of
the electricity it sold to Edison, up from 13.6c per kWh in 1997.
Total operating revenues for the Navy I partnership decreased to $100.4
million for the year ended December 31, 1997, from $118.2 million in 1996, a
decrease of 15.0%. The Navy I partnership's energy revenues decreased to $86.6
million for the year ended December 31, 1997, from $103.9 million in 1996, a
decrease of 16.7%. These decreases were attributable to Edison's cessation of
energy payments based on the fixed energy price period under the Navy I
partnership's power purchase agreement and are the result of a partial year of
energy payments based upon Edison's avoided cost of energy, rather than the
fixed energy price, since August 1997. In 1997, prior to the end of the fixed
energy price period, the Navy I partnership received approximately 14.6c per
kWh for its energy production. Under the avoided cost of energy formula, the
Navy I partnership received an average of approximately 3.0c per kWh of energy
delivered. This drop in energy prices was partially offset by the Navy I
partnership's ability to transfer steam to the BLM partnership and the Navy II
partnership under the steam sharing program, both of which were still being
paid fixed energy prices under their respective power purchase agreements
during the remainder of 1997. For the year ended December 31, 1997, the Navy I
partnership received steam transfer payments of approximately $6.0 million from
the BLM partnership and approximately $5.1 million from the Navy II
partnership.
The BLM partnership's total operating revenues increased slightly to $102.9
million for the year ended December 31, 1997, from $101.9 million in 1996, an
increase of 0.9%. The BLM partnership's energy revenues increased slightly to
$88.9 million for the year ended December 31, 1997, from $88.0 million in 1996,
an increase of 1.1%. Total operating revenues and energy revenues increased
despite an 8.0% decrease in kWh produced due to a 1.0c per kWh increase in the
rate paid by Edison under the BLM partnership's power purchase agreement.
The Navy II partnership's total operating revenues decreased to $112.8
million for the year ended December 31, 1997, from $115.1 million in 1996, a
decrease of 2.0%. The Navy II partnership's energy revenues decreased to $98.8
million for the year ended December 31, 1997, from $101.1 million in 1996, a
decrease of 2.3%. The decreases in the Navy II partnership's total operating
revenues and energy revenues were due to a 1.9% decrease in kWh produced by the
Navy II partnership over the same period and increased steam sharing payments
to the Navy I partnership, partially offset by a 1.0c per kWh increase in the
rate paid by Edison under the Navy II partnership's power purchase agreement.
91
<PAGE>
Interest Income
<TABLE>
<CAPTION>
Year Ended December
31,
--------------------
1996 1997 1998
(in thousands)
<S> <C> <C> <C>
Navy I partnership...................................... $3,286 $1,980 $ 585
BLM partnership......................................... 2,520 1,712 1,181
Navy II partnership..................................... 3,174 2,187 1,799
</TABLE>
The Navy I partnership's interest income decreased to $585,000 for the year
ended December 31, 1998, from $2.0 million in 1997, a decrease of 70.5%. The
BLM partnership's interest income decreased to $1.2 million for the year ended
December 31, 1998, from $1.7 million in 1997, a decrease of 31.0%. The Navy II
partnership's interest income decreased to $1.8 million for the year ended
December 31, 1998, from $2.2 million in 1997, a decrease of 17.7%. These
decreases were due to the replacement of a cash funded debt service reserve
fund with a letter of credit in 1997 and to a generally lower interest rate
environment.
The Navy I partnership's interest income decreased to $2.0 million for the
year ended December 31, 1997, from $3.3 million in 1996, a decrease of 39.7%.
The BLM partnership's interest income decreased to $1.7 million for the year
ended December 31, 1997, from $2.5 million in 1996, a decrease of 32.1%. The
Navy II partnership's interest income decreased to $2.2 million for the year
ended December 31, 1997, from $3.2 million in 1996, a decrease of 31.1%. These
decreases were due to the replacement of a cash funded debt reserve fund with a
letter of credit in 1997.
Operating Expenses
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1996 1997 1998
$ c per kWh $ c per kWh $ c per kWh
(In thousands, except per kWh data)
<S> <C> <C> <C> <C> <C> <C>
Navy I partnership.... $11,763 1.5c $11,329 1.6c $13,298 2.0c
BLM partnership....... 18,266 2.4 18,830 2.7 19,887 2.7
Navy II partnership... 13,371 1.7 13,146 1.7 15,508 2.0
</TABLE>
The Navy I partnership's operating expenses, including operating and general
and administrative expenses, increased to $13.3 million for the year ended
December 31, 1998, from $11.3 million in 1997, an increase of 17.4%. The BLM
partnership's operating expenses, including operating and general and
administrative expenses, increased to $19.9 million for the year ended December
31, 1998, from $18.8 million in 1997, an increase of 5.6%. The Navy II
partnership's operating expenses, including operating and general and
administrative expenses, increased to $15.5 million for the year ended December
31, 1998, from $13.1 million in 1997, an increase of 18.0%. These increases
were due primarily to legal expenses incurred by each of the Coso partnerships
in connection with the Edison litigation described in "Business--Legal
Proceedings." The Navy I partnership's operating expenses, exclusive of these
legal expenses, decreased to $10.3 million for the year ended December 31,
1998, from $11.3 million in 1997, a decrease of 8.8%. The BLM partnership's
operating expenses, exclusive of these legal expenses, decreased to $16.9
million for the year ended December 31, 1998, from $18.2 million in 1997, a
decrease of 6.9%. The Navy II partnership's operating expenses, exclusive of
these legal expenses, decreased to $12.6 million for the year ended December
31, 1998, from $13.1 million in 1997, a decrease of 4.5%. The decreases in
operating expenses, exclusive of the legal expenses incurred in connection with
the Edison litigation, were due in large part to a favorable property tax
appeal and settlement with Inyo County.
92
<PAGE>
Following Caithness Acquisition's purchase of all of CalEnergy's interests in
the Coso projects, the Coso partnerships retained FPL Operating and Coso
Operating Company to operate and maintain the Coso projects at an anticipated
combined cost savings of approximately $5.5 million per year from the amounts
paid to the prior operators. All O&M fees payable to FPL Operating and Coso
Operating Company, the two new operators, have been subordinated to all
payments to be made under the senior secured notes. See "Business--Operating
Strategy."
The Navy I partnership's operating expenses, exclusive of the legal expenses
incurred in connection with the Edison litigation, decreased slightly to $11.3
million for the year ended December 31, 1997, from $11.8 million in 1996, a
decrease of 3.7%. The BLM partnership's operating expenses, exclusive of these
legal expenses, decreased to $18.2 million for the year ended December 31,
1997, from $18.3 million in 1996, a decrease of 0.5%. The Navy II partnership's
operating expenses, exclusive of these legal expenses, decreased to $13.1
million for the year ended December 31, 1997, from $13.4 million in 1996, a
decrease of 1.7%.
Royalty Expenses
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1996 1997 1998
$ c per kWh $ c per kWh $ c per kWh
(In thousands, except per kWh data)
<S> <C> <C> <C> <C> <C> <C>
Navy I partnership.... $11,059 1.4c $ 9,849 1.4c $ 6,824 1.0c
BLM partnership....... 7,820 1.0 10,106 1.4 10,492 1.4
Navy II partnership... 11,486 1.5 11,249 1.5 11,868 1.6
</TABLE>
The Navy I partnership's royalty expense decreased to $6.8 million for the
year ended December 31, 1998, from $9.8 million in 1997, a 30.7% decrease. This
decrease was due to the Navy I partnership's decrease in revenues over the same
period. The BLM partnership's royalty expense increased to $10.5 million for
the year ended December 31, 1998, from $10.1 million in 1997, a 3.8% increase.
This was due to the increased revenues generated by the BLM partnership over
the period. The BLM partnership's royalty expenses for the year ended December
31, 1998 includes $3.1 million of royalties payable to Coso Land Company. The
BLM partnership's royalty expenses for the year ended December 31, 1997
includes $3.2 million of royalties payable to Coso Land Company. Coso Land
Company is one of our affiliates. The royalties payable by the BLM partnership
to Coso Land Company were $20.7 million as of December 31, 1998 and $17.7
million as of December 31, 1997. No portion of the royalties that are payable
to Coso Land Company has been paid. The royalties owed by the BLM partnership
to the Coso Land Company are subordinated to all payments to be made under the
senior secured notes. The Navy II partnership's royalty expenses increased to
$11.9 million for the year ended December 31, 1998, from $11.2 million in 1997,
an increase of 5.5%. This increase was due to a similar increase in revenues
generated by the Navy II partnership.
The Navy I partnership's royalty expenses decreased to $9.8 million for the
year ended December 31, 1997, from $11.1 million in 1996, a 10.9% decrease.
This was due to the Navy I partnership's decrease in total operating revenues
in 1997. The BLM partnership's royalty expenses increased to $10.1 million for
the year ended December 31, 1997, from $7.8 million in 1996, a 29.2% increase.
This increase was due to the settlement with the Bureau of Land Management in
1996 over the calculation of past royalties. The Navy II partnership's royalty
expenses decreased to $11.2 million for the year ended December 31, 1997, from
$11.5 million in 1996, a 2.1% decrease. This decrease was caused by a similar
decrease in the Navy II partnership's total operating revenues in 1997.
93
<PAGE>
Depreciation and Amortization
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1996 1997 1998
$ c per kWh $ c per kWh $ c per kWh
(In thousands, except per kWh data)
<S> <C> <C> <C> <C> <C> <C>
Navy I partnership.... $13,325 1.7c $12,814 1.8c $11,772 1.8c
BLM partnership....... 13,931 1.8 14,257 2.0 14,308 2.0
Navy II partnership... 13,054 1.7 13,354 1.8 13,744 1.8
</TABLE>
The Navy I partnership's depreciation and amortization expenses decreased to
$11.8 million for the year ended December 31, 1998, from $12.8 million in 1997,
a decrease of 8.1%. This decrease was primarily due to the cessation of
depreciation expense for certain wells which became fully depreciated during
these periods. The BLM partnership's depreciation and amortization expenses
increased to $14.3 million for the year ended December 31, 1998, from $14.3
million for the year ended December 31, 1997, an increase of 0.4%. The Navy II
partnership's depreciation and amortization expenses increased to $13.7 million
for the year ended December 31, 1998, from $13.4 million in 1997, an increase
of 2.9%.
The Navy I partnership's depreciation and amortization expenses decreased to
$12.8 million for the year ended December 31, 1997, from $13.3 million in 1996,
a decrease of 3.8%. The BLM partnership's depreciation and amortization
expenses increased to $14.3 million for the year ended December 31, 1997, from
$13.9 million in 1996, an increase of 2.3%. The Navy II partnership's
depreciation and amortization expenses increased to $13.4 million for the year
ended December 31, 1997, from $13.1 million in 1996, an increase of 2.3%.
Interest Expense
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1996 1997 1998
$ c per kWh $ c per kWh $ c per kWh
(In thousands, except per kWh data)
<S> <C> <C> <C> <C> <C> <C>
Navy I partnership...... $ 8,868 1.1c $ 6,260 0.9c $4,333 0.7c
BLM partnership......... 13,162 1.7 9,105 1.3 6,267 0.9
Navy II partnership..... 12,149 1.6 10,532 1.4 8,122 1.1
</TABLE>
The Navy I partnership's interest expenses decreased to $4.3 million for the
year ended December 31, 1998, from $6.3 million in 1997, a decrease of 30.8%.
The BLM partnership's interest expenses decreased to $6.3 million for the year
ended December 31, 1998, from $9.1 million in 1997, a decrease of 31.2%. The
Navy II partnership's interest expenses decreased to $8.1 million for the year
ended December 31, 1998, from $10.5 million in 1997, a decrease of 22.9%. These
decreases were due to a decrease in the amounts owed under the then existing
project debt that was repaid at the closing of the Series A notes offering. See
"Prospectus Summary--Recent Developments."
The Navy I partnership's interest expenses decreased to $6.3 million for the
year ended December 31, 1997, from $8.9 million in 1996, a decrease of 29.4%.
The BLM partnership's interest expenses decreased to $9.1 million for the year
ended December 31, 1997, from $13.2 million in 1996, a decrease of 30.8%. The
Navy II partnership's interest expenses decreased to $10.5 million for the year
ended December 31, 1997, from $12.1 million in 1996, a decrease of 13.3%. These
94
<PAGE>
decreases were due to a decrease in the amounts owed under the then existing
project debt that was repaid at the Series A notes offering. See "Prospectus
Summary--Recent Developments."
Net Income
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1996 1997 1998
$ c per kWh $ c per kWh $ c per kWh
(In thousands, except for per kWh data)
<S> <C> <C> <C> <C> <C> <C>
Navy I partnership.... $76,477 9.7c $62,159 8.6c $16,588 2.5c
BLM partnership....... 51,264 6.8 52,282 7.5 56,473 7.7
Navy II partnership... 68,240 8.8 66,702 8.7 70,457 9.3
</TABLE>
The Navy I partnership's net income decreased significantly to $16.6 million
for the year ended December 31, 1998, from $62.2 million in 1997, a decrease of
73.3%. The Navy I partnership's net income decreased significantly to $62.2
million for the year ended December 31, 1997, from $76.5 million in 1996, a
decrease of 18.7%. The decreases in net income for these periods are due to the
expiration of the fixed energy price period under the Navy I partnership's
power purchase agreement in August 1997. See "Risk Factors--The Coso
partnerships and their managing partners are currently involved in material
litigation with Edison, their sole customer" and "Business--Legal Proceedings."
The BLM partnership's net income increased to $56.5 million for the year
ended December 31, 1998, from $52.3 million in 1997, an increase of 8.0%. The
BLM partnership's net income increased to $52.3 million for the year ended
December 31, 1997, from $51.3 million in 1996, an increase of 2.0%. The
increases in net income for these periods are due primarily to increases in the
BLM partnership's total operating revenues during these periods.
The Navy II partnership's net income increased to $70.5 million for the year
ended December 31, 1998, from $66.7 million in 1997, an increase of 5.6%. The
increase in net income for this period is due primarily to increases in the
Navy II partnership's total operating revenues during this period. The Navy II
partnership's net income decreased to $66.7 million for the year ended December
31, 1997, from $68.2 million in 1996, a decrease of 2.3%. The decrease in net
income for this period is due primarily to a decrease in the Navy II
partnership's total operating revenues during this period.
Liquidity and Capital Resources
Each of the Navy I partnership, the BLM partnership and the Navy II
partnership derive substantially all of its cash flow from Edison under its
power purchase agreement and from interest income earned on funds on deposit.
The Coso partnerships have historically used their cash primarily for capital
expenditures for power plant improvements, resource and development costs,
distributions to partners and payments with respect to their project debt.
95
<PAGE>
The following table sets forth a summary of each Coso partnership's cash
flows for the three months ended March 31, 1998, the two months ended February
28, 1999, the month ended March 31, 1999 and the three months ended March 31,
1999:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
Three ------------------------------
Months Two Months One Month
Ended Ended Ended
March 31, February 28, March 31,
1998 1999 1999 Total
(In thousands)
<S> <C> <C> <C> <C>
Navy I partnership (stand-alone)
Net cash flows from operating
activities......................... $ 7,804 $ 6,592 $2,665 $ 9,257
Net cash flows from investing
activities......................... (24) (538) (397) (935)
Net cash flows from financing
activities......................... (108) (1,926) 0 (1,926)
------- ------- ------ -------
Net change in cash.................. $ 7,672 $ 4,128 $2,268 $ 6,396
======= ======= ====== =======
<CAPTION>
Three Months Ended
March 31, 1999
Three ------------------------------
Months Two Months One Month
Ended Ended Ended
March 31, February 28, March 31,
1998 1999 1999 Total
(In thousands)
<S> <C> <C> <C> <C>
BLM partnership (stand-alone)
Net cash flows from operating
activities......................... $18,478 $10,367 $6,595 $16,962
Net cash flows from investing
activities......................... (3,556) 120 (294) (174)
Net cash flows from financing
activities......................... (413) 425 (198) 227
------- ------- ------ -------
Net change in cash.................. $14,509 $10,912 $6,103 $17,015
======= ======= ====== =======
<CAPTION>
Three Months Ended
March 31, 1999
Three ------------------------------
Months Two Months One Month
Ended Ended Ended
March 31, February 28, March 31,
1998 1999 1999 Total
(In thousands)
<S> <C> <C> <C> <C>
Navy II partnership (stand-alone)
Net cash flows from operating
activities......................... $19,352 $12,016 $6,265 $18,281
Net cash flows from investing
activities......................... (808) (1,126) (218) (1,344)
Net cash flows from financing
activities......................... 273 1,766 518 2,284
------- ------- ------ -------
Net change in cash.................. $18,817 $12,656 $6,565 $19,221
======= ======= ====== =======
</TABLE>
The Navy I partnership's net cash flows from operating activities increased
from the three months ended March 31, 1998 to March 31, 1999 by approximately
$1.5 million, primarily due to an increase in revenues for the Navy I
partnership in 1999 as compared to 1998.
Cash flows from investing activities at the Navy I partnership decreased from
the three months ended March 31, 1998 to March 31, 1999 by $911,000, primarily
due to the increase in capital expenditures in 1999 as compared to 1998.
The BLM partnership's net cash flows from operating activities decreased from
the three months ended March 31, 1998 to March 31, 1999 by approximately $1.5
million, primarily due to a decrease in revenues for the BLM partnership in
1999 as compared to 1998.
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Cash flows from investing activities at the BLM partnership increased from
the three months ended March 31, 1998 to March 31, 1999 by $3.4 million,
primarily due to the decrease in capital expenditures related to the steam
field.
The Navy II partnership's net cash flows from operating activities decreased
from the three months ended March 31, 1998 to March 31, 1999 by approximately
$1.1 million primarily due to a decrease in revenues for the Navy II
partnership in 1999 as compared to 1998.
Cash flows from investing activities at the Navy II partnership decreased
from the three months ended March 31, 1998 to March 31, 1999 by $536,000,
primarily due to the increase in capital expenditures related to the power
plant.
The Coso partnerships' cash flows from financing activities have fluctuated
primarily as a result of cash distributions made to their partners. See
"Certain Relationships and Related Transactions--Distributions to Caithness
Energy and CalEnergy."
The following table sets forth a summary of each Coso partnership's cash
flows for the years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1997 1998
(In thousands)
<S> <C> <C> <C>
Navy I partnership (stand-alone)
Net cash flows from operating activities... $ 83,779 $ 88,540 $ 32,163
Net cash flows from investing activities... (3,149) 17,948 (7,728)
Net cash flows from financing activities... (109,999) (119,324) (27,323)
--------- --------- --------
Net change in cash......................... $ (29,369) $ (12,836) $ (2,888)
========= ========= ========
<CAPTION>
Year Ended December 31,
------------------------------
1996 1997 1998
(In thousands)
<S> <C> <C> <C>
BLM partnership (stand-alone)
Net cash flows from operating activities... $ 64,335 $ 60,948 $ 75,520
Net cash flows from investing activities... (5,798) 19,280 (20,302)
Net cash flows from financing activities... (85,590) (92,521) (56,091)
--------- --------- --------
Net change in cash......................... $ (27,053) $ (12,293) $ (873)
========= ========= ========
<CAPTION>
Year Ended December 31,
------------------------------
1996 1997 1998
(In thousands)
<S> <C> <C> <C>
Navy II partnership (stand-alone)
Net cash flows from operating activities... $ 74,611 $ 80,660 $ 84,762
Net cash flows from investing activities... (3,883) 14,399 (6,939)
Net cash flows from financing activities... (97,316) (112,044) (78,153)
--------- --------- --------
Net change in cash......................... $ (26,588) $ (16,985) $ (330)
========= ========= ========
</TABLE>
The Navy I partnership's net cash flows from operating activities decreased
by approximately $56.4 million from 1997 to 1998. This decrease was primarily
due to a decrease in revenues for the Navy I partnership in 1998 in which the
Navy I partnership received a full year of energy payments from Edison based
upon Edison's avoided cost of energy. Edison has taken the position that the
fixed energy price period expired in August 1997 for the Navy I partnership and
in March 1999 for the
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BLM partnership, and will expire in January 2000 for the Navy II partnership.
See "Risk Factors--The Coso partnerships and their managing partners are
currently involved in material litigation with Edison, their sole customer,"
"--General" and "Business--Legal Proceedings." The expiration of the fixed
energy price period for the BLM partnership and the Navy II partnership and the
concomitant switch to payments by Edison based upon its avoided cost of energy
is likely to have a material adverse effect on net cash flows from operating
activities of those two Coso partnerships as well. However, future cash flows
from operating activities generated from revenues under the Coso partnerships'
power purchase agreements, plus any subsidy payments that the Coso partnerships
may receive under AB1890 through 2001 are expected to be sufficient to fund
operating expenses, royalty expenses (including the Navy I partnership's
obligations to make payments to the Navy sinking fund), payments of interest
and principal on the senior secured notes and capital expenditures.
Cash flows from investing activities at the Navy I partnership decreased from
1997 to 1998 by approximately $25.7 million, primarily due to the release in
1997 of approximately $22.5 million, held in a debt service reserve fund, and
further decreased by an increase in capital expenditures in 1998 as compared to
1997. The increase from 1996 to 1997 in cash flows from investing activities of
approximately $21.1 million is due to the same factors.
Cash flows from investing activities at the BLM partnership decreased from
1997 to 1998 by approximately $39.6 million, primarily due to the release in
1997 of approximately $23.0 million held in a debt service reserve fund, and
further decreased by an increase in capital expenditures of $16.6 million in
1998 as compared to 1997. The increase in capital expenditures by the BLM
partnership in 1998 is due to the drilling of new wells and other capital
expenditures relating to the steam sharing program. The increase from 1996 to
1997 in cash flows from investing activities of approximately $25.1 million is
also due to the release in 1997 of the cash held in the debt service reserve
fund, further increased by a decrease in capital expenditures in 1997 as
compared to 1996 of approximately $2.3 million.
Cash flows from investing activities at the Navy II partnership decreased
from 1997 to 1998 by approximately $21.3 million, primarily due to the release
in 1997 of approximately $22.4 million held in a debt service reserve fund,
partially offset by a decrease in capital expenditures in 1998 as compared to
1997. The increase from 1996 to 1997 in cash flows from investing activities of
approximately $18.3 million is also due to the release in 1997 of the cash held
in the debt service reserve fund partially offset by an increase in capital
expenditures in 1997 as compared to 1996.
The increase in the Coso partnerships' cash flows from investing activities
in 1997, as compared to 1996, was due to the release of the debt service
reserve fund in February 1997, offset somewhat by higher capital expenditures
in 1997, as compared to 1996.
The Coso partnerships' cash flows from financing activities have fluctuated
primarily as a result of cash distributions made to their partners. See
"Certain Relationships and Related Transactions--Distributions to Caithness
Energy and CalEnergy."
A portion of the proceeds from the Series A notes offering was used to
initially fund a Debt Service Reserve Account in the amount of $50.0 million.
Amounts deposited in the Debt Service
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Reserve Account will be available to pay principal of and interest on the
senior secured notes if we are not able to meet our obligations to make those
payments. See "Description of Series B Notes--Debt Service Reserve Account."
The amount of funds held in the Debt Service Reserve Account will increase or
decrease from time to time and will equal the amount of the scheduled principal
and interest payment due on the senior secured notes for the immediately
succeeding six months.
The Navy I partnership is obligated to pay the Navy the sum of $25.0 million
on or before December 31, 2009, the expiration date of the term of the Navy
Contract. Payment of the obligation will be made from an established sinking
fund to which the Navy I partnership has been making payments since 1987. As of
March 31, 1999, there was approximately $7.7 million on deposit in this sinking
fund, representing both sinking fund payments made by the Navy I partnership
and accrued interest thereon. The Navy I partnership intends to make aggregate
annual payments to this sinking fund of approximately $716,000 through 2009
with cash flows generated from operating activities. See "Business--Royalty and
Revenue-Sharing Arrangements--Navy I."
The Coso partnerships have established a Capital Expenditure Reserve Account
which will be funded semi-annually in accordance with each Coso partnership's
operating budget and schedules thereto approved by our independent engineer.
The Capital Expenditure Reserve Account is pledged as security for the senior
secured notes. See "Description of Series B Notes--Capital Expenditure Reserve
Account." We expect that capital expenditures of the Coso partnerships for the
balance of 1999 to be approximately $18.8 million, based on each Coso
partnership's operating budget.
Year 2000 Issue
The Year 2000 issue refers to the fact that certain management information
and operating systems use two-digit data fields which recognize dates using the
assumption that the first two digits are "19" (for example, the number 98 is
recognized as the year 1998). When the year 2000 occurs, these systems could
interpret the year 2000 as 1900, which, in turn, could result in system
failures or miscalculations. This could cause disruptions of operations at the
Coso projects and at Edison, their sole customer.
The Coso partnerships have implemented a comprehensive program to address the
potential impact of the Year 2000 issue. This program involves several stages,
including inventory and impact assessment, remediation, testing and
implementation. The inventory and impact assessment of the information
technology infrastructure, computer applications and computerized processes
embedded in certain operating equipment has been completed, and most of the
necessary modifications have been remediated, tested and implemented. However,
the testing and implementation of one particular system, the failure of which
would severely impair the operations of the Coso projects, has not been
completed but final testing and implementation is expected to be completed
during the second quarter of 1999. This program is expected to be completed
during the second quarter of 1999.
The Coso partnerships depend substantially for their operating revenues on
Edison's purchase of all electrical energy generated by the plants. If Edison
fails to fulfill its contractual obligations under the power purchase
agreements because it has failed to resolve its own Year 2000 issues, it could
have a material adverse effect on the Coso partnerships' revenues and ability
to make payments on their project notes and guarantees. The Coso partnerships
have contacted Edison. Edison indicated that its Year 2000 program will be
completed by December 31, 1999. Further, Edison has reported in its annual
report filed on Form 10-K for the year ended December 31, 1998, that its
informational and operational systems have been assessed, and detailed plans
have been developed to address
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<PAGE>
modifications required to be completed, tested and operational by December 31,
1999. The Coso partnerships will continue to contact Edison in an effort to
minimize any potential Year 2000 compliance impact, however, it is not possible
to guarantee Edison's compliance. Edison and other third parties might fail to
resolve timely their own Year 2000 issues, or might experience delays or
changes in the estimated time it takes to fix these problems.
The total costs expended to date for the Year 2000 program has been minimal.
The Coso partnerships expect to incur a nominal amount in the future to make
their computer systems Year 2000 compliant.
The Coso partnerships' Year 2000 contingency planning is currently underway
to address risk scenarios at the operating level (such as generation and
transmission), as well as at the business level (such as procurement and
accounting) and include developing strategies for dealing with the most
reasonably likely worst case scenario concerning Year 2000-related processing
failures or malfunctions caused by internal systems that would include a
temporary disruption of service to Edison or the possible disruption of
electricity sales to Edison due to Edison's failure to resolve their own Year
2000 issues in a timely manner. Contingency plans are expected to be completed
by mid-1999, allowing the second half of 1999 for implementation of the
contingency plan.
Although we believe that we and the Coso partnerships have an effective
program in place to adequately address the Year 2000 issue in a timely manner,
failure of third parties upon whom the Coso partnerships' business relies could
result in disruption of the Coso partnerships' generation of revenues and
payments on their project notes. Accordingly, the amount of potential liability
and lost revenue cannot be reasonably estimated at this time. See "Risk
Factors--The Coso partnerships could be materially adversely affected by
unanticipated Year 2000 compliance problems."
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BUSINESS
The Coso Projects
The Coso projects consist of three 80 MW geothermal power plants, which we
call Navy I, BLM and Navy II, and their transmission lines, wells, gathering
system and other related facilities. The Coso projects are located near one
another in the Mojave Desert approximately 150 miles northeast of Los Angeles,
California, and have been generating electricity since the late 1980s. Unlike
fossil fuel-fired power plants, the Coso projects' power plants use geothermal
energy derived from the natural heat of the earth's interior to generate
electricity. Since geothermal power plants have no fossil fuel costs, we
believe our plants enjoy higher and more stable gross operating margins than
fossil fuel-fired power plants with similarly rated capacities.
The Navy I partnership owns Navy I and its related facilities, the BLM
partnership owns BLM and its related facilities and the Navy II partnership
owns Navy II and its related facilities. The Coso partnerships and their
affiliates own the exclusive right to explore, develop and use, currently
without any known interference from any other power developers, a portion of
the Coso Known Geothermal Resource Area. See "--The Coso Known Geothermal
Resource Area." Since 1991, the Coso partnerships have drilled 56 geothermal
wells, approximately 91% of which have contributed to the commercial production
of geothermal energy.
The geothermal power plants, each of which has three separate turbine
generator units, have consistently operated above their nominal capacities, and
the combined average capacity factor for the plants has exceeded 100%, for each
of the last six years. For the three months ended March 31, 1999, the plants
operated at a combined average capacity factor of approximately 99.3%.
The Coso partnerships sell 100% of the electrical energy generated at the
plants to Edison under three long-term Standard Offer No. 4 power purchase
agreements. Each power purchase agreement expires after the last maturity date
of the senior secured notes. Edison is one of the largest investor-owned
electric utilities in the United States. As of December 31, 1998, Edison
reported in its 1998 annual report total assets of $16.9 billion and operating
revenues of $8.8 billion. Edison was, as of the date of this prospectus, rated
A1 by Moody's and A+ by Standard & Poor's.
Under the power purchase agreements, the Coso partnerships receive the
following payments:
. Capacity payments for being able to produce electricity at certain
levels. Capacity payments are fixed throughout the lives of the power
purchase agreements;
. Capacity bonus payments if they are able to produce electricity above a
specified higher level. The maximum capacity bonus payment available is
also fixed throughout the lives of the power purchase agreements; and
. Energy payments which are based on the amount of electricity their
respective plants actually produce.
Energy payments are fixed for the first ten years of firm operation under the
power purchase agreements. Firm operation was achieved for each Coso
partnership when Edison and that Coso partnership under its power purchase
agreement agreed that each generating unit at a plant was a reliable source of
generation and could reasonably be expected to operate continuously at its
effective rating. After the first ten years of firm operation and until its
power purchase agreement expires, Edison makes energy payments to the Coso
partnership based on its avoided cost of energy. Edison's avoided cost of
energy is Edison's cost to generate electricity if Edison were to produce it
itself or
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<PAGE>
buy it from another power producer rather than buy it from the relevant Coso
partnership. See "Risk Factors--Future energy payments paid by Edison to the
Coso partnerships will most likely be less than historical energy payments
because they will be paid based on Edison's avoided cost of energy."
Edison has taken the position that the fixed energy price period expired in
August 1997 for the Navy I partnership and in March 1999 for the BLM
partnership, and will expire in January 2000 for the Navy II partnership. The
Coso partnerships believe that the power purchase agreements provide that each
of the three separate turbine generator units at each Coso project has its own
full ten-year fixed energy price period. This issue is one of several currently
in dispute and subject to an ongoing lawsuit between, among others, the Coso
partnerships and Edison. Without making any statement on the outcome of this or
any other dispute with Edison, for purposes of this prospectus only, including
the historical and pro forma financial information included herein, we have
assumed that the fixed energy price period expires ten years after the first of
the three generator units at each respective Coso project established firm
operation. We believe that this assumption is conservative and reasonable for
purposes of this prospectus given that we cannot predict the outcome of this
issue. See "Risk Factors--The Coso partnerships and their managing partners are
currently involved in material litigation with Edison, their sole customer" and
"Business--Legal Proceedings."
The Edison power purchase agreements will expire:
. in August 2011 for the Navy I partnership;
. in March 2019 for the BLM partnership; and
. in January 2010 for the Navy II partnership.
As of March 31, 1999, the unaudited combined net book value of the property,
plant and equipment of the Coso partnerships was approximately $471.0 million,
including approximately $158.4 million at the Navy I partnership, $163.2
million at the BLM partnership and $149.4 million at the Navy II partnership.
AB1890 Energy Subsidy Payments
In addition to receiving payments under the power purchase agreements, the
Navy I partnership and the BLM partnership currently qualify for subsidy
payments from a special purpose state fund established under AB1890. The
California Energy Commission administers the fund. AB1890 provides in part for
subsidy payments from 1998 through 2001 to power generators using renewable
sources of energy, including geothermal energy, and who are being paid based on
an avoided cost of energy basis. The funds are distributed in the form of a
production incentive payment that subsidizes renewable energy producers when
prices paid for their electricity are below certain pre-determined target
prices. Under AB1890, the Navy I partnership and the BLM partnership are
expected to receive in the future subsidy payments for energy delivered to
Edison by the Navy I partnership or the BLM partnership, as the case may be, if
Edison's avoided cost of energy falls below 3.0c per kWh. This subsidy is
capped at 1.0c per kWh. The Navy II partnership should also qualify for these
subsidy payments through 2001 once the fixed energy price period under its
power purchase agreement expires.
The Navy I partnership has granted a lien in favor of the California Energy
Commission against any recovery that the Navy I partnership obtains against
Edison which relates to the issue of when the fixed energy price period expires
at its plant, as described above and under the heading
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"Business--Legal Proceedings." The lien will secure approximately $477,000 of
AB1890 funds to be paid by the California Energy Commission to the Navy I
partnership with respect to the disputed period in 1998. The Navy I partnership
has posted a bond in the same amount as additional security. We expect that the
BLM partnership may need to do the same this year with respect to AB1890
payments to be paid by the California Energy Commission to the BLM partnership
after March 1999. We estimate that the BLM partnership will need to secure
approximately $350,000 of AB1890 payments and to post a similar bond. See "Risk
Factors--The Coso partnerships and their managing partners are currently
involved in material litigation with Edison, their sole customer" and
"Business--Legal Proceedings."
Operating Strategy
The Coso partnerships seek to maximize cash flow at the Coso projects through
active management of the Coso projects' cost structure and the Coso geothermal
resource. As a result of Caithness Acquisition's purchase of all of CalEnergy's
interests in the Coso projects:
. The Coso partnerships have retained two new operators at the Coso
projects: FPL Operating and Coso Operating Company. FPL Operating
operates and maintains all three plants, the transmission lines and the
geothermal fields at the Coso projects under three short-term O&M
agreements. Coso Operating Company, which is one of our affiliates,
manages the geothermal resource, including well drilling, under three
additional O&M agreements. Also:
. FPL Operating and Coso Operating Company have retained substantially
the same employees who were employed by the prior operator.
Approximately 70% of the employees who currently work at the Coso
projects' sites have been employed there since 1992; and
. As a result of the change in operators and the restructuring of
operator fees, the aggregate annual fees to be paid by the Coso
partnerships to FPL Operating and Coso Operating Company have been
reduced from approximately $7.5 million, which had been paid to
CalEnergy, to approximately $2.0 million. Payment of these reduced
operator fees have been subordinated to all payments to be made under
the senior secured notes;
. Caithness Acquisition, which recently purchased the managing partners of
the Coso partnerships, has caused any management committee fees payable
by each Coso partnership to its partners to be subordinated to all
payments to be made under the senior secured notes;
. The Coso partnerships expect to reduce annual non-fee related costs at
the Coso projects, including insurance, maintenance and other costs, by
approximately $1.9 million. However, the pro forma financial data
included in this prospectus does not give effect to this cost savings;
and
. The Coso partnerships are expanding a steam sharing program they
previously implemented among the Coso projects to enhance the management,
and to optimize the overall use, of the Coso geothermal resource. As part
of this program, the Coso partnerships plan to conserve the geothermal
resource whenever possible by, among other things:
. Transferring steam between and among the Coso projects and from BLM
North, rather than drilling new wells at the Coso projects' sites
prematurely; and
. Expanding the flexible field-wide water reinjection program. See "--
Steam Sharing Program."
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The Coso projects qualify as Small Power QFs under PURPA and the rules and
regulations promulgated under PURPA by FERC. PURPA exempts the Coso projects
from certain federal and state regulations. The Coso projects must continue to
satisfy certain ownership and fuel-use standards to maintain their QF status.
Since their inception, the Coso projects have satisfied these standards and we
expect that they will continue to do so.
Purchase of CalEnergy Interests
In late 1998, CalEnergy announced that it was planning to merge with
MidAmerican Energy Holdings Company. As a consequence of the planned merger,
FERC required CalEnergy to divest itself of at least a portion of its
approximately 48% equity interest in the Coso projects if the Coso projects
were to continue to qualify as QFs under PURPA. Each Coso partnership is
required to operate and maintain its Coso project as a QF under its power
purchase agreement and under the Indenture. See "--Overview of the Independent
Power Industry."
On February 25, 1999, Caithness Acquisition purchased all of CalEnergy's
interests in the Coso projects. The purchase price consisted of $205.0 million
in cash, plus $5.0 million in contingent payments, plus the assumption of
CalEnergy's and its affiliates' share of debt outstanding at the Coso projects
which then totaled approximately $67.0 million. In order to complete the
purchase, Caithness Acquisition arranged for short-term debt financing in the
principal amount of approximately $211.5 million. Caithness Acquisition used a
portion of the proceeds from the Series A notes offering that it received from
the Coso partnerships, together with funds from other sources, to repay all
amounts owed under this short-term debt facility. See "Certain Relationships
and Related Transactions--Purchase of CalEnergy Interests."
As part of the purchase of CalEnergy's interests in the Coso projects,
Caithness Energy will be required to pay the contingent payment upon the
settlement, final judgment or other dismissal of the litigation with Edison
described under the heading "Business--Legal Proceedings." The amount of the
contingent payment will depend on the outcome of the litigation with Edison.
If, as a result of the Edison litigation, the Coso partnerships are required to
pay damages to Edison, then the amount of the contingent payment will be
reduced by $0.50 for each $1.00 of damages in excess of any amounts owed to or
received by the Coso partnerships from Edison. The amount owed to the Coso
partnerships by Edison will include any amounts in excess of $5.7 million
received by the Coso partnerships from Edison as a result of the dispute
regarding the escalation of the fixed price energy payment schedule for 1999
and 2000. In no event will the amount of the contingent payment be greater than
$5.0 million or will CalEnergy owe any payment to the Coso partnerships as a
result of any adjustments to the amount of the contingent payment.
In addition, the Coso partnerships and certain other affiliates of Caithness
Energy entered into a future revenue agreement with CalEnergy. This agreement
provides that the Coso partnerships and such affiliates will pay to CalEnergy
one-seventh of the gross revenues from the Coso projects or any expansions
thereof derived from certain energy-related arrangements with the U.S.
Government. This agreement does not apply to currently existing arrangements
that the Coso partnerships have with the U.S. Government or any extensions or
renewals of those existing arrangements. The term of this agreement will expire
on February 25, 2004, unless a new arrangement is entered into with the U.S.
Government, in which case the term will expire upon the expiration of that new
arrangement.
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The Sponsor
Caithness Energy, the principal operating subsidiary of Caithness
Corporation, is a developer and owner of independent power projects and is the
sponsor of the Coso projects. Since 1966, the current owners of Caithness
Corporation have been involved in the development of long-term investment
opportunities involving natural resources. Caithness Corporation is one of the
two original sponsors of the Coso projects and formed Caithness Energy in 1995
to consolidate its ownership of independent power projects.
Caithness Energy believes that it is currently the second largest owner of
geothermal power projects in the United States, based on the total electrical
generating capacity of its power projects. Through its controlled affiliates,
Caithness Energy owns interests in seven geothermal plants, including the Coso
projects, totaling 420 MW. Caithness Energy is also seeking to develop two
additional geothermal power projects with a total potential electrical
generating capacity of over 400 MW, and has interests in other operating power
generating facilities, including solar, wind and natural gas, totaling an
additional 400 MW.
Caithness Energy typically partners with strategic investors in its power
project investments. The largest such investors in the Coso projects currently
are:
. a subsidiary of FPL Energy, Inc., the independent power subsidiary of FPL
Group, Inc., which is the parent company of Florida Power & Light
Company, one of the largest investor-owned utilities in the United
States; and
. Dominion Energy, Inc., a subsidiary of Dominion Resources, Inc., which
also is a large investor-owned utility. See "--The Coso Partnerships."
The Coso partnerships and Coso Operating Company, one of the two existing
operators of the Coso Projects and our affiliate, have been negotiating with
FPL Operating and its affiliates to acquire all of the equity interests in the
Navy I partnership held by one of FPL Operating's affiliates and to terminate
the existing O&M agreements with FPL Operating. See "Prospectus Summary--Recent
Developments--Negotiations with FPL Operating and its Affiliates."
Caithness Energy is headquartered in New York City and has additional offices
in California, Colorado and Florida.
The Coso Partnerships
Affiliates of Caithness Energy and CalEnergy formed the Coso partnerships
during the 1980s to develop, own and operate Navy I, BLM and Navy II. The Navy
I partnership was formed in July 1987, the BLM partnership was formed in March
1988 and the Navy II partnership was formed in July 1989. The Coso partnerships
own and operate the Coso projects. See "--Overview of the Coso Projects--
Project History."
Each of the Coso partnerships has two general partners, a managing partner
and a non-managing partner. The managing partner of the Navy I partnership is
New CLOC Company, LLC, a Delaware limited liability company ("New CLOC"), the
managing partner of the BLM partnership is New CHIP Company, LLC, a Delaware
limited liability company ("New CHIP") and the managing partner of the Navy II
partnership is New CTC Company, LLC, a Delaware limited liability company ("New
CTC"). The non-managing partner of the Navy I partnership is ESCA LLC, a
Delaware limited liability company ("ESCA"), the non-managing partner of the
BLM partnership is Caithness
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Coso Holdings, LLC, a Delaware limited liability company ("CCH"), and the non-
managing partner of the Navy II partnership is Caithness Navy II Group, LLC, a
Delaware limited liability company ("Navy II Group").
ESCA, the non-managing partner of the Navy I partnership, is owned by
affiliates of Caithness Energy and by ESI Geothermal, Inc., a Florida
corporation ("ESI"). ESI is in turn indirectly wholly owned by FPL Energy, Inc.
CCH and Navy II Group are owned by Caithness Energy-controlled entities.
Dominion Energy, Inc. is a limited partner of a member of CCH and is a member
of Navy II Group.
Since Caithness Acquisition's purchase of all of CalEnergy's interests in the
Coso projects in February 1999, Caithness Energy has indirectly wholly owned
and controlled the managing partners of the BLM partnership and the Navy II
partnership. Caithness Energy and its affiliates also control CCH, the non-
managing partner of the BLM partnership, and Navy II Group, the non-managing
partner of the Navy II partnership. In addition, while Caithness Energy has
indirectly wholly owned and controlled the managing partner of the Navy I
partnership since February 1999, it does not wholly own and control ESCA, the
non-managing partner of the Navy I partnership. Caithness Energy, FPL Energy,
Inc. and their respective affiliates collectively own and control ESCA. See
"Management." Also see "Prospectus Summary--Recent Developments--Negotiations
with FPL Operating and its Affiliates."
The Issuer
We are a special purpose corporation and a wholly owned subsidiary of the
Coso partnerships. We were formed for the purpose of issuing the senior secured
notes for ourselves and on behalf of the Coso partnerships. The Coso
partnerships have guaranteed our obligations to repay the senior secured notes.
On May 28, 1999, the closing date of the Series A notes offering, we and the
Coso partnerships completed the following transactions:
. We sold $110,000,000 of our 6.80% Series A Senior Secured Notes due 2001
and $303,000,000 of our 9.05% Series A Senior Secured Notes due 2009 to
the initial purchaser of the Series A notes pursuant to a purchase
agreement, dated May 21, 1999, among the initial purchaser, the Coso
partnerships and us;
. We loaned all of the proceeds from the Series A notes offering to the
Coso partnerships; and
. The Coso partnerships, in turn, caused the net proceeds from the Series A
notes offering, together with cash on their balance sheets and funds from
other sources, to (1) retire all Coso project debt that existed prior to
the Series A notes offering, including the payment of accrued and unpaid
interest and premiums, of approximately $150.7 million, (2) initially
fund the Debt Service Reserve Account established under the Depositary
Agreement in the amount of $50.0 million, (3) repay approximately $216.9
million of short term debt, including accrued interest, incurred to
purchase all of CalEnergy's interests in the Coso projects and (4) make
distributions of the remaining balance to the owners of the Coso
partnerships other than the beneficial owners of Caithness Energy.
We have no other material assets, other than the loans we made to the Coso
partnerships, and do not conduct any business, other than issuing the senior
secured notes and making the loans to be Coso partnerships.
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Overview of the Independent Power Industry
The Coso projects are part of the growing domestic independent power
industry. Utilities in the United States have been the predominant producers of
electric power since the early 1900s. In 1978, however, Congress enacted PURPA,
which removed regulatory constraints relating to the production and sale of
electricity by certain non-utility power producers. PURPA requires electric
utilities to buy electricity from non-utility power producers that use
renewable energy sources, known as Small Power QFs, or that produce both
electric energy and useful thermal energy used for industrial, commercial,
heating or cooling purposes, known as Cogeneration QFs. This encouraged
companies other than electric utilities to enter the electric power production
market. Under PURPA, electric utilities are required to comply with state law
guidelines and, in general, must interconnect with and buy capacity and energy
offered by non-utility power producers meeting certain ownership and, in the
case of Cogeneration QFs, operating and efficiency standards, or, in the case
of Small Power QFs, fuel use criteria, established by FERC if there is a need
for such electricity and if it is priced at or below the utility's avoided cost
of energy at the time of the agreements.
According to the Edison Electric Institute, as of December 31, 1997 (the most
recent data available, non-utility power producers represented approximately
8.5% of the installed generating capacity in the United States, accounting for
approximately 11.8% of the total electric generation in 1997. Between December
31, 1993 and December 31, 1997, non-utility power producers represented
approximately 44.5% of the new installed generating capacity added in the
United States.
The Coso Known Geothermal Resource Area
The Coso projects are located in an area that has been designated as a Known
Geothermal Resources Area by the Bureau of Land Management pursuant to the
Geothermal Steam Act of 1970. The Bureau of Land Management designates an area
as a Known Geothermal Resource Area when it determines that a commercially
viable geothermal resource is likely to exist there. There are over 100 Known
Geothermal Resource Areas in the United States, most of which are located in
the western United States in tectonically active regions.
The Coso Known Geothermal Resource Area is located in Inyo County,
California, approximately 150 miles northeast of Los Angeles. The Coso
geothermal resource is a "liquid-dominated" hot water source contained within
the heterogeneous fractured granite rocks of the Coso mountains. We believe the
heat source for the Coso geothermal resource is a hot molten rock or "magma"
body located at a depth of six-to-seven miles beneath the surface of the field.
Geochemical studies indicate that the water in the Coso geothermal resource is
ancient water that has been there since the ice age or longer.
The Coso partnerships produce steam by drilling wells into the fracture
systems, which tap into these reservoirs of hot water. These fractures act as
the plumbing system within the geothermal resource, enabling hot fluids to
circulate from deep within the earth's crust to drillable depths. Fractured
systems of this type are common among geothermal systems throughout the world.
As is typical in these types of complex geothermal reservoirs, it is often
difficult to predict how well these new wells will perform, even when the new
wells are located in close proximity to each other. The geothermal consultant's
report prepared by GeothermEx, Inc., which is included in Exhibit C in this
prospectus, provides additional information regarding the Coso geothermal
resource.
The Coso geothermal resource, which is a "liquid-dominated" system, is
significantly different from a so-called "dry steam" system. Although a dry
steam system contains more extractable energy
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per pound than does the mixture of steam and water from the Coso geothermal
resource, we believe that the liquid-dominated Coso geothermal resource offers
certain operating advantages. Production from geothermal systems over time
results in a net loss of steam or fluid from the reservoir and consequently, a
decrease in reservoir pressure within the system. The liquid portion of the
fluid withdrawn from a liquid dominated system can be injected back into the
reservoir at specific points, which provides a means of maintaining pressure
support in the reservoir. In dry steam fields, no significant liquid fraction
is available, and reservoir pressure maintenance may require the importation of
water from an external source. The Coso geothermal resource is also relatively
low in total dissolved solids as contrasted with other liquid-dominated
geothermal resources. This contributes to less maintenance on the wells and
pipes to eliminate the build up of dissolved solids, and results in longer well
life.
Geothermal Energy
Geothermal energy is:
. an established and generally sustainable source of energy that
releases significantly lower levels of emissions than result when
energy is generated by burning fossil fuels;
. derived from the natural heat of the earth when water comes
sufficiently close to hot molten rock to heat the water to
temperatures of 400 degrees Fahrenheit or more. The heated water then
ascends toward the surface of the earth where, if geological
conditions are suitable, it can be extracted for commercial use by
drilling geothermal wells; and
. a renewable source of energy so long as natural ground water flows
and reinjection of extracted geothermal fluids are adequate over the
long term to replenish the geothermal reservoir after geothermal
fluids have been withdrawn.
Compared to fossil fuel-fired power plants, geothermal energy facilities
typically have higher capital costs, primarily as a result of wellfield
development, but tend to have significantly lower variable operating costs.
Power Production Process
The physical facilities used for geothermal energy production are
substantially the same at Navy I, BLM and Navy II. The following diagram
illustrates the geothermal energy production process:
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[DIAGRAM APPEARS HERE]
The geothermal fluids produced at the wellhead consist of a mixture of hot
water and steam. The mixture flows from the wellhead through a gathering system
of insulated steel pipelines to high pressure separation vessels, or
separators. There, steam is separated from the water and is sent to a demister
in the power plant, where any remaining water droplets are removed. This
produces a stream of dry steam, which passes through the high pressure inlet of
a turbine generator, producing electricity. The hot water previously separated
from the steam at the high pressure separators is piped to low pressure
separators, where low pressure steam is separated from the water and sent to
the low pressure inlet of a turbine generator. The hot water remaining after
low pressure steam separation is injected back into the Coso geothermal
resource.
Steam exhausted from the steam turbine is passed to a surface condenser
consisting of an array of tubes through which cold water circulates. Moisture
in the steam leaving the turbine generators condenses on the tubes and, after
being cooled further in a cooling tower, is used to provide cold circulating
water for the condenser.
The primary atmospheric emission control system at each of the Coso projects
consists of surface condenser, non-condensable gas removal equipment and a gas
compressor unit. In the initial periods of operations at the Coso projects,
gases were mixed with hot water exiting the low pressure separators and
injected back into the Coso geothermal resource via injection wells. This
practice of gas injection has been replaced with surface hydrogen sulfide
abatement systems at each Coso project. The Coso partnerships installed a "Dow
Sulferox H\\2\\S" abatement system at BLM in 1992 and "LO-CAT II" abatement
systems at Navy I and Navy II in 1994. Both systems utilize a patented chemical
process which transforms hydrogen sulfide gas into elemental sulfur, which can
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then be sold. For certain legal proceedings relating to the installation of the
"Dow Sulferox H\\2\\S" abatement system, see "--Legal Proceedings."
All three plants are designed to operate 24 hours per day, every day of the
year. Each year, three of the turbine generators are shut down for
approximately two weeks for regular inspection, maintenance and repair. FPL
Operating, the operator of the plants, will attempt to schedule these shut-
downs during off-peak periods. Additionally, outages during weekends, which are
considered off-peak periods, are scheduled twice a year for each of the nine
units. You should read the independent engineer's report prepared by Sandwell
Engineering Inc. and included in Exhibit A of this prospectus for more
information about the plants. It has a description of the status of the current
operations at each plant and their ability to maintain current levels of
operations.
Overview of the Coso Projects
Project History
In December 1979, CalEnergy signed the Navy Contract. Under the Navy
Contract, the Navy granted to CalEnergy exclusive contractual rights to explore
for, develop and use a portion of the Coso Known Geothermal Resource Area
located at the United States Naval Air Weapons Center at China Lake,
California. In 1980, an affiliate of Caithness Corporation and CalEnergy formed
a joint venture partnership, which is known as China Lake Joint Venture, to
develop jointly the geothermal resources in this area, and the Navy Contract
was subsequently assigned to China Lake Joint Venture. In 1983 and 1984, China
Lake Joint Venture negotiated the power purchase agreements with Edison. See
"Summary Descriptions of Principal Agreements Relating to the Coso Projects--
Power Purchase Agreements." In April 1985, CalEnergy entered into an Offer to
Lease and Lease for Geothermal Resources with the Bureau of Land Management,
which we call the BLM lease. By assignment from CalEnergy of the BLM lease,
Coso Land Company, another joint venture entity formed by affiliates of
Caithness Corporation and CalEnergy, obtained a leasehold interest in land
adjacent to the Navy lands for geothermal exploration and development.
In 1986, China Lake Joint Venture directly assigned to the Navy I partnership
portions of its interests under the Navy Contract in connection with the
construction of Navy I. In 1988, China Lake Joint Venture assigned to the Navy
II partnership portions of its interests under the Navy Contract in connection
with the construction of Navy II. It also retained a residual interest in the
Navy Contract. In 1988, the BLM lease was assigned to the BLM partnership.
Also, in 1989, the BLM partnership and the Navy II partnership transferred
certain of their respective rights to the BLM/Navy II Transmission Line
described under "Transmission Lines" below to Coso Transmission Line Partners,
a California general partnership of which the BLM partnership and the Navy II
partnership are the general partners, in connection with the completion of Navy
II. Today, the rights under the Navy Contract are vested in the Navy I
partnership, the Navy II partnership and Coso Transmission Line Partners, with
the residual interest held by China Lake Joint Venture, and the rights under
the BLM lease are vested in the BLM partnership. See "--The Coso Partnerships"
and "--Purchase of CalEnergy's Interests."
Plants
Navy I. Navy I and its steam resource are located on the United States Naval
Weapons Center at China Lake. It commenced operations in 1987. As of April 1,
1999, geothermal steam for Navy I was produced using 42 production and
injection wells located within a radius of approximately
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3,000 feet of Navy I. Navy I consists of three separate turbine generators,
known as Units 1, 2 and 3, each with approximately 30 MW of electrical
generating capacity. Navy I's steam gathering and piping systems are cross-
connected to Navy II via metered transfers to allow steam to be transferred
from wells located on the real property covered by the LADWP leases to Navy I
and between Navy I and Navy II pursuant to the steam sharing program. See "--
Steam Sharing Program." Unit 1 at Navy I commenced firm operation in 1987, and
Units 2 and 3 at Navy I commenced firm operation during 1988. Navy I has an
aggregate gross electrical generating capacity of approximately 90 MW, and
operated at an average operating capacity factor of 94.6% in 1998, 103.2% in
1997 and 112.1% in 1996, based on a nameplate capacity of 80 MW.
In January 1999, one of Navy I's three turbine generator units, known as Unit
1, automatically shut down when the stator coils attached to it experienced a
ground fault. The stator coil was repaired, and Unit 1 was scheduled to return
to service in March 1999. However, electrical faults recurred during the start-
up testing stage of Unit 1's generators, and the Navy I partnership postponed
Unit 1's return to service while it repaired the unit. Unit 1 returned to
service prior to June 1, 1999, and is currently in service. The Navy I
partnership had filed a claim in connection with Unit 1's shutdown under its
business interruption and casualty insurance policies. It expects that any
losses resulting from this shutdown will be covered by insurance, subject to a
deductible of $500,000 for property damage and a 25-day deductible for business
interruption. The other two turbine generator units at Navy I and the three
generator units at BLM and Navy II are also currently in service.
BLM. BLM and its steam resource are located on Bureau of Land Management
property (other than the Bureau of Land Management property that is subject to
the LADWP leases), within the boundaries of the United States Naval Weapons
Center at China Lake. It commenced operations in 1989. BLM is comprised of
turbine generators located at two different power blocks: the BLM East site and
the BLM West site. The BLM East site is located approximately 1.3 miles east of
the BLM West site. As of April 1, 1999, geothermal steam for BLM was produced
using 36 production and injection wells located within a radius of
approximately 4,000 feet from either the BLM East or the BLM West site. BLM
consists of three separate turbine generators, known as Units 7, 8 and 9. Units
7 and 8 are located at the BLM East site, each with a generating capacity of
approximately 30 MW, while Unit 9 is located at the BLM West site, with a
generating capacity of approximately 30 MW. BLM's steam gathering and piping
systems are cross-connected to Navy II via metered transfers to allow steam to
be transferred between Navy II and BLM. See "--Steam Sharing Program." All
three units commenced firm operation during 1989. BLM has an aggregate gross
electrical generating capacity of approximately 90 MW, and operated at an
average operating capacity factor of 104.4% in 1998, 99.6% in 1997, and 107.9%
in 1996, based on a nameplate capacity of 80 MW.
Navy II. Navy II and its steam resource are located on the United States
Naval Weapons Center at China Lake. It commenced operations in 1989. As of
April 1, 1999, geothermal steam for Navy II was produced using 37 production
and injection wells located within a radius of approximately 6,000 feet of Navy
II. Navy II consists of three separate turbine generators, known as Units 4, 5
and 6, each with approximately 30 MW of electrical generating capacity. Navy
II's steam supply systems are cross-connected to Navy I's and BLM's steam
supply systems via metered transfers to allow steam to be transferred between
or among the plants pursuant to the steam sharing program. See "--Steam Sharing
Program." All three Navy II units commenced firm operation in 1990. Navy II has
an aggregate gross electrical capacity of approximately 90 MW, and operated at
an average operating capacity factor of 108.6% in 1998, 108.9% in 1997, and
110.6% in 1996, based on a nameplate capacity of 80 MW.
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Transmission Lines
The electricity generated by Navy I is conveyed over an approximately 28.8-
mile 115 kilovolt ("kV") transmission line on Navy and Bureau of Land
Management land that is connected to the Edison substation at Inyokern,
California. The Navy I partnership owns and uses this transmission line (the
"Navy I Transmission Line") and its related facilities. The electricity
generated by BLM and Navy II is conveyed over an approximately 28.8-mile 230 kV
transmission line on Navy and Bureau of Land Management land that is also
connected to the Edison substation at Inyokern, California (the "BLM/Navy II
Transmission Line"). Coso Transmission Line Partners owns the BLM/Navy II
Transmission Line and related facilities. FPL Operating maintains the Navy I
Transmission Line pursuant to an O&M agreement with Navy I and the BLM/Navy II
Transmission Line pursuant to O&M agreements with the BLM partnership and the
Navy II partnership.
BLM North
In 1997, LADWP assigned to Coso Land Company, one of our affiliates, all of
its rights and interests in three separate leases that it entered into with the
Bureau of Land Management, including the right to use certain wells and related
equipment located on the real property subject to these three leases. We call
these three leases the LADWP leases. Under the LADWP leases, Coso Land Company
has the right to drill for, extract, produce, remove, use, sell and dispose of
the geothermal resources located on BLM North. Coso Land Company originally
entered into the lease assignment with the LADWP to obtain access to additional
steam to supplement the steam available for transfer among the Coso projects'
plants under the steam sharing program. See "--Steam Sharing Program."
Coso Land Company currently allows the Coso partnerships to have access to
the geothermal resources underlying BLM North, although the Bureau of Land
Management has not formally consented to this arrangement. As of April 1, 1999,
the Coso partnerships were producing steam from two production wells located on
one of the LADWP leases and were injecting fluids into an injection well
located on a second LADWP lease. Another well located on the second LADWP lease
is capable of producing geothermal steam, but it has not been connected to the
Coso projects' gathering system. The third LADWP lease has no wells on it. The
currently-producing wells located at BLM North are cross-connected to Navy I
via metered transfers to allow steam to be transferred from these wells to
Navy I. Under the steam sharing program, the Coso partnerships supplement the
steam produced at BLM by transferring steam from the wells located at BLM North
to Navy I.
Coso Land Company has applied to the Bureau of Land Management for assignment
to each Coso partnership of an undivided one-third interest in the LADWP leases
as tenants-in-common. This assignment is subject to the consent of the Bureau
of Land Management. The Bureau of Land Management's consent has recently been
received but is subject to a requirement in the financing documents that
certain additional title documentation be delivered to it, and that delivery is
currently in process. Once this assignment becomes effective, the Coso
partnerships will assume all of Coso Land Company's obligations under the LADWP
leases and will reimburse Coso Land Company for the costs it incurred in
acquiring the LADWP leases. These costs were approximately $1.0 million. See
"Summary Description of Principal Agreements Relating to the Coso Projects--The
LADWP Leases."
The Coso partnerships' use of the geothermal resources at BLM North will be
governed by a co-tenancy agreement. Under the co-tenancy agreement, each Coso
partnership will have the right, subject to applicable consents, to use BLM
North for geothermal resource production and injection
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purposes if it determines, in its exercise of reasonable business judgment,
that it has insufficient steam economically available to it from other sources.
Power Sales
The Coso partnerships sell all of the electrical energy generated at the
plants to Edison under three substantially similar long-term Standard Offer No.
4 power purchase agreements. Under the power purchase agreements, the Coso
partnerships receive capacity payments for being able to produce electricity at
certain levels, capacity bonus payments if they are able to produce above a
specified higher level and energy payments based on the amount of electricity
their plants actually produce. The capacity and capacity bonus payment rates
are fixed throughout the lives of the power purchase agreements. Energy
payments are fixed for the first ten years of firm operation under the power
purchase agreements. After the ten-year fixed energy price period expires, the
Coso partnerships sell their electricity to Edison based on Edison's avoided
cost of energy. Edison's avoided cost of energy is Edison's cost to generate
electricity if Edison were to produce it itself or buy it from another power
producer rather than buy it from the Coso partnerships. See "--Power Sales--
Energy Payments" and "Business--Legal Proceedings."
The Navy I partnership's power purchase agreement expires in August 2011, the
BLM partnership's power purchase agreement expires in March 2019 and the Navy
II partnership's power purchase agreement expires in January 2010. See "Summary
Descriptions of Principal Agreements Relating to the Coso Projects--Power
Purchase Agreements."
Capacity and Capacity Bonus Payments
The Navy I partnership receives levelized firm capacity payments of $161.20
per kW year, the BLM partnership receives levelized firm capacity payments of
$175.00 per kW year and the Navy II partnership receives levelized firm
capacity payments of $176.00 per kW year. Contract capacity levels must be
maintained during the on-peak periods of each month of an approximately four-
month long period, which currently runs from June through September, in each
year, for specified on-peak hours, at a rate equal to at least an 80.0%
contract capacity factor. There is a 20.0% allowance for certain forced outages
during the periods in each month in order to prevent a reduction in contract
capacity. The power purchase agreement for the Navy I partnership specifies a
contract capacity of 75 MW. The power purchase agreements for the BLM
partnership and the Navy II partnership specify a contract capacity of 67.5 MW
each. If a plant maintains the required 80% contract capacity factor during the
applicable periods, the annual capacity payment will be equal to the product of
the capacity payment per kWh stated in the power purchase agreements and the
contract capacity.
A Coso partnership may also receive capacity bonus payments to the extent
that its plant's on-peak capacity performance exceeds 85.0% during on-peak
hours in the months of June through September. From January 1, 1994 through
December 31, 1998, the Coso partnerships have earned an average capacity bonus
of approximately 97.0% of the maximum capacity bonus possible.
Energy Payments
The energy price component for electricity delivered to Edison is subject to
a different pricing mechanism during the first ten years of each power purchase
agreement, as discussed above. Edison has taken the position that the fixed
energy price period expired in August 1997 for the Navy I partnership and in
March 1999 for the BLM partnership, and will expire in January 2000 for the
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Navy II partnership. The Coso partnerships believe that the power purchase
agreements provide that each of the three turbine generator units at each
respective Coso project has its own full ten-year fixed energy price period.
This issue is one of several currently in dispute and subject to an ongoing
lawsuit between, among others, the Coso partnerships and Edison. Without making
any statement on the outcome of this or any other dispute with Edison, for
purposes of this prospectus only, including the historical and pro forma
financial information included herein, we have assumed that the fixed energy
price period expires ten years after the first of the three turbine generator
units at each respective Coso project established firm operation. We believe
that this assumption is conservative and reasonable for purposes of this
prospectus given that we cannot predict the outcome of this issue. See "Risk
Factors--The Coso partnerships and their managing partners are currently
involved in material litigation with Edison, their sole customer" and "--Legal
Proceedings."
Although energy payments paid to the Navy I partnership and the BLM
partnership are based upon 100% of Edison's avoided cost of energy, the way in
which avoided cost of energy is calculated (currently based on a formula tied
to the price of natural gas) is changing pursuant to the restructuring of the
California electricity market. Under AB1890, the comprehensive restructuring
legislation enacted in California in September 1996, the California Public
Utilities Commission is required to calculate the short-term avoided cost of
energy for payments made to non-utility power generators, such as the Coso
projects, based on the clearing price paid by the California Power Exchange
when certain conditions are met. These conditions include that (1) the
California Public Utilities Commission has issued an order determining that the
California Power Exchange is "functioning properly" and (2) either:
(a) The fossil-fired generation units owned by the purchasing utility
(such as Edison, San Diego Gas & Electric Company or Pacific Gas &
Electric Company) are authorized to charge market-based rates and
the variable costs of such units are being recovered solely through
clearing prices being paid by the California Power Exchange or from
contracts with the ISO; or
(b) The purchasing utility has divested ninety percent of its gas-fired
generation facilities that were operated to meet load in 1994 and
1995.
Divestiture of such gas-fired generation facilities by Edison and the other two
large California utilities is expected to be complete by the end of 1999.
It is likely that within the next two or three years, pursuant to AB1890,
Edison's short-term avoided cost of energy will equal the then-prevailing
market clearing price for wholesale energy at the California Power Exchange.
Whether this pricing will be on an hourly basis, a daily or block average basis
(i.e., a daily average, daily off-peak or daily on-peak time period averages)
or some other variation has not been determined. The market clearing prices for
wholesale energy on the California Power Exchange have occasionally for brief
periods exceeded current energy prices paid by Edison under the power purchase
agreements based on its short-term avoided cost of energy. This has occurred
most often during high load conditions, warm weather and other daily or
seasonal peak periods. At other times, the market clearing prices have been
lower than Edison's short-term avoided cost of energy. No one can predict the
outcome of the final implementation of this change in computing short-term
avoided cost of energy, or the performance of California Power Exchange
clearing prices over time. For further information, see "Risk Factors--Future
energy payments paid by Edison to the Coso partnerships will most likely be
less than historical energy payments because they will be paid based on
Edison's avoided cost of energy," "Risk Factors--The operations of the Coso
projects could be adversely affected by an inability to comply with regulatory
standards" and "Regulation."
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The electric industry in California has changed dramatically as a result of
recent decisions by the California Public Utilities Commission and the
enactment of AB1890 in September 1996. The new California electric market
structure, including the ISO PX system, commenced operations on March 31, 1998.
The California Power Exchange, through which Edison is required to sell power
generated by QFs, is responsible for managing the transactions for all power
auctioned through, and purchased by, market participants except those bound by
contract. The complex grid operation, software, forecasting, bidding and market
clearing mechanism of the ISO PX system has a limited operating history. Many
elements of the new market structure present novel regulatory issues that have
not yet been resolved, as well as many practical issues of implementation such
as the development of systems, software and procedures for:
. the California Power Exchange, which provides the auction process to
match electricity supply and demand;
. the independent system operator, or ISO, which has operational control of
the transmission facilities of electrical utilities (including Edison);
and
. all of the market participants who will transact with the ISO PX system.
If the still-developing ISO PX system fails or does not operate as
anticipated, electricity generation, transmission and distribution in
California may be materially and adversely affected. Edison's business may also
be materially and adversely affected. Furthermore, since Edison's avoided cost
of energy ultimately will be tied to the clearing price of the California Power
Exchange, the ISO PX system's functionality will have a significant effect on
the Coso partnerships.
Steam Sharing Program
The Coso partnerships have previously implemented and intended to expand the
steam sharing program which they established among the Coso projects under a
Coso Geothermal Exchange Agreement they entered into in 1994. The purpose of
the steam sharing program is to enhance the management, and to optimize the
overall use, of the Coso geothermal resource. Pursuant to the steam sharing
program, the Coso partnerships constructed an inter-project steam supply and
water injection system which links the three Coso projects and BLM North
together via metered transfer lines through which the Coso partnerships
exchange steam and other geothermal resources with one another.
As part of the steam sharing program, the Coso partnerships plan to conserve
the geothermal resource whenever possible by, among other things, transferring
steam between and among the Coso projects and BLM North, rather than drilling
new wells at the Coso projects' sites prematurely, and expanding a flexible
field-wide water reinjection program. See "--Power Production Process." While
each of the Navy and the Bureau of Land Management has consented to the steam
sharing program, each has reserved the right, in its sole discretion, to
withdraw its consent to such transfers under certain circumstances. See "Risk
Factors--The Navy could terminate the Coso partnerships' rights to use the Coso
geothermal resource at any time" and "Summary Description of Principal
Agreements Relating to the Coso Projects--Steam Sharing and Co-Tenancy
Agreements."
In 1998, the Navy I partnership and the Navy II partnership paid aggregate
royalties to the Navy of approximately $5.6 million for steam transferred by
Navy I to Navy II and by Navy II to BLM under the steam sharing program from
geothermal resources located on the property on which Navy I or Navy II, as the
case may be, are situated. Of this amount, the Navy I partnership paid
approximately $1.4 million and the Navy II partnership paid approximately $4.2
million. The BLM
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partnership reimbursed the Navy II partnership approximately $1.4 million of
the royalties paid by Navy II partnership. The BLM partnership did not pay a
royalty for electricity generated by BLM for steam transferred from Navy
property and sold to Edison.
Operations and Maintenance
The operations and maintenance services for the Coso projects, including Navy
I, BLM and Navy II, the Navy I Transmission Line and the BLM/Navy II
Transmission Line, the wells, the gathering system and the other related
facilities, are performed by FPL Operating and Coso Operating Company on behalf
of the Coso partnerships pursuant to three separate O&M agreements with each of
FPL Operating and with Coso Operating Company, each dated February 25, 1999.
See "Summary Descriptions of Principal Agreements Relating to the Coso
Projects--O&M Fees; Reduction in Fees."
Until February 25, 1999, CalEnergy had been the exclusive operator of the
Coso projects. Since that date, FPL Operating, an indirect wholly owned
subsidiary of FPL Energy, Inc., has been operating and maintaining the Coso
projects' plants, the transmission lines and the geothermal fields under three
separate short-term O&M agreements. FPL Energy, Inc. is an indirect, wholly
owned subsidiary of FPL Group, Inc., the parent holding company of Florida
Power & Light Company, one of the largest investor-owned utilities in the
United States. FPL Energy, Inc. was formed in 1998 to consolidate operations of
the unregulated energy business sectors involved in domestic and international
power generation. Florida Power & Light Company operates plants in its electric
generating system with a combined capacity of approximately 15,500 MW. FPL
Operating currently operates 56 electric generating facilities in the United
States with a combined generating capacity of 3,933 MW. FPL Operating is
managed by the same central operating group that operates the majority of
Florida Power & Light Company's electric generating stations. The Coso
partnerships and Coso Operating Company have been negotiating with FPL
Operating and its affiliates to acquire all of the equity interests in the Navy
I partnership held by one of FPL Operating's affiliates and to terminate the
existing O&M agreement with FPL Operating. See "Prospectus Summary--Recent
Developments--Negotiating with FPL Operating and its Affiliates."
Coso Operating Company is a wholly owned subsidiary of Caithness Acquisition.
It was initially formed by CalEnergy to facilitate the transfer of operational
control of the Coso projects to Caithness Energy's affiliates. Since February
25, 1999, Coso Operating Company has been managing the geothermal resource,
including well drilling, under three additional fixed price O&M agreements. See
"Summary Descriptions of Principal Agreements Relating to the Coso Projects--
O&M Fees."
Royalty and Revenue-Sharing Arrangements
The Coso partnerships are required to make royalty payments to, and are
subject to other revenue-sharing arrangements with, the Navy, the Bureau of
Land Management and certain other persons.
Navy I
Under the Navy Contract, as a royalty for Unit 1 at Navy I, the Navy I
partnership is obligated to reimburse partially the Navy for electricity
supplied to it by Edison from electricity generated at Navy I. The
reimbursement payment is based upon a pricing formula included in the Navy
Contract. For the year ended December 31, 1998, the Navy I partnership
reimbursed the Navy approximately
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76.0% of the aggregate price paid by the Navy to Edison for electricity
supplied to it by Edison. The percentage rate of reimbursement changes
semiannually, but cannot exceed 95% of the price paid by the Navy to Edison, in
accordance with a weighted index based on the Consumer Price Index and price
indices for the oil industry, the electric power plant industry and the
construction industry.
In addition, with respect to Unit 1 at Navy I, the Navy I partnership is
obligated to pay the Navy the sum of $25.0 million on or before December 31,
2009, the expiration date of the term of the Navy Contract. Payment of this
obligation will be made from an established sinking fund to which the Navy I
partnership has been making payments since 1987. As of March 31, 1999, there
was approximately $7.8 million on deposit in this sinking fund, representing
both sinking fund payments made by the Navy I partnership and accrued interest
thereon. The Navy I partnership currently intends to make aggregate annual
payments to this sinking fund of approximately $716,000 through 2009. Amounts
currently on deposit in the sinking fund, along with future deposits in the
sinking fund and interest accruing thereon, are being, and will be, held in an
escrow account by a financial institution for the benefit of the Navy.
For Units 2 and 3 at Navy I, the Navy I partnership's royalty expense is a
fixed percentage of its electricity sales to Edison. The royalty expense is
15.0% of revenues received by the Navy I partnership through 2003 and will
increase to 20.0% from 2004 through 2009, the expiration date of the Navy
Contract. See "Summary Descriptions of Principal Agreements Relating to the
Coso Projects--The Navy Contract." In the year ended December 31, 1998, the
Navy I partnership paid aggregate royalties to the Navy of approximately $6.8
million, based on the current royalty rate of 15%.
BLM
The BLM partnership pays royalties to the Bureau of Land Management under the
BLM lease. The royalty rate is 10% of the value of the steam produced by the
BLM partnership. This royalty rate is fixed for the life of the BLM Lease. In
1998, the BLM partnership paid aggregate royalties of approximately $6.0
million to the Bureau of Land Management.
In addition to this royalty, the BLM partnership is obligated to pay a
royalty to Coso Land Company, a general partnership of which Caithness
Acquisition and another affiliate of Caithness Energy are the general partners,
in connection with the assignment of the BLM lease to the BLM partnership. See
"Certain Relationships and Related Transactions--Royalty to Coso Land Company."
Navy II
The Navy II partnership pays royalties to the Navy under the Navy Contract.
The Navy II partnership's royalty expense is a fixed percentage of its
electricity sales to Edison. The royalty rate is 10.0% of electricity sales to
Edison through 1999, and will increase to 18.0% from 2000 through 2004 and to
20.0% from 2005 through the end of the initial term. See "Summary Descriptions
of Principal Agreements Relating to the Coso Projects--The Navy Contract." For
the year ended December 31, 1998, the Navy II partnership paid aggregate
royalties of approximately $11.9 million to the Navy, based on the current
royalty rate of 10%.
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BLM North
Coso Land Company has applied to the Bureau of Land Management for assignment
to each Coso partnership of an undivided one-third interest in the LADWP leases
as a tenant-in-common. This assignment is subject to the consent of the Bureau
of Land Management. The Bureau of Land Management's consent has recently been
received but is subject to a requirement in the financing documents that
certain additional title documentation be delivered to it, and that delivery is
currently in process. Once this assignment becomes effective, the Coso
partnerships will be required to pay $8.00 per acre in rent and additional rent
to the Bureau of Land Management. When a leased property commences to produce
geothermal steam, the Coso partnerships will pay monthly royalties under the
LADWP leases of 10% of the amount or value of the steam produced, 5% of any by-
products and 5% of commercially demineralized water. The Bureau of Land
Management may establish minimum production levels and reduce the foregoing
royalties if necessary to encourage the greater recovery of leased resources,
or as otherwise justified. Until this assignment becomes effective, Coso Land
Company will be required to make the above payments to the Bureau of Land
Management. See "--Overview of the Coso Projects--BLM North" and "Summary
Descriptions of Principal Agreements Relating to the Coso Projects--The LADWP
Leases."
Insurance
The Coso partnerships currently maintain property, business interruption,
catastrophe and general liability for the Coso projects. The plants are insured
for $600.0 million per occurrence for general property damage (limited to
replacement costs) and $240.0 million per occurrence for business interruption,
subject to a $25,000 deductible for property damage (and a $250,000 deductible
for the turbine generator sets), with a 15-day deductible for business
interruption and a 25-day deductible for machinery breakdown and earthquake.
Catastrophic insurance (including earthquake and flood) is capped at $200.0
million for property damage, subject to a deductible of $2.5 million or 5.0% of
the loss, whichever is greater. Liability insurance coverage is $51.0 million
(occurrence based). Operators' extra expense (control of well) insurance is
$10.0 million per occurrence with a $25,000 deductible. The above policies were
issued by international and domestic carriers and syndicates with each company
rated A- or better by A.M. Best Co. Inc.
As part of the Series A notes offering, the Coso partnerships obtained title
insurance policies in the aggregate amount of $200.0 million in favor of the
Trustee. Primarily because of the nature of the rights obtained by one or more
of the Coso partnerships from the Navy and the Bureau of Land Management, the
insurance coverage afforded by these policies is narrower, and the exceptions
to coverage are broader, then those which are commonly provided to companies
that are engaged in activities similar to those of the Coso partnerships. No
one can assure you that the title insurer or its reinsurers will be willing or
able to satisfy any claims which may be made under those policies. Also, the
coverage amounts may not be sufficient to satisfy amounts outstanding under the
senior secured notes at any given time. See "Risk Factors--Although the Coso
partnerships currently maintain insurance, loss proceeds might not be enough to
satisfy our obligations under the Series B notes."
Employees
We do not have any employees, and neither do the Coso partnerships. All of
the employees who operate and maintain the Coso projects are currently employed
by FPL Operating and Coso Operating Company. FPL Operating and Coso Operating
Company have retained substantially the
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same employees previously employed by CalEnergy, the prior operator. As of May
1, 1999, FPL Operating employed 102 employees at the Coso projects, and Coso
Operating Company employed 15 employees at the Coso projects. Approximately 70%
of the employees who currently work at the Coso projects' sites have been
employed there since 1992.
None of FPL Operating's or Coso Operating Company's employees are covered by
any collective bargaining agreement. We believe that FPL Operating's and Coso
Operating Company's employee relations are good.
Environmental Matters
The Coso partnerships are subject to environmental laws and regulations at
the federal, state and local levels in connection with their development,
ownership and operation of the Coso projects. These environmental laws and
regulations generally require that a wide variety of permits and governmental
approvals be obtained to construct and operate an energy-producing facility.
The facility must then operate in compliance with the terms of these permits
and approvals. If the Coso partnerships fail to operate the facility in
compliance with applicable laws, permits and approvals, governmental agencies
could levy fines or curtail operations.
We believe that each of the Coso partnerships is in compliance in all
material respects with all applicable environmental regulatory requirements
applicable to its Coso project, and we believe that maintaining compliance with
current governmental requirements will not require a material increase in
capital expenditures or materially adversely affect that Coso partnership's
financial condition or results of operations. It is possible, however, that
future developments, such as more stringent requirements of environmental laws
and enforcement policies thereunder, could affect capital and other costs at
the Coso projects and the manner in which the Coso partnerships conduct their
business.
Legal Proceedings
Edison Litigation
On June 9, 1997, Edison filed a lawsuit in the Superior Court of Los Angeles
County (later transferred to Inyo County), California, against CalEnergy, the
Coso partnerships and the managing partners of the Coso partnerships--China
Lake Operating Company, now known as New CLOC; Coso Technology Corporation, now
known as New CTC; and Coso Hotsprings Intermountain Power, Inc., now known as
New CHIP. We collectively refer to the defendants in Edison's lawsuit as the
Coso Parties. In this lawsuit, Edison asserts breach of contract claims against
the Coso Parties that relate to the alleged surreptitious venting of certain
non-condensable gases from unmonitored reinjection wells located adjacent to
the plants. The Coso Parties have been vigorously defending themselves against
Edison's claims.
The events relating to Edison's breach of contract claims date back to the
late 1980's and mid-1990's, and focus on the plants' initial period of
operations. The plants had difficulty at that time achieving full compliance
with applicable air quality district regulations which, the Coso Parties
believe, was due in large part to defective equipment installed during the
construction of the plants, as more fully discussed below. As a result, the
Coso partnerships self-reported to the Great Basin Unified Air Pollution
Control District a series of instances of venting primarily from the plants,
and the Great Basin Unified Air Pollution Control District issued Notices of
Violations (which are the functional equivalent of an allegation, not an
adjudication of any violation). The Coso partnerships
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chose not to contest these Notices of Violations and paid the agreed-upon
fines. There was no formal finding that any environmental violations occurred.
Edison does not base its claims against the Coso Parties on this self-
reported venting. Rather, Edison alleges that CalEnergy, the prior operator of
the plants, surreptitiously vented hydrogen sulfide gas from unmonitored
reinjection wells in violation of applicable operating permits and
environmental laws and regulations. Edison alleges that the Coso partnerships
did not report some or all of these alleged violations and breached their
contractual obligations to comply with all applicable laws, rules and
regulations. Edison argues that a provision in the power purchase agreements
requiring the Coso partnerships to comply with applicable laws, rules and
regulations allows it to seek damages for any such failures. Edison also
asserts that the output of the plants would have been lower but for the alleged
surreptitious venting.
Originally, Edison sought to terminate the three power purchase agreements
with the Coso partnerships and to recover damages equal to the total amount
Edison had paid for electricity delivered by the Coso partnerships to Edison
since inception. In June 1998, the Coso partnerships obtained a ruling from the
trial court dismissing Edison's efforts to terminate the three power purchase
agreements. In addition, the trial court ruled that Edison could not recover
damages based on the total amount that Edison had paid to the Coso partnerships
for electricity delivered under the power purchase agreements. Edison's damage
theory is now limited to breach of contract damages for energy deliveries which
it believes were higher than they would have been had the alleged surreptitious
venting not occurred. Edison seeks damages spanning an extended period of time
based on the difference between the contract price it paid to the Coso
partnerships for the excess electricity they allegedly delivered and the spot
market price it would have paid for the amount of such excess electricity.
In October 1997, the Coso Parties filed a motion for summary judgment arguing
that Edison's claims were barred by the 1993 Settlement Agreement (as defined
below) and that the statute of limitations for Edison's claims had expired. In
June 1993, Mission Power Engineering Company, a California corporation, and The
Mission Group, a California corporation (collectively, the "Mission Entities"),
on behalf of themselves and their respective subsidiaries and affiliates,
including Edison, and CalEnergy and the Coso partnerships, for themselves and
on behalf of their respective subsidiaries and affiliates, entered into a
Settlement Agreement and Release dated June 9, 1993 (the "1993 Settlement
Agreement"). The Mission Entities were at that time, and still are, affiliates
of Edison. The 1993 Settlement Agreement resolved, among other things, certain
claims the Coso partnerships asserted against the Mission Entities for the
Mission Entities' alleged defective construction of the Coso projects.
Pursuant to three "turnkey" engineering procurement and construction
contracts entered into in the late 1980's, the Mission Entities had agreed to
construct Navy I, BLM and Navy II so that these plants operated in compliance
with all applicable laws, rules and regulations. The Coso partnerships' claims
against the Mission Entities related in significant part to the Mission
Entities' alleged breach of this contractual provision. The 1993 Settlement
Agreement also provided for mutual releases of claims, whether known or
unknown, arising out of or relating to the construction of the Coso projects.
The trial court denied the Coso Parties' motion for summary judgment, finding
that triable issues of fact existed. The Coso Parties also assert other
defenses, including, among others, that Edison's claims for damages are not
causally related to the alleged venting and do not state legally cognizable
claims.
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In September 1997, the Coso Parties filed a cross-complaint against Edison
and the Mission Entities. In its present form, the cross-complaint alleges,
among other things, breach of contract claims, violations of state law and of
decisions rendered by the California Public Utilities Commission, and that
Edison's lawsuit constitutes a breach of the 1993 Settlement Agreement. The
Coso partnerships have each asserted three separate breach of contract claims
against Edison under the power purchase agreements and are seeking damages in
excess of $125 million, exclusive of interest, accruing through the life of the
respective applicable contractual provisions. The three breach of contract
claims are as follows:
. First, Edison has refused to pay the forecasted energy prices as to each
of the three units at each respective Coso project--Navy I, BLM and Navy
II--for the full ten-year "First Period" under the power purchase
agreements. Edison has taken the position that the power purchase
agreements provide that, with respect to each Coso project, the First
Period expires ten years after the first unit for each respective Coso
project established firm operation. This would mean that the fixed energy
price period expired in August 1997 for the Navy I partnership and in
March 1999 for the BLM partnership, and will expire in January 2000 for
the Navy II partnership. The Coso partnerships argue, in contrast, that
the power purchase agreements provide that each of the three units at
each respective Coso project has its own full ten-year fixed energy price
period. This would mean, for example, that each of Units 1, 2 and 3 at
Navy I has its own separate ten-year fixed energy price period. Under
Edison's position, the fixed energy price periods for Units 2 and 3 at
Navy I end at the same time that Unit 1's fixed energy price period ends
because Unit 1 was the first unit at Navy I to establish firm operation;
accordingly, the fixed energy price periods for Units 2 and 3 are less
than ten years.
. Second, Edison has refused to accept the Coso partnerships' election of a
simultaneous purchase and sale arrangement under which Edison is
obligated to pay the full forecasted price for all energy produced by the
Coso projects, without deduction for power used by the plants and their
related operations, and to serve the Coso partnerships' power needs under
a tariff applicable to industrial customers. Instead of accepting the
Coso partnerships' election, Edison has paid the Coso partnerships for
only the net amount of electricity delivered to Edison.
. Third, Edison has refused to extend and escalate the price tables
included in the power purchase agreements for the full ten-year fixed
energy price period of forecasted prices. The Coso partnerships argue
that Edison attached the wrong price tables to the power purchase
agreements because the tables leave out the years 1999 and 2000.
While we strongly dispute Edison's positions and believe the Coso
partnerships' positions are the correct interpretations of the power purchase
agreements, we have assumed, for purposes of this prospectus only, including
the historical and pro forma financial information included herein, that (1)
the full ten-year period expires after the first of the three units at each
respective Coso project established firm capacity, (2) the Coso partnerships
cannot make the election of a simultaneous purchase and sale arrangement and
(3) the pricing tables included in the power purchase agreements are correct.
We believe that this assumption is conservative and reasonable for purposes of
this prospectus given that we cannot predict the outcome of this issue.
On September 9, 1997, the Coso partnerships filed a separate lawsuit in the
Superior Court of Inyo County, California, against Edison seeking restitution
and injunctive relief for unfair competition and false advertising. The unfair
competition claim raises a series of electric industry
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issues concerning Edison's alleged program of anti-competitive activities aimed
at QFs, such as the Coso projects, and at other competitors, including electric
service providers or "ESPs." The Coso partnerships have also alleged that
Edison willfully violated decisions and orders of the California Public
Utilities Commission, which includes a claim for punitive damages in an
unspecified amount.
In December 1997, the Superior Court consolidated Edison's and the Coso
partnerships' lawsuits into one proceeding. The parties to the consolidated
actions had been engaged in extensive discovery and motion practice, discovery
(other than expert discovery) was scheduled to be completed by December 31,
1999 and a trial date had been set for March 1, 2000.
However, these dates have been vacated, and no new dates have been set,
pursuant to a stipulation entered into by the parties and an order of the trial
court. In essence, Edison and the Coso Parties have agreed to a moratorium on
all ongoing activities in these lawsuits from March 29, 1999 to September 30,
1999, in order to explore the possibility of reaching a negotiated settlement.
Edison and the Coso Parties have agreed to attempt to mediate their disputes
and have scheduled a mediation session for the week of September 7, 1999,
before a former California supreme court justice. If the parties are unable to
reach a negotiated settlement by September 30, 1999, the lawsuits will continue
where they left off, and the court will probably set a trial date for late
spring or early summer of 2000.
Neither we, the Coso partnerships nor anyone else can predict at this time
whether Edison will prevail on its claims against any or all of the Coso
Parties or whether any or all of the Coso Parties will prevail on their claims
against Edison, in part because pre-trial discovery has not been completed and
is now subject to the moratorium and because of the complexity of the factual
and legal issues involved. Further, no one can give you any assurance that the
parties will be able to reach a negotiated settlement of the lawsuits and, if
they do, what the terms of such a settlement would be. It is possible that the
parties will be unable to reach a settlement and Edison could recover
significant damages. Edison has not yet provided the Coso Parties with any
calculation or estimate of its alleged damages but, if the parties are unable
to reach a negotiated settlement, the Coso Parties expect Edison to seek
damages in an amount which would be material to the financial condition and
results of operations of the Coso partnerships, either individually or taken as
a whole.
Dow litigation
In addition, the BLM partnership is currently involved in an arbitration
proceeding against Dow Chemical Company ("Dow"). The BLM partnership is seeking
to recover certain damages incurred by the BLM partnership prior to 1998 as a
result of problems associated with the installation by Dow in 1992 of a
hydrogen sulfide abatement system at BLM. See "--Power Production Process." The
arbitration proceeding is a result of a settlement agreement entered into
between the BLM partnership and Dow in 1997 in which Dow stipulated to the
issue of its liability based on negligent misrepresentation. Dow has not made
any claims against the BLM partnership in the arbitration proceeding.
Fuji litigation
In March 1998, China Lake Plant Services, Inc., one of our affiliates, and
the Coso partnerships filed a lawsuit in Superior Court of the State of
California, County of Orange (Case No. 791982), against Fuji Electric Co., Ltd.
and Fuji Electric Corporation of America for breach of warranty related to the
Coso partnerships' nine geothermal turbine rotors. The Coso partnerships sought
to
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recover repair costs and other damages totaling approximately $16.0 million
incurred as a result of vibrations alleged to have occurred during operations,
which resulted in cracking and one catastrophic failure. Fuji has not made any
counterclaims against the Coso partnerships. The lawsuit is scheduled for trial
in February 2000.
However, on June 23, 1999, the parties to the lawsuit entered into a
Settlement Agreement and Mutual Release which provides for the settlement of
the breach of warranty claims made against Fuji and releases of all parties
with respect to the subject matter of the lawsuit if the parties satisfy
several specific conditions. If these conditions are satisfied, the lawsuit
will be dismissed with prejudice. We cannot assure you that all of the specific
conditions will be satisfied and, therefore, that the lawsuit will not go to
trial as scheduled.
Except as otherwise described above, the Coso partnerships are currently
parties to various minor items of litigation, none of which, if determined
adversely, would be material to the financial condition and results of
operations of the Coso partnerships, either individually or taken as a whole.
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SUMMARY DESCRIPTIONS OF PRINCIPAL
AGREEMENTS RELATING TO THE COSO PROJECTS
The following is a summary of selected provisions of certain principal
agreements relating to the Coso projects. It is not a full statement of the
terms of those agreements. Accordingly, the following summaries are qualified
by reference to each of those agreements and are subject to the terms of the
full text of each of those agreements. You can obtain copies of these
agreements from us upon request (subject to possible confidentiality
restrictions). See "Available Information."
Power Purchase Agreements
In 1983 and 1984, China Lake Joint Venture negotiated three separate long-
term Standard Offer No. 4 power purchase agreements with Edison. Subsequently,
the first power purchase agreement was assigned to the Navy I partnership for
Navy I, the second power purchase agreement was assigned to the BLM partnership
for BLM and the third power purchase agreement was assigned to the Navy II
partnership for Navy II. Under the terms of the power purchase agreements, the
Coso partnerships have agreed to sell to Edison, and Edison has agreed to
purchase, the electrical output at Navy I, BLM and Navy II. The power purchase
agreement between each Coso partnership and Edison requires that the Coso
partnership maintain the QF status of its Coso project throughout the contract
term. Set forth below is a summary of certain terms and provisions contained in
each power purchase agreement.
General
Each power purchase agreement provides for the sale to Edison of, in the case
of Navy I, 75 MW of capacity and, in the case of each of BLM and Navy II, 67.5
MW of capacity. Each power purchase agreement also provides for the sale to
Edison of all energy delivered at the point of interconnection, with electrical
service required to operate the Coso projects being supplied by Edison.
Terms of the Power Purchase Agreements
The term of the Navy I partnership's power purchase agreement expires in
August 2011, the term of the BLM partnership's power purchase agreement expires
in March 2019 and the term of the Navy II partnership's power purchase
agreement expires in January 2010. Each power purchase agreement is subject to
earlier termination in accordance with its terms. Upon the expiration of its
term, each power purchase agreement will remain in effect until either party
terminates the agreement upon 90 days' prior written notice.
Generating Facility
Under the power purchase agreements, each Coso partnership must operate its
generating facility in accordance with applicable utility industry standards,
good engineering practices, and any and all laws, and maintain any necessary
governmental authorizations and permits. Each Coso partnership must also
reimburse Edison for any loss which Edison incurs as a result of the Coso
partnership's failure to maintain necessary governmental authorization and
permits.
Under the power purchase agreements, Edison must pay the Coso partnerships
capacity payments, capacity bonus payments and energy payments in accordance
with each plant's electrical energy output.
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Capacity Payments
A plant qualifies for an annual capacity payment by meeting specified
performance requirements on a monthly basis during an approximately four-month
long on-peak period, which currently runs during the months of June through
September of each year. The basic performance requirement is that the plant
deliver an average kWh output during specified on-peak hours of each month in
the on-peak period at a rate equal to at least an 80% contract capacity factor.
The "contract capacity factor" equals (1) a plant's actual electricity output,
measured in kWhs, during the hours of measurement, divided by (2) the product
obtained by multiplying the plant's "contract capacity," as stated in the power
purchase agreement applicable to such Coso project, by the number of hours in
the measurement period. If a Coso project maintains the required 80% contract
capacity factor during the applicable periods, the annual capacity payment will
be equal to the product of the capacity payment per kWh stated in its power
purchase agreement and the contract capacity.
Navy I has a contract capacity of 75 MW, and the Navy I partnership has a
capacity payment per kW year of $161.20 for an annual maximum capacity payment
of approximately $12.1 million. BLM has a contract capacity of 67.5 MW, and the
BLM partnership has a capacity payment per kW year of $175.00 for an annual
maximum capacity payment of approximately $11.8 million. Navy II has a contract
capacity of 67.5 MW, and the Navy II partnership has a capacity payment per kW
year of $176.00 for an annual maximum capacity payment of approximately
$11.9 million. Although capacity prices per kWh remain constant throughout the
life of each power purchase agreement, Edison disburses capacity payments on a
monthly basis in accordance with a tariff schedule filed with the California
Public Utilities Commission. Payments are made unevenly throughout the year,
and are weighted toward the on-peak periods; currently, approximately 65% of
the capacity payments received by the Coso partnerships from Edison are paid
with respect to on-peak months, and 35% with respect to non-peak months.
Except when caused by an uncontrollable event, if a Coso partnership does not
satisfy the performance requirement, it may be placed on probation for up to 15
months, and, if the Coso partnership cannot satisfy the performance requirement
during the probationary period, Edison may derate the contract capacity factor
to a capacity equal to the greater of (1) the capacity actually delivered
during the period when the performance requirement was not met or (2) the
capacity at which the Coso partnership is reasonably likely to meet the
performance requirement. However, if the Coso partnership's failure to meet the
performance requirement is due to a forced outage on the Edison system or a
request by Edison to cease or curtail delivery, then Edison must continue to
make the full capacity payments. If a Coso partnership's energy deliveries are
interrupted or reduced due to an uncontrollable event, Edison must continue to
make full capacity payments to the Coso partnership for 90 days from the
occurrence of the uncontrollable event.
Capacity Bonus Payments
Each Coso partnership is entitled to receive capacity bonus payments during
both on-peak and non-peak months by operating at a contract capacity factor of
between 85% and 100% during on-peak hours of each month. A plant qualifies for
capacity bonus payments with respect to on-peak months provided that the plant
operates at least at an 85% contract capacity factor during the on-peak hours
of the month, and qualifies with respect to non-peak months if performance
requirements for on-peak months have been satisfied and the plant also operates
at a contract capacity factor of at least 85% during on-peak hours of the non-
peak month.
Capacity bonus payments for each month increase with the level of kWh
delivered between the 85% and 100% contract capacity factor levels during the
month. The annual capacity bonus payment
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for each month is equal to a percentage based on the plant's on-peak contract
capacity factor (which percentage may not exceed 18% of one-twelfth of the
annual capacity payment).
Energy Payments
In addition to capacity and capacity bonus payments, Edison must make monthly
energy payments to each Coso partnership based on the amount of kWh of energy
delivered by each plant. The energy price component for electricity delivered
to Edison is subject to different pricing mechanisms for the first ten years of
firm operation under each power purchase agreement than are applicable during
the remaining term of each agreement. During the first ten years following the
commencement of firm operation, the energy price per kWh varies between so-
called on-peak and non-peak periods, but the average of these prices equals a
fixed price per kWh specified in the power purchase agreements. After the first
ten years of firm operation and until its power purchase agreement expires,
Edison makes or will make energy payments to a Coso partnership based on
Edison's avoided cost of energy.
Edison has taken the position that the fixed energy price period expired in
August 1997 for the Navy I partnership and in March 1999 for the BLM
partnership, and will expire in January 2000 for the Navy II partnership. The
Coso partnerships believe that the power purchase agreements provide that each
of the three separate turbine generator units at each Coso project has its own
full ten-year fixed energy price period. This issue is one of several currently
in dispute and subject to an ongoing lawsuit between, among others, the Coso
partnerships and Edison. Without making any statement on the outcome of this or
any other dispute with Edison, for purposes of this prospectus only, including
the historical and pro forma financial information included herein, we have
assumed that the fixed energy price period expires ten years after the first of
the three generator units at each respective Coso project established firm
operation. We believe that this assumption is conservative and reasonable for
purposes of this prospectus given that we cannot predict the outcome of this
issue. See "Risk Factors--The Coso partnerships and their managing partners are
currently involved in material litigation with Edison, their sole customer" and
"Business--Legal Proceedings."
After the expiration of the fixed energy price period under the power
purchase agreements, Edison's monthly energy payment equals the product of the
kWh purchased by Edison for each on-peak, mid-peak, and off-peak time period
and Edison's published avoided cost of energy by time of delivery for each time
period. Edison's published avoided cost of energy is currently based on a
formula tied to the price of natural gas. Under AB1890, however, the California
Public Utilities Commission is required to calculate short-term avoided energy
costs for payments made to nonutility power generators such as the Coso
projects based on the clearing price paid by the California Power Exchange when
certain conditions are met. These conditions are discussed under the headings
"Risk Factors--Future energy payments paid by Edison to the Coso partnerships
will most likely be less than historical energy payments because they will be
paid based on Edison's avoided cost of energy" and "Business--Power Sales--
Energy Payments."
Changes in Contract Capacity
Each Coso partnership may terminate its power purchase agreement or reduce
its contract capacity by giving Edison the prescribed notice. Upon such
reduction, the Coso partnership must refund Edison an amount of money equal to
the difference between (1) the accumulated capacity payments already paid by
Edison up to the time the notice is received and based on the original contract
term and (2) the total capacity payments which Edison would have paid based on
the Coso partnership's actual performance using the "adjusted capacity price,"
as well as interest at the current published Federal Reserve Board three months
prime commercial paper rate on such amount.
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Testing
At least once a year, at the request of Edison, each Coso partnership must,
at its own expense, demonstrate the ability of its plant to produce the
contract capacity for a reasonable period of time pursuant to mutually agreed
upon procedures.
Outages
Each Coso partnership must make all reasonable efforts to limit the outages
of its generating facility. Each Coso partnership must also make reasonable
efforts not to schedule routine maintenance in the months of June, July, August
and September, and in no event shall outages for scheduled maintenance exceed a
total of 30 peak hours during those months. Outage periods for scheduled
maintenance may not exceed 840 hours in any 12-month period. Each Coso
partnership may accumulate unused maintenance hours on a year-to-year basis up
to a maximum of 1,080 hours. This accrued time must be used consecutively and
only for major overhauls.
Curtailment
After the first ten years following the commencement of firm operation,
Edison is not required to accept or purchase, and may request that the Coso
partnership discontinue or reduce delivery of, energy during periods when such
purchases would result in Edison incurring costs greater than those which it
would incur if it instead generated energy from another of its sources or when
its system demand would require that its hydro-energy be spilled to reduce
generation. The power purchase agreements limit such curtailment to not more
than 300 hours annually during off-peak hours.
Uncontrollable Forces
Each party to the power purchase agreements is relieved from its obligations
under the relevant power purchase agreement (except for payment obligations)
when and to the extent that it is rendered wholly or partly unable to perform
its obligations by an uncontrollable force, provided that the nonperforming
party (1) gives the other party written notice describing the particulars of
the uncontrollable force within two weeks after the occurrence thereof, (2)
uses its best efforts to remedy its inability to perform, and (3) does not
suspend performance beyond the scope or duration required by the uncontrollable
force. If one of the Coso partnership's deliveries to Edison are interrupted or
reduced due to an uncontrollable force, Edison is required to continue capacity
payments for 90 days from the occurrence of the uncontrollable force. If a
party's ability to perform cannot be corrected when the uncontrollable force is
caused by the actions or inactions of legislative, judicial or regulatory
agencies, or other proper authority, the relevant power purchase agreement may
be amended to comply with the legal or regulatory change which caused the
nonperformance. If a loss of QF status occurs due to uncontrollable force and
the relevant Coso partnership fails to make the changes necessary to maintain
its Coso project's QF status, that Coso partnership will be required to
compensate Edison for any economic detriment incurred by it as a result of such
failure. "Uncontrollable Forces" include, but are not limited to, flood,
drought, earthquake, storm, fire, pestilence, natural catastrophes, war, riot,
strike, action or inaction of legislative, judicial or regulatory agencies or
any occurrence beyond the control of the parties that cannot be overcome by the
exercise of due diligence.
Indemnification
Under the relevant power purchase agreement each party has agreed to
indemnify and hold harmless the other party, its directors, officers, and
employees or agents from and against any loss,
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damage, claim, cost, charge, and associated costs and expenses, related to the
injury to or death of any person or damage to the property of a third party
arising out of the indemnifying party's construction, engineering, repair,
supervision, inspection, testing, protection, operation, maintenance,
replacement, reconstruction, use, or ownership of its facilities, other than
for liability resulting from the indemnified party's sole negligence or willful
misconduct. Each party is also responsible for claims brought by its
contractors or employees and is required to indemnify and hold harmless the
other party for any such costs.
Insurance
Under the power purchase agreements, each Coso partnership is obligated to
obtain and maintain specified insurance coverages. If the Coso partnership
fails to maintain the required insurance, it must indemnify Edison for any
liabilities to the extent the insurance would have covered those liabilities.
Interconnection
The interconnection facility is designed, installed, operated and maintained
pursuant to an Interconnection and Integration Facilities Agreement.
The Navy Contract
In December 1979, CalEnergy entered into the Navy Contract with the Navy. The
Navy Contract granted to CalEnergy exclusive contractual rights to explore,
develop and use certain of the geothermal resource located within the United
States Naval Air Weapons Center at China Lake, California. Those rights were
subsequently transferred to China Lake Joint Venture, and certain of those
rights were subsequently transferred from China Lake Joint Venture to the Coso
partnerships. The Navy Contract has been modified on a number of occasions to
provide for, among other things, the assignment of all of China Lake Joint
Venture's rights under the Navy Contract to the Navy I partnership with respect
to Navy I and to the Navy II partnership with respect to Navy II, the
assignment of rights to the BLM/Navy II Transmission Line to Coso Transmission
Line Partners and the approval by the Navy of the steam sharing program among
the Coso partnerships. China Lake Joint Venture holds a residual interest in
the Navy Contract. For more information, see "Business--Overview of the Coso
Projects--Project History" and "--Steam Sharing and Co-Tenancy Agreements."
The term of the Navy Contract is for thirty years, expiring in December 2009,
after the last maturity date of the Series B notes. The Navy has the unilateral
right to extend the term of the Navy Contract for a ten-year period by giving
written notice. The Navy requires United States congressional approval to
exercise its option to extend the term of the Navy Contract.
Rights and Obligations
Under the Navy Contract, the Navy I partnership and the Navy II partnership
enjoy, among other things, exclusive contractual rights to explore, develop and
use a portion of the Coso Known Geothermal Area in an area covering
approximately 3,520 acres. It is possible that these rights do not constitute
interests in real estate. See "Business--Insurance." The Navy I partnership and
Navy II partnership enjoy all rights to the payments set forth in the Navy
Contract, including all payments by
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Edison under the power purchase agreements, and termination payments in the
event the Navy exercises its right to terminate the Navy Contract prior to the
expiration of its term.
With respect to Unit 1 at Navy I, the Navy I partnership is obligated to pay
the Navy the sum of $25.0 million on or before December 31, 2009, the
expiration date of the term of the Navy Contract. Payment of this amount will
be made from an established sinking fund to which the Navy I partnership has
been making payments since 1987. As of March 31, 1999, there was approximately
$7.8 million on deposit in the sinking fund, representing both sinking fund
payments and accrued interest thereon. The Navy I partnership currently intends
to make aggregate annual payments to this sinking fund of approximately
$716,000 through 2009. See "Management's Discussion and Analysis of Financial
Condition and Result of Operations--Liquidity and Capital Resources."
Both the Navy I partnership and the Navy II partnership are required to pay
to the Navy royalties or the equivalent thereof, for electricity generated by
Units 2 and 3 at Navy I and the three units at Navy II. The percentage royalty
due to the Navy for Units 2 and 3 of Navy I is 15% of revenues received through
2003, 20% from 2004 through 2009, and, if the Navy elects to extend the term of
the Navy Contract, 22.0% thereafter. The percentage royalty due to the Navy for
Navy II is 10% of electricity sales through 1999, 18% from 2000 to 2004, 20%
from 2005 through 2010, and, if the Navy elects to extend the term of the Navy
Contract, 22.0% thereafter.
Termination
The Navy has the right to terminate the Navy Contract under circumstances
that include the convenience of the Navy. The Navy has the right to terminate
the contract at any time by giving the Navy I partnership or the Navy II
partnership, or both, as applicable, six months' prior written notice for
"reasons of national security, national defense preparedness, national
emergency, or for any reasons the Contracting Officer shall determine that such
termination is in the best interest of the U.S. Government."
Upon the expiration of the Navy Contract, title to the wells and casings will
revert to the Navy with no remuneration to the Navy I partnership or the Navy
II partnership. Title to all of the fixtures, facilities and equipment will
remain with the Navy I partnership and Navy II partnership. However, the Navy
has an option to purchase all of the above mentioned fixtures, facilities and
equipment (at a price to be determined), or the Navy may require that the Navy
I partnership and the Navy II partnership remove the fixtures, facilities and
equipment within a reasonable time after expiration of the Navy Contract, at no
cost to the Navy.
If the Navy were to terminate the Navy Contract, the Navy would be required
to pay the Navy I partnership or the Navy II partnership or both, as
applicable, for the unamortized portion of their exploratory investment and for
their investment in installed power plant facilities. There is a cap on the
amounts the Navy would be required to pay as compensation on such termination,
based on the nameplate capacity of the turbine generators. With respect to each
of the Navy I partnership and the Navy II partnership, for the first aggregate
25 MW, the cap is $2.7 million per MW, and for the next 25 MW (i.e., up to 50
MW), the cap is $2.5 million per MW. For 50 to 75 MW, the cap is $1.4 million
per MW for the Navy I partnership and $2.3 million per MW for the Navy II
partnership. For a total nameplate capacity of 75 MW for Navy I or Navy II, the
total cap in termination compensation would be $165.0 million for the Navy I
partnership and $187.5 million for the Navy II partnership. The total aggregate
termination compensation for the Navy I partnership and the Navy II partnership
would therefore be approximately $352.5 million. The Navy Contract does
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not provide for compensation to either the Navy I partnership or the Navy II
partnership for the loss of anticipated profits resulting from such termination
or to the BLM partnership for any detrimental effect on it from the termination
of the Navy Contract.
In addition to its right to terminate the Navy Contract, the Navy may, from
time to time, impose certain access and operational restrictions on the Navy I
partnership and the Navy II partnership for purposes of national security,
personnel safety, protection of property or protection of the environment, and
under certain circumstances may impose emission standards. The Navy has
periodically ordered all personnel at the Coso projects to evacuate the
facilities on several occasions. During evacuation periods, the operators
continue to operate the Coso projects via a remote station located at the
outskirts of the Navy base. This station currently utilizes rights of way that
CalEnergy originally obtained from the Bureau of Land Management. CalEnergy
recently assigned these rights of way to the Coso partnerships as tenants-in-
common with the approval of the Bureau of Land Management. See "Risk Factors--
The Navy could terminate the Coso partnerships' rights to use the Coso
geothermal resource at any time."
The BLM Lease
On April 29, 1985, CalEnergy and the Bureau of Land Management entered into
the BLM lease. Under the BLM lease, CalEnergy acquired a leasehold interest in
approximately 2,550 acres of land, including the contractual right to drill
for, extract, produce, remove, use, sell and dispose of the geothermal resource
thereon. The land is also located at the United States Naval Air Weapons Center
at China Lake. Through various assignments, effective May 1, 1988, the BLM
lease was assigned to the BLM partnership. The BLM Lease was recorded on May 9,
1988, as Instrument No. 88-2092, in the Official Records of Inyo County,
California, and the assignment to the BLM partnership was recorded on the same
date.
Coso Land Company intends to assign to the BLM partnership a leasehold
interest granted by the Bureau of Land Management in an additional parcel of
land (referred to as lease CA 11401) that is adjacent to the BLM lease. This
assignment is subject to the consent of the Bureau of Land Management. The
Bureau of Land Management's consent has recently been received but is subject
to a requirement in the financing documents that certain additional title
documentation be delivered to it, and that delivery is currently in process.
The leasehold interest will expire on November 17, 2002 unless extended by
production. In addition, Coso Land Company holds leasehold interests granted by
the Bureau of Land Management in certain additional leases from the Bureau of
Land Management. These additional leases are located within several miles of
the property covered by the BLM lease. These additional leases are not
currently producing any geothermal resources, are not expected to be needed for
the Coso projects and may be surrendered to the Bureau of Land Management or
allowed to expire.
The primary term of the BLM lease has expired. The BLM lease provides,
however, that the term of the BLM Lease will be extended automatically "so long
thereafter as geothermal steam is produced or utilized in commercial quantities
but shall in no event continue for more than forty (40) years after the end of
the primary term." This automatic extension due to the continuation of
production is termed being "held by production." Since the BLM lease is deemed
"held by production," the BLM lease has been automatically extended and the BLM
partnership continues to have rights under the BLM lease. The BLM partnership
also enjoys a preferential right of renewal of the BLM lease for an additional
40-year term if geothermal steam is being produced or utilized in commercial
quantities and the leased land is not needed for other purposes.
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Pursuant to the BLM lease, the Navy controls all activities on the surface of
the real property covered by the BLM lease. In addition, the BLM partnership
must comply with certain "Navy Constraints on Naval Weapon Center Lands." These
constraints include, among other things, certain security measures and
restrictions of access, the Navy's right to suspend operations if an imminent
threat to the environment is presented, permitting requirements, information
and data exchange, and the Navy's right of inspection. For related information,
see "--The Navy Contract." The Bureau of Land Management has retained the right
to grant easements and other rights of way to third parties with respect to the
leased property, so long as those rights do not create unnecessary or
unreasonable interference with the BLM partnership's activities or the
property.
The BLM partnership pays royalties to the Bureau of Land Management under the
BLM Lease. Royalties are 10% of the value of steam produced. This rate is fixed
for the life of the BLM Lease. The Bureau of Land Management has the right to
establish minimum and maximum production levels of steam after notice and a
hearing, and the right to reduce the royalty rate if necessary to encourage the
greater recovery of leased resources, or as otherwise justified.
BLM leases that are "held by production" or that are known to contain wells
capable of production of commercial qualities cannot be canceled without prior
notice and a hearing. BLM leases can also be terminated by operation of law, as
follows: (1) at the anniversary date, for failure to pay the full amount of the
annual rental by that date, and (2) at the end of the primary term, if there is
no production in commercial quantities, there is no producing well or actual
drilling operations are not being diligently prosecuted.
Upon termination of the BLM Lease, the BLM partnership is required to place
all wells in condition for suspension or abandonment, reclaim the land and,
within a reasonable time, remove all the equipment or improvements that the
Bureau of Land Management does not deem necessary for the preservation of
producible wells or protection of the environment.
O&M Agreements
O&M Agreements with FPL Operating
The Coso partnerships have entered into three separate O&M agreements with
FPL Operating. The initial term of these O&M agreements is for three years with
an automatic three year extension unless either party notifies the other party
at least 90 days prior to expiration that it does not intend to extend the term
of the O&M agreement. Except for certain services to be performed by Coso
Operating Company, the plant operation and maintenance services are performed
by FPL Operating pursuant to the O&M agreements. FPL Operating's O&M agreements
provide that FPL Operating will do all things necessary or advisable for the
proper operation and maintenance of the geothermal power facilities, the
interconnection to the transmission line, the geothermal wells and related
fluid handling, gathering and distribution systems and perform certain other
services specified in the O&M agreements. It will also operate and maintain the
Navy I Transmission Line and the BLM/Navy II Transmission Line.
FPL Operating's general duties include, among others:
. supervision of operations and maintenance at the plants, the
interconnection to the transmission lines, the wells and related fluid
handling, the gathering system and any and all technical and engineering
support required for such operations and maintenance;
. the purchase of all materials, supplies, consumables, parts, equipment,
vehicles, utilities and other items necessary to conduct normal
operations and maintenance;
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. scheduling all outages and maintenance shutdowns;
. contracting with third parties as may be necessary for the performance of
specialized services;
. maintaining safety and security programs;
. complying with applicable laws and obtaining and maintaining all
government permits, licenses and approvals required of FPL Operating in
connection with the operation of the Coso projects; and
. complying with all federal, state and local laws/ordinances and
regulations relating to industrial hygiene or releases to the
environment.
As compensation for such services, each Coso partnership has agreed to pay to
FPL Operating an annual fee of $134,000, $100,000 and $84,000 in the first,
second and third years, respectively, of the O&M agreements with FPL Operating
(or an aggregate of $402,000, $300,000 and $252,000, respectively). Adjustments
to the compensation may be made if a "Change of Conditions" occurs. A Change of
Conditions includes, among other things, modifications to the facility or the
power purchase agreements, directions from the Coso partnerships to perform
services different from, or in addition to, those originally contemplated, or
the occurrence of an uncontrollable event. In addition, each Coso partnership
has agreed to reimburse FPL Operating for all properly incurred costs and
expenses and reimburse FPL Operating for the performance incentive bonuses that
it pays its employees.
The Coso partnerships have the right under the O&M agreements with FPL
Operating to terminate those agreements upon six months' prior notice or under
certain circumstances, including the occurrence of a total or partial failure
of the geothermal wells and uncured defaults. FPL Operating also has the right
to terminate any of its O&M agreements with the Coso partnerships upon six
months' prior notice or under certain circumstances, including any material
uncured default by the relevant Coso partnership.
The Coso partnerships and Coso Operating Company have been negotiating with
FPL Operating and its affiliates to acquire all of the equity interests in the
Navy I partnership held by one of FPL Operating's affiliates and to terminate
the existing O&M agreements with FPL Operating. See "Prospectus Summary--Recent
Developments--Negotiating with FPL Operating and its Affiliates."
O&M Agreements with Coso Operating Company
The Coso partnerships have also entered into three field O&M agreements with
Coso Operating Company. The terms of these field O&M agreements expire on
December 31, 2009. Pursuant to these field O&M agreements, Coso Operating
Company provides certain services for the Coso projects, including among
others:
. exploring for new well sites, drilling new wells, and completing,
testing, and making available new wells for tie in to the resource
gathering systems of the Coso projects;
. drilling, testing, workover and repair work and making available new
wells to the disposal system;
. providing accounting, financial and tax services for the Coso
partnerships; and
. performing well workovers and related activities and all reservoir and
resource management related services and reservoir engineering and
geologic activities with respect to the field and sub-surface reservoir,
including:
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. scheduling and supervising well testing,
. well surveys,
. maintaining production data bases,
. reservoir modeling,
. identifying candidates for well workovers,
. acid jobs,
. providing reports on resource availability,
. declines,
. production projections,
. targeting new wells,
. providing three dimensional models of the reservoir,
. maintaining and distributing maps, and
. scheduling and supervising geologic geophysical and/or geochemical
surveys.
As compensation for such services, each Coso partnership has agreed to pay
Coso Operating Company an annual fee of $532,000, $400,000 and $334,000 in the
first, second and third years, respectively, of the O&M agreements with Coso
Operating Company (or an aggregate of $1.6 million, $1.2 million and $1.0
million, respectively). In addition, each Coso partnership has agreed to pay
all proper costs and expenses incurred by the Coso Operating Company and
reimburse Coso Operating Company for the performance incentive bonuses that
Coso Operating Company pays to its employees, as set forth in the O&M
agreements with Coso Operating Company.
The LADWP Leases
In 1997, LADWP assigned to Coso Land Company, one of our affiliates, all of
its rights and interests in certain wells and related equipment located at BLM
North. BLM North covers approximately 6,825 acres of land and is located
adjacent to the real property covered by the Navy Contract. Under the LADWP
leases, Coso Land Company has the right to drill for, extract, produce, remove,
use, sell and dispose of the geothermal resources located on BLM North. Coso
Land Company originally entered into the lease assignment with the LADWP to
obtain access to additional steam to supplement the steam available for
transfer among the Coso projects' plants under the steam sharing program.
Coso Land Company has applied to the Bureau of Land Management for assignment
to each Coso partnership of an undivided one-third interest in the LADWP leases
as a tenant-in-common. This assignment is subject to the consent of the Bureau
of Land Management. The Bureau of Land Management's consent has recently been
received but is subject to a requirement in the financing documents that
certain additional title documentation be delivered to it, and that delivery is
currently in process. Once this assignment becomes effective, the Coso
partnerships will assume all of Coso Land Company's obligations under the LADWP
leases and will reimburse Coso Land Company for the costs it incurred in
acquiring the LADWP leases. These costs were approximately $1.0 million.
The primary terms of two of the LADWP leases expire on December 24, 2002, and
the primary term of one of the LADWP leases expires on September 23, 2004. The
terms of the LADWP leases
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will be extended automatically "so long thereafter as geothermal steam is
produced or utilized in commercial quantities but shall in no event continue
for more than forty (40) years after the end of the primary term. This
automatic extension due to the continuation of production is termed being "held
by production." Coso Land Company enjoys, and after the effective date of the
assignment the Coso partnerships will enjoy, a preferential right of renewal of
the LADWP leases for an additional 40-year term so long as geothermal steam is
being produced or utilized in commercial quantities and the leased lands are
not needed for other purposes.
As of April 1, 1999, the Coso partnerships were producing steam from two
production wells located on one of the LADWP leases (referred to as LADWP lease
CA 11384) and were injecting fluids into an injection well located on a second
LADWP lease (referred to as LADWP lease CA 11385). Another well located on the
LADWP lease CA 11385 is capable of producing geothermal steam, but it has not
been connected to the Coso projects' gathering system. The Bureau of Land
Management has determined that LADWP lease CA 11384 is held by production.
LADWP lease CA 11385 should also be deemed "held by production" and, although
the Bureau of Land Management has not yet made that determination, we expect it
to be automatically extended as well, but we cannot assure you it will be.
Although the third LADWP lease (referred to as LADWP lease CA 11383) has no
wells on it. The Coso partnerships expect that they may produce steam in the
future from the property covered by the third LADWP lease.
Steam Sharing and Co-Tenancy Agreements
The Coso partnerships have implemented and intend to expand a steam sharing
program which they established under a Coso Geothermal Exchange Agreement,
which we call the steam sharing agreement, entered into by the Coso
partnerships in 1994 and amended in 1995. The purpose of the steam sharing
program is to enhance management of the Coso geothermal resource and to
optimize its overall benefits to the Coso partnerships. Pursuant to the steam
sharing agreement, the Coso partnerships constructed an inter-project steam
supply system which links the three Coso projects together via metered transfer
lines through which the Coso partnerships may exchange steam and other
geothermal resources with one another and thereby make optimum use of available
steam to maximum revenues at the Coso projects. As part of this program, the
Coso partnerships plan to conserve the geothermal resource whenever possible
by, among other things, (1) transferring steam between and among the Coso
projects and BLM North, rather than drilling new wells at the Coso projects'
sites prematurely, and (2) extending a flexible field-wide water reinjection
program.
The Coso partnerships' use of BLM North will be governed by a Cotenancy
Agreement that will provide for the shared ownership of the LADWP leases and
two rights of way granted by the Bureau of Land Management that pertain to (1)
an off-site location used for remote operation of the Coso projects when the
Navy orders evacuations of the plants and fields and (2) the telephone lines
used for the Coso projects. See "--The Navy Contract." Pursuant to this
agreement, the Coso partnerships will each hold, as tenants-in-common, an
undivided one-third working interest in the geothermal resources located at BLM
North. The Cotenancy Agreement will entitle each of the Coso partnerships,
subject to applicable consents, to use BLM North for geothermal resource
production and injection purposes if the Coso partnership determines, in its
exercise of its reasonable business judgment, that it has insufficient steam
economically available to it from other sources.
The steam sharing agreement requires that the Coso partnerships share equally
in the cost of the inter-project steam supply system and includes a formula
that is used to calculate the payments made between or among the Coso
partnerships. In addition, transfers of steam made pursuant to the steam
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sharing program generates royalties due by the Coso partnerships to the Navy
and the Bureau of Land Management. The formula for calculating the royalty due
to the Navy has been incorporated by modification into the Navy Contract and
has recently been amended to reflect the addition of the geothermal resources
located on land covered by the LADWP leases. The royalty due to the Bureau of
Land Management is governed by the underlying leases and an Agreement for the
Calculation of Minerals/Revenues that was entered into in 1994. Each of the
Navy and the Bureau of Land Management has provided the consents necessary for
transfers of steam between and among the Coso projects pursuant to the steam
sharing program, but it has, however, reserved the right to suspend, terminate
or withdraw its consent in its sole discretion under certain circumstances.
With respect to the use of the geothermal resources located under the land
covered by the LADWP leases, the Navy has currently consented only to use by
BLM of steam produced from those lands provided that any steam transferred from
property leased from the Bureau of Land Management to Navy I or Navy II must be
offset by transfers within the same month to BLM of steam from wells located on
property leased from the Navy. The reason for the Navy's limited consent is to
avoid the difficulties that arise by virtue of the fact that the energy price
paid to the Navy II partnership under its power purchase agreement remains
fixed rather than paid at Edison's avoided cost of energy. Once the fixed
energy price period at Navy II expires in January 2000, we anticipate that the
Navy will consent to additional transfers of steam between BLM North and the
Coso projects.
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REGULATION
Energy Regulation
PURPA
PURPA provides an electric generating project with rate and regulatory
incentives and exemptions if the project is a QF. There are two types of QFs:
Small Power QFs and Cogeneration QFs. Under PURPA, a power production facility
is a Small Power QF if (i) the facility satisfies certain maximum size
criteria, (ii) the primary energy source of the facility is biomass, waste,
renewable resources or any combination thereof, and 75% of the total energy
input is from these sources, and (iii) the facility is owned by a person not
primarily engaged in the generation or sale of electric power (other than
electric power solely from cogeneration facilities or small power production
facilities). The maximum size criteria, however, do not apply to a facility
that is an "eligible solar, wind, waste or geothermal facility," as defined in
Section 3(17)(E) of the Federal Power Act. A facility qualifies for this
exemption if: (1) it produces electric energy solely by the use, as a primary
energy input, of solar, wind, waste or geothermal resources; (2) an application
for certification or a notice of self-certification of qualifying status of the
facility was submitted to the FERC prior to December 31, 1994; and (3)
construction of the facility commenced prior to December 31, 1999. The Coso
projects have satisfied these requirements and thus are exempt from the size
limitation applicable to Small Power QFs.
Under PURPA, QFs receive two primary benefits. First, PURPA exempts QFs, such
as the Coso projects, from the definition of "electric utility company" under
the Public Utility Holding Company Act of 1935 ("PUHCA"), most provisions of
the Federal Power Act and certain state laws relating to financial,
organization and rate regulation of electric utilities. Second, the regulations
promulgated by FERC under PURPA require that (i) electric utilities purchase
electricity generated by QFs, construction of which commenced on or after
November 9, 1978, at a rate based on the purchasing utility's full "avoided
costs" and (ii) the utilities sell supplementary, back-up, maintenance and
interruptible power to QFs on a just and reasonable and nondiscriminatory
basis. FERC's regulations define "avoided costs" as the "incremental costs to
an electric utility of electric energy or capacity or both which, but for the
purchase from the qualifying facility or qualifying facilities, such utility
would generate itself or purchase from another source." Utilities may also
purchase power at prices other than avoided cost of energy pursuant to
negotiations as provided by FERC's regulations.
We expect that the Coso projects will continue to meet all of the criteria
required for certification as QFs under PURPA. If any Coso project were to fail
to meet such criteria, the Coso partnership that owns that Coso project may
become subject to regulation as a public utility company or its equivalent
under PUHCA and the Federal Power Act. Each Coso partnership has warranted to
Edison that it will maintain the QF status of its respective Coso project
throughout the term of the related power purchase agreement and each of the
Coso partnerships is required under the Indenture to maintain the QF status of
its respective Coso project.
As discussed under the heading "Risk Factors--The operations of the Coso
projects could be adversely affected by an inability to comply with regulatory
standards," it is possible, however, that (1) PURPA could be repealed or
amendments to PURPA could be enacted that substantially reduce the benefits
currently afforded QFs, or (2) the requirements for the Coso projects to
maintain their status as QFs could be made more burdensome. In such event,
operations at the Coso projects or compliance with the terms of the power
purchase agreements could be adversely affected, and the
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Coso partnerships' ability to make payments under their project notes and
guarantees, and our ability to make payments of principal, premium, if any,
and interest on the Series B notes when due, could be materially and adversely
affected.
PUHCA
PUHCA provides that any corporation, partnership or other entity or
organized group that owns, controls or holds power to vote 10% or more of the
outstanding voting securities of a "public utility company" (which is defined
to include an "electric utility company" or a "gas utility company") or a
company that is a "holding company" of a "public utility company" is subject
to registration with the SEC and to regulation under PUHCA, unless exempted by
SEC rule, regulation or order. An entity may also be deemed to be a holding
company if the SEC determines, after providing notice and an opportunity for a
hearing, that such entity exercises a controlling influence over the
management or policies of any public utility or holding company as to make it
necessary or appropriate in the public interest or for the protection of
investors or consumers that such entity be regulated as a holding company.
Unless an exemption is obtained, PUHCA requires registration for a holding
company of a public utility company, and requires a public utility holding
company to limit its utility operations to a single integrated utility system
and to divest any other operations not functionally related to the operation
of the utility system. In addition, a public utility company that is a
subsidiary of a registered holding company under PUHCA is subject to financial
and organizational regulation, including approval by the SEC of its financing
transactions.
The Energy Policy Act of 1992 (the "Policy Act") contains amendments to
PUHCA that may allow the Coso partnerships to operate their businesses without
becoming subject to PUHCA in the event that any Coso project loses its status
as a QF. Under the Policy Act, a company may be exempted from PUHCA if it is
engaged exclusively in the business of owning and/or operating one or more
facilities used for the generation of electric energy exclusively for sale at
wholesale and selling electric energy at wholesale. To qualify for such an
exemption, a company must apply to FERC for a determination of eligibility,
pursuant to implementing rules promulgated by FERC. However, since the power
purchase agreements require each Coso partnership to maintain the QF status of
its respective Coso project, obtaining this exemption would not eliminate the
need to amend or replace the power purchase agreements if the current QF
status is lost. Moreover, although the Policy Act and its implementing rules
provide certain exemptions from PUHCA, the Policy Act may also encourage
greater competition in wholesale electricity markets which could result in a
decline in long-term rates to be paid by electric utilities, including Edison.
Even if a Coso partnership obtained an exemption from PUHCA pursuant to the
Policy Act and implementing rules, in the event that QF status is revoked or
otherwise not maintainable, the applicable Coso partnership would be subject
to regulation as a "public utility" under the Federal Power Act, as described
below.
Federal Power Act
Under the Federal Power Act, FERC has exclusive rate-making jurisdiction
over wholesale sales of electricity and transmission in interstate commerce.
These rates may be based on a cost of service approach or may be determined
through competitive bidding or negotiation. If a Coso project loses its QF
status, the rates set forth in its power purchase agreement would have to be
filed with FERC and would be subject to review by FERC under the Federal Power
Act. Under FERC policy, the rates under those circumstances could be no higher
than Edison would have paid for energy had it not been required to purchase
from such Coso project under PURPA's mandatory purchase requirements, i.e.,
Edison's economy energy (incremental) cost during the period of non-compliance
with QF
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<PAGE>
requirements, unless the applicable power purchase agreement otherwise provides
for alternative rates to apply in the event of such loss of QF status. The
power purchase agreements do not contain such a provision nor do they contain
provisions for a renegotiation of the rates to be paid for electric energy in
the event of loss of QF status.
The Federal Power Act and FERC's authority under the Federal Power Act
subject public utilities to various other requirements, including accounting
and record-keeping requirements; FERC approval requirements applicable to
activities such as selling, leasing or otherwise disposing of facilities; FERC
approval requirements for mergers, consolidations, acquisitions and the
issuance of securities; and certain restrictions regarding affiliations of
officers and directors. Certain of these requirements, however, are typically
waived by FERC for public utilities that do not serve captive retail customers,
for example, entities known as exempt wholesale generators, or EWGs.
Accordingly, if a Coso project were to lose its QF status, the related Coso
partnership may be able to obtain EWG status and FERC would likely extend the
same waivers of certain of these requirements to that Coso partnership.
State Regulation
The Coso projects, by virtue of being QFs, are exempt from California rate,
financial and organizational regulations that are applicable to public
utilities. QFs, however, are not exempt from the California regulatory
commission's general supervisory powers relating to environmental and safety
matters.
In the event the Coso projects were to lose their QF status, while they would
become subject to the Federal Power Act and, potentially, PUHCA regulation,
they would nonetheless continue to be exempt from public utility regulation
under state law. Under California law, ownership or operation of a facility
that produces power from other than a conventional power source, such as
geothermal energy, does not make a company a public utility. Similarly,
California law excludes from the definition of public utility a company that
has been determined by FERC to be an exempt wholesale generator under PUHCA.
Wheeling and lnterconnection
Under the Federal Power Act, FERC is authorized to regulate the rates, terms
and conditions for the transmission of electric energy in interstate commerce.
This has been interpreted to mean that FERC has jurisdiction to prescribe the
terms of and to set the rates contained in agreements for the transmission of
electric energy when the applicable transmission system is interconnected and
capable of transmitting energy across a state boundary, even if the utility has
no direct connection with another utility outside its state but is
interconnected with another utility that in turn has interstate connections
with other utilities.
FERC's authority under the Federal Power Act to require electric utilities to
provide transmission service to QFs and other wholesale electricity producers
has been significantly expanded by the Policy Act. Pursuant to the Policy Act,
the Coso partnerships may apply to FERC for an order requiring a utility to
provide transmission services in order to transmit power to a wholesale
purchaser. FERC may issue such an order if FERC determines that such order
would promote the economically efficient transmission and generation of
electricity, would be just and reasonable and not unduly discriminatory or
preferential and otherwise would be in the public interest, provided that the
reliability of the affected electric systems would not be unreasonably
impaired. In addition, in
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April 1996, FERC issued an order directing transmission-owning utilities that
are subject to FERC jurisdiction, including Edison, to file transmission
tariffs providing for non-discriminatory transmission service on terms
comparable to those the transmission owner imposed on itself. Edison has now
complied with this open access order (although operational control of the
majority of Edison's transmission facilities has now been turned over to the
ISO). In addition, the ISO has filed an open access tariff in compliance with
the FERC order. As a result, the Coso partnerships would be able to obtain
transmission service through the ISO (or through Edison's open access tariff,
if necessary), subject to availability, should electricity sales to another
purchaser be necessary or desirable. Thus, the Policy Act and FERC's open
access order have presumably enhanced the Coso partnerships' ability to obtain
transmission access necessary to sell electric energy or capacity to purchasers
other than Edison if a power purchase agreement is terminated. There can be no
assurance, however, that FERC would issue an order mandating transmission
service for the Coso partnerships or that the rates for open access or FERC-
ordered transmission service would be economical for the Coso partnerships.
California Deregulation
In September 1996, AB1890 was enacted to open electric generation in
California to competition while leaving in place the regulated system of power
transmission and distribution. Among the significant provisions of this
legislation are (1) electric rate relief or rate freezes, (2) public benefit
programs, (3) funding for the support of renewable generation and (4)
transition mechanisms for utilities to recover stranded costs that have become
uneconomic by the change in public utility law and the move to a competitive
market. AB1890 reaffirmed that stranded costs resulting from above-market power
purchase agreements which the California Public Utilities Commission had
previously authorized for collection in rates, including the power purchase
agreements, will be recoverable by the utility over the remaining terms of
those power purchase agreements.
An integral component of AB1890 is the formation of the California Power
Exchange and ISO. The California Power Exchange is intended to operate like an
open and transparent commodities market where power producers will compete to
sell their generation and the ISO is intended to be a private entity that
provides all market participants with non-discriminatory access to the
transmission system, while maintaining system security and reliability. The
California Power Exchange and ISO began operations on March 31, 1998. Since
that time, the California Power Exchange has expanded its clearing mechanisms
for day-ahead bidding, the only mechanism available at inception, to include an
hour-ahead mechanism, beginning in August 1998. Further expansions of
California Power Exchange clearing mechanisms are currently planned and
scheduled for introduction in the near future. The ISO is also in the process
of refining its operations and responding to market conditions such as the
recent price spikes for certain ancillary services. Other aspects of ISO PX
operations and services are in the process of implementation as well. As
discussed under the headings "Risk Factors--The operations of the Coso projects
could be adversely affected by an inability to comply with regulatory
standards," and "Risk Factors--Future energy payments paid by Edison to the
Coso partnerships will most likely be less than historical energy payments
because they will be paid based on Edison's avoided cost of energy," the new
market structure in California raises novel regulatory and implementation
issues, which the various regulatory agencies and market participants are still
in the process of resolving. The process of development of the ISO PX system
will have significant effects on the Coso partnerships, given that Edison is
currently required to sell QF power through the
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<PAGE>
California Power Exchange, and that Edison's avoided cost of energy will be set
to equal the California Power Exchange clearing price in the next two or three
years.
In addition to actions taken by the California Legislature and regulation by
the California Public Utilities Commission, bills have been and are being
introduced into the United States Congress mandating the deregulation of the
electric utility industry on the state level, as discussed above under the
heading "Risk Factors--The operations of the Coso projects could be adversely
affected by an inability to comply with regulatory standards."
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MANAGEMENT
Funding Corp.
The following table sets forth the persons who currently serve as our
directors and executive officers as of June 30, 1999:
<TABLE>
<CAPTION>
Name Age Position(s)
<S> <C> <C>
James D. Bishop, Sr. ... 65 Director, Chairman and Chief Executive Officer
Leslie J. Gelber........ 42 Director, President and Chief Operating Officer
James D. Bishop, Jr. ... 39 Director, Vice Chairman
Christopher T.
McCallion.............. 37 Director, Executive Vice President and Chief Financial Officer
Larry K. Carpenter...... 49 Director, Executive Vice President
James C. Sullivan....... 71 Director, Senior Vice President and Secretary
Mark A. Ferrucci........ 47 Director
David V. Casale......... 36 Vice President and Controller
Robert E. Tucker........ 46 Vice President
Barbara Bishop Gollan... 40 Vice President
</TABLE>
James D. Bishop, Sr., Chairman, Chief Executive Officer and a Director of
Funding Corp. and of Caithness Energy, has served as a Director of Caithness
Corporation since its inception in 1975. Mr. Bishop served as Caithness
Corporation's President from its inception until December 1986 and as Chairman
of Caithness Corporation from January 1987 until the present. Mr. Bishop also
serves as a director for various other entities which engage in independent
power production and natural resource exploration and development. Mr. Bishop
holds a Master of Business Administration degree from Harvard Business School
and a Bachelor of Arts degree from Yale University. Mr. Bishop is the father of
James D. Bishop, Jr. and Barbara Bishop Gollan.
Leslie J. Gelber, President, Chief Operating Officer and a Director of
Funding Corp. and of Caithness Energy, has served as President and Chief
Operating Officer of Caithness Corporation since January 1999. Prior to joining
Caithness Corporation, Mr. Gelber served as President of Cogen Technologies,
Inc., which is also engaged in the field of independent power production, from
August 1998 until December 1998. From July 1993 to July 1998, Mr. Gelber served
as President of ESI Energy, Inc., the non-regulated independent power company
owned by FPL Group, Inc. Mr. Gelber holds a Master of Business Administration
degree from the University of Miami and holds a Bachelor of Arts degree in
Economics from Alfred University.
James D. Bishop, Jr., Vice Chairman and a Director of Funding Corp. and of
Caithness Energy, joined Caithness Corporation in 1988 and has served as
President and Chief Operating Officer of Caithness Corporation from November
1995 until December 1998. Mr. Bishop also serves on all of the boards of
directors and management committees of the entities and joint ventures
affiliated with Caithness Corporation. Mr. Bishop holds a Master of Business
Administration degree from the Kellogg Graduate School of Management at
Northwestern University and holds a Bachelor of Science degree from Trinity
College. Mr. Bishop is the son of James D. Bishop, Sr. and the brother of
Barbara Bishop Gollan.
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<PAGE>
Christopher T. McCallion, Executive Vice President, Chief Financial Officer
and a Director of Funding Corp. and of Caithness Energy, served as Vice
President and Controller of Caithness Corporation from July 1991 to November
1995, and has served as Executive Vice President and Chief Financial Officer of
Caithness Corporation since November 1995. Mr. McCallion holds a Bachelor of
Science degree from Seton Hall University.
Larry K. Carpenter, Executive Vice President and a Director of Funding Corp.
and of Caithness Energy, has served as an Executive Vice President of Caithness
Corporation since January 1999. Prior to joining Caithness Corporation, Mr.
Carpenter served as Vice President of Development at ESI Energy, Inc., the non-
regulated independent power company owned by FPL Group Inc., from 1985 to
December 1998. Mr. Carpenter holds a Bachelor of Science degree in Electrical
Engineering from the University of Florida.
James C. Sullivan, a Senior Vice President, Secretary and a Director of
Funding Corp. and of Caithness Energy, has served as Senior Vice President,
Secretary and a Director of Caithness Corporation since April 1996.
Mr. Sullivan attended Holy Cross Seminary at Notre Dame University, Indiana
University and the University of Tokyo before graduating from the State
University of California at Pasadena.
Mark A. Ferrucci, a Director of Funding Corp., has served as the independent
director of Funding Corp. since May 1999. Since 1997, Mr. Ferrucci has been an
employee of CT Corporation System, an independent company that provides
corporate and UCC services to businesses and law firms. From 1977 until 1992,
Mr. Ferrucci served as CT Corporation System's Assistant Secretary and as
Assistant Vice President of CT Corporation System from 1992 until the present.
David V. Casale, a Vice President and the Controller of Funding Corp. and of
Caithness Energy, joined Caithness Corporation in December 1991 and has served
as a Vice President and as its Controller since November 1995. Mr. Casale holds
a Bachelor of Arts degree from Adelphi University and is a Certified Public
Accountant.
Robert E. Tucker, a Vice President of Funding Corp. and of Caithness Energy,
joined Caithness Corporation in September 1990 and has served as a Senior Vice
President of Caithness Corporation since January 1993. Mr. Tucker holds a
Master of Science degree in Mechanical Engineering and a Bachelor of Science
degree in Mechanical Engineering from Purdue University.
Barbara Bishop Gollan, a Vice President of Funding Corp. and of Caithness
Energy, joined Caithness Corporation as Vice President in October 1990. Ms.
Gollan has authored and co-authored a number of technical papers on geothermal
systems, which were presented to the Geothermal Resources Council, the Geologic
Society of America and the Stanford Geothermal Workshop. Ms. Gollan holds a
Master of Science degree in Geology and Geochemistry from Stanford University
and holds a Bachelor of Arts degree from Amherst College. Ms. Gollan is the
daughter of Mr. James D. Bishop, Sr. and sister of James D. Bishop, Jr.
Our Board of Directors recently appointed Mr. Ferrucci as an independent
director. The unanimous affirmative vote of our Board of Directors (including
Mr. Ferrucci) is required before we can take certain actions, including, but
not limited to, (1) engaging in any business or activity other than issuing the
senior secured notes and making the related loans to the Coso partnerships,
(2) incurring any debt, or assuming or guaranteeing any debt of any other
entity, (3) dissolving or liquidating, (4) consolidating, merging or selling
all or substantially all of our assets or (5) instituting any bankruptcy or
insolvency proceedings.
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None of our directors and executive officers receives any compensation from
us for his or her services, except that nominal compensation is paid in
consideration for Mr. Ferrucci's services.
The Coso Partnerships
Each of the Coso partnerships has two general partners, a managing partner
and a non-managing partner. Under the amended and restated partnership
agreement of each Coso partnership, the managing partner of the Coso
partnership is generally responsible for the management and control of the day-
to-day business and affairs of the Coso partnership and acts on behalf of the
Coso partnership. The managing partner of the Navy I partnership is New CLOC,
the managing partner of the BLM partnership is New CHIP and the managing
partner of the Navy II partnership is New CTC. See "Business--The Coso
Partnerships."
Each managing partner is a limited liability company which is managed by a
manager who is appointed by Caithness Acquisition, the sole member of each
managing partner. The manager is responsible for the ordinary course management
and operations by its Coso partnership of that partnership's Coso project.
Caithness Acquisition has appointed itself as the manager of each managing
partner. Caithness Acquisition has also appointed Mr. Ferrucci as the
independent manager of each managing partner. (In addition, each of the
managing members of the non-managing partners has appointed Mr. Ferrucci as the
independent manager of that non-managing partner.) The approval of the
independent manager is required before the managing partner (or the non-
managing partner, as the case may be) may take certain actions that do not
involve the ordinary course management and operations by the Coso partnerships
of the Coso projects, including, among others, (1) commencing any bankruptcy or
insolvency proceeding involving the managing partner, (2) incurring any debt in
the name of the managing partner for which it would be liable, (3) dissolving,
liquidating, consolidating or merging, or selling all or substantially all of
the assets of, its respective Coso partnership, or (4) engaging in any business
or activity other than acting as the managing partner of its respective Coso
partnership. Each managing partner also has its own officers, who are also our
officers, and who act on behalf of the managing partners of the Coso
partnerships.
Caithness Acquisition, a limited liability company, is the manager and sole
member of each of the managing partners. Caithness Energy, as the manager and
sole owner of Caithness Acquisition, has delegated its role as manager of
Caithness Acquisition to the Caithness Acquisition board of directors,
including the power to manage the managing partners of the Coso partnerships.
Each managing partner's officers are also the officers of Caithness
Acquisition. None of the persons acting on behalf of the Coso partnerships
receives any compensation from the Coso partnerships for his or her services,
except that nominal compensation is paid in consideration for Mr. Ferrucci's
services.
Caithness Energy is governed by a board of directors and not by its members.
Our directors, other than Mr. Ferrucci, also currently serve as members of the
board of directors of Caithness Energy. Under the limited liability company
agreement of Caithness Energy, Caithness Corporation is entitled to appoint a
number of members to the Board of Directors of Caithness Energy who hold, in
the aggregate, a majority of the votes of all members of such board of
directors. Caithness Corporation's present appointees are Messrs. Bishop, Sr.,
Bishop, Jr. and Sullivan. In addition, Messrs. Gelber, Carpenter and McCallion
serve as voting members of the board of directors of Caithness Energy pursuant
to their individual executive compensation agreements with Caithness Energy.
These six individuals, together with Mr. Ferrucci, serve as the Caithness
Acquisition board of directors.
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Management Committees
Under the amended and restated partnership agreement of each Coso
partnership, the managing partner of the Coso partnership is subject to the
directives of a management committee which oversees the business operations of
the Coso partnership. The managing partner of a Coso partnership may not take
certain specific actions without the consent of the management committee of
that Coso partnership. However, the management committee may not direct the
managing partner of the Coso partnership to take any action over which the
independent manager has exclusive authority without the requisite approval of
the independent manager. The management committee of each Coso partnership
consists of four delegates, two of which are appointed by the managing partner
and two of which are appointed by the non-managing partner. Each partner may
substitute or change its own delegates.
Caithness Energy indirectly wholly owns and controls the managing partners of
the BLM partnership and the Navy II partnership. Caithness Energy and its
affiliates also control CCH, the non-managing partner of the BLM partnership,
and Navy II Group, the non-managing partner of the Navy II partnership.
Accordingly, Caithness Energy and its affiliates control the appointment of all
four delegates to the management committees of the BLM partnership and the Navy
II partnership.
While Caithness Energy indirectly wholly owns and controls the managing
partner of the Navy I partnership, it does not wholly own and control ESCA, the
non-managing partner of the Navy I partnership. Caithness Energy and its
affiliates and ESI collectively own and control ESCA. Caithness Energy and its
affiliates have the right to control the appointment of the two managing
partner delegates to the management committee of the Navy I partnership and,
under ESCA's limited liability company agreement, one of the two non-managing
partner delegates. In addition, under ESCA's limited liability company
agreement, ESI has the right to control the appointment of the second non-
managing partner delegate to the Navy I partnership's management committee, and
that delegate has the right to veto any decisions made by the other non-
managing partner delegate. Since decisions of the Navy I partnership's
management committee requires at least one vote from each partner of the Navy I
partnership, ESI has the right to veto any decisions made by that management
committee.
Under the amended and restated partnership agreements of the Coso
partnerships, each partner may appoint one delegate with multiple votes. The
names of the delegates appointed by affiliates of Caithness Energy and ESI to
the management committees of the Coso partnerships are set forth below.
Under the amended and restated partnership agreement of each Coso
partnership, the management committee must hold meetings on a quarterly basis
and on such other dates as may be called by any partner. A quorum of at least
three delegates must be present to convene a meeting and/or vote on a
management committee matter. Any action of the management committee must be
taken by a majority vote of the delegates comprising the quorum at the meeting,
but the vote must be composed of at least one affirmative vote by at least one
delegate of the managing partner and one delegate of the non-managing partner.
In lieu of meetings, actions may be taken without a meeting by written consent
or confirmed telephonic vote of at least three delegates.
The managing partner of a Coso partnership cannot make certain investment or
business decisions without the express consent of the management committee of
that Coso partnership. Those business decisions include, among others, those
regarding sale or lease of partnership assets, pledge of partnership assets,
execution or amendment of material contracts, engagement of outside
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<PAGE>
consultants, termination of the Coso partnerships and approval of budgets. In
addition, each Coso partnership's managing partner is required to prepare the
annual capital expenditure and annual operating budgets for that Coso
partnership and present it to the management committee for approval. If all or
part of the proposed budget is not approved by the management committee in a
timely fashion, the managing partner can retain an independent engineer to
review the proposed budget. If the independent engineer certifies that the
proposed budget is reasonably designed to permit the managing partner to
operate and maintain a project of the type owned by the Coso partnership and to
maximize revenues and net income, the proposed budget is deemed approved. If
the independent engineer does not so certify, the budget will be the same as in
the immediately preceding year, adjusted for inflation. Any controversies or
claims arising out of the amended and restated partnership agreements that
cannot be settled by agreement of the partners are to be settled by binding
arbitration.
As of April 1, 1999, the following persons were the members of the management
committee of each Coso partnership, as applicable. Each person has two votes on
each management committee on which he serves, except that Robert Tucker has
only one vote on the management committee of the Navy I partnership and Kenneth
P. Hoffman has only one vote on the management committee of the Navy I
partnership:
<TABLE>
<CAPTION>
Name Age Partnership(s)
<S> <C> <C>
James D. Bishop, Jr. ... 39 Navy I partnership, BLM partnership, Navy II partnership
Robert Tucker........... 46 Navy I partnership, BLM partnership, Navy II partnership
Kenneth P. Hoffman...... 47 Navy I partnership
</TABLE>
Certain information regarding Messrs. Bishop and Tucker is provided above
under "--Funding Corp."
Kenneth P. Hoffman was appointed to the management committee of the Navy I
partnership by ESI. Mr. Hoffman joined ESI Energy, Inc. in June 1989 and, since
1993, has been its Vice President of Business Management. Mr. Hoffman is
currently a Vice President of FPL Energy, Inc. Prior to joining ESI Energy,
Inc., Mr. Hoffman was employed by Florida Power & Light Company. Mr. Hoffman
holds a Master of Business Administration degree from Florida International
University and a Bachelor of Science degree from Rochester Institute of
Technology.
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<PAGE>
Management Committee Fees
The members of the management committees are not entitled to any direct
compensation from us or the Coso partnerships. However, each Coso partnership
previously paid to its two general partners annual management committee fees
for their participation on the management committee of that Coso partnership.
The following table sets forth, for the three months ended March 31, 1998 and
March 31, 1999, and for the years ended December 31, 1996, 1997 and 1998, the
total amount of management committee fees paid or payable by each of the Coso
partnerships to its partners:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
------------------------------
Three
Months Two Months One Month
Year Ended December 31, Ended Ended Ended
-------------------------- March 31, February 28, March 31,
1996 1997 1998 1998 1999 1999 Total
<S> <C> <C> <C> <C> <C> <C> <C>
Navy I Partnership
New CLOC.............. $ -- $ -- $ -- $ -- $ -- $12,000 $12,000
Predecessor of New
CLOC................. 143,000 143,000 147,000 55,000 25,000 -- 25,000
ESCA.................. 214,000 214,000 221,000 37,000 37,000 18,000 55,000
-------- -------- -------- ------- ------- ------- -------
$357,000 $357,000 $368,000 $92,000 $62,000 $30,000 $92,000
BLM Partnership
New CHIP.............. $ -- $ -- $ -- $ -- $ -- $12,000 $12,000
Predecessor of New
CHIP................. 145,000 145,000 148,000 56,000 25,000 -- 25,000
CCH................... 222,000 218,000 223,000 37,000 37,000 19,000 56,000
-------- -------- -------- ------- ------- ------- -------
$367,000 $363,000 $371,000 $93,000 $62,000 $31,000 $93,000
Navy II Partnership.....
New CTC............... $ -- $ -- $ -- $ -- $ -- $12,000 $12,000
Predecessor of New
CTC.................. 145,000 145,000 148,000 56,000 25,000 -- 25,000
Navy II Group......... 218,000 218,000 223,000 37,000 37,000 19,000 56,000
-------- -------- -------- ------- ------- ------- -------
$363,000 $363,000 $371,000 $93,000 $62,000 $31,000 $93,000
</TABLE>
The Coso partnerships no longer pay management committee fees to their
managing partners. See "Certain Relationships and Related Transactions--
Management Committee Fees."
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OWNERSHIP
Funding Corp.
As of June 30, 1999, our authorized capital stock consisted of 1,000 shares
of common stock, par value $0.01 per share, of which 300 shares were
outstanding. Our outstanding common stock is owned equally by the Coso
partnerships.
Coso Partnerships
Our directors and executive officers also act in similar capacities on behalf
of the managing partner of each Coso partnership and, except for Mr. Ferrucci,
on behalf of Caithness Acquisition and Caithness Energy. Several of these
directors and executive officers beneficially own securities of Caithness
Corporation. Caithness Corporation and its affiliates beneficially own all of
the member interests of Caithness Energy.
Caithness Energy is governed by a board of directors and not by its members.
Our directors, except for Mr. Ferrucci, also currently serve as the members of
the board of directors of Caithness Energy. Under the limited liability company
agreement of Caithness Energy, Caithness Corporation is entitled to appoint a
number of members who hold, in the aggregate, a majority of the votes of all
members of such board of directors. Caithness Corporation's current appointees
are Messrs. Bishop, Sr., Bishop, Jr. and Sullivan. In addition, Messrs. Gelber,
Carpenter and McCallion serve as voting members of the board of directors of
Caithness Energy pursuant to their individual executive compensation
agreements.
The following table sets forth, as of June 30, 1999, certain information
regarding the beneficial ownership of our voting securities and the beneficial
ownership of the voting securities of each of the Coso partnerships by:
(1) each person who is known by us and the Coso partnerships to
beneficially own 5% or more of our voting securities or 5% or more of
the voting securities of any Coso partnership,
(2) each of our directors and executive officers who also act in similar
capacities on behalf of the managing partner of each Coso partnership
and each of the delegates to the management committee of each Coso
partnership, and
(3) all of our directors and executive officers who also act in similar
capacities for the managing partnership of each Coso partnership and
all of the delegates to the management committee of each Coso
partnership as a group.
Beneficial ownership has been determined in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934, as amended. Except as otherwise noted,
each person named below has an address in care of our principal executive
offices.
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Beneficial Ownership of Funding Corp. and the Coso Partnerships
<TABLE>
<CAPTION>
Percent Indirect Percent Indirect
Percent Indirect Beneficial Percent Indirect Beneficial
Name and Address Beneficial Ownership in the Beneficial Ownership in the
of Beneficial Ownership in Navy I Ownership in the Navy II
Owner Funding Corp. Partnership BLM Partnership Partnership
<S> <C> <C> <C> <C>
James D. Bishop,
Sr.(1)(2)............. 1.1% 1.8% -- 1.5%
Leslie J.
Gelber(1)(3).......... -- -- -- --
James D. Bishop,
Jr.(1)(4)............. 31.4% 28.9% 35.0% 30.4%
Christopher T.
McCallion(1)(3)....... -- -- -- --
Larry K.
Carpenter(1)(3)....... -- -- -- --
James C.
Sullivan(1)(5)........ 2.8% 2.6% 2.9% 2.8%
Mark A. Ferrucci....... -- -- -- --
David Casale(1)(3)..... -- -- -- --
Robert E.
Tucker(1)(3).......... -- -- -- --
Barbara Bishop
Gollan(1)(3)(6)....... -- -- -- --
Kenneth P. Hoffman..... -- -- -- --
c/o FPL Energy, Inc.
700 Universe Blvd.
Juno Beach, FL 33408
Dominion Energy,
Inc.(7)............... * -- 5.2% 6.3%
901 East Byrd Street
Richmond, VA 23219
ESI Geothermal,
Inc.(8)............... * 5.0% -- --
c/o FPL Energy, Inc.
700 Universe Blvd.
Juno Beach, FL 33408
Mojave Energy
Company(9)............ 6.2% 5.5% 7.6% 5.3%
c/o Davenport
Resources, Inc.
575 Lexington Avenue
New York, NY 10022
All directors,
executive officers and
management committee
delegates as a group.. 35.3% 33.3% 37.9% 34.6%
</TABLE>
- ---------------------
* Less than 5.0%.
(1) The address of such person is c/o Caithness Coso Funding Corp., 1114 Avenue
of the Americas, 41st Floor, New York, New York 10036-7790.
(2) The beneficial ownership of James D. Bishop, Sr.'s interests is based upon
his ownership of shares of common stock of Mojave Power, Inc. and Mojave
Power II, Inc. which own, indirectly through various entities, general
partnership interests in the Navy I partnership and the Navy II
partnership. In addition to these interests, James D. Bishop, Sr. is the
beneficiary of The James D. Bishop Trust--1998 ("Bishop, Sr. Trust"), which
owns shares of common stock of Caithness Corporation. Caithness Corporation
owns, indirectly through various entities, general partnership interests in
the Navy I partnership, the BLM partnership and the Navy II partnership,
which collectively own all of the shares of common stock of Funding Corp.
The voting rights to the shares of common stock of Caithness Corporation
held by the Bishop, Sr. Trust have been transferred to The Caithness
Entities Voting Trust, the trustee of which is James D. Bishop, Jr. The
Bishop, Sr. Trust is irrevocable. James D. Bishop, Sr., therefore, does not
have voting or investment power over these shares of common stock of
Caithness Corporation.
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<PAGE>
(3) Owner of economic interests in the Coso partnerships through Caithness
Corporation's employee incentive plans, which economic interests are not
listed on this table. See "Certain Relationships and Related Transactions--
Interests of Management in Coso Projects."
(4) James D. Bishop, Jr. is: (i) the beneficiary of The James D. Bishop, Jr.
Irrevocable Trust--1996 (the "Bishop, Jr. Trust"), which owns shares of
common stock of Caithness Corporation, the voting rights of which have been
transferred to The Caithness Entities Voting Trust, the trustee of which is
James D. Bishop, Jr.; (ii) the owner of common stock of Caithness
Corporation and of Mojave Power, Inc.; and (iii) the trustee of The
Caithness Entities Voting Trust which possesses sole voting control over
the shares of common stock of Caithness Corporation held by the Bishop, Sr.
Trust, The Barbara Bishop Gollan Irrevocable Trust--1996 (the "Gollan
Trust"), The Elizabeth Bishop DeLuca Irrevocable Trust--1996 and The Linda
Bishop Fotiu Irrevocable Trust--1996. The interests listed in (i) and (ii)
above entitle James D. Bishop, Jr. to the following indirect beneficial
ownership interests: Funding Corp. (1.8%); Navy I partnership (1.4%); BLM
partnership (1.7%); and Navy II partnership (2.4%). James D. Bishop, Jr.
disclaims beneficial ownership of the interests listed in (iii) above.
(5) The beneficial ownership of James C. Sullivan's interests is based upon his
ownership of shares of common stock of Caithness Corporation which owns,
indirectly through various entities, general partnership interests in the
Navy I partnership, the BLM partnership and the Navy II partnership, and
his ownership of shares of common stock of Mojave Power, Inc. and Mojave
Power II, Inc. which own, indirectly through various entities, general
partnership interests in the Navy I partnership and the Navy II
partnership.
(6) Barbara Bishop Gollan is the beneficiary of the Gollan Trust, which owns
shares of common stock of Caithness Corporation. The voting rights to the
shares of common stock of Caithness Corporation held by the Gollan Trust
have been transferred to The Caithness Entities Voting Trust, the trustee
of which is James D. Bishop, Jr. The Gollan Trust is irrevocable. Barbara
Bishop Gollan, therefore, does not have voting or investment power over
these shares of common stock of Caithness Corporation.
(7) Dominion Energy, Inc. owns: (i) a limited liability company membership
interest in Caithness BLM Group, LP, a Delaware limited partnership, which
owns a limited liability company membership interest in CCH, which owns a
general partnership interest in the BLM partnership; and (ii) a limited
liability company membership interest in Navy II Group which owns a general
partnership interest in the Navy II partnership and a limited liability
company membership interest in CCH, which owns a general partnership
interest in the BLM partnership.
(8) ESI Geothermal, Inc. owns a limited liability company membership interest
in ESCA, which owns a general partnership interest in the Navy I
partnership.
(9) Mojave Energy Company owns limited liability company membership interests
in Caithness Power, LLC, which owns, indirectly through various entities,
general partnership interests in each of the Coso partnerships.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
O&M Fees; Reduction in Fees
O&M Fees
Prior to February 25, 1999, the date that Caithness Acquisition purchased of
all of CalEnergy's interests in the Coso projects, CalEnergy and its affiliates
acted as the plant and field operator at the Coso projects. They also
maintained the Navy I Transmission Line and the BLM/Navy II Transmission Line.
Under the amended partnership agreements of the Coso partnerships, CalEnergy
was entitled to receive reimbursement of direct operating costs, reimbursement
of approved allocable general and administrative costs and payment of operator
fees in consideration for its services as the operator at the Coso projects.
The Coso partnerships paid CalEnergy the aggregate amounts of approximately
$7.5 million in each of 1998, 1997 and 1996 for such costs and fees. For the
first two months of the three month period ended March 31, 1999, the Coso
partnerships paid CalEnergy the aggregate amount of approximately $1.3 million
for such costs and fees.
In connection with Caithness Acquisition's purchase of all of CalEnergy's
interests in the Coso projects, each Coso partnership retained FPL Operating
and Coso Operating Company to operate its Coso project under separate O&M
agreements with each. FPL Operating is an affiliate of ESI, which is a member
of ESCA. Coso Operating Company is a wholly owned subsidiary of Caithness
Acquisition. For additional information regarding the operations and
maintenance services being performed by FPL Operating and Coso Operating
Company at the Coso projects, see "Business--O&M Agreements."
Under its O&M agreements with the Coso partnerships, FPL Operating operates
and maintains all three plants, the transmission lines and the geothermal
fields at the Coso projects. As compensation for such services, each Coso
partnership has agreed to pay FPL Operating an annual O&M fee of $134,000,
$100,000 and $84,000 in the first, second and third years, respectively, of the
term of its O&M agreements (or an aggregate of $402,000, $300,000 and $252,000,
respectively). In addition, each Coso partnership has agreed to pay to FPL
Operating all properly incurred costs and expenses and reimburse FPL Operating
for the performance incentive bonuses that it pays its employees, as set forth
in the O&M agreements. For the last month of the three month period ended March
31, 1999, the Coso partnerships paid FPL Operating the aggregate amount of
approximately $33,000 as its O&M fee. All fees payable to FPL Operating are
subordinated to all payments to be made under the senior secured notes.
Under its O&M agreements with the Coso partnerships, Coso Operating Company,
among other things, manages the geothermal resource, including well drilling,
at the Coso projects. As compensation for such services, each Coso partnership
has agreed to pay Coso Operating Company an annual O&M fee of $532,000,
$400,000 and $334,000 in the first, second and third years, respectively, of
the term of its O&M agreements (or an aggregate of $1.6 million, $1.2 million
and $1.0 million, respectively). In addition, each Coso partnership has agreed
to pay all properly incurred costs and expenses and reimburse Coso Operating
Company for the performance incentive bonuses that Coso Operating Company pays
to its employees, as set forth in the O&M agreements. As of the date hereof, no
O&M fees have been paid to Coso Operating Company. All fees payable to Coso
Operating Company are subordinated to all payments to be made under the senior
secured notes.
Reduction in Fees
As a result of Caithness Acquisition's purchase of all of CalEnergy's
interests in the Coso projects and the resulting change in plant and field
operators, annual operator fees and costs to be
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<PAGE>
paid by the Coso partnerships to FPL Operating and Coso Operating Company have
been reduced significantly from those previously paid to CalEnergy, the Coso
projects' prior operator, and, since the closing date of the Series A notes
offering, management committee fees previously payable to the managing partners
of the Coso partnerships have been eliminated. In connection with this
reduction in operator fees and the elimination of management committee fees
payable to the managing partners, ESCA, CCH and Navy II Group, the non-managing
partners of the Navy I partnership, the BLM partnership and the Navy II
partnership, respectively, consented to an additional payment in the aggregate
amount of $26.8 million to the managing partners of the Coso partnerships. For
more information regarding the elimination of the managing partner management
committee fees, see "--Management Committee Fees." This additional payment was
made simultaneously with the closing of the Series A notes offering equally by
each of the Coso partnerships. The aggregate amount of this payment represents
the present value of the share of the reduction in future operator fees and the
elimination of management committee fees payable to the managing partners of
the Coso partnerships that the non-managing partners of each Coso partnership
would have otherwise had to incur under their previous partnership and O&M
agreements. The managing partners of the Coso partnerships caused this
additional payment to be applied to repay the short-term debt their parent,
Caithness Acquisition, incurred in connection with its purchase of all of
CalEnergy's interests in the Coso projects. See "--Purchase of CalEnergy's
Interests."
Management Committee Fees
Each Coso partnership used to pay management committee fees to each of its
general partners in consideration for its participation on the management
committee of that Coso partnership. See "Management--Management Committee
Fees." Each of the general partners then distributed these management committee
fees to its own managing partner, which, in turn, distributed them, directly or
indirectly, to Caithness Energy or CalEnergy, as the case may be.
The following table sets forth, for the three months ended March 31, 1998 and
March 31, 1999, and for the years ended December 31, 1996, 1997 and 1998, the
total amount of management committee fees distributed or distributable to
Caithness Energy and CalEnergy, respectively, for those periods:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999
------------------------------
Three Two One
Months Months Month
Year Ended December 31, Ended Ended Ended
-------------------------- March 31, February 28, March 31,
1996 1997 1998 1998 1999 1999 Total
<S> <C> <C> <C> <C> <C> <C> <C>
Navy I Partnership
Caithness Energy....... $214,000 $214,000 $221,000 $55,000 $37,000 $30,000 $67,000
CalEnergy.............. 143,000 143,000 147,000 37,000 25,000 -- 25,000
-------- -------- -------- ------- ------- ------- -------
$357,000 $357,000 $368,000 $92,000 $62,000 $30,000 $92,000
BLM Partnership
Caithness Energy....... $222,000 $218,000 $223,000 $56,000 $37,000 $31,000 $68,000
CalEnergy.............. 145,000 145,000 148,000 37,000 25,000 -- 25,000
-------- -------- -------- ------- ------- ------- -------
$367,000 $363,000 $371,000 $93,000 $62,000 $31,000 $93,000
Navy II Partnership
Caithness Energy....... $218,000 $218,000 $223,000 $56,000 $37,000 $31,000 $68,000
CalEnergy.............. 145,000 145,000 148,000 37,000 25,000 -- 25,000
-------- -------- -------- ------- ------- ------- -------
$363,000 $363,000 $371,000 $93,000 $62,000 $31,000 $93,000
</TABLE>
Affiliates of Caithness Energy have eliminated the payment of management
committee fees by the Coso partnerships to the Coso partnerships' managing
partners. After the closing of the Series A notes offering, the Coso
partnerships will pay management committee fees to their non-managing
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<PAGE>
partners in the aggregate annual amount of $667,000. This aggregate amount will
be adjusted annually for inflation based on the Consumer Price Index. For a
discussion of certain matters relating to the elimination of management
committee fees payable to the managing partner of each Coso partnership, see
"--O&M Fees; Reduction in Fees."
Purchase of CalEnergy Interests
On February 25, 1999, Caithness Acquisition purchased all of CalEnergy's
interests in the Coso projects. The purchase price consisted of $205.0 million
in cash, plus $5.0 million in contingent payments, plus the assumption of
CalEnergy's and its affiliates' share of debt outstanding at the Coso projects
which then totaled approximately $67.0 million. In order to complete the
purchase, Caithness Acquisition borrowed on a short-term basis the aggregate
principal amount of $211.5 million from an affiliate of the initial purchaser
of the Series A notes. The initial purchaser's affiliate received customary
fees and reimbursement of its expenses in connection with its activities as the
arranger and lender of such short-term debt. Caithness Acquisition used a
portion of the proceeds from the Series A notes offering that it received from
the Coso partnerships, together funds from other sources, to repay all amounts
owing under this short-term debt facility. See "Business--Purchase of
CalEnergy's Interests."
As part of the purchase of CalEnergy's interests in the Coso projects,
Caithness Energy will be required to pay the contingent payment upon the
settlement, final judgment or other dismissal of the litigation with Edison. In
addition, the Coso partnerships and certain other affiliates of Caithness
Energy entered into a future revenue agreement with CalEnergy. This agreement
provides that the Coso partnerships and such affiliates will pay to CalEnergy
one-seventh of the gross revenues from the Coso projects or any expansions
thereof derived from certain energy-related arrangements with the U.S.
Government. For more information regarding these additional agreements, see
"Business--Purchase of CalEnergy's Interests."
Payments to Transmission Line Partners
Coso Transmission Line Partners, the owner of the BLM/Navy II Transmission
Line, charges the BLM partnership and the Navy II partnership for their use of
the BLM/Navy II Transmission Line. The charges are designed to ensure that Coso
Transmission Line Partners recovers its operating costs. Also, the BLM
partnership and the Navy II partnership pay for the purchase of items used by
Coso Transmission Line Partners for the BLM/Navy II Transmission Line. See
"Business--Overview of the Coso Projects--Transmission Lines." The following
table sets forth, for the three months ended March 31, 1998 and March 31, 1999,
and for the years ended December 31, 1996, 1997 and 1998, the total amount that
Coso Transmission Line Partners charged the BLM partnership and the Navy II
partnership for net operating costs (net of advances from the BLM partnership
or the Navy II partnership, as the case may be):
<TABLE>
<CAPTION>
Three Months Ended March 31,
Year Ended December 31, 1999
-------------------------- ------------------------------
Three Months Two Months One Month
Ended Ended Ended
March 31, February 28, March 31,
1996 1997 1998 1998 1999 1999 Total
<S> <C> <C> <C> <C> <C> <C> <C>
BLM Partnership......... $114,000 $112,000 $115,000 $42,000 $28,000 $15,000 $43,000
Navy II Partnership..... 126,000 127,000 127,000 49,000 $33,000 17,000 50,000
</TABLE>
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<PAGE>
Distributions to Caithness Energy and CalEnergy
The Coso partnerships have made cash distributions from operating cash flow
to its partners from time to time as determined by their respective management
committees. The Navy I partnership, the BLM partnership and the Navy II
partnership made aggregate cash distributions to Caithness Energy and its
affiliates of approximately $11.9 million, $9.0 million and $21.1 million,
respectively, in the year ended December 31, 1998, approximately $39.9 million,
$21.2 million and $33.7 million, respectively, in the year ended December 31,
1997, and approximately $39.2 million, $30.2 million and $41.1 million,
respectively, in the year ended December 31, 1996.
The Navy I partnership, the BLM partnership and the Navy II partnership made
additional aggregate cash distributions to CalEnergy and its affiliates of
approximately $10.3 million, $8.3 million and $21.1 million, respectively, in
the year ended December 31, 1998, approximately $34.5 million, $19.6 million
and $33.7 million, respectively, in the year ended December 31, 1997, and
approximately $34.0 million, $27.9 million and $41.1 million, respectively, in
the year ended December 31, 1996. The Coso partnerships have not made any cash
distributions to their partners for the three month period ended March 31,
1999. As a result of Caithness Acquisition's purchase of CalEnergy's interests
in the Coso projects, the Coso partnerships will no longer make any
distributions to CalEnergy other than as provided in the agreements it entered
into in connection with Caithness Acquisition's purchase of all of CalEnergy's
interests in the Coso projects. See "--Purchase of CalEnergy's Interests."
Interests of Management in Coso Projects
Leslie J. Gelber, a director and President and Chief Operating Officer of
Funding Corp., Christopher T. McCallion, a director and Executive Vice
President and Chief Financial Officer of Funding Corp., Larry K. Carpenter, a
director and Executive Vice President of Funding Corp., and certain other
executive officers of Funding Corp. have economic interests in the Coso
partnerships. These individuals are participants in incentive compensation
plans maintained by Caithness Corporation, of which Caithness Energy is the
principal operating subsidiary. Under these incentive compensation plans, these
individuals have been granted "units" in Caithness Energy. Under Caithness
Energy's limited liability company agreement, unit holders are entitled to
receive distributions of profits, losses and net cash flow made by Caithness
Energy to its unit holders which are derived by Caithness Energy from certain
of its independent power projects, including the Coso projects. In particular,
these individuals will receive in the aggregate approximately 23.0% of the
distributions of profits, losses and net cash flow made by Caithness Energy and
derived from the Coso partnerships.
Although unit holders of Caithness Energy have rights to economic
distributions only, Messrs. Gelber, Carpenter and McCallion also serve as
members of the board of directors of Caithness Energy pursuant to their
respective executive compensation arrangements. Caithness Energy is governed by
its board of directors, not by its members. Under the limited liability company
agreement of Caithness Energy, Caithness Corporation is entitled to appoint a
number of members to the Board of Directors of Caithness Energy who hold, in
the aggregate, a majority of the votes of all members of such board of
directors. Caithness Corporation's present appointees are Messrs. Bishop, Sr.,
Bishop, Jr. and Sullivan. The rights to distributions held by these individuals
are subject to restrictions on transfer as well as call rights in favor of
Caithness Corporation upon termination of such individual's employment.
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<PAGE>
Royalty to Coso Land Company
Coso Land Company is a general partnership of which Caithness Acquisition and
one of our other affiliates are the general partners. In 1988, the BLM lease
was assigned to the BLM partnership. In connection with this assignment, the
BLM partnership agreed to pay to Coso Land Company a royalty equal to 5.0% of
the value of the steam produced by BLM on the real property covered by the BLM
lease and certain other lands. The royalty is subordinated to the payment of
all of the BLM partnership's other royalties, all debt service of the BLM
partnership and all operating costs of BLM. As of March 31, 1999, the total
accrued balance of the royalty payable to Coso Land Company was $21.2 million.
The following table sets forth, for the three months ended March 31, 1998 and
March 31, 1999, and for the years ended December 31, 1996, 1997 and 1998, the
amount of the royalty payable to Coso Land Company that accrued during such
periods:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999
------------------------------------
Three
Months Three Months One Month
Year Ended December 31, Ended Ended Ended
- --------------------------- March 31, February 28, March 31,
1996 1997 1998 1998 1999 1999 Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
$2,400 $3,200 $3,100 $629 $438 $70 $508
</TABLE>
No portion of the royalty that has accrued to date has been paid. Payment of
this royalty will be permitted only to the extent that restricted payments may
be made from funds or deposits in the Distribution Account established under
the Depositary Agreement, and is subordinated to all payments under the senior
secured notes. See "Description of Series B Notes--Distribution Account."
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<PAGE>
DESCRIPTION OF SERIES B NOTES
We issued the Series A notes under an Indenture (the "Indenture") among U.S.
Bank Trust National Association, as trustee, the Coso partnerships and us in a
private transaction that was not subject to the registration requirements of
the Securities Act. You can find the definitions of the terms used in this
description under the heading "Certain Definitions." The terms of the Indenture
apply to the Series A notes and the Series B notes to be issued in exchange for
the Series A notes pursuant to the exchange offer. Upon the issuance of the
Series B notes or the effectiveness of the shelf registration statement, the
Indenture will be subject to the Trust Indenture Act of 1939 (the "Trust
Indenture Act").
The following is a summary of the material provisions of the Indenture, the
registration rights agreement, the Depositary Agreement, the security
agreements and the pledge agreements. It does not restate those agreements in
their entirety. We urge you to read all of these agreements because they, and
not this description, define your rights as holders of the Series B notes.
Copies of the proposed form of Indenture and the other financing documents are
available as set forth below under "--Additional Information." Certain defined
terms used in this description but not defined below under "--Certain
Definitions" have the meanings assigned to them in the Indenture. Except as
otherwise indicated below, the following summary applies to both the Series A
notes and the Series B notes.
Brief Description of the Senior Secured Notes and Guarantees
The senior secured notes:
. are our general obligations;
. are secured by:
(1) a perfected, first priority pledge of the promissory notes (the
"Partnership Notes") evidencing each Coso partnership's obligations
to repay the loan by us to each Coso Partnership;
(2) a perfected, first priority lien on the funds in the Accounts under
the Depositary Agreement; and
(3) a perfected, first priority pledge of all of our outstanding
Capital Stock;
. are pari passu in right of payment to all of our senior borrowings;
. are senior in right of payment to any of our future subordinated
Indebtedness; and
. are unconditionally guaranteed by the Coso partnerships. The Guarantees,
in turn, are secured by:
(1) a perfected, first priority lien on substantially all assets of the
Coso partnerships; and
(2) a perfected, first priority pledge of the Equity Interests in the
Coso partnerships.
The senior secured notes are payable solely from payments to be made by the
Coso partnerships under the Partnership Notes and from other funds that may be
available from time to time in the Accounts held by the Depositary. The Coso
partnerships' obligations to make payments under the Partnership Notes are non-
recourse to the direct and indirect owners of the Coso partnerships (including
Caithness Energy, L.L.C.) except, in the case of the direct owners of the Coso
partnerships, with respect solely to recourse to those owners' ownership
interests in the Coso
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<PAGE>
partnerships pledged to the Collateral Agent as security for the Guarantees.
None of ESCA LLC, a Delaware limited liability company, and New CLOC Company,
LLC, a Delaware limited liability company, the general partners of the Navy I
Partnership (collectively, the "Navy I Partners"), Caithness Coso Holdings,
LLC, a Delaware limited liability company, and New CHIP Company, LLC, a
Delaware limited liability company, the general partners of the BLM Partnership
(collectively the "BLM Partners") or Caithness Navy II Group, LLC, a Delaware
limited liability company, and New CTC Company, LLC, a Delaware limited
liability company, the general partners of the Navy II Partnership
(collectively the "Navy II Partners" and, together with the Navy I Partners and
the BLM Partners, the "Partners"), nor any of the direct or indirect owners of
the Partners or of the Issuer, will be obligated to contribute additional funds
if monies in the Accounts are insufficient for the payment of debt service in
respect of the senior secured notes. So long as the senior secured notes are
outstanding, distributions to the Partners from the Distribution Account will
constitute Restricted Payments under and as defined in the Indenture.
Principal, Maturity and Interest
The Indenture provides for the issuance by us of up to $450.0 million of
senior secured notes, of which $110.0 million of Series A notes due 2001 and
$303.0 million of Series A notes due 2009 were issued at the closing of the
Series A notes offering. We will issue all Series B notes in denominations of
$100,000 and integral multiples of $1,000 in excess thereof. The Series B notes
due 2001 will mature on December 15, 2001, and the Series B notes due 2009 will
mature on December 15, 2009.
Interest on the Series B notes due 2001 will accrue at the rate of 6.80% per
annum and will be payable semi-annually in arrears on December 15 and June 15,
commencing December 15, 1999. We will make each interest payment to the Holders
of record of the Series B notes due 2001 on the immediately preceding December
1 and June 1, as the case may be. Interest on the Series B notes due 2009 will
accrue at the rate of 9.05% per annum and will be payable semi-annually in
arrears on December 15 and June 15, commencing December 15, 1999. We will make
each interest payment to the Holders of record of the Series B notes due 2009
on the immediately preceding December 1 and June 1, as the case may be.
Interest on the Series B notes will accrue from the date of original issuance
of the Series A notes which have been exchanged for such Series B notes or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
We will pay the principal of the Series B notes due 2001 in semi-annual
installments, commencing December 15, 1999, as follows:
<TABLE>
<CAPTION>
Scheduled Payment Percentage of Principal
Date Amount Payable
----------------- -----------------------
<S> <C>
December 15, 1999 47.8773%
June 15, 2000 11.0736%
December 15, 2000 16.4427%
June 15, 2001 10.1900%
December 15, 2001 14.4164%
</TABLE>
We will pay the principal of the Series B notes due 2009 in semi-annual
installments, commencing June 15, 2002, as follows:
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<PAGE>
<TABLE>
<CAPTION>
Scheduled Payment Percentage of Principal
Date Amount Payable
----------------- -----------------------
<S> <C>
June 15, 2002 2.8743%
December 15, 2002 4.3109%
June 15, 2003 3.6564%
December 15, 2003 5.4584%
June 15, 2004 4.1363%
December 15, 2004 6.2043%
June 15, 2005 4.6838%
December 15, 2005 7.0257%
June 15, 2006 5.0541%
December 15, 2006 7.5815%
June 15, 2007 6.2601%
December 15, 2007 9.3898%
June 15, 2008 6.4927%
December 15, 2008 9.7650%
June 15, 2009 6.8231%
December 15, 2009 10.2835%
</TABLE>
Methods of Receiving Payments on the Series B Notes
If a Holder has given wire transfer instructions to us, we will pay all
principal, interest, premium, if any, and Liquidated Damages, if any, on that
Holder's Series B notes in accordance with those instructions. Otherwise, we
will make all payments of principal, interest, if any, and Liquidated Damages,
if any, on the Series B notes at the office or agency of the Paying Agent and
Registrar within the City and State of New York unless we elect to make
interest payments by check mailed to the Holders at their respective addresses
set forth in the register of Holders.
Paying Agent and Registrar for the Series B Notes
The Trustee will initially act as Paying Agent and Registrar. We may change
the Paying Agent or Registrar without prior notice to the Holders, and we or
any of our Subsidiaries may act as Paying Agent or Registrar.
Transfer and Exchange
A Holder may transfer or exchange Series B notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents, and we may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. We are not required to transfer or exchange any Series B note
selected for redemption. Also, we are not required to transfer or exchange any
Series B note for a period of 15 days before a selection of Series B notes to
be redeemed.
We and the Trustee will treat the registered Holder of a Series B note as the
owner of the Series B note for all purposes.
Guarantees
The Coso partnerships have fully and unconditionally, jointly and severally
guaranteed our obligations under the Indenture and the senior secured notes.
The obligation of each Coso partnership under its Guarantee is limited so as
not to constitute a fraudulent conveyance under applicable law.
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See "Risk Factors--Federal and state statute allow courts, under specific
circumstances, to void guarantees and require noteholders to return payments
received from guarantors."
Under the Guarantees, the Coso partnerships each have agreed for the benefit
of the Trustee and the Collateral Agent to be bound by and to perform all of
their obligations under covenants contained in the Credit Agreements. The
failure of the Coso partnerships to perform those covenants will result in a
Guarantee Event of Default, after the expiration of any applicable grace
period.
Security
The senior secured notes are secured by:
(1) a perfected, first priority pledge of the Partnership Notes evidencing
each Coso partnership's obligation to repay the loan made to it by us;
(2) a perfected, first priority lien on the funds in the Accounts under the
Depositary Agreement; and
(3) a perfected, first priority pledge of all of our outstanding Capital
Stock.
We have entered into a pledge agreement (the "Note Pledge Agreement")
providing for the pledge by us to U.S. Bank Trust National Association, as
collateral agent (in such capacity, the "Collateral Agent") for the benefit of
the Trustee and the Holders of the senior secured notes, of the Partnership
Notes held by us. We have also entered into the Depositary Agreement. The
Depositary Agreement grants to U.S. Bank Trust National Association, as
depositary (in such capacity, the "Depositary") for the benefit of the Trustee
and the Holders of the senior secured notes, a perfected, first priority lien
on the funds in the Accounts. Each Coso partnership, in its capacity as one of
our owners, has entered into a pledge agreement (each, a "Partnership Pledge
Agreement" and, together with the Note Pledge Agreement, the "Issuer Pledge
Agreements"). These pledge agreements provide for the perfected, first priority
pledge by each Coso partnership to the Collateral Agent, for the benefit of the
Trustee and the Holders of the senior secured notes, of all of our Capital
Stock. In addition, each affiliate of the Coso partnerships or us that holds
material assets related to the Projects has provided a lien on such assets to
secure the senior secured notes.
The Guarantees are secured by:
(1) a perfected first priority lien on substantially all of the assets of
the Coso partnerships; and
(2) a perfected, first priority pledge of all of the general partner
interests in the Coso partnerships.
Each of the Coso partnerships has entered into a Deed of Trust and a Security
Agreement which provides for a perfected, first priority lien on the assets of
the Coso partnerships. The Partners have entered into one or more pledge
agreements (each, a "Partner Pledge Agreement" and, together with the Issuer
Pledge Agreements, the "Pledge Agreements") which provides for the perfected,
first priority pledge to the Collateral Agent for the benefit of the Trustee
and the Holders of the Series B notes of all of the respective general partner
interests of each of (i) the Navy I Partners in the Navy I Partnership, (ii)
the BLM Partners in the BLM Partnership and (iii) the Navy II Partners in the
Navy II Partnership. These pledges secure the payment and performance when due
of all of the Obligations under the Guarantees.
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So long as no Event of Default has occurred and is continuing, and subject to
certain terms and conditions in the Indenture, the Credit Agreements and the
Security Documents, all revenues actually received by the Coso partnerships
will be allocated to the appropriate Accounts in the manner described under the
caption "Flow of Funds."
Upon the occurrence and during the continuance of an Event of Default:
(1) all of our rights and the rights of the Coso partnerships and the
Partners to exercise any voting or other consensual rights in respect
of the pledged Collateral will cease. All of these rights will become
vested in the Trustee, which, to the extent permitted by law, will have
the sole right to exercise these voting and other consensual rights;
(2) the Trustee may sell the pledged Collateral or any part thereof for the
benefit of the Trustee and the Holders in accordance with the terms of
the Security Documents; and
(3) the Trustee shall have all rights of a "secured party" under the
Uniform Commercial Code of the State of New York.
All funds distributed under the Security Documents and the Indenture and
received by the Trustee for the benefit of the Holders will be distributed by
the Trustee in accordance with the provisions of the Indenture.
The Trustee will determine the circumstances and manner in which it will
dispose of the Collateral, including whether to release all or any portion of
the Collateral from the Liens created by the Security Documents and whether to
foreclose on the Collateral following an Event of Default. Upon the full and
final payment and performance of all Obligations in respect of the Partnership
Notes, the Indenture, the Series B notes and the Security Documents will
terminate and the Collateral will be released.
Optional Redemption
The Series B notes due 2001 are not redeemable.
The Series B notes due 2009 are redeemable at our option at any time and from
time to time, in whole or in part, upon not less than 30 nor more than 60 days
notice to each Holder of Series B notes due 2009, at a redemption price equal
to the Make-Whole Price. "Make-Whole Price" means an amount equal to the
greater of (i) 100% of the principal amount of such Series B notes due 2009 and
(ii) as determined by a Reference Treasury Dealer, the sum of the present
values of the remaining scheduled payments of principal and interest thereon
discounted to the date of redemption on a semiannual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Treasury Rate plus 50 basis
points, plus, in each case, accrued and unpaid interest thereon to the
Redemption Date. Unless we default in payment of the redemption price, on and
after the Redemption Date, interest will cease to accrue on the Series B notes
due 2009 or portions thereof called for redemption.
Mandatory Redemption
We will be required to redeem the Series B notes as described below. The
Series B notes will be subject to mandatory redemption, in whole or in part,
ratably among each series at a redemption price equal to the principal amount
of the Series B notes being redeemed plus accrued and unpaid interest to the
redemption date, upon:
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(1) the receipt of Loss Proceeds or Eminent Domain Proceeds by a Coso
partnership if the applicable Coso partnership determines that:
(a) the affected Project cannot be rebuilt, repaired or restored to
permit operations on a commercially reasonable basis, or the
applicable Coso partnership determines not to rebuild, repair or
restore the affected Project, in which case the amount of such Loss
Proceeds or Eminent Domain Proceeds shall be available for such
redemption, or
(b) only a portion of the affected Project is capable of being rebuilt,
repaired or restored, in which case, if excess proceeds exist after
such rebuild, repair or restoration, only the amount of such excess
Loss Proceeds or Eminent Domain Proceeds shall be made available
for such redemption;
(2) the receipt by the applicable Coso partnership of proceeds in
connection with a Title Event, in which case the amount of such Title
Event Proceeds shall be made available for such redemption, subject to
reduction by the costs expended in connection with collecting proceeds
upon the occurrence of such Title Event, and any additional reasonable
costs or expenses that the Coso partnerships will be subject to as a
result of the Title Event;
(3) the receipt by the Coso partnerships of net proceeds in excess of $5.0
million realized in connection with a Permitted Power Contract Buy-Out,
or $10.0 million, when aggregated with all previous Permitted Power
Contract Buy-Outs, in which case the amount of all proceeds associated
with such Permitted Power Contract Buy-Outs shall be made available for
such redemption, unless each of the Rating Agencies confirm that a
Rating Downgrade will not occur if no redemption is made with such
proceeds; and
(4) the receipt by the Coso partnerships of net proceeds received in
connection with a termination of the Navy Contract under Section
VIII(2) of the Navy Contract (P0004 Modification dated October 19,
1983).
Selection and Notice
If less than all of the Series B notes are to be redeemed at any time, the
Trustee will select Series B notes for redemption on a pro rata basis, unless
otherwise required by the principal national securities exchange, if any, on
which the Series B notes are listed; provided that no Series B notes of $1,000
or less shall be redeemed in part; and provided, further, that in the case of
redemption of the Series B notes due 2009 at our option, only Series B notes
due 2009 will be redeemed. We will mail notices of redemption by first class
mail at least 30 but not more than 60 days before the redemption date to each
Holder of Series B notes to be redeemed at its registered address. Notices of
redemption may not be conditional. If any Series B note is to be redeemed in
part only, the notice of redemption that relates to that Series B note shall
state the portion of the principal amount of the Series B note to be redeemed.
A new Series B note in principal amount equal to the unredeemed portion of the
partially redeemed Series B note will be issued in the name of the Holder of
the partially redeemed Series B note upon cancellation of the original Series B
note. Series B notes called for redemption will become due on the date fixed
for redemption. Unless we default in payment of the redemption price on and
after the redemption date, interest ceases to accrue on Series B notes or
portions of them called for redemption.
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Repurchase at the Option of Holders upon Change of Control
Upon the occurrence of a Change of Control, each Holder of Series B notes
will have the right to require us to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Series B notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase (the "Change of Control Payment"). Within ten days following
any Change of Control, we will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Series B notes on the date specified in such notice, which date
shall be no earlier than 30 days and no later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date"), pursuant to the
procedures required by the Indenture and described in such notice. We will
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Series B
notes as a result of a Change of Control.
On the Change of Control Payment Date, we will, to the extent lawful,
(1) accept for payment all Series B notes or portions thereof properly
tendered pursuant to the Change of Control Offer,
(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Series B notes or portions thereof so
tendered, and
(3) deliver or cause to be delivered to the Trustee the Series B notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of Series B notes or portions thereof being purchased
by us.
The Paying Agent will promptly mail to each Holder of Series B notes so
tendered the Change of Control Payment for such Series B notes, and the Trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new Series B note equal in principal amount to any unpurchased
portion of the Series B notes surrendered, if any; provided that each such new
Series B note will be in a principal amount of $1,000 or an integral multiple
thereof. We will publicly announce the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture will not
contain provisions that permit the Holders of the Series B notes to require
that we repurchase or redeem the Series B notes in the event of a takeover,
recapitalization or similar transaction. Finally, our ability to pay cash to
the Holders of Series B notes upon a repurchase may be limited by our then
existing financial resources. See "Risk Factors--We may not have the funds
necessary to finance a change of control offer which may be required under the
Indenture."
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by us and purchases all
Series B notes validly tendered and not withdrawn under such Change of Control
Offer.
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The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of our assets and the assets of the Coso partnerships taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Series B notes to
require us to repurchase such Series B notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of our assets and
the assets of the Coso partnerships taken as a whole to another Person or group
may be uncertain.
Ratings
Moody's has assigned the Series B notes due 2001 a rating of "Ba1" and the
Series B notes due 2009 a rating of "Ba2." S&P has assigned each of the Series
B notes due 2001 and the Series B notes due 2009 a rating of "BB." Duff &
Phelps has assigned the Series B notes due 2001 a rating of "BB+" and the
Series B notes due 2009 a rating of "BB." We cannot assure you that any of
these credit ratings will remain in effect for any period of time or that these
ratings will not be lowered, suspended or withdrawn entirely by Moody's, S&P or
Duff & Phelps, if, in their judgment, circumstances warrant a change. Any
lowering, suspension or withdrawal of any rating may have a material adverse
effect on the market price or marketability of the Series B notes.
Nature of Recourse on the Series B Notes
All payments of principal, interest, and premium, if any, and Liquidated
Damages, if any, on the Series B notes will be solely our obligations. Our
obligations to make those payments are secured by the liens described under "--
Security" and are guaranteed by the Coso partnerships. The Guarantees, in turn,
are secured by a perfected, first priority lien on substantially all of the
assets of the Coso partnerships, and the ownership interests in the Coso
partnerships. The Series B notes are payable solely from payments to be made by
the Coso partnerships under the Partnership Notes and from other funds that may
be available from time to time in the Accounts held by the Depositary. The Coso
partnerships' obligations to make payments under the Partnership Notes are non-
recourse to the direct and indirect owners of the Coso partnerships (including
Caithness Energy, L.L.C.) except, in the case of the Partners, with respect
solely to recourse to the Partner's ownership interests in the Coso
partnerships pledged to the Collateral Agent as security for the Guarantees.
Except for the Coso partnerships and the Partners (solely to the extent that
each Partner has pledged its ownership interests in the relevant Coso
partnership), neither our shareholders nor any Affiliate, incorporator,
officer, director or employee of theirs or of ours has guaranteed the payment
of the Series B notes or has any obligation with respect to the payment of the
Series B notes.
Flow of Funds
Depositary Agreement
Under the Depositary Agreement, the Collateral Agent, on behalf of the
Secured Parties, has appointed the Depositary as security agent for the Secured
Parties with respect to funds of the Coso partnerships in which the Depositary
has been granted a security interest. The Depositary will hold, invest and
disburse funds in which the Depositary and/or the Collateral Agent, on behalf
of the Secured Parties, has been granted a security interest. Neither we nor
any of the Coso partnerships has any right of withdrawal under any Account
except under the circumstances established under the Depositary Agreement.
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The Depositary Agreement Accounts
The Coso partnerships have established and created the following accounts
(collectively, the "Accounts") with the Depositary under the Depositary
Agreement and pledged these Accounts as security for the benefit of the
Depositary and the Collateral Agent acting on behalf of all the Secured
Parties:
(1) Revenue Account;
(2) Principal Account;
(3) Interest Account;
(4) Debt Service Reserve Account;
(5) Capital Expenditure Reserve Account;
(6) Operating and Maintenance Fees Account;
(7) Management Fees Account;
(8) Distribution Account;
(9) Distribution Suspense Account;
(10) Loss Proceeds Account; and
(11) Redemption Account.
All amounts deposited with the Depositary, at our written request and
direction, will be invested by the Depositary in Permitted Investments.
Revenue Account; Priority of Payments
All revenues or other proceeds actually received by the Coso partnerships or
otherwise derived from the ownership or operation of the Coso projects are
required to be paid into the Revenue Account. The Coso partnerships have
arranged for the direct payment of all such revenues into the Revenue Account,
and no Coso partnership has any right of withdrawal from the Revenue Account
except pursuant to the priority of payments set forth below.
The Revenue Account is funded from the following:
(1) all revenues and other proceeds actually received by the Coso
partnerships (including payments under the Power Purchase Agreements);
(2) to the extent amounts in the Debt Service Reserve Account equal the
Debt Service Reserve Required Balance, the income, if any, from the
investment of funds in such Account; and
(3) other amounts as required to be transferred to the Revenue Account from
any other Account pursuant to the Depositary Agreement.
Upon receipt of a certificate from the relevant Coso partnership (or its duly
authorized agent for such purposes) detailing the amounts to be paid, funds in
the Revenue Account shall be transferred via wire transfer by the Depositary in
the following priority:
First, as and when required, to pay the Coso partnerships' Operating and
Maintenance Costs, provided that, if the cumulative Operating and Maintenance
Costs of the Coso partnerships in any fiscal year exceed the projected
Operating and Maintenance Costs of the Coso partnerships in the
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applicable annual Operating Budget of the Coso partnerships by more than 25%,
then no amounts may be withdrawn on behalf of the Coso partnerships to pay non-
budgeted operating costs unless the Coso partnerships certify that (1) such
additional non-budgeted costs are reasonably designed to permit the Coso
partnerships to satisfy their obligations in respect of the Partnership Notes
and maximize their revenue and net income and (2) the Independent Engineer
certifies that the additional cost is prudent and reasonable.
Second, on a monthly basis, to the Depositary, the Trustee, any Permitted
Additional Senior Lender and the Collateral Agent any amounts then due and
payable to each of them as fees, costs and expenses; provided, however, that if
funds in the Revenue Account are insufficient on any date to make the payments
specified in this paragraph Second, distribution of funds shall be made ratably
to the specified recipients based on the respective amounts owed such
recipients;
Third, on a monthly basis, (1) to the Interest Account an amount which,
together with the amount then in such account, equals all of the interest due
or becoming due on the senior secured notes and, without duplication, the
Partnership Notes on the next succeeding Interest Payment Date; (2) to the
Principal Account an amount which, together with the amount then in such
account, equals all of the principal and premium, if any, and Liquidated
Damages, if any, due or becoming due on the senior secured notes and, without
duplication, the Partnership Notes on the next succeeding Principal Payment
Date; (3) to a sub-account within the Principal Account an amount which,
together with the amounts then in such sub-account, equals all of the principal
due or becoming due on any Permitted Indebtedness or other Permitted
Partnership Indebtedness other than such Indebtedness described in clause (4)
of the definition of Permitted Indebtedness within the succeeding six-month
period; and (4) to a sub-account within the Interest Account an amount which,
together with the amounts then in such sub-account, equals all of the interest
due or becoming due on any Permitted Indebtedness or other Permitted
Partnership Indebtedness other than such Indebtedness described in clause (4)
of the definition of Permitted Indebtedness within the succeeding six-month
period (except to the extent that Permitted Indebtedness or other Permitted
Partnership Indebtedness other than such Indebtedness described in clause (4)
of the definition of Permitted Indebtedness is otherwise available to pay such
interest); provided, however, that if monies in the Revenue Account are
insufficient on any date to make the transfers specified in this paragraph
Third, distribution of monies shall be made ratably to the specified Accounts
based on the respective amounts owed such Accounts;
Fourth, on a monthly basis, if the amount available to be drawn under the
Debt Service Reserve Letter of Credit is less than the Debt Service Reserve
Required Balance, to the Debt Service Reserve Account an amount as necessary to
fund the Debt Service Reserve Account so that the sum of the amount available
to be drawn under the Debt Service Reserve Letter of Credit plus the balance in
the Debt Service Reserve Account equals the Debt Service Reserve Required
Balance;
Fifth, on a monthly basis, to the Capital Expenditure Reserve Account, an
amount necessary to cause the balance thereof to be equal to the Capital
Expenditure Reserve Required Balance;
Sixth, on a monthly basis, to the Operating and Maintenance Fees Account, an
amount necessary for the payment of Operating and Maintenance Fees then due and
owing;
Seventh, on a monthly basis, to the Management Fees Account, an amount
necessary for the payment of Management Fees then due and owing;
Eighth, on a monthly basis, any remaining amounts to the Distribution
Account; and
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Ninth, any amounts in the Distribution Account which cannot be distributed
because of the failure to satisfy certain conditions to distributions, to the
Distribution Suspense Account.
Interest Account and Principal Account
Funds in the Interest Account and the Principal Account shall be utilized to
make payments of interest and Liquidated Damages, if any, principal and
premium, if any, on the Partnership Notes, the senior secured notes and any
outstanding Permitted Indebtedness or other Permitted Partnership Indebtedness
other than such Indebtedness described in clause (4) of the definition of
Permitted Indebtedness.
Debt Service Reserve Account
The Debt Service Reserve Account was initially funded from the proceeds of
the Series A notes offering in an amount that equaled the Debt Service Reserve
Required Balance as of May 28, 1999. We may replace funds held in the Debt
Service Reserve Account with a Debt Service Reserve Letter of Credit having a
stated amount equal to the amount being withdrawn from the Debt Service Reserve
Account. These deposits, in conjunction with the Debt Service Reserve Letter of
Credit, if any, will be available in the event the Revenue Account, the
Principal Account and the Interest Account lack sufficient funds on a Payment
Date to meet payments of principal, premium, if any, and interest on the senior
secured notes.
At any time that the sum of the amount available to be drawn under the Debt
Service Reserve Letter of Credit plus the amount then on deposit in the Debt
Service Reserve Account is less than the Debt Service Reserve Required Balance,
the Debt Service Reserve Account shall then accumulate cash deposits from, and
in the following order of priority:
(1) the Revenue Account, as provided above under the caption "Flow of
Funds--Revenue Account; Priority of Payments"; and
(2) net interest, if any, earned on amounts deposited in the Debt Service
Reserve Account; and
(3) amounts then on deposit in the Operating and Maintenance Fees Account
and the Management Fees Account (in equal amounts from each such
Account),
until the sum of the amount available to be drawn under the Debt Service
Reserve Letter of Credit plus the amount then on deposit in the Debt Service
Reserve Account equals the Debt Service Reserve Required Balance. Once the Debt
Service Reserve Required Balance is reached, interest income, if any, in excess
of such amount shall be transferred to the Revenue Account.
Capital Expenditure Reserve Account
The Capital Expenditure Reserve Account shall be funded in accordance with
the provisions set forth above under the caption "Flow of Funds--Revenue
Account; Priority of Payments" and in accordance with the Operating Budget and
schedules thereto approved by the Independent Engineer prior to the end of each
calendar year (and, in good faith, so as to implement even monthly
contributions) or with such variations from such Operating Budget and schedules
as the Coso partnerships certify to the Trustee are reasonable and necessary
and in accordance with prudent industry practice. Amounts on deposit in the
Capital Expenditure Reserve Account shall be used for Capital Expenditures to
be made in accordance with prudent industry practice and as may be required
pursuant to the terms of the Indenture and the Depositary Agreement.
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Operating and Maintenance Fees Account
Funds in the Operating and Maintenance Fees Account shall be used for the
payment of Operating and Maintenance Fees due and owing; provided that:
(1) the aggregate amount of all Operating and Maintenance Fees paid on
account of any twelve month period shall not exceed an amount equal to
$2.0 million plus the CPI Adjustment; and
(2) the payment of any Operating and Maintenance Fees due and owing in
excess of the amount permitted pursuant to clause (1) above shall be
subject to the prior satisfaction of the conditions set forth under the
caption "--Distribution Account."
In addition, funds in the Operating and Maintenance Fees Account shall be
transferred to the Debt Service Reserve Account under the circumstances
described in the second paragraph under the caption "Debt Service Reserve
Account."
Management Fees Account
Funds in the Management Fees Account shall be used for the payment of
Management Fees due and owing subject to:
(1) the prior satisfaction of the conditions set forth under the caption
"Distribution Account"; and
(2) compliance by the Coso partnerships with the covenant set forth under
the caption "Credit Agreements--Certain Covenants--Required Geothermal
Percentage."
In addition, funds in the Management Fees Account shall be transferred to the
Debt Service Reserve Account under the circumstances described in the second
paragraph under the caption "Debt Service Reserve Account."
Distribution Account
The Distribution Account receives funds transferred from the Revenue Account
after all other then required amounts have been paid as provided above under
the caption "Revenue Account; Priority of Payments." Restricted Payments may be
made only from and to the extent of funds on deposit in the Distribution
Account. Such distributions are subject to the prior satisfaction of the
following conditions:
(1) the amount then on deposit in the Principal Account shall be equal to
or greater than the aggregate payments of principal and premium, if
any, and Liquidated Damages, if any, due on the senior secured notes
and, without duplication, the Partnership Notes on the next succeeding
Principal Payment Date and on other Permitted Indebtedness and
Permitted Partnership Indebtedness (other than such Indebtedness
described in clause (4) of the definition of Permitted Indebtedness)
within the succeeding six-month period, and the amount then on deposit
in the Interest Account shall be equal to or greater than the aggregate
payments of interest due on the senior secured notes and (without
duplication) the Partnership Notes on the next succeeding Interest
Payment Date and on other Permitted Indebtedness and Permitted
Partnership Indebtedness (other than such Indebtedness described in
clause (4) of the definition of Permitted Indebtedness) within the
succeeding six-month period;
(2) the amount available to be drawn under the Debt Service Reserve Letter
of Credit plus the amount on deposit in the Debt Service Reserve
Account equals or exceeds the Debt Service Reserve Required Balance and
the amount on deposit in the Capital Expenditure Reserve Account equals
or exceeds the Capital Expenditure Reserve Required Balance;
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(3) no Default or Event of Default has occurred and is continuing;
(4) the Debt Service Coverage Ratio for the most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such distribution is to be made
(or in the case of any proposed distribution date prior to January 1,
2000, the Debt Service Coverage Ratio for the period commencing on May
1, 1999, and ending on the last date of the most recently ended month
for which internal financial statements are available immediately
preceding the date on which such distribution is to be made) is equal
to or greater than (a) 1.25 to 1 for any annual or interim period
ending prior to or as of December 30, 2001 or (b) 1.4 to 1 for any
annual or interim period ending after December 30, 2001, in either case
as certified by one of our authorized officers;
(5) the projected Debt Service Coverage Ratio for the next succeeding four
full fiscal quarters is equal to or greater than (a) 1.25 to 1 for any
annual or interim period ending prior to or as of December 30, 2001 or
(b) 1.4 to 1 for any annual or interim period ending after December 30,
2001, in either case as certified by one of our authorized officers;
(6) We provide to the Trustee an Officers' Certificate at the time of each
distribution stating that, based on customary assumptions, as of such
date, sufficient geothermal resources remain to operate the Projects at
contract capacity through the Final Maturity Date; and
(7) the Geothermal Engineer provides to the Trustee (a) a written
certificate at least annually stating that, for the period covered by
such certification, the wells then in operation are producing, in the
aggregate among the Projects, at least 105% of the steam necessary to
generate the energy projected for the comparable period in the
Independent Engineer's Base Case Projections and (b) during the
calendar year 2006, a report on the geothermal resource available as of
such date and whether sufficient geothermal resource remains to enable
the Projects, in the aggregate, to produce sufficient steam to generate
the energy projected in the Independent Engineer's Base Case
Projections through the maturity date of the Series B notes due 2009.
Distribution Suspense Account
Funds in the Distribution Account which may not be distributed because of a
failure to satisfy any conditions to distributions will be transferred to the
Distribution Suspense Account. Funds in the Distribution Suspense Account may
be transferred back to the Distribution Account and distributed when (1) all
conditions to distribution are satisfied and (2) no Default or Event of Default
has occurred and is continuing. At any time that funds in the Revenue Account
are not sufficient to pay any amounts which are due and payable and required to
be paid with proceeds of the Revenue Account, then funds in the Distribution
Suspense Account shall be transferred to the Revenue Account for distribution
as required.
Loss Proceeds Account
All Loss Proceeds and Eminent Domain Proceeds received by the Coso
partnerships shall be deposited in the Loss Proceeds Account subject to
disbursement for repair or replacement of the assets affected, or otherwise, as
follows:
The Depositary will apply the amounts in the Loss Proceeds Account to the
payment (or reimbursement to the extent the same have been paid or satisfied by
the relevant Coso partnership) of the costs of repair or replacement of the
relevant Project or any part thereof that has been affected
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due to an Event of Loss or Event of Eminent Domain upon the Depositary's
receipt of a complete and properly executed requisition from an authorized
officer of the relevant Coso partnership and approved by the Independent
Engineer; provided, however, that no such approval of the Independent Engineer
shall be required if less than $5.0 million in the aggregate for all Coso
projects affected by such occurrence is requested pursuant to such requisition
or requisitions in any fiscal year.
If the applicable Coso partnership determines that the affected Project is
not capable of being rebuilt or replaced to permit operation on a commercially
reasonable basis, or determines not to rebuild, repair or restore the affected
Project (or if the Loss Proceeds and Eminent Domain Proceeds, together with any
other amounts available to such Coso partnership for such rebuilding or
replacement, are not sufficient to permit such rebuilding or replacement), the
Depositary shall transfer the Loss Proceeds and Eminent Domain Proceeds to the
Collateral Agent for distribution to the Redemption Account in accordance with
the Indenture and the Depositary Agreement. The Depositary shall transfer the
Loss Proceeds and Eminent Domain Proceeds in excess of the cost of repairing or
replacing the affected Project to the Redemption Account in accordance with the
Indenture and the Depositary Agreement. If the applicable Coso partnership does
not rebuild or replace the affected Project, the Depositary shall transfer the
Loss Proceeds and Eminent Domain Proceeds to the Collateral Agent for
distribution to the Redemption Account in accordance with the Indenture and the
Depositary Agreement. See "--Mandatory Redemption."
All Title Event Proceeds received by the Coso partnerships, as applicable,
shall be deposited in the Loss Proceeds Account subject to disbursement in
connection with remedying such Title Event. Any Title Event Proceeds not so
expended shall be transferred to the Redemption Account.
Redemption Account
The Redemption Account will be funded from:
(1) certain proceeds received in connection with an Event of Loss, an Event
of Eminent Domain or a Title Event;
(2) certain proceeds realized in connection with a Permitted Power Contract
Buy-Out;
(3) proceeds received in connection with a termination of the Navy Contract
under Section VIII(2) thereof; and
(4) proceeds received as a result of the foreclosure or the Collateral
serving the obligations of the Coso partnerships following an Event of
Default under the Indenture.
All proceeds received in connection with an Event of Loss, Event of Eminent
Domain or a Title Event will be deposited in the Loss Proceeds Account and
proceeds will be transferred to the Redemption Account if not used to repair or
replace the affected Project or remediate the title deficiency, as permitted
under the Indenture, and shall be distributed to the Collateral Agent for
distribution after giving effect to the provisions of the Indenture, and the
Depositary Agreement with respect to such proceeds. See "--Mandatory
Redemption."
Investment of Monies
Amounts deposited in the Accounts under the Depositary Agreement, at our or
any of the Coso partnership's written request and direction, shall be invested
by the Depositary in Permitted Investments. Such investments shall generally
mature in such amounts and not later than such times
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as may be necessary to provide monies when needed to make payments from such
monies as provided in the Depositary Agreement. Net interest or gain received,
if any, from such investments shall be applied as provided in the Depositary
Agreement. Absent written instructions from us, the Depositary shall invest the
amounts held in the accounts and funds under the Depositary Agreement in
Permitted Investments described in clause (1) of such definition. So long as an
outstanding balance shall remain in any of the Accounts under the Depositary
Agreement, the Depositary shall provide us and the Coso partnerships with
monthly statements showing the amount of all receipts, the net investment
income or gain received and collected, all disbursements and the amount then
available in each such Account.
Certain Covenants
Actions with Respect to the Credit Agreements
We will enforce all of our rights under the Credit Agreements and the
Partnership Notes for the benefit of the Trustee and the Holders. We will not
grant any consents or waivers thereunder, amend or modify any provisions
thereof or otherwise modify the Credit Agreements or the Partnership Notes,
except as provided below. See "--Amendment of Credit Agreement and Partnership
Notes."
Limitations on Indebtedness
We may not create or incur or suffer to exist any Indebtedness other than
Permitted Indebtedness.
Limitations on Guarantees
We may not contingently or otherwise be or become liable in connection with
any guarantee, except for endorsements and similar obligations in the ordinary
course of business.
Liens
We may not directly or indirectly, create, incur, assume or suffer to exist
any Lien of any kind on any asset now owned or hereafter acquired, except
Permitted Liens described in clause (1) of the definition of Permitted Liens.
Restricted Payments
We may not make any Restricted Payments or direct any Restricted Payments to
be made on behalf of any Coso partnership except for payments permitted under
the Depositary Agreement as described under the caption "Flow of Funds."
Prohibitions on Other Obligations or Assignments
We may not assign any of our rights or obligations under any Financing
Document, and may not enter into additional contracts if it would be reasonably
expected to cause a Material Adverse Effect and except otherwise only as
contemplated under the Indenture, including entering into contracts in
connection with investments in Permitted Investments.
Prohibitions on Fundamental Changes
We may not enter into any transaction of merger or consolidation, change our
form of organization or our business, liquidate, wind-up or dissolve or
discontinue our business. We are also restricted from engaging in any business
other than in connection with the issuance of the senior secured notes, the
incurrence of Permitted Indebtedness and the performance of our obligations
under the Transaction Documents. We may not lease (as lessor) or sell,
transfer, assign, hypothecate, pledge or otherwise dispose of any of our
property or assets, except as may be contemplated by the Financing Documents.
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Additional Covenants
In addition to the covenants described above, the Indenture contains
covenants applicable to us regarding (1) maintenance of existence, (2) payment
of taxes, (3) maintenance of books and records, (4) compliance with laws, (5)
delivery to the Trustee and the Rating Agencies of compliance certificates and
of notices of Credit Agreement Events of Default and Guarantee Events of
Default, (6) delivery to the Trustee and the Rating Agencies of unaudited
quarterly reports for us and the Coso partnerships for the first three quarters
of each fiscal year containing condensed combined financial information and
audited annual reports for us and the Coso partnerships, and (7) delivery to
the Trustee of all other information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act in order to permit compliance by a Holder
with Rule 144A in connection with the resale of Series A notes.
Events of Default
Certain Events
The Indenture provides that the following events constitute Events of
Default:
(1) Failure to pay any principal, interest or other amounts owed on any
senior secured notes when the same becomes due and payable, whether by
scheduled maturity or required prepayment or redemption or by
acceleration or otherwise, and such failure continues for ten days or
more following the due date for payment;
(2) A Credit Agreement Event of Default or a Guarantee Event of Default has
occurred and is continuing;
(3) Any representation or warranty made by us in the Indenture or in any
other Financing Document, or any representation, warranty or statement
in any certificate, financial statement or other document furnished to
the Trustee or any other Person by us or on our behalf, proves to have
been untrue or misleading in any material respect as of the time made,
confirmed or furnished and the fact, event or circumstance that gave
rise to such inaccuracy has resulted in, or could reasonably be
expected to result in, a Material Adverse Effect and that fact, event
or circumstance continues uncured for 30 or more days from the date one
of our Responsible Officers receives notice thereof from the Trustee;
provided that, if we commence and diligently pursue efforts to cure
such fact, event or circumstance within such 30-day period and deliver
written notice to the Trustee thereof, we may continue to effect such
cure, and such misrepresentation shall not be deemed an Event of
Default for an additional 60 days so long as we are diligently pursuing
such cure;
(4) We fail to perform or observe any covenant or agreement contained in
the Indenture regarding maintenance of existence or restrictions on
Indebtedness, Liens, Restricted Payments, guarantees, disposition of
assets, amendments to the Credit Agreement or Partnership Notes or
taking of actions thereunder as directed by the Required Holders,
fundamental changes, or nature of business and such failure continues
uncured for 30 or more days from the date one of our Responsible
Officers receives notice thereof from the Trustee;
(5) We fail to perform or observe any of our covenants contained in the
Indenture (other than those contained in (4) above) and such failure
continues uncured for 30 or more days from the date one of our
Responsible Officers receives notice thereof from the Trustee of such
failure; provided that if we commence and diligently pursue efforts to
cure such default within such 30-day period, we may continue to effect
such cure of the default and such default will not be deemed an Event
of Default for an additional 90 days so long as we are diligently
pursuing such cure;
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(6) Certain events involving our bankruptcy, insolvency, receivership or
reorganization;
(7) Any Pledge Agreement ceases to be in full force and effect or there is
a Material Adverse Effect on the Lien purported to be granted in any
Issuer Pledge Agreement such that it ceases to be a valid and perfected
Lien in favor of the Collateral Agent for the benefit of the Secured
Parties on the Collateral described therein with the priority purported
to be created thereby; provided, however, that we have 10 days after
one of our Responsible Officers obtains actual knowledge thereof to
cure any such cessation, if curable, or to furnish to the Collateral
Agent all documents or instruments required to cure any such cessation,
if curable; or
(8) Any event of default under any of our Indebtedness which results in
Indebtedness in excess of $2.5 million becoming due and payable prior
to its stated maturity.
Control by Holders
The Holders of at least a majority in aggregate principal amount of
Outstanding Notes (the "Required Holders") will have the right to direct the
time, place and method of conducting any proceeding for any right or remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee in the Indenture. The Required Holders, acting through the Trustee,
will have the right to direct the time, place and method for exercising any
right or remedy available to the Issuer under the Credit Agreements and the
Partnership Notes; provided that upon the occurrence of an Event of Default
related to failure to make payments on the senior secured notes, Holders of 25%
in aggregate principal amount of the Outstanding Notes have the right to cause
the acceleration of the Partnership Notes.
Subject to the above paragraph, if an Event of Default has occurred and is
continuing and as a result thereof or in connection therewith or pursuant to an
acceleration of the senior secured notes arising therefrom, payments on the
senior secured notes are not made when due, the Trustee is required to enforce
the Guarantees and the rights of the Holders thereunder.
Enforcement of Remedies
If one or more Events of Default have occurred and are continuing, then:
(a) in the case of an Event of Default described in clause (6) above under
"Certain Events," the entire principal amount of the Outstanding Notes,
all interest accrued and unpaid thereon, and all premium and other
amounts payable under the senior secured notes and the Indenture, if
any, will automatically become due and payable without presentment,
demand, protest or notice of any kind; or
(b) in the case of an Event of Default described in clause (2) (in
connection with a Credit Agreement Event of Default or a Guarantee
Event of Default) above under "Certain Events" relating to certain
events involving the bankruptcy, insolvency, receivership or
reorganization of any of the Coso partnerships, the entire principal
amount of the Outstanding Notes (on a pro rata basis), all interest
accrued and unpaid thereon, and all premium and other amounts payable
under the senior secured notes and the Indenture, if any, will
automatically become due and payable without presentment, demand,
protest or notice of any kind; or
(c) in the case of an Event of Default described in:
(i) clause (1) above under "Certain Events," upon the direction of the
Holders of no less than 25% in aggregate principal amount of the
Outstanding Notes, the Trustee will, by
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notice to us, declare the entire principal amount of the Outstanding
Notes, all interest accrued and unpaid thereon, and all premium and
other amounts payable under the senior secured notes and the
Indenture, if any, to be due and payable, or
(ii) clauses (2) (except as described in clause (b) above), (3), (4),
(5), (7) or (8) above under "Certain Events," upon the direction of
the Required Holders, the Trustee will, by notice to us, declare
the entire principal amount of the Outstanding Notes, all interest
accrued and unpaid thereon, and all premium and other amounts
payable under the senior secured notes and the Indenture, if any,
to be due and payable.
If an Event of Default occurs and is continuing and is known to the Trustee,
the Trustee will mail to each Holder notice of the Event of Default within 30
days after the occurrence thereof. Except in the case of an Event of Default
in payment of principal of or interest on any senior secured note, the Trustee
may withhold the notice to the Holders if the Trustee in good faith determines
that withholding the notice is in the interest of the Holders.
If an Event of Default relating to failure to pay amounts owed on the senior
secured notes has occurred and is continuing, the Trustee may declare the
principal amount of the Outstanding Notes, all interest accrued and unpaid
thereon, and all premium and other amounts payable under the senior secured
notes and the Indenture, if any, to be due and payable notwithstanding the
absence of direction from Holders of at least 25% in aggregate principal
amount of the Outstanding Notes directing the Trustee to accelerate the
maturity of the senior secured notes unless Holders of more than 75% in
aggregate principal amount of the Outstanding Notes direct the Trustee not to
accelerate the maturity of such senior secured notes, if in the good faith
exercise of its discretion the Trustee determines that such action is
necessary to protect the interests of the Holders.
If an Event of Default relating to a Credit Agreement Event of Default or a
Guarantee Event of Default (other than a Credit Agreement Event of Default
related to failure to pay the Partnership Notes or a Guarantee Event of
Default related to failure to make payments under the Guarantees) has occurred
and is continuing, the Trustee may declare the principal amount of the
Outstanding Notes, all interest accrued and unpaid thereon, and all premium
and other amounts payable under the senior secured notes and the Indenture, if
any, to be due and payable notwithstanding the absence of direction from the
Required Holders directing the Trustee to accelerate the maturity of such
amount of senior secured notes unless the Required Holders direct the Trustee
not to accelerate the maturity of such senior secured notes, if in the good
faith exercise of its discretion the Trustee determines that such action is
necessary to protect the interests of the Holders.
In addition, if one or more of the Events of Default referred to in clause
(c)(ii) immediately above has occurred and is continuing, the Trustee may
declare the entire principal amount of the senior secured notes Outstanding,
all interest accrued and unpaid thereon, and all premium and other amounts
payable under the senior secured notes and the Indenture, if any, to be due
and payable notwithstanding the absence of direction from the Required Holders
directing the Trustee to accelerate the maturity of the senior secured notes
unless the Required Holders direct the Trustee not to accelerate the maturity
of the senior secured notes, if in the good faith exercise of its discretion
the Trustee determines that such action is necessary to protect the interests
of the Holders.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by us or on our behalf with the
intention of avoiding payment of the premium that we would have had to pay if
we then had elected to redeem the Series A notes due 2009 or the Series B
Notes due 2009 pursuant to the optional redemption provisions of the
Indenture, a premium equal to
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the then applicable Treasury Rate shall also become and be immediately due and
payable to the extent permitted by law upon the acceleration of the Series A
notes due 2009 or the Series B Notes due 2009. If an Event of Default occurs at
a time when the Series A notes due 2001 or the Series B notes due 2001 are
outstanding by reason of any willful action (or inaction) taken (or not taken)
by us or on our behalf with the intention of avoiding the prohibition on
redemption of the Series A notes due 2001 or any Series B notes due 2001, then
a premium equal to the then applicable Treasury Rate shall also become and be
immediately due and payable to the extent permitted by law upon the
acceleration of the Series A notes due 2001 or the Series B notes due 2001.
At any time after the principal of the senior secured notes has become due
and payable upon a declared acceleration, and before any judgment or decree for
the payment of the money so due, or any portion thereof, has been entered, the
Holders of not less than a majority in aggregate principal amount of the
Outstanding Notes, by written notice to us and the Trustee, shall rescind and
annul such declaration and its consequences if:
(1) there has been paid to or deposited with the Trustee a sum sufficient
to pay:
(a) all overdue interest on the senior secured notes,
(b) the principal of and premium, if any, on any senior secured notes
that have become due (including overdue principal) other than by
such declaration of acceleration and interest thereon at the
respective rates provided in the senior secured notes for overdue
principal,
(c) to the extent that payment of such interest is lawful, interest
upon overdue interest at the respective rates provided in the
senior secured notes for overdue interest, and
(d) all sums paid or advanced by the Trustee and the reasonable
compensation, expenses, disbursements, and advances of the Trustee,
its agents and counsel, and
(e) all Events of Default, other than the nonpayment of the principal
of the senior secured notes and the Partnership Notes that has
become due solely by such acceleration, have been cured or waived
in accordance with the Indenture.
(2) If an Event of Default relating to failure to pay amounts owed on the
senior secured notes has occurred and is continuing and an acceleration
has occurred, the Trustee may (as the Holders of 25% in aggregate
principal amount of the Outstanding Notes request) direct the
Collateral Agent to take possession of all Collateral.
(3) If an Event of Default relating to a Credit Agreement Event of Default
or a Guarantee Event of Default (other than a Credit Agreement Event of
Default related to failure to pay the Partnership Notes or a Guarantee
Event of Default related to failure to pay amounts owed on the senior
secured notes) has occurred and is continuing and an acceleration has
occurred, the Trustee may (as the Required Holders request) direct the
Collateral Agent to take possession of all Collateral.
(4) If an Event of Default other than those referred to in clauses (2) and
(3) above has occurred and is continuing and an acceleration has
occurred, the Trustee may (as the Required Holders request) direct the
Collateral Agent to take possession of all Collateral; or
(5) If one or more Guarantee Events of Default shall have occurred and be
continuing under a Guarantee, the Trustee may (as the Required Holders
request) direct the Collateral Agent to take possession of all
Collateral.
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Application of Monies Collected by Trustee
Any monies collected or to be applied by the Trustee after an Event of
Default in respect of the senior secured notes will be applied to amounts owed
with respect to all senior secured notes and all other Senior Indebtedness on a
pro rata basis and, in respect of senior secured notes of a series, will be
applied ratably to the Holders of senior secured notes in the following order
from time to time, on the date or dates fixed by the Trustee:
(1) first, to the payment of all amounts due to the Trustee or any
predecessor Trustee under the Indenture;
(2) second, (A) in case the unpaid principal amount of the Outstanding
Notes or other outstanding Senior Indebtedness has not become due, to
the payment of any overdue interest, (B) in case the unpaid principal
amount of a portion of the Outstanding Notes or other outstanding
Senior Indebtedness has become due, first to the payment of accrued
interest on all Outstanding Notes and all other Senior Indebtedness for
overdue principal, premium, if any, and overdue interest, and next to
the payment of the overdue principal on all senior secured notes and
all other Senior Indebtedness or (C) in case the unpaid principal
amount of all the Outstanding Notes and all other Senior Indebtedness
has become due, first to the payment of the whole amount then due and
unpaid upon the Outstanding Notes and all other Senior Indebtedness for
principal, premium, if any, and interest, together with interest for
overdue principal, premium, if any, and overdue interest; and
(3) third, in case the unpaid principal amount of all the Outstanding Notes
and all other Senior Indebtedness has become due, and all of the
outstanding principal, premium, if any, interest and other amounts owed
in connection with the senior secured notes and all other Senior
Indebtedness have been fully paid, any surplus then remaining will be
paid to us, or to whomsoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.
Amendments and Supplements
We, the Coso partnerships, the Trustee and the Collateral Agent may amend or
supplement the Indenture or execute a waiver without the consent of the
Holders:
. to add additional covenants of ours;
. to surrender rights conferred upon us, or to confer additional benefits
upon the Holders;
. to increase the assets securing our obligations under the Indenture;
. the issuance of Additional Notes on the conditions described herein;
. for any purpose not inconsistent with the terms of the Indenture or to
cure any ambiguity, defect or inconsistency;
. to comply with requirements of the SEC in order to effect or maintain
the qualification of this Indenture under the Trust Indenture Act; or
. to reflect any amendments required by a Rating Agency in circumstances
where confirmation of the Ratings is required or permitted under the
Indenture.
The Indenture may be otherwise amended or supplemented by us, the Coso
partnerships, the Trustee and the Collateral Agent with the consent of Holders
of not less than a majority in aggregate
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principal amount of the senior secured notes then Outstanding; provided that no
such amendment or supplement may, without the consent of all Holders of
Outstanding Notes, modify:
. the principal, premium and interest payable upon the Series B notes,
. the dates on which interest or principal on any Series B notes is paid,
. the dates of maturity of any Series B notes, or
. the procedures for amendment by a supplemental indenture.
Notwithstanding the foregoing, the provisions in the Indenture relating to a
Change of Control and the related definitions as used therein may be amended by
the Holders of at least a majority in aggregate principal amount of the
Outstanding Notes.
Additional Senior Secured Notes
In the event we incur Permitted Indebtedness in the form of Additional Notes,
whether issued pursuant to the Indenture or a separate indenture, the Holders
of the senior secured notes and the holders of Additional Notes shall be
treated as one class for all purposes (including voting with respect to the
exercise of remedies in the event of an Event of Default). Notwithstanding
anything to the contrary in the Indenture, we and the Trustee may amend the
Indenture or enter into an intercreditor agreement to implement such treatment.
Amendment of Credit Agreement and Partnership Notes
We and the Trustee may, without the consent of or notice to the Series B note
Holders, consent to any amendment or modification of any Credit Agreement or
the Partnership Notes
. as permitted by the provisions of the Credit Agreements, the Partnership
Notes or the Indenture,
. to cure any ambiguity, defect or inconsistency,
. to add additional rights in favor of us, or
. in connection with any amendment to the Credit Agreements or Partnership
Notes where such amendment is required by a Rating Agency in
circumstances where confirmation of the Ratings are required or
permitted under the Indenture or the Credit Agreements.
Except as described above, neither we nor the Trustee shall consent to any
other amendment or modification of the Credit Agreements or the Partnership
Notes or grant any waiver or consent thereunder without the consent of the
Required Holders. An amendment to the Credit Agreements or to the Partnership
Notes which changes the amounts of payments due thereunder, the Person to whom
such payments are to be made or the dates on which such payments are to be made
shall not be made without the unanimous consent of the Holders.
Satisfaction and Discharge of the Indenture; Defeasance
We may terminate the Indenture and the Guarantees by delivering all
Outstanding Notes to the Trustee for cancellation and by paying all other sums
payable under the Indenture.
Legal and covenant defeasance shall be permitted upon terms and conditions
customary for transactions of this nature.
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Trustee
There shall at all times be a Trustee under the Indenture, which shall be a
corporation having either (1) a combined capital and surplus of at least $500.0
million, or (2) having a combined capital and surplus of at least $100.0
million and being a wholly owned subsidiary of a corporation having a combined
capital and surplus of at least $500.0 million in each case subject to
supervision or examination by a Federal or State or District of Columbia
authority and having a corporate trust office in New York, New York, to the
extent there is such an institution eligible and willing to serve. We agreed to
indemnify and hold harmless the Trustee in connection with the performance of
its duties under the Indenture, except for liability which results from the
negligence, bad faith or willful misconduct of the Trustee.
The Trustee may resign at any time by giving written notice thereof to us.
The Trustee may be removed at any time by act of the Required Holders,
delivered to the Trustee and to us. We will give notice of each resignation and
removal of the Trustee and each appointment of a successor Trustee to all
Holders.
Information Available to Holders
Pursuant to the Indenture, so long as any senior secured notes are
outstanding, we and the Coso partnerships will furnish to the Holders of Series
B notes:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if we
and each Coso partnership were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information
only, a report thereon by our and each Coso partnership's certified
independent accountants, and
(2) all current reports that would be required to be filed with the SEC on
Form 8-K if we and the Coso Partnerships were required to file such
reports, in each case within the time periods specified in the SEC's
rules and regulations.
In addition, for so long as any senior secured notes remain outstanding, we and
the Coso partnerships will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Agent Relationship
Each Coso partnership has designated us as its agent under the Indenture for
the sole purpose of (i) issuing the Series B notes to the extent of each such
Coso partnership's obligations thereunder and (ii) otherwise carrying out each
Coso partnership's obligations and duties and exercising each Coso
partnership's rights and privileges under the Indenture. Each Coso partnership
will indemnify us against all claims arising in connection with our performance
of its obligations.
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Description of Credit Agreements
Pursuant to Credit Agreements between each Coso partnerships and us (the
"Credit Agreements"), (i) the Coso partnerships issued the Partnership Notes to
us at the closing of the Series A notes offering, and (ii) the Coso
partnerships agreed to make payments under the Partnership Notes in amounts
which are sufficient to enable us to pay scheduled principal of and interest on
the Series B notes.
The Coso partnerships have absolutely and unconditionally agreed to make
payments under the Partnership Notes in scheduled installments and to pay
interest, in arrears, on the unpaid principal amount of each installment. If
the proceeds received from our issuance of Additional Notes are loaned to the
Coso partnerships, then additional Partnership Notes having a principal amount
equal to the amount of such proceeds so loaned to the Coso partnerships will be
issued by the Coso partnerships and such principal shall be payable in
scheduled installments which correspond to the repayment of principal of such
Additional Notes.
Optional Prepayment
Optional prepayment of the Partnership Notes shall not be permitted except in
connection with the defeasance of the Senior secured notes or the optional
redemption of the Series A notes due 2009 and the Series B notes due 2009.
Mandatory Prepayment
The Coso partnerships are required to prepay the Partnership Notes with
proceeds received by the Coso partnerships in connection with an Event of Loss,
a Title Event, an Event of Eminent Domain, a Permitted Power Contract Buy-Out
or a termination of the Navy Contract under Section VIII(2) of the Navy
Contract to the extent set forth in "Description of Series B Notes --Mandatory
Redemption."
Certain Covenants
Set forth below are certain covenants of the Coso partnerships contained in
the Credit Agreements.
Events of Loss. If any Event of Loss or Event of Eminent Domain occurs and
the cost of repairing, restoring, replacing or rebuilding (collectively,
"Reconstructing") is $5.0 million or less, and if, in the reasonable judgment
of the managing partner of the relevant Coso partnership, to Reconstruct would
be prudent and consistent with such Coso partnership's obligations to maintain
such Project, then such Coso partnership shall, at its own expense and whether
or not such damage, destruction or loss is covered by an insurance policy, with
reasonable promptness, Reconstruct the same. If there are Loss Proceeds or
Eminent Domain Proceeds (from insurance or otherwise) available as a result of
such damage, destruction or loss in the amount of $5.0 million or less, then
said Loss Proceeds or Eminent Domain Proceeds shall be available to such Coso
partnership for application pursuant to the provisions described under "Loss
Proceeds Account."
If an Event of Loss or an Event of Eminent Domain occurs and the Loss
Proceeds or Eminent Domain Proceeds are greater than $5.0 million but less than
the total amount outstanding under the Partnership Note (the "Partnership Note
Balance") such Coso partnership shall have the option to Reconstruct the
Project, or any part thereof, upon the satisfaction of certain conditions. If
such Coso partnership fails to exercise such option, the Coso partnership shall
apply the Loss Proceeds or Eminent Domain Proceeds to prepay amounts
outstanding under the Partnership Note as described in "Mandatory Prepayment."
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If an Event of Loss or an Event of Eminent Domain occurs and the Loss
Proceeds or Eminent Domain Proceeds are equal to or exceed the Partnership Note
Balance, then the Coso partnership shall apply those Loss Proceeds or Eminent
Domain Proceeds to prepay amounts outstanding under the Partnership Note, as
described in "Mandatory Prepayment," unless such Coso partnership obtains a
determination form the Rating Agencies that the credit rating of the senior
secured notes that had been in effect immediately before the Event of Loss or
Event of Eminent Domain will not be adversely affected by applying those Loss
Proceeds or Eminent Domain Proceeds to Reconstruction of the Project.
Reporting Requirements. Each of the Coso partnerships shall provide to us:
. all quarterly and annual financial information that would be required to
be contained in a filing with the SEC on Forms 10-Q and 10-K if the Coso
partnerships were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
thereon by the Coso partnerships' certified independent accountants;
. all current reports that would be required to be filed with the SEC on
Form 8-K if the Coso partnerships were required to file such reports, in
each case within the time periods specified in the SEC's rules and
regulations;
. all other information in respect of the Coso partnerships requested by
us to enable us to meet our obligations under the Indenture;
. copies of material notices; and
. written notice of any Credit Agreement Event of Default under the Credit
Agreement or any event or condition that could reasonably be expected to
result in a Material Adverse Effect. To the extent that the information
provided pursuant to the preceding sentence includes financial
statements of each of the Coso partnerships, the Coso partnerships also
shall provide to us combined financial statements.
Sale of Assets. Except as contemplated by the Transaction Documents, none of
the Coso partnerships shall sell, lease (as lessor) or transfer (as transferor)
any property or assets material to the operation of the Projects except for
fair value in the ordinary course of business to the extent that such property
is no longer useful or necessary in connection with the operation of the
Projects.
Ownership of Coso Partnerships. None of the Navy I Partners, Navy II Partners
or the BLM Partners shall sell, transfer or convey any partnership interests
held by such Partner in the Navy I partnership, Navy II partnership or the BLM
partnership, respectively, unless:
(1) such sale, transfer or conveyance would not result in any change in the
relevant Project's status as a Qualifying Facility; and
(2) the Person to whom such partnership interests are sold, transferred or
conveyed enters into a pledge agreement providing for the perfected,
first priority pledge to the Collateral Agent for the benefit of the
Trustee and the Holders of the senior secured notes of all such
partnership interests.
Insurance. The Coso partnerships shall maintain or cause to be maintained
insurance as is generally carried by companies engaged in similar businesses
and owning similar properties in the same general areas and financed in a
similar manner. The Coso partnerships shall maintain business interruption
insurance, casualty insurance, including flood and earthquake coverage, and
primary and
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excess liability insurance, as well as customary worker's compensation and
automobile insurance. The Coso partnerships shall not reduce or cancel such
insurance coverages (or permit any such coverages to be reduced or canceled) if
an independent insurance consultant determines that such reduction or
cancellation would not be reasonable under the circumstances and the insurance
coverages sought to be reduced or canceled are available on commercially
reasonable terms or that another level of coverage greater than that proposed
by the Coso partnerships is available on commercially reasonable terms (in
which case such coverage may be reduced to the higher of such available
levels).
QF Status. The Coso partnerships shall operate and maintain the Coso projects
as QFs unless the failure to so operate and maintain such Projects as QFs would
not cause or result in (1) a breach of the power purchase agreements that the
Coso partnerships are party to or (2) an adverse effect on the revenues to be
received under such power purchase agreements.
Governmental Approvals; Title. Each of the Coso partnerships shall at all
times (1) obtain and maintain in full force and effect all material
Governmental Approvals and other consents and approvals required at any time in
connection with its business and (2) preserve and maintain good and valid title
to its properties and assets (subject to no liens other than Permitted Liens),
except in each case where the failure to do so in clause (1) or (2) could not
reasonably be expected to have a Material Adverse Effect.
Nature of Business. None of the Coso partnerships shall engage in any
business other than their existing businesses.
Compliance with Laws. Each of the Coso partnerships shall comply with all
applicable laws, except where non-compliance could not reasonably be expected
to have a Material Adverse Effect.
Prohibition on Fundamental Changes. None of the Coso partnerships shall enter
into any transaction of merger or consolidation, change its form of
organization or its business, liquidate or dissolve itself (or suffer any
liquidation or dissolution); provided that any Coso partnership shall be able
to merge with or into any other Coso partnership so long as no Default or Event
of Default exists or will occur as a result thereof and subject to the
satisfaction of other customary conditions. None of the Coso partnerships shall
purchase or otherwise acquire all or substantially all of the assets of any
other Person, except for the purchase or acquisition by any of the Coso
partnerships of the partnership interests or assets related to the other
Project.
Revenue Account. Each of the Coso partnerships shall take all actions as may
be necessary to cause all revenues of the Coso partnerships to be deposited in
the Revenue Account to the extent required by the Depositary Agreement.
Transactions with Affiliates. Except as provided in or with respect to
Project Documents which currently exist, none of the Coso partnerships shall
make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
the relevant Coso partnership than those that would have been obtained
in a comparable transaction by such Coso partnership with an unrelated
Person; and
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(2) the relevant Coso partnership delivers to the Trustee:
. with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess
of $1.0 million, a resolution of the general partner of such Coso
partnership set forth in an Officers' Certificate certifying that
such Affiliate Transaction complies with this covenant and that such
Affiliate Transaction has been approved by a each of the Partners of
the Coso partnership; and
. with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess
of $5.0 million, an opinion as to the fairness to the Holders of
such Affiliate Transaction from a financial point of view issued by
an investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) transactions between or among the Coso partnerships and us;
(2) payment of any Operating and Maintenance Fees or Management Fees,
provided that such payment is made in accordance with the provisions in
clauses (7) and (8) set forth under the caption "Flow of Funds--Revenue
Account; Priority of Payments;" and
(3) Restricted Payments that are permitted by the provisions of the
Depositary Agreement described below under the caption "--Restricted
Payments."
Restricted Payments. None of the Coso partnerships shall make any Restricted
Payments, except as permitted under the Depositary Agreement and described
under the caption "Flow of Funds."
Exercise of Rights Under Project Documents. None of the Coso partnerships
shall exercise, or fail to exercise, their rights under the Project Documents
in a manner which could reasonably be expected to result in a Material Adverse
Effect.
Amendments to Contracts. None of the Coso partnerships shall terminate,
amend, replace or modify, or permit to be terminated, amended, replaced or
modified, (other than immaterial amendments or modifications as certified by
the Coso partnerships) any of the Project Documents to which it is a party
unless:
. such Coso partnership certifies that such termination, amendment,
replacement or modification could not reasonably be expected to have a
Material Adverse Effect; and
. in the case of any amendment, termination or modification of a Power
Purchase Agreement which affects the revenues derived by any of the Coso
partnerships by more than $5.0 million, or $10.0 million when aggregated
with all previous amendments or modifications, the Coso partnerships
provide a letter from each of the Rating Agencies confirming that such
amendment, termination or modification will not result in a Rating
Downgrade after giving effect to any mandatory redemption of senior
secured notes required to be made in connection with any such amendment,
modification or termination pursuant to a Permitted Power Contract Buy-
Out.
Limitations on Indebtedness/Liens. None of the Coso partnerships shall create
or incur or suffer to exist any Indebtedness other than Permitted Partnership
Indebtedness. None of the Coso partnerships shall grant, create, incur or
suffer to exist any Liens upon any of its properties, except for Permitted
Liens.
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Operating Budget. If, during any fiscal year, any Coso partnership (1)
exceeds its Operating Budget by more than 25% or (2) expends 75% or less of its
Operating Budget, then in either case such Coso partnership shall cause the
Independent Engineer to certify that the expenditures were reasonably designed
to permit such Coso partnership to operate and maintain a facility of that type
and to maximize its revenue and net income.
Required Geothermal Percentage. Each Coso partnership shall use its best
efforts to maintain in cooperation with the other Coso partnerships, the
minimum geothermal resource required to produce, in the aggregate among all of
the Projects, at least 105% of the steam necessary to generate the energy
projected in the Independent Engineer's Base Case Projections. In addition:
(a) The Coso partnerships shall cause the Geothermal Engineer to deliver,
not more than 30 days after October 31 of each year, a certificate
setting forth the Actual Geothermal Percentage for the Projects
measured as of October 31 of such year.
(b) If as of October 31 in any year the Geothermal Engineer shall determine
that the Actual Geothermal Percentage for the Projects is less than
105%, then:
. the Coso partnerships shall develop a plan of corrective action to
achieve an Actual Geothermal Percentage of at least 105%, which plan
shall be approved by the Geothermal Engineer, and the Coso
partnerships shall diligently implement such approved plan; and
. no payment of Management Fees or any Restricted Payment shall be
made until such time as the Geothermal Engineer shall determine that
the Actual Geothermal Percentage for the Projects is at least equal
to 105%.
(c) The Coso partnerships shall cause the Geothermal Engineer to deliver,
during the calendar year 2006, a report on the geothermal resource
available as of such date and whether sufficient geothermal resource
remains to enable the Projects, in the aggregate, to produce sufficient
steam to generate the energy projected in the Independent Engineer's
Base Case Projections through the maturity date of the Series A notes
due 2009 and the Series B notes due 2009.
Books and Records. The Coso partnerships shall maintain their books and
records and give us, the Trustee, the Collateral Agent and the Independent
Engineer inspection rights at reasonable times and upon reasonable prior
notice.
Additional Project Documents. The Coso partnerships shall perform and observe
their respective covenants and obligations under all of the Project Documents
in all material respects, except where the failure to do so could not
reasonably be expected to result in a Material Adverse Effect. The Coso
partnerships shall not be permitted to enter into any Additional Project
Documents if entering into such document would result in a Material Adverse
Effect; provided that the Coso partnerships shall be permitted to enter into
agreements for the purchase by such Coso partnerships of electricity so long as
(1) such agreements with respect to each Coso partnership do not provide for
payments in excess of $10.0 million per year by such Coso partnership and (2)
prior to entering into any such agreement the relevant Coso partnership
delivers an officer's certificate to the Trustee certifying that the proposed
agreement is on arms-length terms.
Additional Covenants. In addition to the covenants described above, the
Credit Agreements also contain covenants of the Coso partnerships regarding:
. maintenance of existence,
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. payment of taxes and claims unless being contested in good faith; and
. preservation and maintenance of Liens on the Collateral and the priority
thereof.
Events of Default.
Certain Events
The following events constitute Credit Agreement Events of Default under each
Credit Agreement:
(1) the failure by any of the Coso partnerships to pay or cause to be paid
any principal of, premium, if any, or interest, fees or any other
obligations on its Partnership Note for ten or more days after the same
becomes due and payable, whether by scheduled maturity or required
prepayment or by acceleration or otherwise;
(2) any representation or warranty made by any Coso partnership under its
Credit Agreement shall prove to have been untrue or misleading in any
material respect as of the time made, confirmed or furnished and the
fact, event or circumstance that gave rise to such inaccuracy could
reasonably be expected to result in a Material Adverse Effect and such
fact, event or circumstance shall continue to be uncured for 30 or more
days from the date a Responsible Officer of such Coso Partnership
receives notice thereof from the Trustee; provided that if such Coso
partnership commences efforts to cure such fact, event or circumstance
within such 30-day period, such Coso partnership may continue to effect
such cure and such misrepresentation shall not be deemed a Credit
Agreement Event of Default for an additional 60 days so long as such
Coso partnership is diligently pursuing such cure;
(3) the failure by any of the Coso partnerships to perform or observe any
covenant under its Credit Agreement relating to maintenance of
existence, restrictions on Indebtedness, Permitted Liens, Restricted
Payments, guarantees, disposition of assets, maintenance of insurance,
amendments to the Project Documents, fundamental changes, or nature of
business and such failure shall continue uncured for 30 or more days
after a Responsible Officer of either of such Coso partnership receives
notice thereof from the Trustee;
(4) the failure by any of the Credit Parties to perform or observe any of
the other covenants under the Credit Agreement or in the other
Financing Documents the Credit Parties are party to (other than such
failures described in clause (1) or (3) above or (13) below) and such
failure shall continue uncured for 30 or more days after a Responsible
Officer of the Credit Parties receives notice thereof from the Trustee;
provided that if the Credit Parties commence efforts to cure such
default within such 30-day period, the Credit Parties may continue to
effect such cure of the default and such default shall not be deemed a
Credit Agreement Event of Default for an additional 90 days so long as
the Credit Parties are diligently pursuing such cure;
(5) certain events involving the bankruptcy, insolvency, receivership or
reorganization of any of the Coso partnerships;
(6) the entry of one or more final and non-appealable judgment or judgments
for the payment of money in excess of $2.5 million (exclusive of
judgment amounts fully covered by insurance or indemnity) against any
of the Coso partnerships, which remain unpaid or unstayed for a period
of 90 or more consecutive days after the entry thereof;
(7) any event of default under any Permitted Partnership Indebtedness
(other than Subordinated Indebtedness) that results in Permitted
Partnership Indebtedness in excess of $2.5 million becoming due and
payable prior to its stated maturity;
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(8) the Coso partnerships fail to perform any of their respective payment
obligations under their respective guarantees for 10 or more days
after the same becomes due and payable;
(9) any Governmental Approval required for the operation of a Project
owned by the Coso partnerships is revoked, terminated, withdrawn or
ceases to be in full force and effect if such revocation, termination,
withdrawal or cessation could reasonably be expected to have a
Material Adverse Effect and such revocation, termination, withdrawal
or cessation is not cured within 60 days following the occurrence
thereof;
(10) any Project Document ceases to be valid and binding and in full force
and effect prior to its stated maturity date other than as a result of
an amendment, termination or Permitted Power Contract Buy-Out
permitted under the Credit Agreement or any third party thereto fails
to perform its material obligations thereunder or makes any material
misrepresentation thereunder and such event results in a Material
Adverse Effect; provided that no such event shall be a Credit
Agreement Event of Default if within 180 days from the occurrence of
any such event, (a) the third party resumes performance or cures such
misrepresentation or (b) the applicable Coso partnership enters into
an Additional Project Document in replacement thereof, as permitted
under the Credit Agreement;
(11) the failure of the Coso partnerships or any other party to perform or
observe any of its covenants or obligations contained in any of the
Project Documents to which it is a party if such failure shall result
in the termination of such Project Document or otherwise result in a
Material Adverse Effect; provided, however, that such event shall not
be a Credit Agreement Event of Default if within 180 days from the
occurrence of any such event, the failure is cured or the Coso
partnerships enter into an Additional Project Document in replacement
thereof as permitted under the Credit Agreement;
(12) any of the Security Documents ceases to be effective or any Lien
granted therein ceases to be a valid and perfected Lien in favor of
the Collateral Agent on the Collateral described therein with the
priority purported to be created thereby; provided, however, that the
Credit Party party to any such Security Document shall have 10 days
after a Responsible Officer of the applicable Credit Party obtains
knowledge thereof to cure any such cessation or to furnish to the
Trustee, the Collateral Agent or the Depositary all documents or
instruments required to cure any such cessation;
(13) in the case of a determination by the Geothermal Engineer that the
Actual Geothermal Percentage is less than 105% (as set forth in the
annual certificate required pursuant to the covenant under the caption
"--Description of Credit Agreements--Certain Covenants --Required
Geothermal Percentage"), any:
. failure by the Coso partnerships (a) to prepare a plan approved by
the Geothermal Engineer within 90 days of such certification to
achieve an Actual Geothermal Percentage of at least 105%, (b) to
diligently implement such plan and (c) to achieve an Actual
Geothermal Percentage of at least 105% within a reasonable period
of time thereafter as determined in the sole discretion of the
Geothermal Engineer or
. determination by the Geothermal Engineer or the Coso partnerships
that achieving an Actual Geothermal Percentage of at least 105% is
not reasonably feasible; or
(14) an Event of Default described under clauses (3), (4), (5), (6), (7) or
(8) of "Certain Events" of the summary of the Event of Default
provisions of the Indenture occurs. See "--Indenture--Events of
Default."
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Enforcement of Remedies
If one or more Credit Agreement Events of Default under any Credit Agreement
have occurred and are continuing, then:
(1) in the case of a Credit Agreement Event of Default under a Credit
Agreement described in clause (5) above, the entire outstanding
principal amount of all Partnership Notes, all interest accrued and
unpaid thereon, and all premium and other amounts payable under the
Partnership Notes and the Credit Agreements, if any, will automatically
become due and payable without presentment, demand, protest or notice
of any kind; or
(2) in the case of a Credit Agreement Event of Default described in:
. clause (1) and (8) above, upon the direction of the Holders of no
less than 25% in aggregate principal amount of the Outstanding
Notes, we will declare the outstanding principal amount of the
Partnership Notes and all interest accrued and unpaid thereon, and
all premium and other amounts payable under the Credit Agreements,
if any, to be due and payable; or
. clauses (2), (3), (4), (6), (7), (9), (10), (11), (12), (13) and
(14) above, upon the direction of the Required Holders, we will
declare the outstanding principal amount of the Partnership Notes
and all interest accrued and unpaid thereon, and all premium and
other amounts payable under the Credit Agreements, if any, to be due
and payable.
Additional Information
Anyone who receives this prospectus may obtain a copy of the Indenture, the
Depositary Agreement, the Pledge Agreements and other Financing Documents
without charge by writing to Caithness Coso Funding Corp., 1114 Avenue of the
Americas, 41st Floor, New York, New York 10036-7790, Attention: Secretary.
Book-Entry, Delivery and Form
The Series B notes will initially be represented by one or more Series B
notes in registered, global form (collectively, the "Global Series B Notes").
The Global Series B Note will be deposited upon issuance with the Trustee as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Series B Notes may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the Global Series B Notes may not be
exchanged for Series B notes in certificated form except in the limited
circumstances described below. See "--Exchange of Book-Entry Notes for
Certificated Notes." Except in the limited circumstances described below,
owners of beneficial interests in the Global Series B Notes will not be
entitled to receive physical delivery of Certificated Notes (as defined below).
In addition, transfers of beneficial interests in the Global Series B Notes
will be subject to the applicable rules and procedures of DTC and its direct or
indirect participants (including, if applicable, those of Euroclear and Cedel),
which may change from time to time.
The Trustee is acting as Paying Agent and Registrar. The Series B notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
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Depository Procedures
The following description of the operations and procedures of DTC, Euroclear
and Cedel are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them from time to time. We take no responsibility
for these operations and procedures and urges investors to contact the system
or their participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between the Participants through electronic book-entry
changes in accounts of the Participants. The Participants include securities
brokers and dealers (including the initial purchaser), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's system
is also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own
securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each security held by or on behalf of DTC are recorded on the
records of the Participants and the Indirect Participants.
DTC has also advised us that, pursuant to procedures established by it, (i)
upon deposit of the Global Series B Notes, DTC will credit the accounts of
Participants designated by the Trustee with portions of the principal amount of
the Global Series B Notes and (ii) ownership of such interests in the Global
Series B Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Series B Notes).
Investors in the Global Series B Note may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations (including Euroclear and CEDEL) which are Participants in
such system. Euroclear and Cedel will hold interests in the Global Series B
Notes on behalf of their participants through customers' securities accounts in
their respective names on the books of their respective depositories, which are
Morgan Guaranty Trust Company of New York, Brussels office, as operator of
Euroclear, and Citibank, N.A., as operator of Cedel. All interests in a Global
Series B Note, including those held through Euroclear or Cedel, may be subject
to the procedures and requirements of DTC. Those interests held through
Euroclear or Cedel may also be subject to the procedures and requirements of
such systems. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer beneficial interests in a Global Series B Note to such
persons may be limited to that extent. Because DTC can act only on behalf of
the Participants, which in turn act on behalf of the Indirect Participants and
certain banks, the ability of a person having beneficial interests in a Global
Series B Note to pledge such interests to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing
such interests. For certain other restrictions on the transferability of the
Series B Notes, see "--Exchange of Book-Entry Series B Notes for Certified
Series B Notes."
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Except as described below, owners of interests in the Global Series B Notes
will not have Series B Notes registered in their names, will not receive
physical delivery of Series B Notes in certificated form and will not be
considered the registered owners or holders thereof under the Indenture for any
purpose.
Payments in respect of the principal of, and premium, if any, and interest on
a Global Series B Note registered in the name of DTC or its nominee will be
payable to DTC or its nominee in its capacity as the registered holder under
the Indenture. Under the terms of the Indenture, we and the Trustee will treat
the persons in whose names the Series B Notes, including the Global Series B
Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
we, the Trustee nor any agent of ours or the Trustee has or will have any
responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Series B Notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership
interests in the Global Series B Notes, or (ii) any other matter relating to
the actions and practices of DTC or any of the Participants or the Indirect
Participants.
DTC has advised us that its current practice, upon receipt of any payment in
respect of securities such as the Series B Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in the principal amount of beneficial interests in the relevant
security as shown on the records of DTC unless DTC has reason to believe it
will not receive payment on such payment date. Payments by the Participants and
the Indirect Participants to the beneficial owners of the Series B Notes will
be governed by standing instructions and customary practices and will not be
the responsibility of DTC, the Trustee or us. Neither we nor the Trustee will
be liable for any delay by DTC or any of the Participants in identifying the
beneficial owners of the Series B Notes, and we and the Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee as the registered owner of the Global Series B Notes for all
purposes.
Except for trades involving only Euroclear and Cedel participants, interests
in the Global Series B Notes are expected to be eligible to trade in DTC's Same
Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in
all cases to the rules and procedures of DTC and the Participants. See "--Same
Day Settlement and Payment." Transfers between Participants in DTC will be
affected in accordance with DTC's procedures and will be settled in same day
funds, and transfers between participants in Euroclear and Cedel will be
effected in the ordinary way in accordance with their respective rules and
operating procedures.
Subject to compliance with the transfer restrictions applicable to the senior
secured notes described herein, cross-market transfers between the Participants
in DTC, on the one hand, and Euroclear or Cedel participants, on the other
hand, will be effected through DTC in accordance with DTC's rules on behalf of
Euroclear or Cedel, as the case may be, by its respective depositary; however,
such cross-market transactions will require delivery of instructions to
Euroclear or Cedel, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Cedel, as the case may be, will,
if the transaction meets its settlement requirements, deliver instructions to
its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant Global Series B
Note in DTC, and making or receiving payment in accordance with
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normal procedures for same-day funds settlement applicable to DTC. Euroclear
participants and Cedel participants may not deliver instructions directly to
the depositories for Euroclear or Cedel.
DTC has advised us that it will take any action permitted to be taken by a
Holder of Series B Notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Series B Notes and
only in respect of such portion of the aggregate principal amount of the Series
B Notes as to which such Participant or Participants has or have given such
direction. However, if any of the events described under "--Exchange of Book
Entry Series B Notes for Certificated Series B Notes" occurs, DTC reserves the
right to exchange the Global Series B Notes for legended Series B Notes in
certificated form and to distribute such Series B Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Series B Notes among
Participants in DTC, Euroclear and Cedel, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. Neither we nor the Trustee nor any agent of ours or
the Trustee will have any responsibility for the performance by DTC, Euroclear
an Cedel or their participants or indirect participants of their respective
obligations under the rules and procedures governing their respective
operations.
Exchange of Book-Entry Notes for Certificated Notes
The Global Series B Note is exchangeable for definitive Series B Notes in
registered certificated form ("Certificated Notes") if (i) DTC (x) notifies us
that it is unwilling or unable to continue as depository for the Global Series
B Notes and we thereupon fail to appoint a successor depository or (y) has
ceased to be a clearing agency registered under the Exchange Act, (ii) we, at
our option, notify the Trustee in writing that we elect to cause the issuance
of the Certificated Notes or (iii) there shall have occurred and be continuing
a Default or an Event of Default with respect to the Series B Notes. In
addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon request but only upon prior written notice given to the
Trustee by or on behalf of DTC in accordance with the Indenture. In all cases,
Certificated Notes delivered in exchange for any Global Series B Note or
beneficial interests in the Global Series B Note will be registered in the
names, and issued in any approved denominations, requested by or on behalf of
DTC (in accordance with its customary procedures).
Same Day Settlement and Payment
The Indenture requires that payments made in respect of the Series B notes
represented by the Global Series B Notes (including principal, premium, if any,
and interest) be made by wire transfer of immediately available funds to the
accounts specified by the Global Series B Note Holder. With respect to Series B
notes in certificated form, we will make all payments of principal, premium, if
any, and interest by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account is specified,
by mailing a check to each such Holder's registered address. The Series B notes
represented by the Global Series B Notes are expected to trade in the
Depository's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such senior secured notes will, therefore, be
required by the Depository to be settled in immediately available funds. We
expect that secondary trading in any Certificated Notes will also be settled in
immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Series B Note from a
Participant in DTC will be credited, and any
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such crediting will be reported to the relevant Euroclear or Cedel participant,
during the securities settlement processing day (which must be a business day
for Euroclear and Cedel) immediately following the settlement date of DTC. DTC
has advised the Issuer that cash received in Euroclear or Cedel as a result of
sales of interests in a Global Series B Note by or through a Euroclear or Cedel
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or Cedel
cash account only as of the business day for Euroclear or Cedel following DTC's
settlement date.
Registration Rights; Liquidated Damages
The following is a summary of the material provisions of the registration
rights agreement. It does not purport to be complete and is subject to, and is
qualified entirely by, all of the provisions of the registration right
agreement. We urge you to read the registration rights agreement in its
entirety because it, and not this description, defines your registration rights
as Holders of the Series B notes. See "--Additional Information."
The Issuer, the Coso partnerships and the Initial Purchaser entered into the
registration rights agreement pursuant to which we and the Coso partnerships
agreed to file with the SEC the exchange offer registration statement on an
appropriate form under the Securities Act with respect to an offer to exchange
the Series A notes.
If:
(1) We and the Coso partnerships are not
(a) required to file the exchange offer registration statement; or
(b) permitted to consummate the exchange offer because the exchange
offer is not permitted by applicable law or SEC policy; or
(2) any Holder of Transfer Restricted Securities notifies us prior to the
20th day following consummation of the exchange offer that:
(a) it is prohibited by law or SEC policy from participating in the
exchange offer; or
(b) that it may not resell the Series B notes acquired by it in the
exchange offer to the public without delivering a prospectus and
the prospectus contained in the exchange offer registration
statement is not appropriate or available for such resales; or
(c) that it is a broker-dealer and owns Series A notes acquired
directly from us or one of our affiliates,
then we and the Coso partnerships will file with the SEC a shelf registration
statement to cover resales of Transfer Restricted Securities by the Holders
thereof who satisfy certain conditions relating to the provision of information
in connection with the shelf registration statement.
We and the Coso partnerships will use their best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the SEC. For purposes of the preceding, "Transfer Restricted
Securities" means each Series A note until the earliest to occur of:
(1) the date on which such Series A note has been exchanged by a Person
other than a broker-dealer for a Series B note in the exchange offer;
(2) following the exchange by a broker-dealer in the exchange offer of a
Series A note for a Series B note, the date on which such Series B note
is sold to a purchaser who receives from such broker-dealer on or prior
to the date of such sale a copy of the prospectus contained in the
exchange offer registration statement;
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(3) the date on which such Series A note has been effectively registered
under the Securities Act and disposed of in accordance with the shelf
registration statement; or
(4) the date on which such Series A note is distributed to the public
pursuant to Rule 144 under the Securities Act.
The registration rights agreement provides:
(1) we and the Coso partnerships will file an exchange offer registration
statement with the SEC on or prior to 90 days after the closing of the
Series A notes offering;
(2) we and the Coso partnerships will use our and their best efforts to
have the exchange offer registration statement declared effective by
the SEC on or prior to 180 days after the closing of the Series A notes
offering;
(3) unless the exchange offer would not be permitted by applicable law or
Commission policy, we and the Coso partnerships will
(a) commence the exchange offer; and
(b) use our and their best efforts to issue on or prior to 30 business
days, or longer, if required by the federal securities laws, after
the date on which the exchange offer registration statement is
declared effective by the SEC, Series B notes in exchange for all
Series A notes tendered prior thereto in the exchange offer; and
(4) if obligated to file the shelf registration statement, we and the Coso
partnerships will use our and their best efforts to file the shelf
registration statement with the SEC on or prior to 45 days after such
filing obligation arises and to cause the shelf registration statement
to be declared effective by the SEC on or prior to 90 days after such
obligation arises.
If:
(1) we and the Coso partnerships fail to file any of the registration
statements required by the registration rights agreement on or before
the date specified for such filing; or
(2) any of such registration statements is not declared effective by the
SEC on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"); or
(3) we and the Coso partnerships fail to consummate the Exchange Offer
within 30 business days of the Effectiveness Target Date with respect
to the exchange offer registration statement; or
(4) the shelf registration statement or the exchange offer registration
statement is declared effective but thereafter ceases to be effective
or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the registration rights agreement (each
such event referred to in clauses (1) through (4) above, a
"Registration Default"),
then we and the Coso partnerships will pay liquidated damages ("Liquidated
Damages") to each Holder of senior secured notes, with respect to the first 90-
day period immediately following the occurrence of the first Registration
Default in an amount equal to $.05 per week per $1,000 principal amount of
senior secured notes held by such Holder.
The amount of the Liquidated Damages will increase by an additional $.05 per
week per $1,000 principal amount of senior secured notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages for all Registration Defaults of $.25
per week per $1,000 principal amount of senior secured notes.
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All accrued Liquidated Damages will be paid by us and the Coso partnerships
on each Damages Payment Date to the Series B Global Note Holder by wire
transfer of immediately available funds or by federal funds check and to
Holders of Certificated Notes by wire transfer to the accounts specified by
them or by mailing checks to their registered addresses if no such accounts
have been specified.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
Holders of Series A notes will be required to make certain representations to
us (as described in the registration rights agreement) in order to participate
in the exchange offer and will be required to deliver certain information to be
used in connection with the shelf registration statement and to provide
comments on the shelf registration statement within the time periods set forth
in the registration rights agreement in order to have their senior secured
notes included in the shelf registration statement and benefit from the
provisions regarding Liquidated Damages set forth above. By acquiring Transfer
Restricted Securities, a Holder will be deemed to have agreed to indemnify us
and the Coso partnerships against certain losses arising out of information
furnished by such Holder in writing for inclusion in any shelf registration
statement. Holders of senior secured notes will also be required to suspend
their use of the prospectus included in the shelf registration statement under
certain circumstances upon receipt of written notice to that effect from us.
Certain Definitions
Certain terms defined below are summaries of terms defined in, and are
defined more specifically in, the Project Documents and the Financing
Documents. Such summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Project Documents and the Financing Documents.
"Accounts" means the accounts established under the Depositary Agreement.
"Actual Geothermal Percentage" means a percentage calculated by dividing the
geothermal resource available at the wellhead or pursuant to a contract for
such geothermal resource by the resource that would be required to meet the
production level necessary to generate the energy projected in the Independent
Engineer's Base Case Projections.
"Additional Notes" means additional senior secured notes, other than the
senior secured notes, having the same final maturity and amortization as the
Series B notes due 2001 or the Series B notes due 2009, as the case may be,
except as amortization may be increased pro rata across all payments to reflect
such shorter term, if any.
"Additional Project Document" means:
(1) any contract or undertaking relating to the purchase or sale of
electricity from the Projects entered into by any of the Coso
partnerships after the closing of the Series A notes offering;
(2) any consent or security instrument entered into by any of the Coso
partnerships or any other relevant party in connection with an
Additional Project Document; or
(3) any contract or undertaking to which we or any Coso partnership is a
party entered into after the closing of the Series A notes offering,
relating to (i) the supply, procurement or transportation of
consumables or other supplies to the Projects, or (ii) the design,
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construction, operation or maintenance of the Projects; in each case
which is material to the applicable Project.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control," as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that beneficial ownership of
10% or more of the Voting Stock of a Person shall be deemed to be control. For
purposes of this definition, the terms "controlling," "controlled by" and
"under common control with" shall have correlative meanings.
"Approved Related Party" with respect to any Change of Control means:
(1) any direct or indirect controlling stockholder or 80% (or more) owned
Subsidiary of Caithness Energy, L.L.C.; or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, members, partners, owners or Persons beneficially holding
an 80% or more controlling interest of which consist of Caithness
Energy, L.L.C. and/or such other Persons referred to in the immediately
preceding clause (1).
"BLM Partners" means Caithness Coso Holdings, LLC, a Delaware limited
liability company, and New CHIP Company, LLC, a Delaware limited liability
company, the general partners of the BLM Partnership.
"BLM Partnership" means Coso Energy Developers, a California general
partnership.
"BLM Project" means, collectively, BLM East, which consists of two 30 MW
turbine generators, and BLM West, which consists of one 30 MW turbine
generator.
"Capital Expenditure Reserve Account" means the account of such name created
under the Depositary Agreement.
"Capital Expenditure Reserve Required Balance" means an amount equal to the
aggregate Capital Expenditures budgeted for the Projects for the next
succeeding twelve-month period (a) as approved by the Independent Engineer and
delivered to the Trustee at least annually and (b) as adjusted by management
and set forth in an Officers' Certificate delivered to the Trustee six months
following each budget approved by the Independent Engineer.
"Capital Expenditures" means Major Maintenance, any expenses incurred in
connection with the development and implementation of any plan for the
drilling and maintenance of additional geothermal wells for the Projects and
any other expenses that are capitalized on the balance sheet and qualify as
capital expenditures of the relevant Coso partnership in accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
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"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the properties or
assets of the Issuer and the Coso partnerships taken as a whole to any
"person" (as that term is used in Section 13(d)(3) of the Exchange Act)
other than Caithness Energy, L.L.C. or an Approved Related Party;
(2) the adoption of a plan relating to the liquidation or dissolution of
the Issuer or any of the Coso partnerships; or
(3) the first day on which Caithness Energy, L.L.C. ceases to own, directly
or indirectly, (a) 50% or more of the total voting power of the Voting
Stock of the Issuer and of each of the Coso partnerships and (b) 25% or
more of the total economic ownership interests in the Issuer and each
of the Coso Partnerships.
"Collateral" means all collateral pledged, or in respect of which a lien is
granted, pursuant to the Indenture and the Security Documents.
"Collateral Agent" means U.S. Bank Trust National Association, as collateral
agent for the benefit of the Secured Parties, together with its successors and
assigns.
"Comparable Treasury Issue" means the United States Treasury security
selected by a Reference Treasury Dealer as having a maturity comparable to the
Remaining Average Life of the Series A notes due 2009 or the Series B notes
2009 to be redeemed that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the Remaining Average Life
of such notes.
"Comparable Treasury Price" means, with respect to any date of redemption,
(i) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such date of redemption, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities," or (ii) if such release (or any successor release) is
not published or does not contain such prices on such business day, (A) the
average of the Reference Treasury Dealer Quotations, or (B) if the Trustee
obtains fewer than three such Reference Treasury Dealer Quotations, the average
of all such Reference Treasury Dealer Quotations.
"CPI Adjustment" means an amount equal to (i) $2.0 million plus the amount of
all previous annual adjustments made pursuant to this definition multiplied by
(ii) the percentage change from the previous year in the annual average
consumer price index as published by the Bureau of Labor Statistics of the
United States Department of Labor in the "Consumer Price Index for All Urban
Consumers, 1982-84 = 100, All Cities, % change past year' under the column Yr.
Avg."'; provided that for purposes of calculating the CPI Adjustment, the most
recently ended calendar year prior to the date of determination shall be used;
and provided, further, the CPI Adjustment for the twelve months ended December
30, 1999, shall be zero. If the Bureau of Labor Statistics shall no longer
publish such statistics, or if the Bureau of Labor Statistics shall no longer
maintain any statistics on the purchasing power of the consumer dollar,
comparable statistics published by a reasonable financial periodical or
recognized authority mutual agreed upon by the Issuer and the Trustee shall be
used to determine the CPI Adjustment.
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"Credit Agreement" means, individually, (1) that certain Credit Agreement
dated as of May 28, 1999, between Navy I Partnership, as borrower, and us, as
lender, (2) that certain Credit Agreement dated as of May 28, 1999, between BLM
Partnership, as borrower, and us, as lender, or (3) that certain Credit
Agreement dated as of May 28, 1999, between Navy II Partnership, as borrower,
and us, as lender.
"Credit Agreement Event of Default" means a Credit Agreement Event of Default
as defined in the Credit Agreement.
"Credit Parties" means each of the Coso partnerships, each of the Partners
and each affiliate of the Coso Partnerships or the Partners that is a party to
any Security Document.
"Custodian" means, initially, the Trustee, and its successors and assigns or
any other custodian performing similar functions.
"Debt Service Coverage Ratio" means for any period, without duplication, the
ratio of (i) (A) the sum of all revenues (including interest and fee income,
but excluding any insurance proceeds and all other similar non-recurring
receipts in an aggregate amount in excess of $2.0 million in any twelve-month
period) of the Coso partnerships for such period, minus (B) the aggregate
amount of Operating and Maintenance Costs of the Coso partnerships for such
period, minus (C) all Capital Expenditures during such period, to (ii) the sum
of (A) all principal, premium (if any) and interest payable with respect to
Permitted Indebtedness outstanding (other than Subordinated Indebtedness) for
such period, plus (B) the aggregate amount of overdue principal, premium (if
any) and interest payments owed with respect to Permitted Indebtedness
outstanding (other than Subordinated Indebtedness) from previous periods; all
as determined on a cash basis in accordance with GAAP.
"Debt Service Reserve Account" means the account of such name created under
the Depositary Agreement.
"Debt Service Reserve Letter of Credit" one or more irrevocable, direct pay
letters of credit issued by the Debt Service Reserve LOC Provider in favor of
the Depositary where the account party is not the Issuer and/or Coso
partnerships.
"Debt Service Reserve LOC Provider" means the commercial bank(s) or financial
institution(s) issuing the Debt Service Reserve Letter of Credit, which
institution shall be rated not less than A by S&P and A2 by Moody's.
"Debt Service Reserve Required Balance" means, on the closing date of the
Series A notes offering, $50.0 million, and thereafter an amount equal to the
aggregate amount of the principal and interest due on the Series B notes on the
next succeeding semi-annual scheduled payment date.
"Deeds of Trust" means (i) that certain Deed of Trust, Assignment of Rents,
Fixture Filing and Security Agreement dated as of May 28, 1999, executed by
Navy I Partnership in favor of the trustee thereunder and the Collateral Agent
as beneficiary, (ii) that certain Deed of Trust, Assignment of Rents, Fixture
Filing and Security Agreement dated as of May 28, 1999, executed by BLM
Partnership in favor of the trustee thereunder and the Collateral Agent as
beneficiary, (iii) that certain Deed of Trust, Assignment of Rents, Fixture
Filing and Security Agreement dated as of May 28, 1999, executed by Navy II
Partnership in favor of the trustee thereunder and the Collateral Agent as
beneficiary, (iv) that certain Deed of Trust, Assignment of Rents, Fixture
Filing and Security
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Agreement dated as of May 28, 1999, executed by Coso Transmission Line Partners
in favor of the trustee thereunder and the Collateral Agent as beneficiary, (v)
that certain Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement dated as of May 28, 1999, executed by China Lake Joint Venture in
favor of the trustee thereunder and Collateral Agent as beneficiary, (vi) that
certain Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement dated as of May 28, 1999, executed by Coso Land Company in favor of
the trustee thereunder and the Collateral Agent as beneficiary and (vii) any
other deed of trust entered into by any Credit Party in favor of the trustee
thereunder and the Collateral Agent as beneficiary.
"Default" means an event or condition that, with the giving of notice, lapse
of time or failure to satisfy certain specified conditions, or any combination
thereof, would become a Credit Agreement Event of Default or an Event of
Default.
"Depositary" means U.S. Bank Trust National Association, as depositary under
the Depositary Agreement.
"Depositary Agreement" means the Deposit and Disbursement Agreement, dated as
of May 28, 1999, between the Issuer, the Collateral Agent, the Depositary and
the Coso partnerships.
"Distribution Account" means the account of such name created under the
Depositary Agreement.
"Distribution Suspense Account" means the account of such name created under
the Depositary Agreement.
"Duff & Phelps" means Duff & Phelps Credit Rating Company.
"Eminent Domain Proceeds" means all amounts and proceeds (including
instruments) received by a Coso partnership in respect of any Event of Eminent
Domain, after deducting all reasonable expenses incurred in litigating,
arbitrating, compromising, settling or consenting to the settlement of any
claims against the appropriate Governmental Authority (exclusive of any
termination by the Navy of the Navy Contract pursuant to the terms thereof).
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" means the occurrence of an event of default under the
Indenture.
"Event of Eminent Domain" means any compulsory transfer or taking or transfer
under threat of compulsory transfer or taking of any material part of the
Collateral or the Coso projects by any Governmental Authority, but excluding
any termination of the Navy Contract.
"Event of Loss" means an event which causes all or a portion of a Project to
be damaged, destroyed or rendered unfit for normal use for any reason
whatsoever, other than an Event of Eminent Domain or a Title Event.
"Final Maturity Date" means the latest stated maturity date of any series of
the senior secured notes.
"Financing Documents" means, collectively, the Credit Agreement, the
Guarantees, the Indenture, the Partnership Notes, the Depositary Agreement, the
Security Documents and the senior secured notes.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Geothermal Engineer" means GeothermEx Inc., or another widely recognized
geothermal engineer retained as a geothermal engineer by us.
"Geothermal Engineer's Report" means a geothermal engineer's report, dated
May 1999, prepared by the Geothermal Engineer and attached to this prospectus
as Exhibit C.
"Governmental Approvals" means all governmental approvals, authorizations,
consents, decrees, permits, waivers, privileges and filings with all
Governmental Authorities required to be obtained for the construction,
operation and maintenance of a Project.
"Governmental Authority" means the government of any federal, state,
municipal or other political subdivision in which the Projects are located, and
any other government or political subdivision thereof exercising jurisdiction
over the Projects or any party to any of the Project Documents, including all
agencies and instrumentalities of such governments and political subdivisions.
"Guarantee Event of Default" means an Event of Default under and as defined
in a Guarantee.
"Indebtedness" of any Person means, at any date, without duplication:
(1) all obligations of such Person for borrowed money;
(2) all obligations of such Person evidenced by senior secured notes,
debentures, notes or other similar instruments (excluding "deposit
only" endorsements on checks payable to the order of such Person);
(3) all obligations of such Person to pay the deferred purchase price of
property or services (except accounts payable and similar obligations
arising in the ordinary course of business shall not be included
herein);
(4) all obligations of such Person as lessee under capital leases to the
extent required to be capitalized on the books of such Person in
accordance with GAAP; and
(5) all obligations of others of the type referred to in clause (1) through
(4) above guaranteed by such Person, whether or not secured by a lien
or other security interest on any asset of such Person;
provided that "Indebtedness" shall exclude obligations of the Coso
partnerships to the California Energy Commission and liens securing such
obligations to the extent that such obligations and liens do not exceed the
dollar amounts paid to, or to be paid, the Coso partnerships pursuant to
AB1890.
"Independent Engineer" means Sandwell Engineering Inc. or another widely
recognized independent engineering firm or engineer retained as independent
engineer by the Issuer.
"Independent Engineer's Base Case Projections" means the base case
projections prepared by the Independent Engineer and included in the
Independent Engineer's Report.
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"Independent Engineer's Report" means the Independent Engineer's Report,
dated May 20, 1999, prepared by Sandwell Engineering Inc. and attached to this
prospectus as Exhibit A.
"Initial Purchaser" means Donaldson, Lufkin & Jenrette Securities
Corporation.
"Interest Account" means the account of such name created under the
Depositary Agreement.
"Interest Payment Date" means each December 15 and June 15, commencing
December 15, 1999, and concluding on the Final Maturity Date.
"Lien" means any mortgage, pledge, hypothecation, assignment, mandatory
deposit arrangement with any Person owning Indebtedness of such Person,
encumbrance, lien (statutory or other), preference, priority or other security
agreement of any kind or nature whatsoever which has the substantial effect of
constituting a security interest, including, without limitation, any
conditional sale or other title retention agreement, any financing lease having
substantially the same effect as any of the foregoing and the filing of any
financing statement or similar instrument under the Uniform Commercial Code or
comparable law of any jurisdiction, domestic or foreign.
"Loss Proceeds" means all net proceeds from an Event of Loss received by a
Coso partnership, including, without limitation, insurance proceeds or other
amounts actually received, except proceeds of delayed opening or business
interruption insurance, on account of an event which causes all or a
substantial portion of the relevant Project to be damaged, destroyed or
rendered unfit for normal use.
"Loss Proceeds Account" means the account of such name created under the
Depositary Agreement.
"Major Maintenance" means labor, materials and other direct expenses for any
overhaul of or major maintenance procedure for any Project (including major
maintenance such as turbine overhauls) which requires significant disassembly
or shutdown of the relevant Project pursuant to manufacturers' guidelines or
recommendations, engineering or operating considerations or the requirements of
any applicable legal requirement; provided that such expenses are capitalized
on the balance sheet of the relevant Coso partnership and not expensed on the
statement of operations of the relevant Partnership, all in accordance with
GAAP.
"Management Fees" means fees paid to the Partners or their representatives
pursuant to the partnership agreements of the Coso partnerships as determined
by the management committee of each of the Coso partnerships.
"Management Fees Account" means the Account of such name created under the
Depositary Agreement.
"Material Adverse Effect" means a material adverse effect on:
(1) our financial position or results of operation and that of the Coso
partnerships, taken as a whole;
(2) the Collateral or the validity or priority of the Liens on the
Collateral;
(3) our ability to perform our material obligations under the Indenture,
the senior secured notes or any of the Financing Documents to which we
are a party;
(4) the ability of the Trustee to enforce any of our payment obligations
under the Indenture or the senior secured notes; or
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(5) the ability of the Coso partnerships to perform any of their material
obligations under their respective Partnership Notes or the Financing
Documents to which they are a party.
"Moody's" means Moody's Investors Service, Inc., a corporation organized and
existing under the laws of the State of Delaware, its successors and assigns.
"Navy Contract" means the Original Service Contract N62474-79-C-5382, between
U. S. Naval Weapons Center and California Energy Company, Inc., as Contractor,
as amended and assigned.
"Navy I Partners" means ESCA LLC, a Delaware limited liability company, and
New CLOC Company, LLC, a Delaware limited liability company, the general
partners of the Navy I Partnership.
"Navy I Partnership" means Coso Finance Partners, a California general
partnership.
"Navy I Project" means the ownership, development and operation of the
turbine generators and associated geothermal resource wells operated by the
Navy I Partnership on a portion of the lands described in Exhibit A of the Navy
Contract; and the Navy I Partnership's ownership and operation of the 115kV
transmission line to the Edison substation at Inyokern, California.
"Navy II Partners" means Caithness Navy II Group, LLC., a Delaware limited
liability company, and New CTC Company, LLC, a Delaware limited liability
company, the general partners of the Navy II Partnership.
"Navy II Partnership" means Coso Power Developers, a California general
partnership.
"Navy II Project" means the ownership, development and operation of the
turbine generators and associated geothermal resource wells operated by the
Navy II Partnership on a portion of the lands described in Exhibit A of the
Navy Contract.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Operating and Maintenance Costs" means, for any periods, all amounts
disbursed by or on behalf of the Coso partnerships for operation, maintenance
(excluding, after the first Interest Payment Date, Capital Expenditures),
administration, repair, or improvement of their Projects, including, without
limitation, premiums on insurance policies, property and other taxes, payments
under the relevant operating and maintenance agreements, leases, royalty and
other land use agreements and fees, expenses and any other payments required
under the Project Documents (excluding the Operating and Maintenance Fees and
the Management Fees).
"Operating and Maintenance Fees" means fees payable to FPL Energy Operating
Services, Inc. and Coso Operating Company, LLC or any successor operators with
respect to the field and plant operations and maintenance agreements.
"Operating and Maintenance Fees Account" means the Account of such name
created under the Depositary Agreement.
"Operating Budget" means a budget of Operating and Maintenance Costs and
Capital Expenditures with respect to the Coso partnerships and the Coso
projects for any given fiscal year, or part thereof, and prepared in good faith
on the basis of estimated requirements, showing such costs by category for such
fiscal year.
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"Outstanding Notes" means, as of the time in question, all senior secured
notes authenticated and delivered under the Indenture, except (i) senior
secured notes theretofore canceled or required to be canceled under the
Indenture; (ii) senior secured notes for which provision for payment shall have
been made in accordance with the Indenture; and (iii) senior secured notes in
substitution for which other senior secured notes have been authenticated and
delivered pursuant to the Indenture.
"Partners" means, collectively, the Navy I Partners, the BLM Partners and the
Navy II Partners.
"Payment Date" means any Interest Payment Date or Principal Payment Date.
"Permitted Additional Senior Lender" shall mean a holder of any Permitted
Indebtedness of the Issuer (other than the senior secured notes and Permitted
Indebtedness described in clause (4) or (5) of the definition of Permitted
Indebtedness) or of any Permitted Partnership Indebtedness of any Coso
partnership described in clause (1) of the definition of Permitted Partnership
Indebtedness (other than Permitted Indebtedness described in clause (4) or (5)
of the definition of Permitted Indebtedness), or any agent, depositary,
collateral agent, security trustee or similar such party acting on behalf of
any such holder or holders.
"Permitted Indebtedness" means:
(1) the senior secured notes;
(2) Indebtedness incurred to finance the making of capital improvements to
the Projects required to maintain compliance with applicable law or
anticipated changes therein; provided that no such Indebtedness may be
incurred unless at the time of such incurrence (i) no Default or Event
of Default has occurred and is continuing, (ii) the Independent
Engineer confirms as reasonable a certification by the Issuer
(containing customary qualifications) that the proposed capital
improvements are reasonably expected to enable such Project to comply
with applicable or anticipated legal requirements, (iii) the
calculations of the Issuer demonstrate that, after giving effect to the
incurrence of such Indebtedness, the minimum projected Debt Service
Coverage Ratio of the Issuer (x) for the next four consecutive fiscal
quarters, commencing with the quarter in which such Indebtedness is
incurred, taken as one annual period, and (y) for each subsequent
fiscal year through the Final Maturity Date, will not be less than 1.25
to 1 and (iv) the Rating Agencies confirm that the incurrence of such
Indebtedness will not result in a Rating Downgrade;
(3) Indebtedness incurred to finance the making of capital improvements to
the Projects not required by applicable law so long as after giving
effect to the incurrence of such Indebtedness (i) no Default or Event
of Default has occurred and is continuing, (ii) the calculations of the
Issuer that demonstrate, after giving effect to the incurrence of such
Indebtedness, the minimum projected Debt Service Coverage Ratio (x) for
the next four consecutive fiscal quarters, commencing with the quarter
in which such Indebtedness is incurred, taken as one annual period, and
(y) for each subsequent fiscal year through the Final Maturity Date, in
each case will not be less than (A) 1.3 to 1 if the Indebtedness is on
or before December 30, 2001, or (B) 1.5 to 1 if the Indebtedness is
after December 30, 2001, and (iii) each of the Rating Agencies confirm
that the incurrence of such Indebtedness will not result in a Rating
Downgrade;
(4) (x) Subordinated Indebtedness accrued or incurred by BLM to Coso Land
Company constituting royalty payments pursuant to an agreement
regarding royalties between such parties as in effect on the closing
date of the Series A notes offering, (y) Subordinated
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Indebtedness (other than as specified in subclause (x) of this clause
(y) of this definition of Permitted Indebtedness) from Affiliates in an
amount not to exceed $20.0 million or (z) any other Subordinated
Indebtedness so long as each of the Rating Agencies confirm that the
incurrence of such Subordinated Indebtedness will not result in a Rating
Downgrade, and in the case of both (x) and (y), which amounts shall be
used to finance capital, operating or other costs with respect to the
Projects; provided that all payments of principal of, and premium, if
any, and interest on, any such Subordinated Indebtedness shall
constitute a Restricted Payment under the Indenture; and
(5) Indebtedness not otherwise described under clauses (1) through (4)
hereof incurred solely for working capital and operational needs of the
Projects which, when aggregated with the then outstanding principal
balance of Indebtedness of one or more of the Coso partnerships
permitted pursuant to clause (6) of the definition of Permitted
Partnership Indebtedness (but without duplication of amounts), does not
exceed $5.0 million at any time outstanding.
"Permitted Investments" means an Investment in any of the following:
(1) direct obligations of the Department of the Treasury of the United
States of America;
(2) obligations, representing full faith and credit of the United States of
America, of any of the following federal agencies: Export-Import Bank,
Farmers Home Administration, General Services Administration, U.S.
Maritime Administration, Small Business Administration, Government
National Mortgage Association (GNMA), U.S. Department of Housing &
Urban Development (PHA's) and Federal Housing Administration;
(3) obligations issued or fully guaranteed by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof and, at the time of the acquisition,
having one of the two highest ratings obtainable from either S&P or
Moody's;
(4) certificates of deposit and eurodollar time deposits, bankers'
acceptances and overnight bank deposits, in each case with any domestic
or foreign commercial bank having capital and surplus in excess of
$250.0 million;
(5) notes, bonds, collateralized mortgage obligations or other evidences of
indebtedness rated "AAA" by S&P and "Aaa" by Moody's issued by the
Federal Home Loan Bank, the Federal National Mortgage Association or
the Federal Home Loan Mortgage Corporation;
(6) commercial paper rated in any one of the two highest rating categories
by Moody's or S&P;
(7) investment agreements with banks (foreign and domestic),
broker/dealers, and other financial institutions rated at the time of
bid in any one of the three highest rating categories by Moody's and
S&P;
(8) repurchase agreements with banks (foreign and domestic),
broker/dealers, and other financial institutions rated at the time of
bid in any one of the three highest rating categories by Moody's and
S&P, provided, (a) collateral is limited to the securities specified in
clauses (1) through (5) above, (b) the margin levels for collateral
must be maintained at a minimum of 102% including principal and
interest, (c) the Trustee shall have a first perfected security
interest in the collateral, (d) the collateral will be delivered to a
third party custodian, designated by us, acting for the benefit of the
Trustee and all fees and expenses related to collateral custody will be
our responsibility, (e) the collateral must have been or will be
acquired at the market price and marked to market weekly and collateral
level shortfalls cured within 24 hours, (f) unlimited right of
substitution of collateral is allowed provided that substitution
collateral must be permitted collateral substituted at a current market
price and substitution fees of the custodian shall be paid by us;
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(9) asset-backed securities having the highest rating obtainable from
either S&P or Moody's;
(10) forward purchase agreements delivering securities specified in clauses
(1) and (6) above with banks (foreign and domestic), broker/dealers,
and other financial institutions maintaining a long-term rating on the
day of bid no lower than investment grade by both S&P and Moody's
(such rating may be at either the parent or subsidiary level); and
(11) money market funds rated "AAAm" or "AAAm-G" or better by S&P and other
financial funds investing exclusively in investments of the types
described in clauses (1) through this clause (11) of this definition.
"Permitted Lien" means, collectively:
(1) Liens to secure Indebtedness described in clauses (1), (2) and (3) of
the definition of Permitted Indebtedness and described in clauses (1),
(2), (3) and (4) of the definition of Permitted Partnership
Indebtedness;
(2) mechanic's, workmen's, materialmen's, supplier's, construction or other
like Liens arising in the ordinary course of business that, in each
case, have not become the subject of foreclosure or any other action or
proceeding;
(3) servitudes, easements, rights-of-way, restrictions, minor defects or
irregularities in title and such other encumbrances or charges against
real property or interests therein as are of a nature generally
existing with respect to properties of a similar character and which do
not in any material way interfere with the use thereof in the business
of the Coso partnerships; and
(4) other Liens incidental to the conduct of the Coso partnerships'
business or the ownership of properties and assets which were not
incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than vendor's liens for accounts payable in
the ordinary course of business), and which do not in the aggregate
materially impair the use thereof in the operation of their business.
"Permitted Partnership Indebtedness" means:
(1) proceeds of Permitted Indebtedness loaned to any Coso partnerships by
the Issuer or, incurred by a Coso partnership;
(2) guarantees by one or more of the Coso partnerships of Permitted
Indebtedness;
(3) the Guarantees;
(4) the Partnership Notes;
(5) Indebtedness of one Coso partnership to another Coso partnership; and
(6) Indebtedness of one or more of the Coso partnerships not otherwise
described under clauses (1) through (5) hereof incurred solely for
working capital and operational needs of the Projects which, when
aggregated with the then outstanding principal balance of Indebtedness
of the Issuer permitted pursuant to clause (5) of the definition of
Permitted Indebtedness (but without duplication of amounts), does not
exceed $5.0 million at any time outstanding.
"Permitted Power Contract Buy-Out" means the termination of a Power Purchase
Agreement or the negotiated reduction of capacity and/or energy or the rates
related thereto to be sold under a Power Purchase Agreement other than pursuant
to such agreement's terms and the payment by Southern California Edison made in
connection therewith.
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"Person" means any individual, sole proprietorship, corporation, partnership,
joint venture, limited liability partnership, limited liability corporation,
trust, unincorporated association, institution, Governmental Authority or any
other entity.
"Principal Account" means the Account of such name created under the
Depositary Agreement.
"Principal Payment Date" when used with respect to any senior secured note
means the date on which all or a portion of the principal of such senior
secured note becomes due and payable as provided therein or in the Indenture,
whether on a scheduled date for payment of principal at a Redemption Date, the
Final Maturity Date, a date of declaration of acceleration, or otherwise.
"Project Documents" means, individually and collectively, all material
existing agreements and documents which relate to all or any portion of one or
more of the Projects.
"Rating" means the rating of the senior secured notes by the Rating Agencies.
"Rating Agency" means any of Moody's, S&P and Duff & Phelps.
"Rating Downgrade" means a lowering by the Rating Agencies of the then
current credit ratings of the senior secured notes.
"Redemption Account" means the account of such name created under the
Depositary Agreement.
"Redemption Date" means the date on which Issuer redeems or shall redeem any
senior secured notes in accordance with the Indenture.
"Reference Treasury Dealer" means any nationally recognized primary U.S.
government securities dealer in New York City selected by the Issuer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any date of redemption, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such date of redemption.
"Remaining Average Life" means, with respect to any Series A notes due 2009
and Series B notes due 2009, the principal of which is to be redeemed (the
"Called Principal"), the number of years (calculated to the nearest one-twelfth
year) obtained by dividing:
(1) such Called Principal into
(2) the sum of the products obtained by multiplying:
(a) the principal component of each Remaining Scheduled Payment (as
defined below) with respect to such Called Principal by
(b) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the date on which such Called Principal is
to be redeemed (the "Settlement Date") and the scheduled due date
of such Remaining Scheduled Payment.
For purposes of this definition, the term "Remaining Scheduled Payments" means,
with respect to the Called Principal of any Series A notes due 2009 and Series
B notes due 2009, all payments of
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such Called Principal and interest thereon that would be due after the
Settlement Date with respect to such Called Principal if no payment of such
Called Principal were made prior to its scheduled due date.
"Required Holders" means, at any time, Persons that at such time hold at
least a majority in aggregate principal amount of the Outstanding Notes.
"Responsible Officer" means, with respect to knowledge of any default under
the Indenture or the Credit Agreement, the chief executive officer, president,
chief financial officer, general counsel, principal accounting officer,
treasurer, or any vice president of the Issuer or a Coso partnership, as
applicable, or other officer of such corporation who in the normal performance
of his or her operational duties would have knowledge of the subject matter
relating to such default.
"Restricted Payment" means, with respect to any Person:
(1) the declaration and payment of distributions or dividends, the issuance
of Equity Interests in such Person or any other payment in respect of
any Equity Interests made in cash, property, obligations or other
notes;
(2) any payment of the principal of or interest on any Subordinated
Indebtedness;
(3) the making of any loans or advances to any Affiliate (other than
Permitted Indebtedness);
provided, however, that "Restricted Payment" shall not include payments under
any of the Project Documents for services rendered.
"Revenue Account" means the account of such name created under the Depositary
Agreement.
"S&P" means Standard & Poor's Rating Group Corporation, a corporation
organized and existing under the laws of the State of New York, its successors
and assigns.
"Secured Parties" means the Trustee, the Collateral Agent, the Depositary,
any Permitted Additional Senior Lender or any other Person that becomes a
Secured Party under any Financing Document.
"Security Agreements" means (1) that certain Security Agreement dated as of
May 28, 1999, executed by Navy I Partnership in favor of the Collateral Agent,
(2) that certain Security Agreement dated as of May 28, 1999, executed by BLM
Partnership in favor of the Collateral Agent and (3) that certain Security
Agreement dated as of May 28, 1999, executed by Navy II Partnership in favor of
the Collateral Agent.
"Security Documents" means, collectively, the Depositary Agreement, the Deeds
of Trust, the Security Agreements, the Pledge Agreements and any other document
providing for any lien, pledge, encumbrance, mortgage or security interest on
(i) any or all of the assets of the Coso partnerships, the Issuer, the
ownership interests thereof or (ii) the assets constituting or related to the
Projects.
"Senior Indebtedness" means all of the Permitted Indebtedness of Issuer and
the Coso partnerships other than the Subordinated Indebtedness.
"Subordinated Indebtedness" means Indebtedness (and the note or other
instrument evidencing the same) which has been subordinated, on terms and
conditions substantially the same as those permitted under the Indenture, to
the prior payment of amounts owing under the Indenture and the senior secured
notes and the repayment of which shall be made only from Restricted Payments.
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"Title Event" means the existence of any defect of title or lien or
encumbrance on a Project (other than certain permitted liens) in effect on the
closing date of the Series A notes offering that entitles the Collateral Agent
to make a claim under the policy or policies of title insurance required
pursuant to the Financing Documents.
"Title Event Proceeds" means all amounts and proceeds (including instruments)
in respect of any Title Event.
"Transaction Documents" means the Project Documents and the Financing
Documents.
"Treasury Rate" means, with respect to any date of redemption, the rate per
annum equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury Price
for such date of redemption.
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors or otherwise entitled to vote in the determination of the management
of such Person.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
The exchange of Series A notes for Series B notes pursuant to the exchange
offer should not be treated as a taxable transaction for U.S. federal income
tax purposes because the Series B notes will not be considered to differ
materially from the Series A notes. Rather, any Series B notes you receive
should be treated as a continuation of your investment in the Series A notes.
As a result, you should bear no material U.S. federal income tax consequences
due to the exchange, and you should have the same adjusted issue price,
adjusted basis and holding period in the Series B notes as you had in the
Series A notes immediately prior to the exchange.
You should consult your own tax advisor concerning the consequences of your
exchange of Series A notes for Series B notes, including the tax consequences
under, state, local, foreign or other tax laws, and the possible effects on you
of changes in U.S. federal or other tax laws.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Series B notes for its own account as a
result of this exchange offer, sometimes referred to a as participating broker,
must acknowledge that it will deliver a prospectus in connection with any
resale of such Series B notes. This prospectus, as it may be periodically
amended or supplemented, may be used by a participating broker in connection
with any resale of the Series B notes received in exchange for Series A notes
where the Series A notes were acquired as a result of market-making activities
or other trading activities. For a period of 180 days from the completion of
the exchange offer, or a shorter period if all Series B notes have been
disposed of by the participating brokers, we will make this prospectus, as
amended or supplemented, available to any participating broker for use in
connection with the resale of the Series B notes. Until this period ends, we
will send a reasonable number of additional copies of this prospectus and any
amendment or supplement to this prospectus to any participating broker that
requests such documents in the letter of transmittal.
We will not receive any proceeds from the sale of Series B notes by broker-
dealers. Series B notes received by any participating broker may be sold
periodically, in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Series B notes,
or a combination of such methods of resale provided that the Series B notes are
sold at market prices prevailing at the time of resale, at prices related to
such market prices or negotiated prices. Any resale of Series B notes may be
made directly to purchasers or to or through broker-dealers who may receive
compensation in the form of commissions or concessions from a broker-dealer
and/or purchasers of the Series B notes. Any participating broker that resells
the Series B notes that were received by it for its own account pursuant to
this exchange offer and any broker dealer that participates in the distribution
of Series B notes may be deemed to be an underwriter within the meaning of the
Securities Act. Any profit on the resale of Series B notes and any commissions
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver, and by delivering a prospectus as required,
a participating broker will not be deemed to admit that it is an underwriter
within the meaning of the Securities Act.
We will pay all the expenses incident to this exchange offer, which shall not
include the expense of any holder in connection with resales of the Series B
notes. We have agreed to indemnify holders of the Series B notes, including
participating brokers, against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
Reed Smith Shaw & McClay LLP will opine on the validity of the Series B notes
for us, and, together with Riordan & McKinzie, A Professional Law Corporation,
will opine on the validity of the Guarantees for the Coso partnerships.
CHANGE IN INDEPENDENT ACCOUNTANTS
Since 1991, Caithness Energy and CalEnergy, the two former co-sponsors of the
Coso projects, had engaged PricewaterhouseCoopers LLP to audit the financial
statements of the Coso partnerships. On February 25, 1999, Caithness
Acquisition, Caithness Energy's wholly owned subsidiary, purchased all of
CalEnergy's interests in the Coso projects, and Caithness Energy engaged KPMG
LLP, its own independent certified public accountants, to audit the financial
statements of the Coso partnerships in the
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future, rather than to continue to have PricewaterhouseCoopers LLP audit those
financial statements. In connection with the audits of the financial statements
of Coso Finance Partners and Coso Finance Partners II, Coso Energy Developers
and Coso Power Developers for each of the two years in the period ended
December 31, 1998 and through February 25, 1999, (i) Caithness Energy had no
disagreements with PricewaterhouseCoopers LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of
PricewaterhouseCoopers LLP would have caused them to make reference thereto in
their reports on the financial statements for such years, and (ii) the reports
of PricewaterhouseCoopers LLP on the Coso partnerships did not contain any
adverse opinion or disclaimer of opinion, and were not modified as to
uncertainty, audit scope or accounting principles except for the reference to
the Coso partnerships' adoption in 1998 of Statement of Position No. 98-5,
"Reporting on the Costs of Start-up Activities."
EXPERTS
The balance sheet of Caithness Coso Funding Corp. as of April 22, 1999, has
been included herein and in this prospectus in reliance upon the report of KPMG
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
The combining and combined financial statements of Coso Finance Partners and
Coso Finance Partners II and the financial statements of Coso Energy Developers
and Coso Power Developers as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998, included in this prospectus,
have been included in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Sandwell Engineering Inc. has prepared the independent engineer's report
dated May 20, 1999, appearing in Exhibit A to this prospectus. You should read
it in its entirety for additional information about the Coso projects and the
other matters addressed in it. We included the independent engineer's report in
this prospectus in reliance on the conclusions expressed therein by Sandwell
Engineering Inc. and upon that firm's experience in preparing independent
engineer's reports for independent power projects.
Henwood Energy Services, Inc. has prepared the energy markets consultant's
report dated May 20, 1999 appearing in Exhibit B to this prospectus. You should
read it in its entirety for additional information about certain industry and
regulatory matters affecting the sales of electricity by the Coso projects and
the related matters addressed in it. We included the energy markets
consultant's report in this prospectus in reliance on the conclusions expressed
therein by Henwood Energy Services, Inc. and upon that firm's experience in
providing business advisory and other services and market forecasts in
electricity and gas to international firms and public authorities.
GeothermEx, Inc. has prepared the geothermal consultant's report dated May
1999, appearing in Exhibit C to this prospectus. You should read it in its
entirety for additional information about the sufficiency of the geothermal
resources available for use and for conversion to electrical power and the
related matters addressed in it. As we indicated above, we have omitted from
Exhibit C of this prospectus Appendices A through F of the geothermal
consultant's report. Appendices A through F include the production histories
for Navy I, BLM and Navy II production wells and the injection
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histories for Navy I, BLM and Navy II injection wells. You can obtain copies of
Appendices A through F of the geothermal consultant's report from us upon
request. See "Available Information."
We included the geothermal consultant's report in this prospectus in reliance
on the conclusions expressed therein by GeothermEx, Inc. and upon that firm's
experience in preparing consultant's reports for geothermal projects.
AVAILABLE INFORMATION
Upon effectiveness of the registration statement of which this prospectus is
a part, we and the Coso partnerships will be subject to the informational
requirements of the Securities Exchange Act, and in accordance therewith we
file reports, proxy and information statements and other information with the
SEC. You can inspect and copy these reports, proxy and information statements
and other information at:
. the public reference facilities maintained by the commission at 450
Fifth Street, N.W., Washington, DC 20549, and
. the regional offices of the SEC located at:
. 500 West Madison Street, Room 1400, Chicago, Illinois 60606, and
. 7 World Trade Center, 13th Floor, New York, New York 10048.
You also can obtain copies of these materials from the public reference
section of the commission at 450 Fifth Street, N.W., Washington, DC 20549 at
prescribed rates. You can obtain electronic filings made through the electronic
data gathering, analysis and retrieval system at the SEC's web site,
http://www.sec.gov.
Whether or not required by the rules and regulations of the SEC, so long as
any Series B notes are outstanding, we will furnish to the holders of Series B
notes, within the time periods specified in the SEC's rules and regulations:
. all quarterly and annual financial information that would be required to
be contained in a filing with the SEC on Forms 10-Q and 10-K if we were
required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operation" and, with
respect to the annual information only, a report thereon by our and the
Coso partnerships' certified independent accountants; and
. all current reports that would be required to be filed with the SEC on
Form 8-K if we were required to file such reports.
In addition, we have agreed that, for so long as any senior secured notes
remain outstanding, we will furnish to the holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Caithness Coso Funding Corp.
Independent Auditor's Report............................................. F-2
Balance sheet at April 22, 1999.......................................... F-3
Note to balance sheet.................................................... F-4
Coso Finance Partners and Coso Finance Partners II--Combining and Combined
Financial Statements
Report of independent accountants........................................ F-5
Combining and combined balance sheets at December 31, 1997 and 1998...... F-6
Combining and combined statements of operations for each of the three
years in the period ended December 31, 1998............................. F-7
Combining and combined statements of partners' capital for each of the
three years in the period ended December 31, 1998....................... F-8
Combining and combined statements of cash flows for each of the three
years in the period ended December 31, 1998............................. F-9
Notes to combining and combined financial statements..................... F-10
Coso Energy Developers--Financial Statements
Report of independent accountants........................................ F-18
Balance sheets at December 31, 1997 and 1998............................. F-19
Statements of operations for each of the three years in the period ended
December 31, 1998....................................................... F-20
Statements of partners' capital for each of the three years in the period
ended December 31, 1998................................................. F-21
Statements of cash flows for each of the three years in the period ended
December 31, 1998....................................................... F-22
Notes to financial statements............................................ F-23
Coso Power Developers--Financial Statements
Report of independent accountants........................................ F-31
Balance sheets at December 31, 1997 and 1998............................. F-32
Statements of operations for each of the three years in the period ended
December 31, 1998....................................................... F-33
Statements of partners' capital for each of the three years in the period
ended December 31, 1998................................................. F-34
Statements of cash flows for each of the three years in the period ended
December 31, 1998....................................................... F-35
Notes to financial statements............................................ F-36
Coso Finance Partners and Coso Finance Partners II
Unaudited condensed balance sheets at December 31, 1998 and March 31,
1999.................................................................... F-43
Unaudited condensed statements of operations for the three months ended
March 31, 1998, the two months ended February 28, 1999 and the one month
ended March 31, 1999 ......................... ......................... F-44
Unaudited condensed statements of cash flows for the three months ended
March 31, 1998, the two months ended February 28, 1999 and the one month
ended March 31, 1999 ................................................... F-45
Notes to the unaudited condensed financial statements.................... F-46
Coso Energy Developers
Unaudited condensed balance sheets at December 31, 1998 and March 31,
1999.................................................................... F-47
Unaudited condensed statements of operations for the three months ended
March 31, 1998, the two months ended February 28, 1999 and the one month
ended March 31, 1999 ......................... ......................... F-48
Unaudited condensed statements of cash flows for the three months ended
March 31, 1998, the two months ended February 28, 1999 and the one month
ended March 31, 1999 ................................................... F-49
Notes to the unaudited condensed financial statements.................... F-50
Coso Power Developers
Unaudited condensed balance sheets at December 31, 1998 and March 31,
1999.................................................................... F-51
Unaudited condensed statements of operations for the three months ended
March 31, 1998, the two months ended February 28, 1999 and the one month
ended March 31, 1999 ................................................... F-52
Unaudited condensed statements of cash flows for the three months ended
March 31, 1998, the two months ended February 28, 1999 and the one month
ended March 31, 1999 ......................... ......................... F-53
Notes to the unaudited condensed financial statements.................... F-54
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Caithness Coso Funding Corp.:
We have audited the accompanying balance sheet of Caithness Coso Funding
Corp. as of April 22, 1999. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Caithness Coso Funding Corp. as of
April 22, 1999, in conformity with generally accepted accounting principles.
KPMG LLP
New York, NY
April 23, 1999
F-2
<PAGE>
CAITHNESS COSO FUNDING CORP.
BALANCE SHEET
AS OF APRIL 22, 1999
<TABLE>
<S> <C>
Current asset:
Cash................................................................. $ 3
===
Stockholder's equity:
Common stock ($0.01 par value; 1,000 shares authorized; 300 issued
and outstanding).................................................... $ 3
Additional paid-in capital........................................... --
---
Total stockholders' equity............................................. $ 3
===
</TABLE>
See accompanying note to balance sheet.
F-3
<PAGE>
CAITHNESS COSO FUNDING CORP.
NOTE TO BALANCE SHEET
APRIL 22, 1999
(1) General
Caithness Coso Funding Corp. (Funding Corp.) was incorporated on April 22,
1999, in Delaware. Funding Corp. is a special purpose corporation that has been
recently formed for the purpose of issuing senior secured notes on behalf of
Coso Finance Partners, Coso Energy Developers and Coso Power Developers (the
Coso partnerships), affiliates of Funding Corp. If Funding Corp. completes the
offering of the senior secured notes, Funding Corp. will loan all of the
proceeds from the offering to the Coso partnerships, and the Coso partnerships
will guarantee, on a senior secured basis, repayment of the senior secured
notes.
Funding Corp. has no material assets other than the loans that will be made
to the Coso partnerships. Also, Funding Corp. does not conduct any business,
other than issuing the senior secured notes and making the loans to the Coso
partnerships.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Coso Finance Partners
and Coso Finance Partners II
In our opinion, the accompanying combining and combined balance sheets and
the related combining and combined statements of operations, of partners'
capital and of cash flows present fairly, in all material respects, the
combining and combined financial position of Coso Finance Partners and Coso
Finance Partners II at December 31, 1997 and 1998, and the combining and
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Partnerships' management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the combining and combined financial statements,
the Partnerships adopted in 1998 Statement of Position No. 98-5, "Reporting on
the Costs of Start-Up Activities."
/s/ PricewaterhouseCoopers LLP
San Francisco, California
February 12, 1999
F-5
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
COMBINING AND COMBINED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------
December 31, Coso Coso
1997 Finance Finance
Combined Partners Partners II Eliminations Combined
<S> <C> <C> <C> <C> <C>
Assets
Cash.................... $ 2,888 $ -- $ -- $ -- $ --
Restricted cash and
investments (Note 5)... 6,479 7,524 -- -- 7,524
Accounts receivable..... 4,234 5,404 -- -- 5,404
Prepaid expenses and
other assets........... 863 426 -- -- 426
Amounts due from related
parties, net (Note 7).. 4,211 3,782 8,748 (8,748) 3,782
Property, plant and
equipment, net (Note
4)..................... 186,392 180,380 -- -- 180,380
Transfer to related
party (Note 1)......... -- -- 11,995 (11,995) --
Advances to China Lake
Plant Services, Inc.... 3,967 4,139 -- -- 4,139
Deferred financing
costs, net............. 356 233 -- -- 233
-------- -------- ------- -------- --------
$209,390 $201,888 $20,743 $(20,743) $201,888
======== ======== ======= ======== ========
Liabilities and
Partners' Capital
Accounts payable and
accrued liabilities.... $ 793 $ 2,581 $ -- $ -- $ 2,581
Navy sinking fund and
royalties payable
(Note 5)............... $ 7,363 8,808 -- -- 8,808
Amounts due to related
parties (Note 7)....... -- 8,748 -- (8,748) --
Transfer from related
party (Note 1)......... -- 11,995 -- (11,995) --
Project loan (Note 6)... 45,666 40,566 -- -- 40,566
-------- -------- ------- -------- --------
53,822 72,698 -- (20,743) 51,955
Partners' capital....... 155,568 129,190 20,743 -- 149,933
-------- -------- ------- -------- --------
$209,390 $201,888 $20,743 $(20,743) $201,888
======== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the combining and combined
financial statements.
F-6
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
COMBINING AND COMBINED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years
ended December For the year ended December 31, 1998
31, -------------------------------------------
----------------- Coso Coso
1996 1997 Finance Finance
Combined Combined Partners Partners II Eliminations Combined
<S> <C> <C> <C> <C> <C> <C>
Revenue
Sales of electricity.... $118,206 $100,431 $53,153 $ -- $ -- $53,153
Royalty................. -- -- -- 493 (493) --
Interest income......... 3,286 1,980 585 -- -- 585
-------- -------- ------- ----- ----- -------
121,492 102,411 53,738 493 (493) 53,738
-------- -------- ------- ----- ----- -------
Expenses
Plant operations (Note
7)..................... 11,763 11,329 13,298 -- -- 13,298
Royalty expense (Note
5)..................... 11,059 9,849 7,317 -- (493) 6,824
Depreciation and
amortization........... 13,325 12,814 11,124 648 -- 11,772
Interest expense........ 8,868 6,260 4,333 -- -- 4,333
-------- -------- ------- ----- ----- -------
45,015 40,252 36,072 648 (493) 36,227
-------- -------- ------- ----- ----- -------
Income (loss) before
cumulative
effect of accounting
change................. 76,477 62,159 17,666 (155) -- 17,511
Cumulative effect of
accounting change (Note
2)..................... -- -- (923) -- -- (923)
-------- -------- ------- ----- ----- -------
Net income (loss)....... $ 76,477 $ 62,159 $16,743 $(155) $ -- $16,588
======== ======== ======= ===== ===== =======
</TABLE>
The accompanying notes are an integral part of the combining and combined
financial statements.
F-7
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
COMBINING AND COMBINED STATEMENTS OF PARTNERS' CAPITAL
(Dollars in thousands)
<TABLE>
<CAPTION>
Coso Finance Partners Coso Finance Partners II
---------------------------------- ---------------------------------
China Lake
ESCA China Lake ESCA II Geothermal
Limited Operating Limited Management
Partnership Company, Inc. Total Partnership Company, Inc. Total Combined
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... $ 74,985 $ 69,251 $144,236 $11,000 $9,345 $20,345 $164,581
Net income.............. 40,790 35,311 76,101 202 174 376 76,477
Distributions to
partners(1)............ (39,249) (33,975) (73,224) -- -- -- (73,224)
-------- -------- -------- ------- ------ ------- --------
Balance at December 31,
1996................... 76,526 70,587 147,113 11,202 9,519 20,721 167,834
Net income.............. 33,222 28,760 61,982 95 82 177 62,159
Distributions to
partners(1)............ (39,892) (34,533) (74,425) -- -- -- (74,425)
-------- -------- -------- ------- ------ ------- --------
Balance at December 31,
1997................... 69,856 64,814 134,670 11,297 9,601 20,898 155,568
Net income (loss)....... 8,974 7,769 16,743 (83) (72) (155) 16,588
Distributions to
partners............... (11,912) (10,311) (22,223) -- -- -- (22,223)
-------- -------- -------- ------- ------ ------- --------
Balance at December 31,
1998................... $ 66,918 $ 62,272 $129,190 $11,214 $9,529 $20,743 $149,933
======== ======== ======== ======= ====== ======= ========
</TABLE>
- ---------------------
(1) Distributions of $14,394 to ESCA Limited Partnership and $12,461 to China
Lake Operating Company, Inc. were declared and paid on January 2, 1996.
Distributions of $16,761 to ESCA Limited Partnership and $14,509 to China
Lake Operating Company, Inc. were declared on December 31, 1996 and paid
on December 31, 1996 and January 2, 1997, respectively.
The accompanying notes are in integral part of the combining and combined
financial statements.
F-8
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
COMBINING AND COMBINED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended
December 31, For the year ended December 31, 1998
-------------------- -------------------------------------------
Coso
1996 1997 Finance Coso Finance
Combined Combined Partners Partners II Combined
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities
Net income............. $ 76,477 $ 62,159 $ 16,743 $ (155) $ 16,588
Adjustments to
reconcile net income
to net cash flows from
operating activities:
Depreciation and
amortization........ 13,325 12,814 11,124 648 11,772
Amortization of
deferred financing
costs............... 287 190 123 -- 123
Cumulative effect of
accounting change... -- -- 923 -- 923
Additional advances
to China Lake Plant
Services, Inc....... (201) (239) (172) -- (172)
Decrease (increase)
in accounts
receivable.......... (679) 13,987 (1,170) -- (1,170)
Decrease (increase)
in prepaid expenses
and other assets.... (738) 476 437 -- 437
Increase (decrease)
in accounts payable
and accrued
liabilities......... (3,705) 2,346 3,233 -- 3,233
Decrease (increase)
in amounts due from
related parties,
net................. (987) (3,193) 922 (493) 429
--------- --------- ------------- ---------- -------------
Net cash flows from
operating
activities........ 83,779 88,540 32,163 -- 32,163
--------- --------- ------------- ---------- -------------
Cash flows from
investing activities
Additions to power
plant and transmission
line.................. (499) (736) (266) -- (266)
Additions to wells and
resource development
costs................. (1,795) (3,853) (6,417) -- (6,417)
Decrease (increase) in
restricted cash....... (855) 22,537 (1,045) -- (1,045)
--------- --------- ------------- ---------- -------------
Net cash flows from
investing
activities........ (3,149) 17,948 (7,728) -- (7,728)
--------- --------- ------------- ---------- -------------
Cash flows from
financing activities
Distributions to
partners.............. (58,715) (88,934) (22,223) -- (22,223)
Repayment of project
financing loans....... (51,284) (30,390) (5,100) -- (5,100)
--------- --------- ------------- ---------- -------------
Net cash flows from
financing
activities........ (109,999) (119,324) (27,323) -- (27,323)
--------- --------- ------------- ---------- -------------
Net change in cash..... (29,369) (12,836) (2,888) -- (2,888)
Cash at beginning of
year.................. 45,093 15,724 2,888 -- 2,888
--------- --------- ------------- ---------- -------------
Cash at end of year.... $ 15,724 $ 2,888 $ -- $ -- $ --
========= ========= ============= ========== =============
Supplemental cash flow
disclosure
Interest paid.......... $ 13,849 $ 6,070 $ 4,210 $ -- $ 4,210
</TABLE>
The accompanying notes are an integral part of the combining and combined
financial statements.
F-9
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
NOTES TO COMBINING AND COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
1. The Partnership and Business of Coso Finance Partners and Coso Finance
Partners II
Coso Finance Partners (CFP or the Partnership) and Coso Finance Partners II
(CFP II) were formed on July 7, 1987, in connection with refinancing the
construction of a 30 net megawatt (NMW) geothermal power plant constructed on
behalf of China Lake Joint Venture (CLJV) on land at the China Lake Naval Air
Weapons Station, Coso Hot Springs, China Lake, California, and financing the
expansion of that power plant from 30 net megawatt (NMW) to approximately
80NMW. CFP and CFP II (collectively, the Partnerships) are general partnerships
between China Lake Operating Company (CLOC), a Delaware corporation, and ESCA
Limited Partnership (ESCA), and China Lake Geothermal Management Company
(CLGMC), a Delaware corporation, and ESCA II Limited Partnership (ESCA II),
respectively. ESCA is a California limited partnership between Caithness
Geothermal 1980, Ltd., Caithness Power, L.L.C., and ESI Geothermal, Inc. (a
subsidiary of FPL Group, Inc.). ESCA II is a California limited partnership
between Caithness Geothermal 1980, Ltd., Mojave Power II, Inc. and ESI
Geothermal II, Inc. (a subsidiary of FPL Group, Inc.).
CFP was formed to acquire the assets and assume the liabilities of CLJV
insofar as they related to the first turbine generator set of the power plant
and the related geothermal resources. CFP II acquired the assets and assumed
the liabilities of CLJV insofar as they related to the second and third turbine
generator sets together with the related geothermal resources. The three
turbine generators that comprise the power plant have the capacity to produce
an aggregate of approximately 80NMW. CFP and CFP II were formed as separate
entities in order to facilitate bank financing of the completed power plant and
power plants under construction, respectively. In 1988, CFP II assigned its
assets and liabilities to CFP in exchange for a royalty of 5% of the value of
the steam produced. The "Transfer to/from related party" in the combined and
individual balance sheets represents the unamortized book value of development
costs incurred by CFP II. Such amounts are being amortized by both parties over
30 years on a straight line basis.
The Partnerships sell all electricity produced to Southern California Edison
(Edison) under a 24-year power purchase contract expiring in 2011. Under the
terms of this contract, Edison makes payments to CFP as follows:
. Contractual payments for energy delivered, which payments escalate at an
average rate of approximately 7.6% for the first ten years after the date
of firm operation (scheduled energy price period). After the scheduled
energy price period for each unit, the energy payment adjusts to the
actual avoided energy cost experienced by Edison. In August 1997, the
initial unit of the Partnerships completed the ten-year period. At that
time, Edison ceased paying the scheduled energy rates for all three
units. CFP is currently in litigation over this issue (see Note 8). For
the years ended December 31, 1997 and 1998, Edison's average avoided cost
of energy was 3.28 and 2.95 cents per kwh, respectively. Estimates of
Edison's future avoided cost of energy vary substantially from year to
year. The Partnerships cannot predict the likely level of avoided cost of
energy prices under the 24-year power purchase contract and, accordingly,
the revenues generated by the Partnerships could fluctuate significantly;
. Capacity payments which remain fixed over the life of the contract to the
extent that actual energy delivered exceeds minimum levels of the plant
capacity defined in the contract; and
F-10
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
NOTES TO COMBINING AND COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
. Bonus payments to the extent that actual energy delivered exceeds 85% of
the plant capacity stated in the contract. In 1996, 1997 and 1998, the
bonus payments aggregated $2,266, $1,805 and $1,510, respectively.
CalEnergy Company, Inc. (CalEnergy) served as the operator, maintaining the
Partnerships' accounting records and operating the CFP plant on a day-to-day
basis, until February 1, 1999 when Coso Operating Company LLC (COC), a Delaware
limited liability company, became operator pursuant to certain operations and
maintenance agreements with CLOC, the managing general partner (see Note 9).
COC and CLOC are wholly-owned subsidiaries of CalEnergy.
At formation, and as amended, the terms of the partnership agreements
provided that distributable cash flow before "payout" was allocated 10% to CLOC
as managing partner and 90% in proportion to the remaining sums necessary to be
distributed to each partner to achieve payout. "Payout" occurred in June 1996
and was defined as the point at which each partner had received aggregate cash
distributions from the 90% allocation in amounts equal to their accumulated
cash contributions plus amounts equal to 10% simple interest on the cash
contributions. For purposes of allocating net income to partners' capital
accounts, profits and losses are allocated based on the aforementioned
percentages. For income tax purposes, certain deductions and credits are
subject to special allocations as defined in the partnership agreements. Cash
flow after "payout" is allocated 53.6% and 46.4% to ESCA/ESCA II and
CLOC/CLGMC, respectively.
Since the Partnerships operate under common ownership and management control,
the financial statements of the Partnerships have been combined after
elimination of intercompany amounts.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies
Recognition of Revenue
Operating revenues are recognized as income during the period in which
electricity is delivered to Edison. Revenue was recognized based on the payment
rates scheduled in CFP's power purchase contract with Edison until August 1997.
After August 1997, revenue is recognized based on Edison's avoided energy cost.
Fixed Assets and Depreciation
The costs of major additions and betterments are capitalized, while
replacements, maintenance and repairs which do not improve or extend the life
of the respective assets are expensed currently.
Depreciation of the operating power plant and transmission line is computed
on the straight line method over their estimated useful life of 30 years and,
for significant additions, the remainder of the 30-year life from the plant's
commencement of operations.
F-11
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
NOTES TO COMBINING AND COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
The Partnerships review long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss would be recognized whenever evidence exists
that the carrying value is not recoverable.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up Activities."
SOP No. 98-5 requires that, at the effective date of adoption, costs of start-
up activities previously capitalized be expensed and reported as a cumulative
effect of a change in accounting principle, and further requires that such
costs subsequent to adoption be expensed as incurred. CFP adopted this standard
in 1998 and expensed applicable unamortized costs previously capitalized in
connection with the start-up of CFP. The cumulative effect of the change in
accounting principle was $923.
Wells and Resource Development Costs
The Partnerships follow the full cost method of accounting for costs incurred
in connection with the exploration and development of geothermal resources. All
such costs, which include dry hole costs, the cost of drilling and equipping
production wells, and administrative and interest costs directly attributable
to the project, are capitalized and amortized over their estimated useful lives
when production commences. The estimated useful lives of production wells are
ten years each; exploration costs and development costs, other than production
wells, are amortized over 30 years and, for significant additions, the
remainder of the 30-year life from the plant's commencement of operations.
Deferred Well Rework Costs
Well rework costs are deferred and amortized over the estimated period
between reworks. These deferred costs of $57 and $9 at December 31, 1997 and
1998, respectively, are included in prepaid expenses and other assets.
Currently, both production and injection rework costs are amortized over twelve
months.
Deferred Plant Overhaul Costs
Plant overhaul costs are deferred and amortized over the estimated period
between overhauls. These deferred costs of $296 and $109 at December 31, 1997
and 1998, respectively, are included in prepaid expenses and other assets.
Currently, plant overhauls are amortized over three to four years from the
point of completion.
Advances to China Lake Plant Services, Inc.
China Lake Plant Services, Inc. (CLPSI) is a wholly-owned subsidiary of
CalEnergy. CLPSI purchases, stores and distributes spare parts to CFP and two
other affiliated operating ventures. Also, certain other facilities utilized by
all three operating ventures are held by CLPSI. CFP's advances to CLPSI
represent funds advanced for the purchase of spare parts inventory and other
assets. Spare parts inventory held by CLPSI on behalf of CFP is valued at the
lower of cost or market.
F-12
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
NOTES TO COMBINING AND COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Deferred Financing Costs
Deferred financing costs consist of loan fees and are amortized over the term
of the related financing using the effective interest method. Accumulated
amortization at December 31, 1997 and 1998 was $1,795 and $1,918, respectively.
Income Taxes
There is no provision for income taxes since those taxes are the
responsibility of the partners.
Restricted Cash and Investments
As of December 31, 1997 and 1998, all of the Partnerships' investments were
classified as held-to-maturity and reported at amortized cost. The restricted
cash and investments balance represents primarily a sinking fund related to a
lump sum royalty payment of $25,000 to be paid to the Navy in 2009 (see Note
5). This account is comprised of various mortgage-backed securities with
maturities ranging from 1999 through 2005. The carrying amount of restricted
cash and investments at December 31, 1997 and 1998 approximated fair value,
which is based on quoted market prices as provided by the financial institution
which holds the investments. Also included in restricted cash are various Bank
of America certificates of deposits totaling $142 at both December 31, 1997 and
1998. These deposits have maturities of greater than three months.
Cash Flows
For purposes of the combined statements of cash flows, the Partnerships
consider all money market instruments purchased with an initial maturity of
three months or less to be cash equivalents.
3. Interest Rate Swap Agreement
In January 1993, CFP entered into a five-year deposit interest rate swap
agreement which, until certain investments were liquidated in February 1997
(see Note 6), effectively converted notional deposit balances from a variable
rate to a fixed rate. Under the agreement, which matured on January 11, 1998,
CFP made payments to the counterparty each January 11 and July 11 at variable
rates based on LIBOR, reset and compounded every three months, and in return
received payments based on a fixed rate of 6.34%. The effective LIBOR rate
ranged from 5.5313% to 5.8125% during 1997 and was 5.7500% at December 31, 1997
and at January 11, 1998, the termination date. The counterparty to this
agreement was a large international financial institution. The carrying amount
of the interest rate swap at December 31, 1997, was $50 (payable to CFP), which
approximated its fair value. The fair value was based on the estimated amount
that CFP would have received to terminate the swap agreement at that date as
provided by the financial institution which was the counterparty to the swap.
F-13
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
NOTES TO COMBINING AND COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
4. Property, Plant and Equipment
Property, plant and equipment are comprised of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
<S> <C> <C>
Power plant and gathering system..................... $ 175,024 $ 173,927
Transmission line.................................... 6,515 6,515
Wells and resource development costs................. 112,057 118,474
--------- ---------
293,596 298,916
Less accumulated amortization and depreciation....... (107,204) (118,536)
--------- ---------
$ 186,392 $ 180,380
========= =========
</TABLE>
5. Royalty Expense
Royalty expense is summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Unit 1............................................... $ 3,269 $3,437 $3,114
Units 2 and 3........................................ 7,790 6,412 3,710
------- ------ ------
$11,059 $9,849 $6,824
======= ====== ======
</TABLE>
The power plant is located on land owned by the U.S. Navy. Under the terms of
a 30-year contract with the U.S. Navy to develop geothermal energy on its
lands, for the first turbine only, CFP pays the Navy's monthly Edison bill for
specified quantities of electricity and, in return, is reimbursed at a set rate
for such quantities of electricity. During 1996, 1997 and 1998, CFP was
reimbursed for approximately 76%, 75% and 76%, respectively, of the amount of
the Navy's Edison bills paid by CFP. The fee payable for the second and third
turbines increased from 10% of related revenues to 15% in December 1998 and
will increase to 20% in December 2003.
In addition, CFP is required to pay the Navy $25,000 in December 2009, the
date the contract expires. The payment is secured by funds placed on deposit
monthly, which funds plus accrued interest will aggregate $25,000. Currently,
the monthly amount to be deposited is $50.
6. Project Loan
The project loan is as follows:
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
<S> <C> <C>
Project loan with a weighted average interest rate of
8.76% and 8.79%, respectively, at December 31, 1997 and
1998 with scheduled repayments through December 2001.... $45,666 $40,566
</TABLE>
The project loan is a loan from Coso Funding Corp. (Funding Corp.). Funding
Corp. is a single-purpose corporation formed to issue notes for its own account
and as an agent acting on behalf of
F-14
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
NOTES TO COMBINING AND COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
CFP, Coso Energy Developers (CED) and Coso Power Developers (CPD), collectively
the "Joint Ventures." Pursuant to separate credit agreements executed between
Funding Corp. and each joint venture on December 16, 1992, the proceeds from
Funding Corp.'s note offering were loaned to the Joint Ventures.
The CFP project loan is collateralized by, among other things, the power
plant, geothermal resource, letters of credit, pledge of contracts and an
assignment of all Joint Ventures' revenues which will be applied against the
payment of obligations of each joint venture, including the project loans. Each
joint venture's assets collateralize only its own project loan, and are not
cross-collateralized with assets pledged under other joint ventures' credit
agreements. The project loan is non-recourse to any partner in CFP and Funding
Corp. shall solely look to such Partnership's pledged assets for satisfaction
of such project loan. However, the Partnership, after satisfying a series of
its own obligations, has agreed to advance support loans to the extent of its
available cash flow and, under certain conditions its letters of credit, to CED
or CPD in the event such other joint venture's revenues are insufficient to
meet scheduled principal and interest on its separate project loan from Funding
Corp.
Until February 1997 the Partnership maintained a debt service fund which was
legally restricted as to its use and which required the maintenance of a
specific balance. The fund, comprised of investments of U.S. government and
corporate debt and various mortgage-backed securities with maturities from 1997
through 2024, was required by the terms and conditions of the project financing
and was maintained by First Trust of California in its capacity as the trustee
for the project lender. The securities comprising the fund were categorized as
held-to-maturity and valued at amortized cost. In February 1997 the project
lenders allowed the Partnership to replace the cash and investment balance in
the debt service fund with irrevocable letters of credit. The fund was then
liquidated and the resulting proceeds were distributed. Proceeds from the sale
of these securities approximated their carrying value plus interest accrued
through the date of sale.
The annual project loan repayments are summarized as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 9,784
2000.............................................................. 4,267
2001.............................................................. 26,515
-------
$40,566
=======
</TABLE>
Based on quoted market rates of the Funding Corp. notes, the fair value of
the project loan as of December 31, 1997 and 1998 was approximately $49,130 and
$43,063, respectively.
F-15
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
NOTES TO COMBINING AND COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
7. Related Party Transactions
CalEnergy, as operator, is reimbursed monthly for non-third-party costs
incurred on behalf of CFP. These costs are comprised principally of approved
direct CalEnergy operating costs of the CFP geothermal facility, allocable
general and administration costs, and operator fees and were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Operating costs...................................... $2,943 $3,192 $2,748
General and administration costs..................... 1,702 1,702 1,742
Operator fees........................................ 491 491 420
</TABLE>
Both CalEnergy and ESCA are reimbursed at approved amounts for their
respective costs incurred in relation to the CFP Management Committee. The
management committee fees paid were:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
ESCA........................................................ $214 $214 $221
CalEnergy................................................... 143 143 147
</TABLE>
CFP is charged by CLPSI for both its inventory usage and its portion of the
expenses of operating CLPSI. The charges to CFP from CLPSI in 1996, 1997 and
1998 were approximately $421, $486 and $532, respectively.
During 1994, the Joint Ventures entered into steam sharing agreements under
which the ventures may transfer steam, with the resulting incremental revenue
and royalty expense shared equally by the ventures. In the second half of 1995,
interconnection facilities between the plants were completed and the transfer
of steam commenced. CFP steam sharing revenue, net of royalties and other
related costs, amounted to $4,898, $10,345 and $17,556 in 1996, 1997 and 1998,
respectively.
The amounts due to (from) related parties as of December 31, 1997 and 1998
consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
<S> <C> <C>
Due (from) to CalEnergy................................. $ (7) $ 378
Due from CPD for steam sharing.......................... (1,704) (1,902)
Due from CED for steam sharing.......................... (2,500) (2,258)
------- -------
$(4,211) $(3,782)
======= =======
</TABLE>
The December 31, 1997 and 1998 due (from) to CalEnergy balances relate to the
venture reimbursing CalEnergy for the costs of operating the plant. This amount
fluctuated in concert with the timing of billings and incurring of costs.
In addition, as of December 31, 1997 and 1998 the accrued unpaid royalty due
to CFP II from CFP aggregated $8,255 and $8,748, respectively.
F-16
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
NOTES TO COMBINING AND COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
8. Commitments and Contingencies
On June 9, 1997, Edison filed a complaint alleging breach of the power
purchase agreements (SO4 Agreements) between Edison and the Joint Ventures as a
result of alleged improper venting of certain noncondensible gases at the Coso
geothermal energy project. In the complaint, Edison seeks unspecified damages,
including the refund of certain amounts previously paid under the SO4
Agreements, and termination of the SO4 Agreements. In September 1997, the Joint
Ventures and CalEnergy filed a cross-complaint against Edison and its
affiliates, The Mission Group and Mission Power Engineering Company, alleging,
among other things, that Edison's lawsuit violates the 1993 settlement
agreement which settled certain litigation arising from the construction of
certain units at the Coso geothermal project by Edison affiliates. In addition,
the Joint Ventures filed a separate complaint against Edison alleging breach of
the SO4 Agreements, unfair business practices, slander and various other tort
and contract claims. The actions were effectively consolidated in December
1997. As a result of certain procedural actions by the parties and a November
1997 court order, Edison filed an amended complaint on December 16, 1997 and
the Joint Ventures amended their cross-complaint. In addition, the court has
struck Edison's request to terminate the SO4 Agreements and obtain a refund of
all funds paid to the Joint Ventures. The litigation is in its early procedural
stages and the pleadings have not been settled. The Joint Ventures believe that
its claims and defenses are meritorious and that they will prevail if the
matter is ultimately heard on its merits. The Joint Ventures intend to
vigorously defend this action and prosecute all available conterclaims against
Edison.
9. Subsequent Event
On January 25, 1999, CalEnergy agreed to sell its indirect interests in CFP
and CFP II to Caithness Acquisition Company LLC (Caithness), an affiliate of
ESCA and ESCA II. Upon completion of the sale, COC, Caithness or its designee
will become the operator of CFP and CFP II.
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Coso Energy Developers
In our opinion, the accompanying balance sheets and the related statements of
operations, of partners' capital and of cash flows present fairly, in all
material respects, the financial position of Coso Energy Developers at December
31, 1997 and 1998, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the financial statements, the Partnership adopted
in 1998 Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities."
/s/ PricewaterhouseCoopers LLP
San Francisco, California
February 12, 1999
F-18
<PAGE>
COSO ENERGY DEVELOPERS
BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
<S> <C> <C>
Assets
Cash......................................................... $ 873 $ --
Restricted cash and investments (Note 5)..................... 290 290
Accounts receivable.......................................... 18,763 19,835
Prepaid expenses and other assets............................ 1,518 1,526
Property, plant and equipment, net (Note 4).................. 197,709 201,600
Investment in Coso Transmission Line Partners................ 3,222 3,107
Advances to China Lake Plant Services, Inc................... 2,213 1,567
Deferred financing costs, net................................ 324 162
-------- --------
$224,912 $228,087
======== ========
Liabilities and Partners' Capital
Accounts payable and accrued liabilities..................... $ 3,563 $ 3,314
Amounts due to related parties, net (Note 6)................. 20,582 23,624
Project loan (Note 5)........................................ 76,654 37,958
-------- --------
100,799 64,896
Partners' capital............................................ 124,113 163,191
-------- --------
$224,912 $228,087
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
COSO ENERGY DEVELOPERS
STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------------
1996 1997 1998
<S> <C> <C> <C>
Revenue
Sales of electricity.............................. $101,923 $102,868 $107,199
Interest and other income......................... 2,520 1,712 1,181
-------- -------- --------
104,443 104,580 108,380
-------- -------- --------
Expenses
Plant operations (Note 6)......................... 18,266 18,830 19,887
Royalty expense (Note 6).......................... 7,820 10,106 10,492
Depreciation and amortization..................... 13,931 14,257 14,308
Interest expense.................................. 13,162 9,105 6,267
-------- -------- --------
53,179 52,298 50,954
-------- -------- --------
Income before cumulative effect of accounting
change........................................... 51,264 52,282 57,426
Cumulative effect of accounting change (Note 2)... -- -- (953)
-------- -------- --------
Net income........................................ $ 51,264 $ 52,282 $ 56,473
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
COSO ENERGY DEVELOPERS
STATEMENTS OF PARTNERS' CAPITAL
(Dollars in thousands)
<TABLE>
<CAPTION>
Caithness Coso
Coso Hotsprings
Holdings, Intermountain
L.P. Power, Inc. Total
<S> <C> <C> <C>
Balance, December 31, 1995................... $ 65,208 $ 54,352 $119,560
Distributions to partners(1)................. (30,242) (27,916) (58,158)
Net income................................... 26,657 24,607 51,264
-------- -------- --------
Balance, December 31, 1996................... 61,623 51,043 112,666
Distributions to partners(1)................. (21,234) (19,601) (40,835)
Net income................................... 27,187 25,095 52,282
-------- -------- --------
Balance, December 31, 1997................... 67,576 56,537 124,113
Distributions to partners.................... (9,046) (8,349) (17,395)
Net income................................... 29,366 27,107 56,473
-------- -------- --------
Balance, December 31, 1998................... $ 87,896 $ 75,295 $163,191
======== ======== ========
</TABLE>
- ---------------------
(1) Distributions of $12,793 to Caithness Coso Holdings, L.P. and $11,808 to
Coso Hotsprings Intermountain Power, Inc. were declared and paid on January
2, 1996. Distributions of $13,332 to Caithness Coso Holdings, L.P. and
$12,307 to Coso Hotsprings Intermountain Power, Inc. were declared on
December 31, 1996 and paid on December 31, 1996 and January 2, 1997,
respectively.
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
COSO ENERGY DEVELOPERS
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended
December 31,
----------------------------
1996 1997 1998
<S> <C> <C> <C>
Cash flows from operating activities
Net income...................................... $ 51,264 $ 52,282 $ 56,473
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization................. 13,931 14,257 14,308
Amortization of deferred financing costs...... 296 240 160
Cumulative effect of accounting change........ -- -- 953
Equity in losses of Coso Transmission Line
Partners..................................... 113 111 115
Additional charges from (advances to) China
Lake Plant Services, Inc. ................... 404 (57) 646
Increase in accounts receivable, prepaid
expenses and other assets.................... (212) (1,718) (1,080)
Increase (decrease) in accounts payable and
accrued liabilities.......................... (6,355) 853 903
Increase (decrease) in amounts due to related
parties...................................... 4,894 (5,020) 3,042
-------- -------- --------
Net cash flows from operating activities.... 64,335 60,948 75,520
-------- -------- --------
Cash flows from investing activities
Additions to power plant and transmission line.. (669) (2,196) (3,460)
Additions to wells and resource development
costs.......................................... (5,364) (1,532) (16,842)
Decrease in restricted cash..................... 235 23,008 --
-------- -------- --------
Net cash flows from investing activities.... (5,798) 19,280 (20,302)
-------- -------- --------
Cash flows from financing activities
Repayment of CalEnergy promissory note.......... (7,981) (10,043) --
Distributions to partners....................... (45,851) (53,142) (17,395)
Repayment of project financing loans............ (31,758) (29,336) (38,696)
-------- -------- --------
Net cash flows from financing activities.... (85,590) (92,521) (56,091)
-------- -------- --------
Net change in cash.............................. (27,053) (12,293) (873)
Cash at beginning of year....................... 40,219 13,166 873
-------- -------- --------
Cash at end of year............................. $ 13,166 $ 873 $ --
======== ======== ========
Supplemental cash flow disclosure
Interest paid................................... $ 15,991 $ 19,570 $ 6,105
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
COSO ENERGY DEVELOPERS
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
1. The Partnership and Business of Coso Energy Developers
Coso Energy Developers (CED or Partnership) was formed on March 31, 1988, in
connection with financing the construction of a geothermal power plant on land
leased from the U.S. Bureau of Land Management (BLM) at Coso Hot Springs, China
Lake, California. CED is a general partnership between Coso Hotsprings
Intermountain Power, Inc. (CHIP), a Delaware corporation, and Caithness Coso
Holdings, L.P. (CCH). CCH is a California general partnership.
The primary BLM geothermal lease has a primary term of 10 years (1998) and
thereafter is subject to automatic extension until October 31, 2035, so long as
geothermal steam is commercially produced. In addition, the lease may be
extended to 2075 at the option of the BLM. The BLM is paid a royalty of 10% of
the value of steam produced. Coso Land Company (CLC), the original leaseholder,
retained a 5% overriding royalty interest based on the value of the steam
produced. CLC is a joint venture between CalEnergy Company, Inc. (CalEnergy)
and an affiliate of CCH.
The Partnership sells all electricity produced to Southern California Edison
(Edison) under a 30-year power purchase contract which expires in 2019. Under
the terms of the contract, Edison makes payments to CED as follows:
. Contractual payments for energy delivered, which payments escalate at an
average rate of approximately 7.6% for the first ten years after the date
of firm operation (scheduled energy price period). The scheduled energy
price period for each unit extends until at least March 1999, after which
the energy payment for at least Unit 4 adjusts to the actual avoided
energy cost experienced by Edison at that time. For the year ended
December 31, 1998, Edison's average avoided cost of energy was 2.95 cents
per kwh which is substantially below the contract energy prices earned
for the year ended December 31, 1998. Estimates of Edison's future
avoided cost of energy vary substantially from year to year. The
Partnership cannot predict the likely level of avoided cost of energy
prices under the 30-year power purchase contract at the expiration of the
scheduled energy price period. The revenues generated by the Partnership
could decline significantly after the expiration of the scheduled energy
price period;
. Capacity payments which remain fixed over the life of the contract to the
extent that actual energy delivered exceeds minimum levels of the plant
capacity defined in the contract; and
. Bonus payments to the extent that actual energy delivered exceeds 85% of
the plant capacity stated in the contract. In 1996, 1997, and 1998, the
bonus payments aggregated $2,228, $2,177 and $2,124, respectively.
CalEnergy served as the operator, maintaining the Partnership's accounting
records and operating the CED plant on a day-to-day basis, until February 1,
1999, when Coso Operating Company LLC (COC), a Delaware limited liability
company, became the operator pursuant to certain operations and maintenance
agreements with CHIP, the managing general partner of CED (see Note 8). COC and
CHIP or wholly owned subsidiaries of CalEnergy.
At formation, and as subsequently amended, the partnership agreement provided
that distributable cash flow before "payout" was allocated 3.81% to CHIP as
managing partner and
F-23
<PAGE>
COSO ENERGY DEVELOPERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
96.19% allocated in proportion to the remaining sums necessary to be
distributed to each partner to achieve payout. "Payout" was defined as the
point at which each partner had received aggregate cash distributions from the
96.19% allocation in amounts equal to their accumulated capital contributions.
Cash flow after "payout," which occurred in June 1994, is allocated 48% to CHIP
and 52% to CCH. For purposes of allocating net income to partners' capital
accounts, profits and losses are allocated based on the aforementioned capital
percentages. For income tax purposes, certain deductions and credits are
subject to special allocations as defined in the partnership agreement.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies
Recognition of Revenue
Operating revenues are recognized as income during the period in which
electricity is delivered to Edison. Revenue is recognized based on the payment
rates scheduled in CED's power purchase contract with Edison.
Fixed Assets and Depreciation
The costs of major additions and betterments are capitalized, while
replacements, maintenance and repairs which do not improve or extend the life
of the respective assets are expensed currently.
Depreciation of the power plant and transmission line is computed on the
straight line method over their estimated useful life of 30 years and, for
significant additions, the remainder of the 30-year life from the plant's
commencement of operations.
The Partnership reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss would be recognized whenever evidence exists
that the carrying value is not recoverable.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position (SOP) No. 98-5, "Reporting on the Costs of Start-up Activities."
SOP No. 98-5 requires that, at the effective date of adoption, costs of start-
up activities previously capitalized be expensed and reported as a cumulative
effect of a change in accounting principle, and further requires that such
costs subsequent to adoption be expensed as incurred. CED adopted this standard
in 1998 and expensed applicable unamortized costs previously capitalized in
connection with the start-up of CED. The cumulative effect of the change in
accounting principle was $953.
Wells and Resource Development Costs
CED follows the full cost method of accounting for costs incurred in
connection with the exploration and development of geothermal resources. All
such costs, which include dry hole costs,
F-24
<PAGE>
COSO ENERGY DEVELOPERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
the cost of drilling and equipping production wells, and administrative and
interest costs directly attributable to the project are capitalized and
amortized over their estimated useful lives when production commences. The
estimated useful lives of production wells are ten years each; exploration
costs and development costs, other than production wells, are amortized over 30
years and, for significant additions, the remainder of the 30-year life from
the plant's commencement of operations.
Deferred Well Rework Costs
Well rework costs are deferred and amortized over the estimated period
between reworks. These deferred costs of $399 and $669 at December 31, 1997 and
1998, respectively, are included in prepaid expenses and other assets.
Currently, both production and injection rework costs are amortized over twelve
months.
Deferred Plant Overhaul Costs
Plant overhaul costs are deferred and amortized over the estimated period
between overhauls. These deferred costs of $537 and $502 at December 31, 1997
and 1998, respectively, are included in prepaid expenses and other assets.
Currently, plant overhauls are amortized over three years from the point of
completion.
Investment in Coso Transmission Line Partners
Coso Transmission Line Partners (CTLP) is a partnership, between CED and Coso
Power Developers (CPD), which owns the transmission line and facilities
connecting the power plants owned by CED and CPD to the transmission line,
owned by Edison, at Inyokern, California, located 28 miles south of the plants.
CTLP charges CED and CPD for the use of the transmission line. These charges
are recorded by CED as operating expenses and reflected as a reduction in CED's
investment in CTLP.
Advances to China Lake Plant Services, Inc.
China Lake Plant Services, Inc. (CLPSI) is a wholly-owned subsidiary of
CalEnergy. CLPSI purchases, stores and distributes spare parts to CED and two
other affiliated operating ventures. Also, certain other facilities utilized by
all three operating ventures are held by CLPSI. CED's advances to CLPSI
represent funds advanced for the purchase of spare parts inventory and other
assets. Spare parts inventory held by CLPSI on behalf of CED is valued at the
lower of cost or market.
Deferred Financing Costs
Deferred financing costs consist of loan fees and are amortized over the term
of the related financing using the effective interest method. Accumulated
amortization at December 31, 1997 and 1998 was $1,685 and $1,845, respectively.
Income Taxes
There is no provision for income taxes since those taxes are the
responsibility of the partners.
F-25
<PAGE>
COSO ENERGY DEVELOPERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Restricted Cash and Investments
As of December 31, 1997 and 1998, all of the Partnership's investments were
classified as held-to-maturity and reported at amortized cost. Included in
restricted cash are various Bank of America certificates of deposit totaling
$290 at December 31, 1997 and 1998. These deposits have maturities of greater
than three months.
Cash Flows
For purposes of the statements of cash flows, CED considers all money market
instruments purchased with an initial maturity of three months or less to be
cash equivalents.
3. Interest Rate Swap Agreement
In January 1993, CED entered into a five-year deposit interest rate swap
agreement which, until certain investments were liquidated in February 1997
(see Note 5), effectively converted notional deposit balances from a variable
rate to a fixed rate. Under the agreement, which matured on January 11, 1998,
CED made payments to the counterparty each January 11 and July 11 at variable
rates based on LIBOR, reset and compounded every three months, and in return
received payments based on a fixed rate of 6.34%. The effective LIBOR rate
ranged from 5.5313% to 5.8125% during 1997 and was 5.7500% at December 31, 1997
and at January 11, 1998, the termination date. The counterparty to this
agreement was a large international financial institution. The carrying amount
of the interest rate swap at December 31, 1997, was $42 (payable to CED), which
approximated its fair value. The fair value was based on the estimated amount
that CED would have received to terminate the swap agreement at that date as
provided by the financial institution which was the counterparty to the swap.
4. Property, Plant and Equipment
Property, plant and equipment are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998
<S> <C> <C>
Power plant and gathering system...................... $162,372 $ 164,335
Transmission line..................................... 11,353 10,201
Wells and resource development costs.................. 120,562 137,404
-------- ---------
294,287 311,940
Less accumulated depreciation and amortization........ (96,578) (110,340)
-------- ---------
$197,709 $ 201,600
======== =========
</TABLE>
The transmission line costs represent the Partnership's share of the costs of
construction of transmission lines from Inyokern to the Edison substation at
Kramer and from Kramer to the Edison substation at Victorville.
F-26
<PAGE>
COSO ENERGY DEVELOPERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
5. Project Loan
The project loan is as follows:
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
<S> <C> <C>
Project loan with a weighted average interest rate of 8.63%
and 8.73%, respectively, at December 31, 1997 and 1998
with scheduled repayments through December 2001........... $76,654 $37,958
</TABLE>
The project loan is a loan from Coso Funding Corp. (Funding Corp.). Funding
Corp. is a single-purpose corporation formed to issue notes for its own account
and as an agent acting on behalf of CED, Coso Finance Partners (CFP) and CPD,
collectively the "Partnerships." Pursuant to separate credit agreements
executed between Funding Corp. and each partnership on December 16, 1992, the
proceeds from Funding Corp.'s note offering were loaned to the Partnerships.
The CED project loan is collateralized by, among other things, the power
plant, geothermal resource, letters of credit, pledge of contracts and an
assignment of all Partnerships' revenues which will be applied against the
payment of obligations of each partnership, including the project loans. Each
partnership's assets collateralize only its own project loan, and are not
cross-collateralized with assets pledged under other partnership's credit
agreements. The project loan is non-recourse to any partner in CED and Funding
Corp. shall solely look to such Partnership's pledged assets for satisfaction
of such project loan. However, the Partnership, after satisfying a series of
its own obligations, has agreed to advance support loans to the extent of its
available cash flow and, under certain conditions its letters of credit, to CFP
or CPD in the event such other partnership's revenues are insufficient to meet
scheduled principal and interest on its separate project loan from Funding
Corp.
Until February 1997 the Partnership maintained a debt service fund which was
legally restricted as to its use and which required the maintenance of a
specific balance. The fund, comprised of investments of U.S. government and
corporate debt and various mortgage-backed securities with maturities from 1997
through 2024, was required by the terms and conditions of the project financing
and was maintained by First Trust of California in its capacity as the trustee
for the project lender. The securities comprising the fund were categorized as
held-to-maturity and valued at amortized cost. In February 1997 the project
lenders allowed the Partnership to replace the cash and investment balance in
the debt service fund with irrevocable letters of credit. The fund was then
liquidated and the resulting proceeds were (i) used to retire the promissory
note due CalEnergy and (ii) distributed to the partners. Proceeds from the sale
of these securities approximated their carrying value plus interest accrued
through the date of sale.
The annual project loan repayments are summarized as follows:
<TABLE>
<S> <C>
1999............................................................... $15,658
2000............................................................... 2,472
2001............................................................... 19,828
-------
$37,958
=======
</TABLE>
F-27
<PAGE>
COSO ENERGY DEVELOPERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Based on quoted market rates of the Funding Corp. notes, the fair value of
the project loan as of December 31, 1997 and 1998 was approximately $81,018 and
$39,980, respectively.
6. Related Party Transactions
CalEnergy, as operator, is reimbursed monthly for non-third-party costs
incurred on behalf of CED. These costs are comprised principally of approved
direct CalEnergy operating costs of the CED geothermal facility, allocable
general and administration costs, and operator fees and were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Operating costs...................................... $4,204 $3,905 $3,728
General and administration costs..................... 2,125 2,125 2,173
Operator fees........................................ 731 731 727
</TABLE>
Both CCH and CalEnergy are reimbursed at approved amounts for their
respective costs incurred in relation to the CED Management Committee. The
management committee fees paid were:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
CCH......................................................... $222 $218 $223
CalEnergy................................................... 145 145 148
</TABLE>
As indicated in Note 1, CLC is entitled to a royalty of 5% of the value of
the steam used by CED to produce the electricity sold to Edison. The royalty
due CLC for the years ended December 31, 1996, 1997 and 1998 was $2,432, $3,176
and $3,057, respectively. This royalty will be paid when CED has repaid its
project loan.
In addition, as described in Note 2, CED is charged for its use of the
transmission line owned by CTLP. The amount of such net charges was $114, $112
and $115 for the years ended December 31, 1996, 1997 and 1998, respectively.
CED is charged by CLPSI for both its inventory usage and its portion of the
expenses of operating CLPSI. The 1996, 1997, and 1998 costs charged to CED from
CLPSI were approximately $974, $606 and $1,350, respectively.
During 1994, the three Coso operating ventures (CED, CPD and CFP) entered
into steam sharing agreements under which the ventures may transfer steam, with
the resulting incremental revenue and royalty expense shared equally by the
ventures. In the second half of 1995, interconnection facilities between the
plants were completed and the transfer of steam commenced. CED steam sharing
revenue, net of royalties and other related costs, amounted to $8,464, $1,584
and $6,430 in 1996, 1997 and 1998, respectively.
F-28
<PAGE>
COSO ENERGY DEVELOPERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
The amounts due to (from) related parties at December 31, 1997 and 1998
consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
<S> <C> <C>
Due to CPD for steam sharing............................. $ 561 $ 259
Due to CFP for steam sharing............................. 2,500 2,258
Due to CalEnergy......................................... 121 702
CLC...................................................... 17,660 20,699
Loan to CLC
Principal.............................................. (141) (141)
Accrued interest....................................... (119) (153)
------- -------
$20,582 $23,624
======= =======
</TABLE>
On December 16, 1992, CED paid $1,531 of principal and all accrued interest
through December 16, 1992 on the promissory note due CalEnergy. A new
promissory note was then signed on December 16, 1992 for the remaining
principal balance. This note bore a fixed interest rate of 12.5%, compounded
semi-annually, and was payable on or before March 19, 2002. The previous note
was signed March 19, 1991 as a result of the partners' arbitration settlement
and accrued interest at a rate defined as the lowest average interest rate
actually charged by the previous project loan lender on any of the Coso
ventures' debt, which was 5.4% through December 16, 1992. Interest on the note
was $2,659 and $250 in 1996 and 1997, respectively. CED made principal payments
on the note of $7,981 during 1996. In January 1997, CED made a principal
payment of $6,442 from funds provided by the partners and in February 1997, the
note and accrued interest were repaid in full.
Additionally, on December 16, 1992, CED retired CLC's promissory note due
CalEnergy, resulting in the loan from CED to CLC of $141. Interest has been
accrued on this loan at 12.5%. Interest on the note was $26 , $29 and $34 in
1996, 1997 and 1998, respectively.
The December 31, 1997 and 1998 due to CalEnergy balances relate to the
venture reimbursing CalEnergy for the costs of operating the plant. This amount
fluctuated in concert with the timing of billings and incurring of costs.
7. Commitments and Contingencies
On June 9, 1997, Edison filed a complaint alleging breach of the power
purchase agreements (SO4 Agreements) between Edison and the Partnerships as a
result of alleged improper venting of certain noncondensible gases at the Coso
geothermal energy project. In the complaint, Edison seeks unspecified damages,
including the refund of certain amounts previously paid under the SO4
Agreements, and termination of the SO4 Agreements. In September 1997, the
Partnerships and CalEnergy filed a cross-complaint against Edison and its
affiliates, The Mission Group and Mission Power Engineering Company, alleging,
among other things, that Edison's lawsuit violates the 1993 settlement
agreement which settled certain litigation arising from the construction of
certain units at the Coso geothermal project by Edison affiliates. In addition,
the Partnerships filed a separate complaint against Edison alleging breach of
the SO4 Agreements, unfair business practices, slander
F-29
<PAGE>
COSO ENERGY DEVELOPERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
and various other tort and contract claims. The actions were effectively
consolidated in December 1997. As a result of certain procedural actions by the
parties and a November 1997 court order, Edison filed an amended complaint on
December 16, 1997 and the Partnerships amended their cross-complaint. In
addition, the court has struck Edison's request to terminate the SO4 Agreements
and obtain a refund of all funds paid to the Joint Ventures. The litigation is
in its early procedural stages and the pleadings have not been settled. The
Partnerships believe that its claims and defenses are meritorious and that they
will prevail if the matter is ultimately heard on its merits. The Partnerships
intend to vigorously defend this action and prosecute all available
counterclaims against Edison.
8. Subsequent Event
On January 25, 1999, CalEnergy agreed to sell its indirect interest in CED to
Caithness Acquisition Company LLC (Caithness), an affiliate of CCH. Upon
completion of the sale, COC, Caithness or its designee will become the operator
of CED.
F-30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Coso Power Developers
In our opinion, the accompanying balance sheets and the related statements of
operations, of partners' capital and of cash flows present fairly, in all
material respects, the financial position of Coso Power Developers at December
31, 1997 and 1998, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the financial statements, the Partnership adopted
in 1998 Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities."
/s/ PricewaterhouseCoopers LLP
San Francisco, California
February 12, 1999
F-31
<PAGE>
COSO POWER DEVELOPERS
BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
<S> <C> <C>
Assets
Cash......................................................... $ 1,148 $ 818
Accounts receivable.......................................... 17,873 19,656
Prepaid expenses and other assets............................ 1,592 694
Amounts due from related parties, net (Note 6)............... 1,778 2,848
Property, plant and equipment, net (Note 4).................. 198,483 188,862
Investment in Coso Transmission Line Partners................ 3,929 3,802
Advances to China Lake Plant Services, Inc................... 1,743 2,086
Deferred financing costs, net................................ 403 199
-------- --------
$226,949 $218,965
======== ========
Liabilities and Partners' Capital
Accounts payable and accrued liabilities..................... $ 4,269 $ 3,981
Project loan (Note 5)........................................ 97,267 61,323
-------- --------
101,536 65,304
Partners' capital............................................ 125,413 153,661
-------- --------
$226,949 $218,965
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
COSO POWER DEVELOPERS
STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------------
1996 1997 1998
<S> <C> <C> <C>
Revenue
Sales of electricity.............................. $115,126 $112,796 $119,564
Interest and other income......................... 3,174 2,187 1,799
-------- -------- --------
118,300 114,983 121,363
-------- -------- --------
Expenses
Plant operations (Note 6)......................... 13,371 13,146 15,508
Royalty expense................................... 11,486 11,249 11,868
Depreciation and amortization..................... 13,054 13,354 13,744
Interest expense.................................. 12,149 10,532 8,122
-------- -------- --------
50,060 48,281 49,242
-------- -------- --------
Income before cumulative effect of accounting
change........................................... 68,240 66,702 72,121
Cumulative effect of accounting change (Note 2)... -- -- (1,664)
-------- -------- --------
Net income........................................ $ 68,240 $ 66,702 $ 70,457
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
COSO POWER DEVELOPERS
STATEMENTS OF PARTNERS' CAPITAL
(Dollars in thousands)
<TABLE>
<CAPTION>
Caithness Coso
Navy II Technology
Group L.P. Corporation Total
<S> <C> <C> <C>
Balance, December 31, 1995................. $ 70,041.0 $ 70,041.0 $140,082.0
Distributions to partners(1)............... (41,115.0) (41,115.0) (82,230.0)
Net income................................. 34,120.0 34,120.0 68,240.0
---------- ---------- ----------
Balance, December 31, 1996................. 63,046.0 63,046.0 126,092.0
Distributions to partners(1)............... (33,690.5) (33,690.5) (67,381.0)
Net income................................. 33,351.0 33,351.0 66,702.0
---------- ---------- ----------
Balance, December 31, 1997................. 62,706.5 62,706.5 125,413.0
Distributions to partners.................. (21,104.5) (21,104.5) (42,209.0)
Net income................................. 35,228.5 35,228.5 70,457.0
---------- ---------- ----------
Balance, December 31, 1998................. $ 76,830.5 $ 76,830.5 $153,661.0
========== ========== ==========
</TABLE>
- ---------------------
(1) Distributions of $13,769 to Caithness Navy II Group L.P. and $13,769 to
Coso Technology Corporation were declared and paid on January 2, 1996.
Distributions of $16,596 to Caithness Navy II Group L.P. and $16,596 to
Coso Technology Corporation were declared on December 31, 1996 and paid on
December 31, 1996 and January 2, 1997, respectively.
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
COSO POWER DEVELOPERS
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------------
1996 1997 1998
<S> <C> <C> <C>
Cash flows from operating activities
Net income...................................... $ 68,240 $ 66,702 $ 70,457
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization................. 13,054 13,354 13,744
Amortization of deferred financing costs...... 326 271 204
Cumulative effect of accounting change........ -- -- 1,664
Equity in loss of Coso Transmission Line
Partners..................................... 126 127 127
Additional charges from (advances to) China
Lake Plant Services, Inc..................... (198) 503 (343)
Decrease (increase) in accounts receivable,
prepaid expenses and other assets............ 172 (948) (885)
Increase (decrease) in accounts payable and
accrued liabilities.......................... (7,939) 796 864
Decrease (increase) in amounts due from
related parties.............................. 830 (145) (1,070)
-------- --------- --------
Net cash flows from operating activities.... 74,611 80,660 84,762
-------- --------- --------
Cash flows from investing activities
Additions to power plant and transmission line.. (2,930) (269) (1,411)
Additions to wells and resource development
costs.......................................... (1,403) (7,723) (5,528)
Decrease in restricted cash..................... 450 22,391 --
-------- --------- --------
Net cash flows from investing activities.... (3,883) 14,399 (6,939)
-------- --------- --------
Cash flows from financing activities
Distributions to partners....................... (65,634) (83,977) (42,209)
Repayment of project financing loans............ (31,682) (27,094) (35,944)
Repayment of CalEnergy promissory note.......... -- (973) --
-------- --------- --------
Net cash flows from financing activities.... (97,316) (112,044) (78,153)
-------- --------- --------
Net change in cash.............................. (26,588) (16,985) (330)
Cash at beginning of year....................... 44,721 18,133 1,148
-------- --------- --------
Cash at end of year............................. $ 18,133 $ 1,148 $ 818
======== ========= ========
Supplemental cash flow disclosure
Interest paid................................... $ 18,394 $ 10,877 $ 7,918
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
COSO POWER DEVELOPERS
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
1. The Partnership and Business of Coso Power Developers
Coso Power Developers (CPD or Partnership) was formed on July 31, 1989, in
connection with financing the construction of a geothermal power plant on land
at the China Lake Naval Air Weapons Station at Coso Hot Springs, China Lake,
California. CPD is a general partnership between Coso Technology Corporation
(CTC), a Delaware corporation, and Caithness Navy II Group L.P. (CNIIG), a New
Jersey limited partnership.
The power plant is located on land owned by the U.S. Navy. Under the terms of
a 30-year contract with the U.S. Navy to develop geothermal energy on its land,
CPD will pay a royalty to the Navy which was initially 4% of revenues, is
currently 10% of revenues, and increases to 20% of revenues after 15 years. The
Navy contract expires in 2009; the Navy has an option to extend it to 2019.
The Partnership sells all electricity produced to Southern California Edison
(Edison) under a 20-year power purchase contract for the Navy II plant expiring
in 2010. Under the terms of the contract, Edison makes payments to CPD as
follows:
. Contractual payments for energy delivered, which payments escalate at an
average rate of approximately 7.6% for the first ten years after the date
of firm operation (scheduled energy price period). The scheduled energy
price period for each unit extends until at least January 2000, after
which the energy payment for at least Unit 7 adjusts to the actual
avoided energy cost experienced by Edison at that time. For the year
ended December 31, 1998, Edison's average avoided cost of energy was 2.95
cents per kwh which is substantially below the contract energy prices
earned for the year ended December 31, 1998. Estimates of Edison's future
avoided cost of energy vary substantially from year to year. The
Partnership cannot predict the likely level of avoided cost of energy
prices under the 20-year power purchase contract at the expiration of the
scheduled energy price period. The revenues generated by the Partnership
could decline significantly after the expiration of the scheduled energy
price period;
. Capacity payments which remain fixed over the life of the contract to the
extent that actual energy delivered exceeds minimum levels of the plant
capacity defined in the contract; and
. Bonus payments to the extent that actual energy delivered exceeds 85% of
the plant capacity stated in the contract. In 1996, 1997 and 1998, the
bonus payments aggregated $2,255, $2,236, and $2,242, respectively.
CalEnergy Company, Inc. (CalEnergy) served as the operator, maintaining the
Partnership's accounting records and operating the CPD plant on a day-to-day
basis, until February 1, 1999, when Coso Operating Company LLC (COC), a
Delaware limited liability company, became operator pursuant to certain
operations and maintenance agreements with CTC, the managing general partner of
CPD (see Note 8). COC and CTC are wholly-owned subsidiaries of CalEnergy.
At formation, and as subsequently amended, the partnership agreement provides
that cash flows before and after "payout" which has occurred, are allocated 50%
each to CTC and CNIIG. "Payout" is defined as the point at which each partner
has received aggregate cash distributions in
F-36
<PAGE>
COSO POWER DEVELOPERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
an amount equal to their accumulated capital contributions. For purposes of
allocating net income to partners' capital accounts and for income tax
purposes, profits and losses are allocated based on the aforementioned capital
percentages.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies
Recognition of Revenue
Operating revenues are recognized as income during the period in which
electricity is delivered to Edison. Revenue is recognized based on the payment
rates scheduled in CPD's power purchase contract with Edison.
Fixed Assets and Depreciation
The costs of major additions and betterments are capitalized, while
replacements, maintenance and repairs which do not improve or extend the life
of the respective assets are expensed currently.
Depreciation of the power plant and transmission line is computed on the
straight line method over their estimated useful life of 30 years and, for
significant additions, the remainder of the 30-year life from the plant's
commencement of operations.
The Partnership reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss would be recognized whenever evidence exists
that the carrying value is not recoverable.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up Activities."
SOP No. 98-5 requires that, at the effective date of adoption, costs of start-
up activities previously capitalized be expensed and reported as a cumulative
effect of a change in accounting principle, and further requires that such
costs subsequent to adoption be expensed as incurred. CPD adopted this standard
in 1998 and expensed applicable unamortized costs previously capitalized in
connection with the start-up of CPD. The cumulative effect of the change in
accounting principle was $1,664.
Wells and Resource Development Costs
CPD follows the full cost method of accounting for costs incurred in
connection with the exploration and development of geothermal resources. All
such costs, which include dry hole costs, the costs of drilling and equipping
production wells, and administrative and interest costs directly attributable
to the project, are capitalized and amortized over their estimated useful lives
when production commences. The estimated useful lives of production wells are
ten years each; exploration
F-37
<PAGE>
COSO POWER DEVELOPERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
costs and development costs, other than production wells, are amortized over 30
years and, for significant additions, the remainder of the 30-year life from
the plant's commencement of operations.
Deferred Well Rework Costs
Well rework costs are deferred and amortized over the estimated period
between reworks. These deferred costs of $1,029 and $83 at December 31, 1997
and 1998, respectively, are included in prepaid expenses and other assets.
Currently, both production and injection rework costs are amortized over twelve
months.
Deferred Plant Overhaul Costs
Plant overhaul costs are deferred and amortized over the estimated period
between overhauls. These deferred costs of $0 and $176 at December 31, 1997 and
1998, respectively, are included in prepaid expenses and other assets.
Currently, plant overhauls are amortized over three years from the point of
completion.
Investment in Coso Transmission Line Partners
Coso Transmission Line Partners (CTLP) is a partnership, between CPD and Coso
Energy Developers (CED), which owns the transmission line and facilities
connecting the power plants owned by CPD and CED to the transmission line,
owned by Edison, at Inyokern, California, located 28 miles south of the plants.
CTLP charges CPD and CED for the use of the transmission line at amounts
designed to ensure that CTLP recovers its operating costs. These charges are
recorded by CPD as operating expenses and reflected as a reduction in CPD's
investment in CTLP.
Advances to China Lake Plant Services, Inc.
China Lake Plant Services, Inc. (CLPSI) is a wholly-owned subsidiary of
CalEnergy. CLPSI purchases, stores and distributes spare parts to CPD and two
other affiliated operating ventures. Also, certain other facilities utilized by
all three operating ventures are held by CLPSI. CPD's advances to CLPSI
represent funds advanced for the purchase of spare parts inventory and other
assets. Spare parts inventory held by CLPSI on behalf of CPD is valued at the
lower of cost or market.
Deferred Financing Costs
Deferred financing costs consist of loan fees and are amortized over the term
of the related financing using the effective interest method. Accumulated
amortization at December 31, 1997 and 1998 was $1,823 and $2,027, respectively.
Income Taxes
There is no provision for income taxes since those taxes are the
responsibility of the partners.
F-38
<PAGE>
COSO POWER DEVELOPERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Cash Flows
For purposes of the statements of cash flows, CPD considers all money market
instruments purchased with an initial maturity of three months or less to be
cash equivalents.
3. Interest Rate Swap Agreement
In January 1993, CPD entered into a five-year deposit interest rate swap
agreement which, until certain investments were liquidated in February 1997
(see Note 5), effectively converted notional deposit balances from a variable
rate to a fixed rate. Under the agreement, which matured on January 11, 1998,
CPD made payments to the counterparty each January 11 and July 11 at variable
rates based on LIBOR, reset and compounded every three months, and in return
received payments based on a fixed rate of 6.34%. The effective LIBOR rate
ranged from 5.5313% to 5.8125% during 1997 and was 5.7500% at December 31, 1997
and at January 11, 1998, the termination date. The counterparty to this
agreement was a large international financial institution. The carrying amount
of the interest rate swap at December 31, 1997, was $41 (payable to CPD), which
approximated its fair value. The fair value was based on the estimated amount
that CPD would have received to terminate the swap at that date as provided by
the financial institution which was the counterparty to the swap.
4. Property, Plant and Equipment
Property, plant and equipment are comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
<S> <C> <C>
Power plant and gathering system......................... $165,708 $164,952
Transmission line........................................ 9,484 8,332
Wells and resource development costs..................... 108,977 114,505
-------- --------
284,169 287,789
Less accumulated depreciation and amortization........... (85,686) (98,927)
-------- --------
$198,483 $188,862
======== ========
</TABLE>
The transmission line costs represent the costs of construction of
transmission lines from Inyokern to the Edison substation at Kramer and from
Kramer to the Edison substation at Victorville.
5. Project Loan
The project loan is as follows:
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
<S> <C> <C>
Project loan with a weighted average interest rate of 8.61%
and 8.65%, respectively, at December 31, 1997 and 1998
with scheduled repayments through December 2001........... $97,267 $61,323
</TABLE>
The project loan is a loan from Coso Funding Corp. (Funding Corp.). Funding
Corp. is a single-purpose corporation formed to issue notes for its own account
and as an agent acting on behalf of
F-39
<PAGE>
COSO POWER DEVELOPERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
CPD, Coso Finance Partners (CFP) and CED, collectively the "Partnerships."
Pursuant to separate credit agreements executed between Funding Corp. and each
partnership on December 16, 1992, the proceeds from Funding Corp.'s note
offering were loaned to the Partnerships.
The CPD project loan is collateralized by, among other things, the power
plant, geothermal resource, letters of credit, pledge of contracts and an
assignment of all Partnerships' revenues which will be applied against the
payment of obligations of each partnership, including the project loans. Each
partnership's assets collateralize only its own project loan, and are not
cross-collateralized with assets pledged under other partnership's credit
agreements. The project loan is non-recourse to any partner in CPD and Funding
Corp. shall solely look to such Partnership's pledged assets for satisfaction
of such project loan. However, the Partnership, after satisfying a series of
its own obligations, has agreed to advance support loans to the extent of its
available cash flow and, under certain conditions its letters of credit, to CFP
or CED in the event such other partnership's revenues are insufficient to meet
scheduled principal and interest on its separate project loan from Funding
Corp.
Until February 1997 the Partnership maintained a debt service fund which was
legally restricted as to its use and which required the maintenance of a
specific balance. The fund, comprised of investments of U.S. government and
corporate debt and various mortgage-backed securities with maturities from 1997
through 2024, was required by the terms and conditions of the project financing
and was maintained by First Trust of California in its capacity as the trustee
for the project lender. The securities comprising the fund were categorized as
held-to-maturity and valued at amortized cost. In February 1997 the project
lenders allowed the Partnership to replace the cash and investment balance in
the debt service fund with irrevocable letters of credit. The fund was then
liquidated and the resulting proceeds were (i) used to retire the promissory
note due CalEnergy and (ii) distributed to the partners. Proceeds from the sale
of these securities approximated their carrying value plus interest accrued
through the date of sale.
The annual project loan repayments are summarized as follows:
<TABLE>
<S> <C>
1999............................................................... $39,322
2000............................................................... 1,828
2001............................................................... 20,173
-------
$61,323
=======
</TABLE>
Based on quoted market rates of the Funding Corp. notes, the fair value of
the project loan as of December 31, 1997 and 1998 was approximately $102,495
and $63,912, respectively.
F-40
<PAGE>
COSO POWER DEVELOPERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
6. Related Party Transactions
CalEnergy, as operator, is reimbursed monthly for non-third-party costs
incurred on behalf of CPD. These costs are comprised principally of approved
direct CalEnergy operating costs of the CPD geothermal facility, allocable
general and administration costs and operator fees and were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Operating costs...................................... $3,076 $3,312 $3,026
General and administration costs..................... 1,911 1,911 1,955
Operator fees........................................ 517 517 513
</TABLE>
Both CalEnergy and CNIIG are reimbursed at approved amounts for their
respective costs incurred in relation to the CPD Management Committee. The
management committee fees paid were:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
CNIIG....................................................... $218 $218 $223
CalEnergy................................................... 145 145 148
</TABLE>
As discussed in Note 2, CPD is charged for its use of the transmission line
owned by CTLP. The amount of such net charges was $126, $127 and $127 for the
years ended December 31, 1996, 1997 and 1998, respectively.
CPD is charged by CLPSI for both its inventory usage and its portion of the
expenses of operating CLPSI. The charges to CPD from CLPSI in 1996, 1997 and
1998 were approximately $381, $1,227 and $361, respectively.
During 1994, the three Coso operating ventures (CPD, CED and CFP) entered
into steam sharing agreements under which the ventures may transfer steam, with
the resulting incremental revenue and royalty expense shared equally by the
ventures. In the second half of 1995, interconnection facilities between the
plants were completed and the transfer of steam commenced. CPD steam sharing
revenue, net of royalties and other related costs, amounted to $3,566, $1,750
and $342 in 1996, 1997 and 1998, respectively.
The amounts due to (from) related parties at December 31, 1997 and 1998
consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
<S> <C> <C>
Due from CalEnergy........................................ $ (42) $(1,241)
Due from CED for steam sharing............................ (561) (259)
Due to CFP for steam sharing.............................. 1,704 1,902
Loan to China Lake Joint Venture
Principal............................................... (1,562) (1,562)
Accrued interest........................................ (1,317) (1,688)
------- -------
$(1,778) $(2,848)
======= =======
</TABLE>
On December 16, 1992, CPD signed a promissory note with CalEnergy for $973,
which represents the principal on the previous promissory note of $869 plus
accrued interest through December 16, 1992, of $104. This note bore a fixed
interest rate of 12.5%, compounded semi-
F-41
<PAGE>
COSO POWER DEVELOPERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
annually, and was payable on or before March 19, 2002. The previous note was
signed March 19, 1991 as a result of the partners' arbitration settlement and
accrued interest at a rate defined as the lowest average interest rate actually
charged by the previous project loan lender on any of the Coso ventures' debt,
which was 5.4% through December 16, 1992. During February 1997, this note and
accrued interest were paid in full. Interest on the note was $181 and $27 in
1996 and 1997, respectively.
Additionally, on December 16, 1992, CPD retired China Lake Joint Venture's
(CLJV) promissory note due CalEnergy, resulting in the loan from CPD to CLJV of
$1,562 at December 31, 1992. CLJV is an affiliated venture. Interest has been
accrued on this loan at 12.5%. Interest on the loan was $291, $329 and $371 in
1996, 1997 and 1998, respectively.
The December 31, 1997 and 1998 due from CalEnergy balances relate to the
venture reimbursing CalEnergy for the costs of operating the plant. This amount
fluctuated in concert with the timing of billings and incurring of costs.
7. Commitments and Contingencies
On June 9, 1997, Edison filed a complaint alleging breach of the power
purchase agreements (SO4 Agreements) between Edison and the Partnerships as a
result of alleged improper venting of certain noncondensible gases at the Coso
geothermal energy project. In the complaint, Edison seeks unspecified damages,
including the refund of certain amounts previously paid under the SO4
Agreements, and termination of the SO4 Agreements. In September 1997, the
Partnerships and CalEnergy filed a cross-complaint against Edison and its
affiliates, The Mission Group and Mission Power Engineering Company, alleging,
among other things, that Edison's lawsuit violates the 1993 settlement
agreement which settled certain litigation arising from the construction of
certain units at the Coso geothermal project by Edison affiliates. In addition,
the Partnerships filed a separate complaint against Edison alleging breach of
the SO4 Agreements, unfair business practices, slander and various other tort
and contract claims. The actions were effectively consolidated in December
1997. As a result of certain procedural actions by the parties and a November
1997 court order, Edison filed an amended complaint on December 16, 1997 and
the Partnerships amended their cross-complaint. In addition, the court has
struck Edison's request to terminate the SO4 Agreements and obtain a refund of
all funds paid to the Joint Ventures. The litigation is in its early procedural
stages and the pleadings have not been settled. The Partnerships believe that
its claims and defenses are meritorious and that they will prevail if the
matter is ultimately heard on its merits. The Partnerships intend to vigorously
defend this action and prosecute all available counterclaims against Edison.
8. Subsequent Event
On January 25, 1999, CalEnergy agreed to sell its indirect interest in CPD to
Caithness Acquisition Company LLC (Caithness), an affiliate of CNIIG. Upon
completion of the sale, COC, Caithness or its designee will become the operator
of CPD.
F-42
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
(Note) (New basis)
<S> <C> <C>
Assets
Cash................................................... $ -- $ 6,397
Restricted cash and investments........................ 7,524 7,808
Accounts receivable.................................... 5,404 5,520
Prepaids and other assets.............................. 426 185
Amounts due to related parties......................... 3,782 42
Property, plant and equipment.......................... 180,380 158,367
Power purchase agreement............................... -- 14,573
Advances to China Lake Plant Services, Inc. ........... 4,139 4,114
Deferred financing costs, net.......................... 233 1,320
-------- --------
$201,888 $198,326
======== ========
Liabilities and Partners' Capital
Accounts payable and accrued liabilities............... $ 11,389 $ 13,387
Acquisition debt....................................... -- 77,610
Project loan........................................... 40,566 40,566
-------- --------
51,955 131,563
Partners' capital...................................... 149,933 66,763
-------- --------
$201,888 $198,326
======== ========
</TABLE>
Note: The condensed combined balance sheet at December 31, 1998 has been
derived from the audited financial statements at that date but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See accompanying notes to the unaudited condensed combined financial
statements.
F-43
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months Two months
ended ended One month
March 31, February 28, ended March
1998 1999 31, 1999
(New basis)
<S> <C> <C> <C>
Revenue
Sales of electricity...................... $10,806 $8,572 $4,636
Interest and other income................. 136 824 827
------- ------ ------
10,942 9,396 5,463
------- ------ ------
Expenses
Plant operations.......................... 3,571 3,125 1,458
Royalty expense........................... 895 987 451
Depreciation and amortization............. 2,957 1,604 783
Interest expense.......................... 1,124 663 1,630
------- ------ ------
8,547 6,379 4,322
------- ------ ------
Net income................................ $ 2,395 $3,017 $1,141
======= ====== ======
</TABLE>
See accompanying notes to the unaudited condensed combined financial
statements.
F-44
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months Two months
Ended Ended One month
March 31, February 28, Ended March
1998 1999 31, 1999
(New basis)
<S> <C> <C> <C>
Net cash provided by operating
activities............................ $7,804 $ 6,592 $2,665
Net cash used by investing activities.. (24) (538) (397)
Net cash provided (used) by financing
activities............................ (108) (1,926) --
------ ------- ------
Net change in cash and cash
equivalents........................... $7,672 $ 4,128 $2,268
====== ======= ======
</TABLE>
See accompanying notes to the unaudited condensed combined financial
statements.
F-45
<PAGE>
COSO FINANCE PARTNERS AND COSO FINANCE PARTNERS II
NOTES TO THE UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
1. Basis of presentation
The accompanying unaudited condensed combined financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules. Management believes that the disclosures are adequate
to make the information presented not misleading when read in conjunction with
the combined financial statements and the notes thereto included in the audited
financial statements for the year ended December 31, 1998.
The financial information herein presented reflects all adjustments,
consisting only of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair statement of the results for interim periods
presented. The results for the interim periods are not necessarily indicative
of results to be expected for the full year. Coso Finance Partners and Coso
Finance Partners II (collectively, CFP) has experienced significant quarterly
fluctuations in operating results and it expects that these fluctuations in
energy revenues, expenses and net income will continue.
2. Acquisition of CalEnergy's interest in the Coso Partnerships
On February 25, 1999, Caithness Acquisition Company, LLC (Caithness
Acquisition), a wholly owned subsidiary of Caithness Energy LLC, purchased all
of CalEnergy Company, Inc.'s (CalEnergy) interests in CFP and its affiliated
partnerships, Coso Power Developers and Coso Energy Developers (collectively,
the Coso Partnerships) for a total purchase price of $205 million in cash, plus
up to $5 million in contingent payments, and the assumption of CalEnergy's
share of debt outstanding at the Coso Partnerships which then totaled
approximately $68.7 million. The acquisition was accounted for under the
purchase method, whereby the purchase price is allocated to the underlying
assets and liabilities based upon their estimated fair market values. The total
cash purchase price allocated to CFP was approximately $62.1 million. No
goodwill was recorded as a result of the purchase.
In order to complete the purchase, Caithness Acquisition arranged for short-
term debt financing in the principal amount of approximately $211.5 million.
Caithness Acquisition will use a portion of the proceeds from an anticipated
offering of senior secured notes that it will receive from the Coso
partnerships, together with funds from other sources, to repay all amounts owed
under this short-term debt facility. As a result of "push-down" accounting, a
pro rata portion of the short-term debt has been reflected in the financial
statements of CFP as of February 25, 1999.
The following unaudited pro forma financial information for the three months
ended March 31, 1998 and 1999 present the combined results of operations of CFP
as if the acquisition had occurred as of January 1, 1999, after giving effect
to certain adjustments including amortization of intangible assets, reduced
depreciation and operating expense and increased interest expense. The pro
forma financial information does not necessarily reflect the results of
operations that would have occurred had the acquisition been completed on
January 1, 1999.
<TABLE>
<CAPTION>
Three Months Ended
-------------------
March 31, March 31,
1998 1999
--------- ---------
<S> <C> <C>
Total revenues........................................ $10,942 $14,859
======= =======
Net income............................................ $(1,008) $ 1,875
======= =======
</TABLE>
F-46
<PAGE>
COSO ENERGY DEVELOPERS
UNAUDITED CONDENSED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
(Note) (New basis)
<S> <C> <C>
Assets
Cash................................................... $ -- $ 17,015
Restricted cash and investments........................ 290 247
Accounts receivable.................................... 19,835 15,799
Prepaids and other assets.............................. 1,526 333
Amounts due from related parties....................... -- 304
Property, plant and equipment.......................... 201,600 163,269
Power purchase agreement............................... -- 20,498
Investment in Coso Transmission Line Partners.......... 3,107 3,930
Advances to China Lake Plant Services, Inc. ........... 1,567 1,405
Deferred financing costs, net.......................... 162 939
-------- --------
$228,087 $223,739
======== ========
Liabilities and Partners' Capital
Accounts payable and accrued liabilities............... $ 3,314 $ 3,129
Amounts due to related parties......................... 23,624 21,790
Acquisition debt....................................... -- 55,256
Project loan........................................... 37,958 37,958
-------- --------
64,896 118,133
Partners' capital...................................... 163,191 105,606
-------- --------
$228,087 $223,739
======== ========
</TABLE>
Note: The condensed balance sheet at December 31, 1998 has been derived from
the audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to the unaudited condensed financial statements.
F-47
<PAGE>
COSO ENERGY DEVELOPERS
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months Two months
ended ended One month
March 31, February 28, ended March
1998 1999 31, 1999
(New basis)
<S> <C> <C> <C>
Revenue
Sales of electricity...................... $22,728 $17,533 $3,844
Interest and other income................. 217 78 118
------- ------- ------
22,945 17,611 3,962
------- ------- ------
Expenses
Plant operations.......................... 5,517 4,039 1,604
Royalty expense........................... 2,101 1,592 347
Depreciation and amortization............. 3,624 2,550 1,175
Interest expense.......................... 1,786 616 1,233
------- ------- ------
13,028 8,797 4,359
------- ------- ------
Net income................................ $ 9,917 $ 8,814 $ (397)
======= ======= ======
</TABLE>
See accompanying notes to the unaudited condensed financial statements.
F-48
<PAGE>
COSO ENERGY DEVELOPERS
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Two months
Three months Ended One month
Ended March 31, February 28, Ended March 31,
1998 1999 1999
(New basis)
<S> <C> <C> <C>
Net cash provided by operating
activities...................... $18,478 $10,367 $6,595
Net cash provided (used) by
investing activities............ (3,556) 120 (294)
Net cash provided (used) by
financing activities............ (413) 425 (198)
------- ------- ------
Net change in cash and cash
equivalents..................... $14,509 $10,912 $6,103
======= ======= ======
</TABLE>
See accompanying notes to the unaudited condensed financial statements.
F-49
<PAGE>
COSO ENERGY DEVELOPERS
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. Basis of presentation
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules. Management believes that the disclosures are adequate
to make the information presented not misleading when read in conjunction with
the financial statements and the notes thereto included in the audited
financial statements for the year ended December 31, 1998.
The financial information herein presented reflects all adjustments,
consisting only of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair statement of the results for interim periods
presented. The results for the interim periods are not necessarily indicative
of results to be expected for the full year. Coso Energy Developers (CED) has
experienced significant quarterly fluctuations in operating results and it
expects that these fluctuations in energy revenues, expenses and net income
will continue.
2. Acquisition of CalEnergy's interest in the Coso Partnerships
On February 25, 1999, Caithness Acquisition Company, LLC (Caithness
Acquisition) a wholly owned subsidiary of Caithness Energy, LLC purchased all
of CalEnergy Company, Inc.'s (CalEnergy) interests in CED and its affiliated
partnerships, Coso Power Developers and Coso Finance Partners and Coso Finance
Partners II (collectively, the Coso partnerships) for a total purchase price of
$205 million in cash, plus up to $5 million in contingent payments and the
assumption of CalEnergy's share of debt outstanding at the Coso partnerships
which then totaled approximately $68.7 million. The acquisition was accounted
for under the purchase method, whereby the purchase price is allocated to the
underlying assets and liabilities based upon their estimated fair market
values. The total purchase price allocated to CED was approximately $68.8
million. No goodwill was recorded as a result of the purchase.
In order to complete the purchase, Caithness Acquisition arranged for short-
term debt financing in the principal amount of approximately $211.5 million.
Caithness Acquisition will use a portion of the proceeds from an anticipated
offering of senior secured notes that it will receive from the Coso
partnerships, together with funds from other sources, to repay all amounts owed
under this short-term debt facility. As a result of "push down" accounting, a
pro rata portion of the short-term debt has been reflected in the financial
statements of CED as of February 25, 1999.
The following unaudited pro forma financial information for the three months
ended March 31, 1998 and 1999 present the combined results of operations of CED
as if the acquisition had occurred as of January 1, 1999, after giving effect
to certain adjustments including amortization of intangible assets, reduced
depreciation and operating expense and increased interest expense. The pro
forma financial information does not necessarily reflect the results of
operations that would have occurred had the acquisition been completed on
January 1, 1999.
<TABLE>
<CAPTION>
Three Months Ended
-------------------
March 31, March 31,
1998 1999
--------- ---------
<S> <C> <C>
Total revenues........................................ $22,945 $21,573
======= =======
Net income............................................ $ 8,029 $ 7,223
======= =======
</TABLE>
F-50
<PAGE>
COSO POWER DEVELOPERS
UNAUDITED CONDENSED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
(Note) (New basis)
<S> <C> <C>
Assets
Cash................................................... $ 818 $ 20,039
Accounts receivable.................................... 19,656 19,778
Prepaids and other assets.............................. 694 294
Amounts due to related parties......................... 2,848 3,352
Property, plant and equipment.......................... 188,862 149,380
Power purchase agreement............................... -- 29,656
Investment in Coso Transmission Line Partners.......... 3,802 4,791
Advances to China Lake Plant Services, Inc. ........... 2,086 2,027
Deferred financing costs, net.......................... 199 1,336
-------- --------
$218,965 $230,653
======== ========
Liabilities and Partners' Capital
Accounts payable and accrued liabilities............... $ 3,981 $ 6,764
Amounts due to related parties......................... -- 1,540
Acquisition debt....................................... -- 78,634
Project loan........................................... 61,323 61,323
-------- --------
65,304 148,261
Partners' capital...................................... 153,661 82,392
-------- --------
$218,965 $230,653
======== ========
</TABLE>
Note: The condensed balance sheet at December 31, 1998 has been derived from
the audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to the unaudited condensed financial statements.
F-51
<PAGE>
COSO POWER DEVELOPERS
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months Two months
ended ended One month
March 31, February 28, ended March
1998 1999 31, 1999
(New basis)
<S> <C> <C> <C>
Revenue
Sales of electricity...................... $26,649 $17,509 $7,128
Interest and other income................. 319 150 156
------- ------- ------
26,968 17,659 7,284
------- ------- ------
Expenses
Plant operations.......................... 4,356 3,195 1,293
Royalty expense........................... 2,780 1,806 1,064
Depreciation and amortization............. 3,493 2,339 1,188
Interest expense.......................... 2,235 953 1,792
------- ------- ------
12,864 8,293 5,337
------- ------- ------
Net income................................ $14,104 $ 9,366 $1,947
======= ======= ======
</TABLE>
See accompanying notes to the unaudited condensed financial statements.
F-52
<PAGE>
COSO POWER DEVELOPERS
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months Two months One month
Ended March 31, Ended February 28, Ended March 31,
1998 1999 1999
(New basis)
<S> <C> <C> <C>
Net cash provided by
operating activities...... $19,352 $12,016 $6,265
Net cash used by investing
activities................ (808) (1,126) (218)
Net cash provided by
financing activities...... 273 1,766 518
------- ------- ------
Net change in cash and cash
equivalents............... $18,817 $12,656 $6,565
======= ======= ======
</TABLE>
See accompanying notes to the unaudited condensed financial statements.
F-53
<PAGE>
COSO POWER DEVELOPERS
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. Basis of presentation
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules. Management believes that the disclosures are adequate
to make the information presented not misleading when read in conjunction with
the financial statements and the notes thereto included in the audited
financial statements for the year ended December 31, 1998.
The financial information herein presented reflects all adjustments,
consisting only of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair statement of the results for interim periods
presented. The results for the interim periods are not necessarily indicative
of results to be expected for the full year. Coso Power Developers (CPD) has
experienced significant quarterly fluctuations in operating results and it
expects that these fluctuations in energy revenues, expenses and net income
will continue.
2. Acquisition of CalEnergy's interest in the Coso Partnerships
On February 25, 1999, Caithness Acquisition Company, LLC (Caithness
Acquisition) a wholly owned subsidiary of Caithness Energy, LLC purchased all
of CalEnergy Company, Inc.'s (CalEnergy) interests in CPD and its affiliated
partnerships, Coso Energy Developers and Coso Finance Partners and Coso Finance
Partners II (collectively, the Coso partnerships) for a total purchase price of
$205 million in cash, plus up to $5.0 million in contingent payments, and the
assumption of CalEnergy's share of debt outstanding at the Coso partnerships
which then totaled approximately $68.7 million. The acquisition was accounted
for under the purchase method, whereby the purchase price is allocated to the
underlying assets and liabilities based upon their estimated fair market
values. The total purchase price allocated to CPD was approximately $74.8
million. No goodwill was recorded as a result of the purchase.
In order to complete the purchase, Caithness Acquisition arranged for short-
term debt financing in the principal amount of approximately $211.5 million.
Caithness Acquisition will use a portion of the proceeds from an anticipated
offering of senior secured notes that it will receive from the Coso
partnerships, together with funds from other sources, to repay all amounts owed
under this short-term debt facility. As a result of "push down" accounting, a
pro rata portion of the short-term debt has been reflected in the financial
statements of CPD as of February 25, 1999.
The following unaudited pro forma financial information for the three months
ended March 31, 1998 and 1999 present the results of operations of CPD as if
the acquisition had occurred as of January 1, 1999, after giving effect to
certain adjustments including amortization of intangible assets, reduced
depreciation and operating expense and increased interest expense. The pro
forma financial information does not necessarily reflect the results of
operations that would have occurred had the acquisition been completed on
January 1, 1999.
<TABLE>
<CAPTION>
Three Months Ended
-------------------
March 31, March 31,
1998 1999
--------- ---------
<S> <C> <C>
Total revenues........................................ $26,968 $24,943
======= =======
Net income............................................ $10,788 $ 8,992
======= =======
</TABLE>
F-54
<PAGE>
Exhibit A
Coso Geothermal Projects
Independent Engineer's Report
Caithness Coso
Funding Corp.
New York, New York
20 May 1999
[Logo of Sandwell]
<PAGE>
Project 263105
Coso Geothermal Projects
Independent Engineer's Report
For
Caithness Coso Funding Corp.
New York, New York
20 May 1999
Prepared by: /s/ R. G. Low
----------------------------------------
Richard G. Low, P.Eng.
Approved by: /s/ Dick A. Davis
----------------------------------------
Dick A. Davis, P.E.
1
<PAGE>
TABLE OF CONTENTS
1. Executive Summary And Conclusions
2. Scope Of Services By Sandwell
3. Coso Facilities Overview
3.1 General
3.2 Description of Equipment and Operation.
. Navy I
. Navy II
. BLM
3.3 Steam Gathering Systems
3.4 Turbine-Generator Failures, Unit 1 Generator Failures, And Remedial
Actions.
3.5 Dow Sulferox H2S Abatement Systems.
4. Management and Organization.
4.1 General
4.2 Safety
4.3 Training
4.4 Maintenance
4.5 Spares Inventory
4.6 Review of FPLEOSI as Operator
5. Overview of Power Purchase Agreements.
6. Permitting and Environmental Compliance (Not included at this time)
7. Comments on 1999 O&M Financial Projections and Capital Expenditure Forecast.
8. Assessment of Financial Projections.
8.1 General
8.2 Revenues
8.3 Operating And Maintenance Expenses
8.4 Capital Expenditures
APPENDICES
Appendix A - Principal Considerations And Assumptions
Appendix B - Documents Reviewed
Appendix C - Financial Projections
2
<PAGE>
1.0 EXECUTIVE SUMMARY AND CONCLUSIONS
1.1 Executive summary
Sandwell Engineering Inc. (Sandwell) has prepared this report as an
independent engineer's review of the Coso Geothermal Projects, namely
Navy I, Navy II, and BLM ("the plants" or "the facilities"), in
connection with the financing of the plants and for inclusion in the
offering circular therefor. Sandwell has been associated with the Coso
Projects as independent engineer for ten years, and this report
therefore reflects information gathered over that period of time, in
addition to information provided by Caithness Energy L.L.C.
(Caithness) and by FPL Energy Operating Services, Inc. ("FPLEOSI" or
"FPL Operating") specifically for the report.
The Coso Geothermal Projects consist of three separate, but
interlinked, geothermal power projects located at the Naval Weapons
Center in Inyo County, California. Nine turbine generator units (three
for each project) produce a total net rated electrical power
generation of approximately 240 MW using geothermal steam derived from
deep production wells drilled in the geothermal resource known as the
Coso Known Geothermal Resources Area (KGRA). The steam gathering
systems for all three projects are linked together so that optimum use
may be made of the available steam.
The power plants and wellfields are operated by FPL Operating under
separate Operation and Maintenance (O&M) agreements with the owners of
each project (the Partnerships). The geothermal resource is maintained
by Coso Operating Company, Inc, an affiliate of Caithness Energy.
Electrical power generated by the plants is sold to Southern
California Edison (SCE) under three separate 30-year California
Standard Offer No. 4 power purchase agreements. After an initial ten-
year fixed price period expires, the electricity is sold to SCE at a
much lower "Avoided Cost of Energy" rate. SCE has taken the position
that the ten-year fixed price periods expired for Navy I in August
1997, for BLM in March 1999 and for Navy II in January 2000.
FPL Operating and Caithness maintain all permits and approvals
required for current operation of the plants.
The geothermal steam from the resource contains small quantities of
hydrogen sulfide. In order to meet the conditions of the Air Quality
Permits, hydrogen sulfide abatement equipment is required. Normal
operation of the facilities therefore also includes operation of
hydrogen sulfide abatement equipment at each power plant that
processes the hydrogen sulfide into elemental sulfur, which can be
sold. At Navy I and Navy II LO-CAT II primary abatement equipment
units are used. At the BLM plants Dow Sulferox equipment is installed;
the Sulferox units have had an unsatisfactory record in terms of
operational reliability, and the high consumption, and therefore cost,
of the treatment chemicals consumed. Recent modifications, and an
agreement reached with Dow, have improved the operation, and reduced
the operating and maintenance costs to a satisfactory level.
3
<PAGE>
The modifications to the Dow Sulferox systems were required, and the
decision to proceed with the modifications was reasonable, and
prudent.
Eight of the nine turbine generator units were designed and
manufactured by Fuji Electric. The ninth unit (and the first to be
operated at the projects) is of Mitsubishi design and manufacture.
After four years of operation, cracks were detected in one of the Fuji
turbine rotors, and similar faults have since occurred in two other
rotors in Coso project Fuji turbines, in one case causing a blade to
become detached, which damaged other parts of the turbine. After
extensive investigations, modifications designed to avoid the problems
have been made to four of the nine turbine rotors, and will be made to
the remainder as they undergo scheduled overhauls. The modifications
appear to have been successful, in that no cracking or other defects
in the modified rotors have been reported to us. We therefore conclude
that these modifications are an acceptable means of preventing the
cracking as previously detected. We understand that the Partnerships
are in litigation with Fuji regarding the cause and responsibility for
the failures.
The modifications to the Fuji turbine rotors have apparently been
successful in overcoming the cracking previously experienced, and may
reasonably be expected to prevent future similar failures.
The Mitsubishi turbine generator recently suffered an electrical
ground fault in the generator. The generator is being rewound, using a
modification designed to avoid recurrence of the fault. It is reported
that the repaired generator is scheduled to return to service in 5 - 9
weeks. The repair to the Mitsubishi Unit 1generator stator was
necessary, and the decision to incorporate modifications was
reasonable and prudent.
Sandwell's review has included commenting on the 1999 O&M pro forma
and capital expenditure forecasts for the plants and an assessment of
the eleven-year financial projections provided by Caithness Energy.
1.2 Conclusions
On the basis of our review of the plant, of the information provided
to us, and the assumptions set forth in this report, we are of the
opinion that:
. The current operations and maintenance practices employed by FLP
Operating as operator for the plants are reasonable for operation
and maintenance of plants of this type, to maintain compliance with
all relevant environmental and other permits and approvals
required, and to produce the predicted revenues and cash flow of
the plants.
. FPL Operating, as operator, has the geothermal plant operating
experience and resources necessary to operate the plants so as to
produce the predicted revenues and cash flow of the plants.
. The 1999 operating and maintenance financial projections and
capital expenditures forecasts proposed by or on behalf of the Coso
4
<PAGE>
partnerships for the plants are consistent with the operation and
maintenance needs of the plants, are prudent, and are reasonably
designed to produce the predicted revenues and cash flow of the
plants.
. If the plants, including power plants, wellfields and gathering
systems are maintained and operated in accordance with current
practices, and if the quality and quantity of the geothermal
resources for the plants are as projected by Caithness Coso Funding
Corporation, then the eleven year financial projections of
operating and maintenance expenditures, and of capital
expenditures, for the plants, (provided by or on behalf of
Caithness Coso Funding Corporation), are consistent with the
operation and maintenance needs of the plants. Based on these
operating assumptions, the projected revenues and cash flows of the
plants, as shown in the financial projections, are reasonable.
. All major permits and approvals required from federal, state and
local agencies for current operation of the plants have been
obtained, and all required environmental reporting is being carried
out.
. The management organization for operation of the Coso projects is
acceptable. The attention given to safety matters, and the safety
programs being implemented, are reasonable and acceptable. The
training and certification program for plant operators and
maintenance staff is acceptable.
. Assuming interest rates of 6.80% for the senior secured notes due
2001 and 9.05% for the senior secured notes due 2009, then the
debt service coverage ratios ("DSCR") will be:
<TABLE>
<CAPTION>
For the period through 2001:
<S> <C> <C>
Navy I : Minimum DSCR 1.32
Average DSCR 1.32
Navy II: Minimum DSCR 1.32
Average DSCR 1.34
BLM: Minimum DSCR 1.28
Average DSCR 1.32
</TABLE>
<TABLE>
<CAPTION>
For the period from 2002 to 2009:
<S> <C> <C>
Navy I Minimum DSCR 1.50
Average DSCR 1.58
Navy II Minimum DSCR 1.53
Average DSCR 1.59
BLM: Minimum DSCR 1.49
Average DSCR 1.58
</TABLE>
5
<PAGE>
2. SCOPE OF SERVICES BY SANDWELL
Sandwell Engineering Inc. (Sandwell) has performed an independent
engineer's review of the Coso Geothermal Projects: Navy I, Navy II, and BLM
(the facilities). Sandwell is familiar with the technical and financial
aspects of these projects, having served as independent engineer for the
banks that initially provided construction financing for the projects in
1988, having provided an independent engineers review which was included in
the 1992 financing offering circular for Coso Funding Corporation, and
having performed annual technical and budget reviews of the projects for
ten years, to date. In preparing this report, Sandwell has obtained
information from project files and contract documents gathered over ten
years, from discussions with facility operating, maintenance, and
administrative staff, and from information and documents provided by
Caithness Energy L.L.C. (Caithness) and by FPL Energy Operating Services,
Inc. (FPLEOSI).
The scope of this review is as listed below:
. Coso Facilities overview, including:
. Description of equipment and operations
. Description of the steam gathering system
. Turbine generator failures and remedial actions
. Dow Sulferox H2S abatement systems
. Management and organization, including comments on:
. Safety
. Training
. Operating procedures
. Maintenance
. Spares inventory
. Review of FPLEOSI as operator
. Overview of power purchase agreements
. Permitting and environmental compliance
. Comments on 1999 O&M and capital expenditure budgets
. Assessment of financial projections (review of existing data provided by
Caithness).
In the preparation of this report and the opinions that follow, Sandwell
has made certain assumptions with respect to conditions which may exist or
events which may occur in the future. A listing of assumptions and
documentation relied upon by Sandwell in the preparation of this report are
given in Appendix A.
6
<PAGE>
3. COSO FACILITIES OVERVIEW
3.1 General
The Coso Geothermal Projects consist of three separate, but
interlinked, geothermal power projects located at the U.S. Naval
Weapons Center in Inyo County, California. The three projects are
identified as Navy I, Navy II and BLM (Bureau of Land Management).
Information on the equipment and other details of each project are set
out below, but, to summarize, the three projects use a total of nine
turbine generator units to produce a net rated electrical power
generation of approximately 240 MW from high temperature geothermal
brines derived from deep production wells drilled into the geothermal
resource on which the projects are situated, which is identified as
the Coso Known Geothermal Resources Area (KGRA).
The three projects were originally operated independently, with each
project's geothermal resource feeding steam only to the generators in
that project's power block(s). In 1995 inter-project steam transfer
lines were installed which allow sharing of the resources to make
optimum use of the available steam to maximize the project revenues.
The electrical power generated by the projects is conveyed by separate
115 kV (for Navy I) and 230 kV (for Navy II and BLM) transmission
lines, approximately 28.86 miles long, to the Southern California
Edison (SCE) substation at Inyokern, California. The power generated
is purchased by SCE under long term contracts.
The power generating plants and the geothermal resource wellfields are
operated and maintained by FPL Energy Operating Services, Inc.
(FPLEOSI). Operation of the three projects as a single interlinked
group brings the benefits of economies of scale in provision of
maintenance and operating staff, and in using a common inventory of
spare parts. Responsibility for the geothermal resource is carried by
Coso Operating Company, Inc. an affiliate of Caithness Energy, who
carries out the drilling of new wells and maintenance of existing
wells.
Normal operation of the power plants for all three projects is carried
out by operators in a centralized control room located at the Navy II
power plant. A distributed control system allows all normal power
plant operations to be monitored and controlled from this point.
Local control equipment at each power plant can be used to maintain
operation in the event of a failure of the central system.
Figure 3-1 is a map that shows the location of the Coso geothermal
projects. Figure 3-2 is a more detailed map that indicates the
project boundaries and the power plant and well pad locations.
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Regional Geothermal Activity
============================
[MAP APPEARS HERE]
Fig. 3-1
8
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[Figure 3-2 map]
9
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3.2 Description of equipment and operation
Navy I
------
The Navy I facility is located on the U.S. Naval Weapons Center at
China Lake and the steam resource is also located on Naval Weapons
Center property, being part of the Coso KGRA. Exploration of the
resource and utilization of its energy are secured under a 30-year
contract with the Navy (terminating in 2009, but with an option for
the Navy to extend the contract for an additional 10 years), and in
return the Navy receives royalty payments and discounted power.
The Navy I power block comprises three separate turbine generator
sets, Coso Units 1,2 and 3. The combined generating capacity of the
three units is approximately 80 megawatts (MW).
The geothermal production wells tap the geothermal resource, which is
a fractured formation of rocks heated by the heat of the earth's
interior. High-pressure water flowing through the rock formations
becomes a mixture of high temperature brine and steam as it travels up
the well bores. Pressure generated in the resource forces the mixture
to flow through the production wells into the steam gathering systems.
The brine, and the steam, from the Coso KGRA contain silica, carbonate
compounds, some metals, carbon dioxide and hydrogen sulfide. The
geothermal resource is a renewable source of energy, so long as
natural ground water flows and reinjection of extracted brine are
adequate to replenish the fluids withdrawn.
A mixture of brine and steam, under pressure from the geothermal
reservoir, is obtained at the wellhead. Piping systems transport the
two-phase flow to separators where the brine is separated from the
steam. Brine that does not flash into steam is collected and
injected back into the resource through injection wells. Returning
this water helps to maintain the characteristics of the resource for
continued power production. Two flows of steam leave the separators,
one at high pressure (approx. 90 psia) and one at low pressure
(approx. 20 psia). These relatively low steam pressures (and
temperatures) allow the use of standard wall carbon steel pipe. The
steam expands through the turbines, which drive generators to produce
electrical power. The steam gathering, and brine piping systems
associated with Navy I have metered cross-connections to the Navy II
system which allow steam and brine to be transferred between the
projects.
The Coso Unit 1 turbine generator was manufactured by Mitsubishi, and
the turbine is a single-cylinder type with high and low pressure
inlets. Coso Units 2 and 3 turbine generators, of Fuji Electric
manufacture, also have dual inlets. These units are similar in type
and configuration to Coso Units 4 through 9 located at Navy II and
BLM.
The exhaust steam from each turbine unit flows to a horizontal shell-
and-tube type surface condenser. Condenser vacuum is maintained by a
system containing steam-jet ejectors together with electrically driven
Nash vacuum pumps. There is an additional, all steam-jet ejector as a
back-up system. The noncondensible gases drawn off by the vacuum
pumps are comprised mostly of carbon dioxide but include small
quantities of hydrogen sulfide, which is carried out of the resource
with the brine and steam. Hydrogen sulfide is an environmentally
regulated substance, and the concentrations of the gas are such that
it cannot be released to
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the atmosphere under normal operating conditions without violating
environmental permit limits. A hydrogen sulfide abatement system is
therefore required. During the early years of plant operation the
gases were compressed and reinjected into the resource along with the
brine. However, over time the gas concentrations in the steam began to
increase, reducing condenser vacuum and power generation efficiency. A
LO-CAT II abatement system was installed to treat the noncondensible
gases by a process that converts the hydrogen sulfide to elemental
sulfur, which can be sold for industrial or agricultural use. This
hydrogen sulfide abatement system is now well proven and reliable. To
ensure that permit violations do not occur in the event of a failure,
or during LO-CAT overhauls, a batch-processing abatement system, known
as the Hondo system, is also installed, and provides adequate
abatement backup. The noncondensible gas Roots blowers and TVC
compressors are also still in place and are maintained to allow
reinjection of the noncondensible gases, if necessary.
A four-cell Hamon cooling tower of mechanical draft evaporative
cooling type supplies cooling water for the surface condenser on each
unit. Condensate from the surface condenser supplies make-up water
for the cooling system, and for other plant uses.
Excess condensate is mixed with the spent brine and reinjected into
the geothermal resource.
The cooling towers are equipped with fire-protection systems fed from
a plant firemain. Diesel-driven fire pumps, supplied from a firewater
pond, provide safety system backup during plant shutdowns. The plant
fire protection systems are adequate and in line with normal practice
for this type of facility.
Navy II
-------
The Navy II facility is located on the U.S. Naval Weapons Center at
China Lake, and the steam resource is also located on the Naval
Weapons Center property. Exploration of the resource and utilization
of its energy are secured under a 30-year contract with the Navy
(terminating in 2009, but with an option for the Navy to extend the
contract for an additional 10 years), and in return, the Navy receives
royalty payments and discounted power.
The Navy II power block comprises three separate turbine generator
sets, Coso Units 4, 5 and 6. The combined nominal generating capacity
of the three units is approximately 80 MW.
Coso Units 4, 5 and 6 turbine generators are Fuji Electric units
similar to Units 2 and 3 described above. The wellfield steam
gathering system is also similar to that described for Navy I. The
steam supply systems are cross-connected with the Navy I and BLM steam
systems via metered transfer lines to allow optimum use to be made of
the available steam.
The auxiliary plant and systems for the Navy II power block are
similar to those already described for Navy I. Hydrogen sulfide
abatement is provided by a LO-CAT II unit with ample capacity to
process all the hydrogen sulfide produced when all three Units are
operating at full power output. A second, smaller, LO-CAT II unit
provides additional stand-by abatement capacity, and provides adequate
back-up
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capacity. A back up Hondo abatement system was formerly
installed, but has now been moved to provide additional back-up
capacity at Navy I. The noncondensible gas system Roots blowers are
still in place and are maintained, but the TVC compressors at Navy II
have been removed.
As mentioned above, the central control room, from where the operation
of the Navy I, Navy II and BLM power plants is monitored and
controlled, is located at Navy II.
The plant fire protection systems are adequate and in line with normal
practice for this type of facility.
BLM
---
The BLM facility and steam resource are located on U.S. Bureau of Land
Management (BLM) property, within the boundaries of the U.S. Naval
Weapons Center at China Lake. The steam resource is part of the Coso
KGRA. Exploration of the resource and utilization of its energy is
secured under a 40-year lease with BLM (terminating in 2025), and in
return BLM receives royalty payments. Some additional steam
resources, located on property to the West and North of the Navy I and
Navy II projects, also form part of the available BLM geothermal
resource, and are designated as BLM North. Steam from BLM North will
be fed into the Navy I or Navy II gathering systems, and will be
considered to "pass-through" the Navy I and Navy II systems to
generate power in the BLM generating units.
The BLM power generating facilities comprise three separate turbine
generator sets, Coso Units 7, 8 and 9. The combined generating
capacity of the three units is approximately 80 NMW. Units 7 and 8 are
located on one power block designated BLM East, while Unit 9 is
located on a separate power block designated BLM West, located
approximately 1.3 miles west of BLM East.
Coso Units 7, 8 and 9 turbine generators are Fuji Electric units
similar to the Navy I and Navy II Fuji machines described above. The
wellfield steam supply system, and brine systems, are also similar to
those described for Units 2 through 6, and are linked to Navy II via a
metered transfer line.
The auxiliary plant and systems for the BLM East and West power blocks
are similar to those already described for Navy I and Navy II. Dow
Sulferox units provide hydrogen sulfide abatement at both plants.
These units perform the same function as the LO-CAT II equipment at
Navy I and Navy II, converting the hydrogen sulfide gas to elemental
sulfur. (Additional information about the Sulferox systems is given in
Section 3.5 below.) A back up Hondo abatement system is installed at
BLM East.
The plant fire protection systems are adequate and in line with normal
practice for this type of facility.
3.3 Description of the steam gathering system.
Steam from the production geothermal wells associated with each
project is transported by piping systems to the power plants, where it
is used to power the steam turbine generators which produce
electricity. Fig. 3-2 gives an indication of
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the number of wells and the relative locations of the wells and power
plants. The extensive piping systems and associated equipment is known
as the steam gathering system.
The mixture of brine and steam obtained at each wellhead, under
pressure from the geothermal reservoir, is controlled by wellhead
valves. The two-phase flow of brine and steam is transported via a
piping system to a separator vessel located, in most cases, close to
the wellpad. In the separator vessel some of the hot brine flashes to
steam. The brine that does not flash to steam is collected in a
retention pond, and is eventually pumped back into the resource
through injection wells.
Steam is used at two pressures, approximately 90 psia and 20 psia.
The two pressures allow for most efficient use of all the available
steam, since some wells produce steam and brine at relatively low
pressure and temperature. Steam is transported from the separators to
the power plant turbines through insulated and metal-jacketed carbon
steel pipes. Since the steam pressures and temperatures are
relatively low, carbon steel standard wall pipe can be used.
The steam gathering systems for Navy I and Navy II have a metered
cross-connection which allows for interchange of steam between the
projects, and there is a similar metered cross-connection between
Navy II and BLM. Steam produced from East Flank Navy I wells is fed
into the Navy II gathering system, due to the geographical locations
of the wells and the piping systems. Similarly, steam from the future
BLM North production wells will be tied into the Navy I gathering
system.
The brine and steam from the resource carry silica and carbonates that
can cause scaling in the piping systems. A number of different
methods have been used to remove scale, including passing a "pig" (a
cleaning device) through the piping system, and "hydroblasting" which
removes the scale with high pressure water jets. Acidification of the
liquid phase (i.e. the brine) has been tested at Coso as a means of
mitigating scaling, and FPLEOSI plans to continue using this method of
scale control. Acidification for scale control has been successfully
used at other geothermal projects and it is reasonable to expect that
it will be successful at Coso. Other parts of the gathering system
also require regular maintenance, including the valves at wellheads,
and elsewhere in the piping systems, separator vessels (which tend to
corrode due to the corrosive/erosive action of the brine and steam),
and the instrumentation and control equipment necessary to monitor and
control the gathering system operation.
From observation of the gathering system and wellpads, it is our
opinion that the system is well maintained and in line with the normal
practices of the industry. Wellheads and valves are painted, there are
very few steam leaks, and the insulation and jacketing on the piping
systems is in good repair.
3.4 Turbine generator rotor failures, Unit 1 generator failures, and
remedial actions.
During a normal scheduled overhaul of the Fuji turbine generator Unit
9 in the spring of 1993 (when the unit and the rotor had been in
service for 4 years), cracks were found in the rotor blade roots and
wheel steeples at the second from the last (L-2) stage. Evaluations
by various parties led to consensus that corrosion fatigue was
involved, but there was uncertainty as to the exact cause. It was
agreed that
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the corrosive, high sulfur, geothermal steam environment was probably
a factor, and that blade resonance was also probably involved. This
rotor was repaired and rebuilt to the original Fuji design.
During routine overhaul of Unit 8 in the spring of 1997, similar blade
root and wheel steeple cracking was found in the L-1 and L-2 stages of
the rotor. At this time, this rotor had been in service for 8 years.
The Partnerships made the decision to repair this rotor incorporating
modifications to the design which had been evolved in conjunction with
TurboCare, a specialist turbine repair company. Modifications
included replacing the turbine blades in these two stages with
titanium blades incorporating a modified root designed to reduce peak
stresses and increase fatigue life, shrouding the L-2 blades to reduce
resonance, tuning the diaphragms to reduce blade resonance stimulus,
and repairing the rotor wheels with 12 - chrome material for better
corrosion resistance.
In March 1998 a failure occurred in Unit 9, when a blade from the L-2
stage was thrown off during operation and caused damage to other parts
of the turbine. It should be noted that this rotor was not the same
one that had previously shown cracking after service in Unit 9, as the
spare rotor had been installed at that time. It was determined that
the failure had occurred due to the same type of cracking as had been
found previously. This rotor was rebuilt, incorporating the
modifications already described, and the Partnerships made the
decision to rebuild all the Fuji rotors to the modified design as
scheduled overhauls took place. To date, three rotors have been
rebuilt and installed, one is being modified and will be returned to
Coso as the current spare in early April 1999, and five rotors remain
to be modified in the future. The modifications appear to have been
successful, in that no cracking or other defects in the modified
rotors have been reported to us.
The schedule for modification of the remaining five Fuji rotors is as
follows:
Unit 4: May 1999
Unit 6: October 1999
Unit 3: January 2000
Unit 7: May 2000
Unit 8: October 2000
The costs of these modifications (approximately $1,350,000 per rotor)
have been included in the eleven-year financial projections.
Sandwell has observed and monitored these rotor failures, and the
proposed and implemented solutions, since 1993. In our opinion, the
management and staff at Coso have handled this matter in an exemplary
manner throughout, showing a high level of engineering expertise while
making management decisions designed to maintain operation of the
plant and maximize revenues. We conclude that these modifications are
an acceptable means of preventing the cracking as previously reported.
In our opinion, these modifications were required to minimize the
possibility of future rotor failures, and the decision by the
Partnerships to modify all the Fuji rotors was reasonable and prudent.
We understand that the Partnerships are in litigation with Fuji, the
rotor designers and manufacturers, claiming costs associated with the
failures and the modifications as warranty items. Fuji has not made
any counter-claim, and the financial forecasts reviewed have not
included any amounts that may be received from Fuji in the future.
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A completely separate failure, affecting the Mitsubishi Unit 1
generator, occurred on 3 January 1999, when a stator coil ground fault
caused the unit to shut down automatically. It was subsequently
determined that the wedges holding the stator coils had loosened,
allowing the coils to move slightly, penetrating the coils' insulation
and eventually causing the ground fault. This unit had been in
service since 1987, and has been regularly inspected and overhauled.
Reports of the last overhaul inspection in 1995 had noted no damage or
other significant findings. The stator has been rewound by a reputable
repair shop incorporating modifications designed to prevent
recurrence of the wedge loosening. This repair was necessary, and the
decision to incorporate modifications was reasonable and prudent.
Unit 1 was scheduled to return to service on 23 March 1999, but latest
reports indicate that electrical faults recurred during start-up of
the generator. As it appeared the electrical faults that occurred
during start-up after the repair may have been due to faulty
workmanship by the repairer, the Partnerships chose to use a different
repair shop to carry out the latest repairs to the generator. It is
anticipated that the generator will be back in service in 5 - 9 weeks.
In our opinion, this duration is reasonable for this type of repair.
It is reported that the equipment repairs and any additional downtime
will be fully insured, the insurance deductibles (25 days business
interruption, and $500,000 for the equipment) having already been
satisfied for this incident, so there will not be any further impact
on project revenues. In our opinion this failure could not have been
foreseen, nor prevented, by the operators, and the subsequent actions
and decisions by Coso management and staff have been designed to
minimize the potential loss of revenues involved.
3.5 Dow Sulferox H2S abatement systems.
The BLM East and BLM West units were modified at the direction of Dow
Chemical, and per Coso Operating Company's technical specification.
The modified units were placed back into service at the beginning of
the first quarter of 1999. Currently, the units are operating as
expected with less operator intervention and less maintenance than
before the modifications were made. Longer-term operations are needed
to fully determine the benefits of the modifications.
The modifications were intended to mitigate poor operating
efficiencies related to each unit that included:
. High chemical consumption
. Low equipment availability
. High pluggage rates
. Poor process controllability
The modifications to both units included installation of:
. Redesigned sparged contactor vessels
. Redesigned stack mist eliminators
. Improved chemical storage facilities
. Upgraded control systems and logic
. Backup capabilities to the old pipeline contactor vessels and
separators
. Improved continuous emissions monitoring (CEM) systems
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Remaining remedial work includes plant cleanup of chemical over spray
from previous operations. Future consumption and costs of the
chemicals are fixed under an agreement with Dow Chemicals Company.
In our opinion these modifications to the Sulferox units were required
to improve the efficiency of operation and reduce cost. The decision
to proceed with the modifications was reasonable and prudent.
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4.0 MANAGEMENT AND ORGANIZATION
4.1 General
The Coso projects were formerly operated and maintained by CalEnergy
Company Inc. (CECI) under O&M Agreements with China Lake Operating
Company (CLOC), Coso Technology Corporation (CTC) and Coso Hotsprings
Intermountain Power (CHIP), the Managing General Partners of the Navy
I, Navy II and BLM plants, respectively. CECI also operated and
maintained the 230 kV and 115 kV transmission lines, and was
responsible for maintenance of the geothermal resource, including
drilling of new wells, well workovers, etc.
From 26 February 1999, CECI ceased to be the operator of the projects,
and FPL Energy Operating Services, Inc. (FPLEOSI) assumed that role.
Amended and Restated O&M Agreements between FPLEOSI and the Managing
General Partners, now known as New CLOC, New CTC and New CHIP, were
implemented. FPLEOSI also took over operation of the transmission
lines. Under the new arrangements, Coso Operating Company, Inc, an
affiliate of Caithness Energy became responsible for maintenance of
the geothermal resource.
Most of the Coso projects operating, maintenance and management staff
transferred from CECI to FPLEOSI when the transition of ownership and
operating company occurred. It was reported that the CECI Coso
Projects General Manager will become the Production Manager in the
FPLE organization, reporting to FPLEOSI's Plant General Manager, who
will have responsibilities for other geothermal plants in addition to
Coso. FPLEOSI's West Region organization operates out of a regional
office in Livermore, California, with responsibility for all
operations of the FPL Energy geothermal plants in the region. In our
opinion, the proposed management organization for operation of the
Coso Projects is typical for facilities of this type and is
acceptable.
From conversations with FPLEOSI's Coso management, it appears that
significant change in the organization and staffing of the projects is
unlikely in the short term. In the future, FPLEOSI will seek to
improve the efficiency and profitability of the projects, as it has
done with the other FPLEOSI geothermal plants. FPLEOSI resources and
staff expertise are available to assist in efficient operation of the
projects.
4.2 Safety
CECI had an established safety program for the projects, which was
based on a Safety Manual and safety procedures which were considered
to be consistent with general industry practices. However in the
first quarter of 1998 the number of OSHA Recordable Injuries increased
sharply, compared to comparable statistics for the previous three
years, and this led CECI management to implement the "Coso Safety
Recovery Plan", which addressed the causes of the accidents that had
occurred and also sought to increase the general safety awareness of
the staff. This plan included daily tailgate safety meetings, Job
Safety Analyses and documented pre-job safety planning for high-risk
and new jobs, an increased number of formal safety meetings, increased
safety training, etc. These actions were an indication of the high
priority given to safety by CECI's local management.
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The same management, operating, maintenance and support personnel are
continuing to operate the projects under FPLEOSI management direction,
and it is anticipated that the existing emphasis on proper safety
procedures and safety awareness will also continue, and will even be
enhanced by additional input from FPLEOSI. FPLEOSI management makes
safety a priority and has initiated an aggressive safety policy
designated the "Safety 2000 Program". The stated objective of this
plan is to achieve zero injuries by the year 2000. In 1997, the six
plants operated by FPLEOSI had 13 OSHA Recordable Injuries (with
contractors included); in 1998 the same six plants reduced the number
of recordable injuries to eight, a 38% improvement.
The attention given to safety matters, the safety programs being
implemented, and the results achieved to date, appear to be in line
with the standards normally found in the power industry and are
acceptable.
4.3 Training
CECI had, for several years, actively supported a program for training
and certification of operators and maintenance personnel at the
projects. The comprehensive program provides training materials,
testing and certification for five classifications of operators. This
training and certification program appears to be similar to those
normally found in the power industry and is acceptable.
FPLEOSI has not announced any proposed changes to the training and
certification procedures. FPLEOSI management has stated a general
commitment, to develop a multi-functional, team-driven and flexible
work force where employees are well-trained, involved, engaged and
accountable to meet and/or exceed plant performance objectives. It
therefore appears probable that the established training programs will
be continued, and may be enhanced, by FPLEOSI. If, as implied,
"cross-training" of staff takes place in the future, this can be
expected to improve the overall productivity of the personnel.
4.4 Maintenance
At present, as under the former CECI management, maintenance
activities are under the direction of a Maintenance Manager, and a
staff of qualified technicians performs normal maintenance activities.
Maintenance activities for the projects are scheduled and recorded
using a computerized system that produces detailed work orders for
planned and requested plant maintenance and repair activities, and is
also linked to the spare parts inventory and procurement system.
Specialized maintenance and repairs, such as turbine generator
overhauls, are performed by outside contractors, assisted by CECI
staff. Major equipment overhauls are scheduled by the Maintenance
Manager (with management approval) to ensure maximum availability
during periods of peak power demand. The normal practice has been to
schedule major turnarounds of one or more turbine generator units,
together with associated maintenance and cleaning of associated
auxiliary equipment and systems, in the spring of each year, in
preparation for the summer peak demand period. These major
turnarounds are generally scheduled to last ten to twelve days. As
mentioned in 3.4 above, the need to preclude possible Fuji turbine
rotor failures has required some additional major unit turnarounds to
be scheduled in 1998 and 1999. Short two to three day outages of
additional units, for
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minor repairs, are usually also scheduled during the same pre-peak
periods. The availability of the plants has historically been very
high, demonstrating the effectiveness of the maintenance and overhaul
scheduling practices.
It is not anticipated that any immediate changes in these procedures
will be made by FPLEOSI. In the long term, it appears that the
availability of additional resources from within FPLEOSI is likely to
further improve the reliability and availability of the plant.
Sandwell's independent engineer's reviews of the plants, wellfields
and transmission lines during numerous site visits over ten years have
consistently reported the facilities to be clean and well maintained
and in line with the general standards of the industry.
4.5 Spares Inventory
Availability of spare parts and materials needed for maintenance and
repairs is reported to be satisfactory. Review of the spare parts
Inventory Catalog dated 2 March 1999 showed an acceptable inventory
level in line with what we would expect for facilities of this type.
The spare parts are properly stored and catalogued for quick retrieval
when required. Agreements with some material suppliers (notably the
well-casing supplier) to hold certain quantities of materials in stock
have allowed inventory levels at the projects to be reduced, with a
corresponding reduction in cost.
A single extra Fuji turbine rotor has been held as a common spare for
the eight Fuji units. Due to the plans for modification of the
turbine rotors (as described in 3.4 above) as each unmodified rotor is
changed out for a modified one, in accordance with the planned outage
schedule, the unmodified rotor becomes the spare, and may not be
immediately available while the modifications are carried out in the
turbine specialist's workshop. This period is not expected to exceed
seventy days, and although five rotors remain to be modified, the
probability of any significant loss of revenue for this cause is low,
in our opinion.
4.6 Review of FPLEOSI as operator
In preparing this report Sandwell has reviewed information supplied by
FPLEOSI and has also interviewed FPLEOSI management staff. FPL Energy
Operating Services was formed in 1997 to provide operating and
maintenance (O&M) services for generating plants owned by FPL Energy.
FPLEOSI is part of Florida Power & Light's Power Generation Business
Unit, which gives FPLEOSI access to the processes, skills and
experience of the parent company's many years of experience on
operation and maintenance of power generating plants. FPL Energy has
been associated with the Coso Projects from their inception, as one of
the partners in ownership of the Navy I project. FPLEOSI already
successfully operates five other geothermal power generation projects
in California and Nevada (Brady Units 1 & 2, Calistoga, Green Ridge,
East Mesa, and Posdef), and has a stated commitment to maximize the
profitability of each project in a safe and environmentally sound
manner. FPLEOSI's West Regional Office in Livermore, California,
provides support in resources and talents which can be shared among
the Western facilities. This regional concept should provide savings
for all the
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facilities involved, by having team members functionally accountable
across several sites, providing the optimum level of service to each
plant, on an "as needed" basis.
In a document entitled "FPL Energy Operating Services Performance
Story" it is stated that:"FPLEOSI focuses on the objectives of
safety, environmental, operational excellence, and economic value in
providing its O&M services. Safety is a priority of FPLEOSI
management, which pursues an aggressive safety policy. Responsible
environmental stewardship aims at increasing the value of each project
by minimizing the incidence of Notices of Violation. Operational
excellence focuses on continuous improvement of the skills, knowledge
and competencies of each individual member of the staff, so as to
improve the overall productivity of the workforce. The economic value
of each project is maximized by finding ways to continuously improve
the total cost performance and availability of each generating unit;
results quoted for the six FPLEOSI West Region geothermal plants in
1997 and 1998 indicate significant reductions in O&M costs and "best-
in-class" availability performance since FPLEOSI took over the
operation of the plants."
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5.0 OVERVIEW OF POWER PURCHASE AGREEMENTS, ETC.
Power Purchase Agreements
The Coso partnerships sell 100% of their net electrical energy to SCE
pursuant to three separate 30-year California Standard Offer No. 4
power purchase agreements. Each Power Purchase Agreement is
independent of the others, and the performance requirements included
in one such agreement apply only to the facilities owned by the Coso
partnership which is a party to that Agreement. Under these Power
Purchase Agreements, the Coso partnerships receive capacity payments
for being able to produce electricity at certain levels, capacity
bonus payments if they are able to produce above a specified higher
level and energy payments based on the amount of electricity they
actually produce. The capacity and capacity bonus payment rates are
fixed throughout the terms of the Power Purchase Agreements and the
energy payments are fixed for the first ten years of the Power
Purchase Agreements.
After the ten-year fixed price period expires, the Coso partnerships
sell electricity to SCE based on SCE's "Avoided Cost of Energy", or
SCE's cost to generate electricity if SCE were to produce it itself or
buy it from another power producer rather than buy it from the Coso
partnerships. SCE has taken the position that the fixed energy price
period under the Power Purchase Agreements expired in August 1997 at
Navy I and March 1999 at BLM. The fixed energy price period at Navy II
will expire in early 2000. The Power Purchase Agreements for Navy I,
BLM and Navy II expire in August 2011, March 2019 and January 2010,
respectively.
Subsidy payments
In addition to these contracted payments, the Coso Projects qualify
for subsidy payments legislated under California Assembly Bill 1890
("AB1890") because geothermal energy has been classified as a
renewable source of energy. AB1890 provides for these payments through
the end of 2001.
Capacity payments
The Coso projects also qualify for Capacity payments. A plant
qualifies for an annual capacity payment by meeting specified
performance requirements on a monthly basis during an approximately
four-month long on-peak period, which currently runs during the months
of June through September of each year. The basic performance
requirement is that the Plant deliver an average kWh output during
specified on-peak hours of each month in the on-peak period at a rate
equal to at least an 80% Contract Capacity Factor. The "Contract
Capacity Factor" equals (1) a Plant's actual electricity output,
measured in kWhs, during the hours of measurement, divided by (2) the
product obtained by multiplying the Plant's "Contract Capacity," as
stated in the SO4 Agreement applicable to such Plant, by the number of
hours in the measurement period. If a Plant maintains the required 80%
Contract Capacity Factor during the applicable periods, the annual
capacity payment will be equal to the product of the capacity payment
per kWh stated in the SO4 Agreement and the Contract Capacity.
21
<PAGE>
The Navy I Plant has a Contract Capacity of 75 MW, and a capacity
payment per kW year of $161.20, for an annual maximum capacity payment
of $12,090,000. The BLM Plant and the Navy II Plant each have a
Contract Capacity of 67.5 MW, and capacity payments per kW year of
$175.00 and $176.00, respectively, yielding annual maximum capacity
payments of $11,812,500 and $11,880,000, respectively. Although
capacity prices per kWh remain constant throughout the life of each
SO4 Agreement, capacity payments are disbursed by SCE on a monthly
basis in accordance with a tariff schedule filed with the CPUC.
Payments are made unevenly throughout the year, and are weighted
toward the on-peak periods; currently, approximately 84% of the
capacity payments received by the Partnerships from SCE are paid in
respect of on-peak months, and approximately 16% in respect of non-
peak months. As of the end of the 1992 on-peak season, each of the
Plants earned, for the first time, the maximum capacity payments
available under its respective SO4 Agreement for the on-peak months
and has continued to earn the maximum capacity payment in each year up
to and including 1998.
Capacity bonus payments
Each Partnership is entitled to receive capacity bonus payments during
both on-peak and non-peak months by operating at a Contract Capacity
Factor of between 85% and 100% during on-peak hours of each month. A
Plant qualifies for capacity bonus payments in respect of on-peak
months provided the Plant operates at least at an 85% Contract
Capacity Factor during the on-peak hours of the month, and qualifies
in respect of non-peak months if performance requirements for on-peak
months have been satisfied and the Plant also operates at a Contract
Capacity Factor of at least 85% during on-peak hours of the non-peak
month. Capacity bonus payments for each month increase with the level
of kWhs delivered between the 85% and 100% Contract Capacity Factor
levels during the month. The annual capacity bonus payment for each
month is equal to a percentage based on the Plant's on-peak Contract
Capacity Factor (which percentage may not exceed 18% of the annual
capacity payment). All the plants have received the maximum capacity
bonus payments since 1992, except for Navy I in 1998. In 1998, Navy I
did not receive the maximum bonus because overall project performance
was optimized by diverting steam to those projects which were still
operating on the ten-year fixed energy price agreements. Once the
ten-year fixed energy price agreement period has expired for all the
projects, it is projected that all the plants will receive the maximum
capacity bonus during the eleven-year period through 2009.
Energy payments
The energy price component for all electricity delivered to SCE is
subject to a different pricing mechanism during the first 10 years of
each SO4 Agreement than is applicable during the remaining term of
each agreement. During the first 10 years following the commencement
of firm power delivery, the energy price per kWh varies between so-
called "on-peak" and "non-peak" periods, but the average of these
prices equals a fixed price per kWh specified in the SO4 Agreements.
SCE has taken the position that this period ended in August 1997 for
the Navy I Partnership, and will end in March 1999 for the BLM
Partnership and January 2000 for the Navy II Partnership. Based on
CPUC precedent and the circumstances surrounding the execution of the
Navy II and the BLM Partnerships' SO4
22
<PAGE>
Agreements, management of the Partnerships believes that the energy
prices in 1999 and 2000 will be at least 14.6 cents per kWh, but not
more than 15.6 cents per kWh and 16.6 cents per kWh, respectively.
After the initial 10-year period under each SO4 agreement expires, the
energy price paid for electricity delivered under the agreement will
be based upon SCE's short-run Avoided Cost, which is currently
determined and published from time to time by the CPUC.
23
<PAGE>
6.0 PERMITTING AND ENVIRONMENTAL COMPLIANCE
Sandwell has reviewed copies of the major permits and approvals
required from federal, state and local agencies for current operation
of the facilities. Copies of relevant permits and approvals have been
in Sandwell's files during our ten years or involvement with the
projects as independent engineer, and we have recently received updated
lists and copies from FPLEOSI.
The U.S. Naval Air Weapons Station (NAWS) and the U.S. Bureau of Land
Management (BLM) have issued permits to the Partnerships for the
projects, including Utilization Permits for the design, construction
and operation of the Projects and Geothermal Drilling Permits for the
geothermal wells drilled. Representatives of NAWS and BLM have
verbally represented to us that the projects have all the permits
required for current operations, that all the permits are currently in
force, and that they are not aware of any violations or defaults.
State and local air quality regulations affecting the projects are
administered by the Great Basin Unified Air Pollution Control District
(GBUAPCD). GBUAPCD has issued to each project the Authorities to
Construct (ATOs) and Permits to Operate (PTOs) for equipment (including
two above-ground gasoline storage tanks )producing emissions to the
atmosphere. Air monitoring under the permits is performed
automatically with the use of remote data gathering systems. The
projects self-report to GBUAPCD any instances of emissions exceeding
the permit limits. A Title V operating permit application for the
projects was submitted to GBUAPCD in May 1996, and effectively
functions as the operating permit pending final action by GBUAPCD.
Representatives of GBUAPCD have verbally represented to us that no
other air quality permits are required for the current operations of
the projects.
Certain air permit violations have occurred at the projects, and the
GBUAPCD issues Notices of Violation (NOVs) when GBUAPCD rules or permit
violations occur. Our experience has been that the majority of NOVs in
recent years have been related to equipment failures or operator errors
which result in venting of hydrogen sulfide to the atmosphere. A
single equipment breakdown incident may not result in issue of an NOV,
but if more than three breakdowns in a single category of equipment
occur within a twelve month period an NOV will be issued. Not all
violations result in action by the GBUAPCD, and not all NOVs result in
the levy of fines. NOVs issued within the last two years, and fines
levied, have been as follows:
<TABLE>
<CAPTION>
Project NOVs Fines ($)
------- ------ ---------
<S> <C> <C> <C>
1997: Navy I 4 8,000
Navy II 7 24,000
BLM 12 38,000
1998: Navy I 5 34,000
Navy II 1 3,000
BLM 9 11,000
</TABLE>
24
<PAGE>
Water quality at the projects is under the regulatory control of the
Lahontan Regional Water Quality Control Board (LRWQCB). Waste
Discharge Requirement Permits (WDRs) for the projects were issued and
are reported by FPLEOSI to cover all current waste discharge
activities. FPLEOSI has also reported that a national pollution
discharge elimination system (NPDES) permit is not required because
there are no discharges into navigable waters. Representatives of
LRWQCB have verbally represented to us that the projects have all the
permits that are required for current operations, that all the permits
are currently in force and that they are not aware of any violations
or defaults.
The projects generate hazardous wastes and must obtain a hazardous
waste generator identification number from the U.S. Environmental
Protection Agency (EPA). This number has been obtained and we believe
that all hazardous wastes continue to be handled, stored and disposed
of in accordance with regulations.
In Sandwell's opinion, all the appropriate regulatory approvals and
permits for current operation of the facilities are in place. We also
believe that all required environmental reporting is being carried
out.
Sandwell is not aware of any other existing or potential environmental
hazards which might impact future operation or profitability of the
facilities. It is not anticipated that the number of NOVs will
increase in the future, unless significant changes occur in the permit
requirements. If proper operation and maintenance of the hydrogen
sulfide abatement systems continues, and the facilities continue to be
operated in compliance with normal industry practices, there should
not be any environmental deficiencies or limitations.
25
<PAGE>
7.0 COMMENTS ON 1999 O&M FINANCIAL PROJECTIONS AND CAPITAL
EXPENDITURE FORECAST
Sandwell has reviewed the Coso 1999 financial projections for operating and
maintenance expenses of each project, and for the three projects combined.
A comparison of major line items was also made with the CECI budgets
reviewed in October 1998 and the actual expenditures in 1998 and 1997. The
financial projection figures are consistent with the known costs of plant
operation and maintenance and reflect the best available information. The
documents reviewed are listed in Appendix B.
Sandwell has also reviewed the 1999 Capital Expenditure Forecast dated
3/16/99, and has compared this to the projects' budget capital expenditure
figures reviewed in October 1998. The expenditures proposed reflect major
overhaul schedules and the costs of turbine generator rotor repairs. The
documents reviewed are listed in Appendix B.
We find that the operating and maintenance financial projections and the
capital expenditure forecasts proposed by FPLEOSI and Caithness Energy are
consistent with the operation and maintenance needs of the facilities, are
prudent, and are reasonably designed to produce the predicted revenues and
cash flows of the facilities.
26
<PAGE>
8.0 ASSESSMENT OF FINANCIAL PROJECTIONS
8.1 General
Sandwell reviewed the financial projections model provided by
Caithness, which contains an eleven-year projection, beginning in
1999, of revenues, expenses, initial and long-term expenditures,
royalties, capital additions, and cash flows. The financial model
predicts the financial performance of each project and consolidates
the results to measure aggregate debt service coverage. A copy of the
document reviewed is included in Appendix C.
Assumptions on which the financial model is based include information
related to the quantity and quality of the geothermal resources for
the facilities and the predicted decline in resource availability's
from different parts of the wellfields.
8.2 Power availability and production
The steam produced by the geothermal resource associated with each
project is shared between the projects to make optimum use of the
available steam and to achieve projected overall project revenues.
From the information provided by Caithness, the projected annual
average power available for each project over eleven years from 1999,
based on optimum sharing of the available steam and the projected
average annual power delivered by each project, are as shown in Table
8-1. The general trend is for the project power available to decline
over time, due to the corresponding decline in the geothermal
resource. This trend may be reversed for short periods, on individual
projects, when additional steam-producing wells are brought on line,
or when the amounts of steam transferred between projects are changed
to optimize performance. On the basis of the information given by
Caithness regarding the quality and quantity of steam from the
resource, in our opinion, the assumptions made concerning the
projections of power available and power delivered are reasonable.
Table 8-1
<TABLE>
<CAPTION>
Year Project Power Available (MW) Project Power Delivered (MW)
- ------------------------------------------------------------------------------------------------------------------------
Navy I Navy II BLM Total Navy I Navy II BLM Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 94.26 81.75 96.97 272.98 89.05 88.84 88.86 266.75
- ------------------------------------------------------------------------------------------------------------------------
2000 91.45 80.44 96.84 268.72 88.09 89.52 86.91 264.52
- ------------------------------------------------------------------------------------------------------------------------
2001 88.80 78.34 100.43 267.56 90.07 88.15 86.38 264.60
- ------------------------------------------------------------------------------------------------------------------------
2002 86.30 77.60 103.52 267.41 90.07 88.21 86.04 264.31
- ------------------------------------------------------------------------------------------------------------------------
2003 83.93 81.55 102.58 268.06 90.07 88.32 86.59 264.98
- ------------------------------------------------------------------------------------------------------------------------
2004 81.69 77.81 108.00 267.50 89.05 86.89 86.07 262.02
- ------------------------------------------------------------------------------------------------------------------------
2005 79.57 74.40 114.01 267.98 88.09 88.32 86.53 262.94
- ------------------------------------------------------------------------------------------------------------------------
2006 77.56 71.27 118.32 267.15 90.07 88.24 85.84 264.14
- ------------------------------------------------------------------------------------------------------------------------
2007 75.64 68.39 118.19 262.22 90.07 85.23 83.86 259.16
- ------------------------------------------------------------------------------------------------------------------------
2008 73.82 65.74 112.91 252.47 90.07 80.55 78.90 249.52
- ------------------------------------------------------------------------------------------------------------------------
2009 72.08 63.29 108.10 243.47 87.18 74.36 79.08 240.63
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
8.3 Revenues
The projected revenues for each project are based upon the resource
availability information provided by Caithness and by Geothermex, the
independent geothermal engineer, and the power purchase agreements
with Southern California Edison Company, which purchases all the power
generated by the projects. Geothermex, in their report, express the
opinion that the projections of resource availability and projected
revenues are reasonable. Henwood Energy Services prepared the
forecasts of future electric energy prices used in the financial
projections. Henwood's forecasts considered the base case and also two
alternate cases, namely the "Low Gas Case" (using a gas price 10%
lower than for the base case) and the "Low Gas Case 2" (using a gas
price 15% lower than for the base case). The lower gas prices would
result in correspondingly lower electrical energy prices. The
financial projections model was used to project figures for the base
case and also in performing a sensitivity analysis to examine the
ability to maintain debt coverage levels under the two low gas cases.
The financial projections for the three cases are summarized in
Appendix C to this report.
Additional factors used in arriving at the net revenues include
revenue generated by steam "shared " from the other projects. The
components of revenue, as mentioned in Section 5.0 above, include
Capacity Payments and Capacity Bonus payments, in addition to the
Energy Payments. The net revenues for each project, projected over
eleven years from 1999, have been calculated by Caithness, and are
shown in Table 8-2 below (for the base case). In our opinion the
assumptions made in projecting these net revenues are reasonable.
Table 8-2
<TABLE>
<CAPTION>
Year Net Annual Revenue ($000s)
- ----------------------------------------------------------------------------------------------------------
Navy I Navy II BLM
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 51,629 123,341 47,459
- ----------------------------------------------------------------------------------------------------------
2000 43,881 40,885 33,917
- ----------------------------------------------------------------------------------------------------------
2001 43,683 37,255 35,771
- ----------------------------------------------------------------------------------------------------------
2002 45,088 38,974 38,149
- ----------------------------------------------------------------------------------------------------------
2003 46,241 41,052 39,886
- ----------------------------------------------------------------------------------------------------------
2004 47,267 40,965 41,268
- ----------------------------------------------------------------------------------------------------------
2005 48,661 42,752 44,694
- ----------------------------------------------------------------------------------------------------------
2006 49,672 42,803 47,069
- ----------------------------------------------------------------------------------------------------------
2007 49,536 41,710 48,083
- ----------------------------------------------------------------------------------------------------------
2008 49,234 39,699 48,027
- ----------------------------------------------------------------------------------------------------------
2009 49,830 39,011 47,429
- ----------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
8.4 Operating and maintenance expenses
FPLEOSI is now operator of the projects under O&M agreements with each
project owner. The previous operator, CECI, had prepared operating
and maintenance budgets for 1999, which were reviewed by Sandwell, as
independent engineer, in October 1998. As indicated in Section 7
above, these budgets have been subsequently revised, and Sandwell has
again reviewed the revised budgets.
The eleven-year financial model includes projected operating and
maintenance expense figures for each project. Sandwell has reviewed
these figures and believes them to be reasonable, on the basis of past
experience with the projects, and the stated intentions of FPLEOSI to
continue with improvements to the efficiency and profitability of
operation. FPLEOSI's record in maximizing the profitability of other
similar geothermal generating plants supports the belief that the
projections are reasonable.
A significant additional expense in operating these facilities is the
royalty payments payable to the U.S. Navy and to BLM for use of the
geothermal resources.
8.5 Capital expenditures
The eleven-year financial model includes projected capital
expenditures for each project. Items include projected expenditures
for plant overhauls, resource well drilling, workovers, etc. Sandwell
has reviewed these projected expenditures and believes them to be
reasonable, on the basis of past experience with the projects and
reported actual expenditures in past years. The schedule for the
capital expenditures over the eleven-year period also appears to be
reasonable, based on past experience and the ongoing planned schedules
of plant overhauls, well drilling and workovers.
8.6 Escalation
Where relevant, expenses in the eleven-year financial projections have
been escalated at an assumed rate of 3.0 percent.
8.7 Cash flow
The financial projections prepared by Caithness includes projections
of cash flow for each project over eleven years from 1999. Total
projected operating expenses, royalty payments, capital expenses,
etc., are subtracted from the project operating income to determine
the cash flow available for debt service. The minimum and average
debt service coverage ratios for each project from 1999 to 2009 are as
follows:
<TABLE>
<CAPTION>
For the period through 2001:
<S> <C> <C>
Navy I: Minimum DSCR 1.32
Average DSCR 1.32
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Navy II: Minimum DSCR 1.32
Average DSCR 1.34
BLM: Minimum DSCR 1.28
Average DSCR 1.32
For the period from 2002 to 2009:
Navy I: Minimum DSCR 1.50
Average DSCR 1.58
Navy II: Minimum DSCR 1.53
Average DSCR 1.59
BLM: Minimum DSCR 1.49
Average DSCR 1.58
</TABLE>
The cash flow projections for each project are included in the
financial projections in Appendix C.
30
<PAGE>
APPENDIX A
PRINCIPAL CONSIDERATIONS AND ASSUMPTIONS
In the preparation of this report and the opinions given, Sandwell has made
certain assumptions with respect to conditions which may exist or events which
may occur in the future. While we believe these assumptions to be reasonable
and customary for the purposes of this report, they are dependent upon future
events, and actual conditions may differ from those assumed. In addition, we
have used and relied upon certain information provided to us by sources which we
believe to be reliable. We believe the use of such information and assumptions
is reasonable for the purposes of our report. However, some assumptions may
vary significantly due to unanticipated events and circumstances. To the extent
that actual future conditions differ from those assumed herein, or provided to
us by others, the actual results will vary from those forecast. This report
summarizes our work up to the date of this report. Thus, changed conditions
occurring or becoming known after such date could affect the material presented
to the extent of such changes.
Opinions of financial evaluations, technical, and economic analyses, and
utilitarian considerations of operations and maintenance costs prepared by
Sandwell herein are made on the basis of our experience and qualifications and
represent our best judgment as experienced and qualified professional engineers.
It is recognized, however, that Sandwell does not have control over the quality
or quantity of the geothermal resource or over the cost of labor, material,
equipment, or services furnished by others or over market conditions or
contractors' and vendors' methods of determining their prices, and that
Sandwell's evaluation of future facility operations and maintenance or work to
be performed must, of necessity, be speculative. Accordingly, Sandwell does not
guarantee that actual costs will not vary from the opinions and evaluations we
have prepared herein.
In preparation of this report, we have reviewed work prepared by others and have
not prepared any original engineering products. We have reviewed certain
documents for engineering issues and their possible impact on commercial issues.
We have not addressed legal or regulatory issues associated with the projects,
nor the impact of legal or regulatory issues on commercial issues. In the
course of ten years' association with the Coso projects as independent
engineers, we have regularly visually inspected all units on all three
projects, all well pads, all gathering and injection pipelines and the
electrical transmission lines. We have done no form of investigation,
inspecting or testing to ascertain the existence of latent problems, flaws, or
defects. Although our most recent site inspection did not identify any
problems, flaws, or defects, any statements made in this report relating to the
physical condition of the facilities is totally based upon a review of
information contained in our files gathered over ten years, and upon visual
observations made during visits to the site of the facilities. Visits have been
made by one or more professional engineers with experience in a wide variety of
electrical power generation projects.
The principal conditions and assumptions made by us in developing the
conclusions and the principal information provided to us by others include the
following:
1. As Independent Engineer, we have made no determination as to the validity
and enforceability of any contract, agreement, rule, or regulation
applicable to the facilities or their operations. However, for the purposes
of this report, since these are operating facilities, we have assumed that
all such contracts, agreements, rules, and regulations are
31
<PAGE>
fully enforceable in accordance with their terms and that all parties will
continue to comply with the provisions of their respective agreements.
2. Certain information used in performing our review, specifically that
related to the quantity and quality of the geothermal resources for the
facilities, was provided by others and relied upon by us. We have relied
upon the analyses and projections of geothermal resources provided to us,
and believe the use of such information is reasonable for the purposes of
this report. In particular, we have relied upon the predictions by
Geothermex that the corrosive and scaling nature of the steam from the
resource will not deteriorate.
3. The operator will continue to maintain the facilities in accordance with
good engineering practice, will continue to make all required renewals and
replacements in a timely manner, and will continue to operate the equipment
in a manner consistent with equipment manufacturers' recommendations and
the normal practices of the industry.
4. The operator will continue to employ qualified and competent personnel who
will properly operate and maintain the equipment in accordance with the
manufacturers' recommendations and generally accepted engineering practice
for the industry, and will generally operate the facilities in a sound and
businesslike manner.
32
<PAGE>
APPENDIX B
DOCUMENTS REVIEWED
Documents reviewed by Sandwell while preparing this report included:
1. Permits, etc:
Great Basin Unified Pollution Control Permits:
Listing of current permits for Navy I, Navy II and BLM
California Regional Water Quality Board - Lahonton Region:
Listing of current Board Orders for Navy I, Navy II and BLM
California Energy Commission :
Listing of current Orders and Decisions for Navy I, Navy II and BLM
Federal Energy Regulatory Commission:
Recertification orders for Navy I, Navy II and BLM
2. Drawings:
Coso Operating Company - Coso Geothermal Project
Gathering, Injection and transfer systems.
Coso Operating Company.
Drawing showing Navy contract lands and Coso KGRA leases
3. Coso Operating Company - Operating Expenses
Actual and budget figures for 1997 and 1998
Budget and pro forma figures for 1999
4. Coso 1999 Budget - Account Summary by Departments
5. Coso 1999 Capital Expenditures Forecast
6. Coso Monthly Status Reports to January 1999.
7. 1998/1999 preliminary Outage Schedule dated 6/23/98.
8. Coso 1999 Drilling Plan dated 7/28/98
9. Amended and Restated O&M Agreements for Navy I, Navy II and BLM.
10. Assignment and Assumption Agreements for Plants, Wellfields and
Transmission Lines.(Effective 1 February 1999)
11. Coso Projects - Inventory of Spare Parts - 2 March 1999.
33
<PAGE>
12. Coso Safety Recovery Plan Memorandum - 5 May 1998
13. TurboCare report "Redesign of Coso BLM Unit 8 Stage 5 and Stage 6 Blades
for CalEnergy." Draft dated 5 January 1998.
14. Progress reports (to 8 March 1999) and preliminary insurance report (21
January 1999) on Unit 1 stator failure.
15. Document: FPL Energy Operating Services Performance Story.
16. Sandwell Independent Engineer's Report on the Coso Geothermal Projects
26 August 1992.
34
<PAGE>
APPENDIX C
FINANCIAL PROJECTIONS
35
<PAGE>
<TABLE>
<CAPTION>
Caithness Coso Funding Corp.
Consolidated Base Case Projected Operating Results
($ in thousands)
May-Dec Year Ended December 31,
------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
<S> <C> <C> <C> <C> <C> <C>
Contract Capacity 210 210 210 210 210 210
Net Plant Output (MWh) 1,579,903 2,323,352 2,324,010 2,321,842 2,327,803 2,295,820
Capacity Payment ($/kWyr)
Navy I $161.20 $161.20 $161.20 $161.20 $161.20 $161.20
BLM $175.00 $175.00 $175.00 $175.00 $175.00 $175.00
Navy II $176.00 $176.00 $176.00 $176.00 $176.00 $176.00
Average Capacity Factor (based on 240 MW) 111.1% 110.2% 110.2% 110.1% 110.4% 109.2%
Average Energy Payment ($/MWh) $68.01 $32.65 $31.80 $34.20 $36.25 $37.76
Revenue
Capacity Revenue $37,909 $42,830 $42,803 $42,808 $42,806 $42,815
Energy Revenue 107,445 75,852 73,906 79,403 84,372 86,686
--------- --------- --------- --------- --------- ---------
Gross Electric Revenue 145,354 118,682 116,709 122,211 127,178 129,500
Royalty Payments 15,703 13,040 12,300 12,774 13,424 15,364
Operating & Maintenance Expense
Operations 4,024 6,032 5,990 5,947 5,902 6,079
Maintenance & Engineering 3,842 5,569 5,527 5,483 5,439 5,602
Coso Services and G&A 3,788 5,491 5,448 5,405 5,360 5,521
Subordinated O&M Fees 1,600 1,500 1,250 1,250 1,250 1,250
Audit & Legal 3,150 2,417 989 1,019 1,049 1,081
Insurance 907 1,211 1,248 1,157 1,191 1,227
Property Tax 1,221 2,560 1,810 1,572 1,303 1,317
SCE Transmission Line Fee 544 816 816 816 816 816
Other 593 1,416 1,433 1,448 1,464 1,481
Depreciation Expense 25,689 36,199 36,808 37,254 36,707 35,589
--------- --------- --------- --------- --------- ---------
Total Expense 45,358 63,211 61,319 61,351 60,482 59,963
--------- --------- --------- --------- --------- ---------
Operating Income 84,293 42,432 43,090 48,086 53,272 54,174
Interest Expense 19,548 30,906 28,881 27,027 24,950 22,385
Interest Income 4,147 3,733 3,723 3,876 4,066 4,102
--------- --------- --------- --------- --------- ---------
Net Income $68,892 $15,259 $17,932 $24,935 $32,387 $35,891
========= ========= ========= ========= ========= =========
EBITDA (1) 114,129 82,364 83,621 89,217 94,045 93,865
Capital Expenditures 18,814 8,466 11,822 17,285 15,356 13,024
Changes in Working Capital (702) 5,792 1,168 221 289 624
Cash Flow Available for Debt Service 96,213 81,190 74,217 73,403 80,227 82,715
Annual Debt Service
Principal Outstanding (end of year) 360,335 330,067 303,000 281,229 253,611 222,279
Interest Expense 19,548 30,906 28,881 27,027 24,950 22,385
Principal Repayment 52,665 30,268 27,067 21,771 27,618 31,332
Total Annual Debt Service 72,213 61,174 55,948 48,798 52,568 53,717
Debt Service Reserve Balance (end of year) 34,313 30,108 26,379 28,763 29,708 30,704
Major Maintenance Reserve Balance (end of year) 8,466 11,822 17,285 15,356 13,024 14,386
Navy Sinking Fund Balance (end of year) 8,420 9,679 11,012 12,426 13,925 15,513
Unrestricted Cash Balance (end of year) 3,000 3,000 3,000 3,000 3,000 3,000
Debt Service Coverage Ratio 1.33x 1.33x 1.33x 1.50x 1.53x 1.54x
Average Debt Service Coverage through 2001 1.33x
Average Debt Service Coverage Ratio from 2002 through 2009 1.59x
<CAPTION>
May-Dec Year Ended December 31,
---------------------------------------------------------------------------
2005 2006 2007 2008 2009
Contract Capacity 210 210 210 210 210
Net Plant Output (MWh) 2,309,576 2,320,129 2,276,478 2,191,802 2,113,680
Capacity Payment ($/kWyr)
Navy I $161.20 $161.20 $161.20 $161.20 $161.20
BLM $175.00 $175.00 $175.00 $175.00 $175.00
Navy II $176.00 $176.00 $176.00 $176.00 $176.00
Average Capacity Factor (based on 240 MW) 109.6% 110.1% 108.0% 104.0% 100.3%
Average Energy Payment ($/MWh) $40.39 $41.70 $42.43 $43.03 $44.34
Revenue
Capacity Revenue $42,811 $42,794 $42,745 $42,646 $42,556
Energy Revenue 93,295 96,750 96,585 94,314 93,714
--------- --------- --------- --------- ---------
Gross Electric Revenue 136,106 139,544 139,329 136,960 136,270
Royalty Payments 16,643 17,330 17,680 17,677 17,144
Operating & Maintenance Expense
Operations 6,261 6,449 6,643 6,842 7,047
Maintenance & Engineering 5,770 5,943 6,121 6,305 6,494
Coso Services and G&A 5,686 5,857 6,033 6,214 6,400
Subordinated O&M Fees 1,250 1,250 1,250 1,250 1,250
Audit & Legal 1,113 1,147 1,181 1,217 1,253
Insurance 1,264 1,302 1,341 1,381 1,422
Property Tax 1,392 1,433 1,435 1,413 1,407
SCE Transmission Line Fee 816 816 816 816 816
Other 1,498 1,515 1,533 1,551 1,111
Depreciation Expense 35,372 35,061 34,938 34,512 32,217
--------- --------- --------- --------- ---------
Total Expense 60,422 60,773 61,290 61,500 59,418
--------- --------- --------- --------- ---------
Operating Income 59,041 61,440 60,359 57,783 59,708
Interest Expense 19,474 16,212 12,582 8,259 3,755
Interest Income 4,347 4,504 4,370 4,359 4,424
--------- --------- --------- --------- ---------
Net Income $43,914 $49,732 $52,146 $53,884 $60,376
========= ========= ========= ========= =========
EBITDA (1) 98,760 101,005 99,666 96,654 96,349
Capital Expenditures 14,386 15,532 4,666 4,403 4,535
Changes in Working Capital 81 483 946 1,219 546
Cash Flow Available for Debt Service 85,706 87,207 97,196 94,720 93,610
Annual Debt Service
Principal Outstanding (end of year) 186,799 148,513 101,094 51,833 0
Interest Expense 19,474 16,212 12,582 8,259 3,755
Principal Repayment 35,480 38,286 47,419 49,261 51,833
Total Annual Debt Service 54,954 54,498 60,001 57,520 55,588
Debt Service Reserve Balance (end of year) 30,732 34,313 33,272 32,569 0
Major Maintenance Reserve Balance (end of year) 15,532 4,666 4,403 4,535 0
Navy Sinking Fund Balance (end of year) 17,197 18,982 20,874 22,879 25,000
Unrestricted Cash Balance (end of year) 3,000 3,000 3,000 3,000 3,000
Debt Service Coverage Ratio 1.56x 1.60x 1.62x 1.65x 1.68x
</TABLE>
(1) EBITDA is defined as net income plus interest expense plus depreciation
expense.
<PAGE>
Caithness Coso Funding Corp.
Consolidated Low Gas Case 1 Projected Operating Results
($ in thousands)
<TABLE>
<CAPTION>
May-Dec Year Ended December 31,
------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
<S> <C> <C> <C> <C> <C> <C>
Contract Capacity 210 210 210 210 210 210
Net Plant Output (MWh) 1,579,903 2,323,352 2,324,010 2,321,842 2,327,803 2,295,820
Capacity Payment ($/kWyr)
Navy I $ 161.20 $ 161.20 $ 161.20 $ 161.20 $ 161.20 $ 161.20
BLM $ 175.00 $ 175.00 $ 175.00 $ 175.00 $ 175.00 $ 175.00
Navy II $ 176.00 $ 176.00 $ 176.00 $ 176.00 $ 176.00 $ 176.00
Average Capacity Factor (based on 240 MW) 111.1% 110.2% 110.2% 110.1% 110.4% 109.2%
Average Energy Payment ($/MWh) $ 68.01 $ 32.08 $ 31.00 $ 32.22 $ 33.71 $ 35.18
Revenue
Capacity Revenue $ 37,909 $ 42,830 $ 42,803 $ 42,808 $ 42,806 $ 42,815
Energy Revenue 107,445 74,542 72,048 74,812 78,470 80,775
--------- --------- --------- --------- --------- ---------
Gross Electric Revenue 145,354 117,372 114,851 117,620 121,277 123,590
Royalty Payments 15,703 12,897 12,095 12,266 12,772 14,620
Operating & Maintenance Expense
Operations 4,024 6,032 5,990 5,947 5,902 6,079
Maintenance & Engineering 3,842 5,569 5,527 5,483 5,439 5,602
Coso Services and G&A 3,788 5,491 5,448 5,405 5,360 5,521
Subordinated O&M Fees 1,600 1,500 1,250 1,250 1,250 1,250
Audit & Legal 3,150 2,417 989 1,019 1,049 1,081
Insurance 907 1,211 1,248 1,157 1,191 1,227
Property Tax 1,221 2,560 1,810 1,572 1,303 1,319
SCE Transmission Line Fee 544 816 816 816 816 816
Other 593 1,416 1,433 1,448 1,464 1,481
Depreciation Expense 25,689 36,199 36,808 37,254 36,707 35,589
--------- --------- --------- --------- --------- ---------
Total Expense 45,358 63,211 61,319 61,351 60,482 59,964
--------- --------- --------- --------- --------- ---------
Operating Income 84,293 41,265 41,437 44,004 48,023 49,006
Interest Expense 19,548 30,906 28,881 27,027 24,950 22,385
Interest Income 4,147 3,731 3,699 3,817 3,989 4,027
--------- --------- --------- --------- --------- ---------
Net Income $ 68,892 $ 14,089 $ 16,255 $ 20,793 $ 27,062 $ 30,648
========= ========= ========= ========= ========= =========
EBITDA (1) 114,129 81,194 81,944 85,074 88,719 88,622
Capital Expenditures 18,814 8,466 11,822 17,285 15,356 13,024
Changes in Working Capital (702) 5,958 1,238 568 455 625
Cash Flow Available for Debt Service 96,213 80,187 72,610 69,607 75,068 77,472
Annual Debt Service
Principal Outstanding (end of year) 360,335 330,067 303,000 281,229 253,611 222,279
Interest Expense 19,548 30,906 28,881 27,027 24,950 22,385
Principal Repayment 52,665 30,268 27,067 21,771 27,618 31,332
Total Annual Debt Service 72,213 61,174 55,948 48,798 52,568 53,717
Debt Service Reserve Balance (end of year) 34,603 30,108 26,379 28,763 29,708 30,704
Major Maintenance Reserve Balance (end of year) 8,466 11,822 17,285 15,356 13,024 14,386
Navy Sinking Fund Balance (end of year) 8,420 9,679 11,012 12,426 13,925 15,513
Unrestricted Cash Balance (end of year) 3,000 3,000 3,000 3,000 3,000 3,000
Debt Service Coverage Ratio 1.33x 1.31x 1.30x 1.43x 1.43x 1.44x
Average Debt Service Coverage through 2001 1.31x
Average Debt Service Coverage Ratio from 2002 through 2009 1.49x
</TABLE>
<TABLE>
<CAPTION>
May-Dec Year Ended December 31,
-----------------------------------------------------------
2005 2006 2007 2008 2009
<S> <C> <C> <C> <C> <C>
Contract Capacity 210 210 210 210 210
Net Plant Output (MWh) 2,309,576 2,320,129 2,276,478 2,191,802 2,113,680
Capacity Payment ($/kWyr)
Navy I $ 161.20 $ 161.20 $ 161.20 $ 161.20 $ 161.20
BLM $ 175.00 $ 175.00 $ 175.00 $ 175.00 $ 175.00
Navy II $ 176.0 $ 176.00 $ 176.00 $ 176.00 $ 176.00
Average Capacity Factor (based on 240 MW) 109.6% 110.1% 108.0% 104.0% 100.3%
Average Energy Payment ($/MWh) $ 37.79 $ 38.89 $ 39.95 $ 40.11 $ 40.96
Revenue
Capacity Revenue $ 42,811 $ 42,794 $ 42,745 $ 42,646 $ 42,556
Energy Revenue 87,286 90,228 90,937 87,911 86,578
--------- --------- --------- --------- ---------
Gross Electric Revenue 130,098 133,022 133,682 130,558 129,134
Royalty Payments 15,867 16,462 16,907 16,755 16,114
Operating & Maintenance Expense
Operations 6,261 6,449 6,643 6,842 7,047
Maintenance & Engineering 5,770 5,943 6,121 6,305 6,494
Coso Services and G&A 5,686 5,857 6,033 6,214 6,400
Subordinated O&M Fees 1,250 1,250 1,250 1,250 1,250
Audit & Legal 1,113 1,147 1,181 1,217 1,253
Insurance 1,264 1,302 1,341 1,381 1,422
Property Tax 1,395 1,433 1,443 1,412 1,399
SCE Transmission Line Fee 816 816 816 816 816
Other 1,498 1,515 1,533 1,551 1,111
Depreciation Expense 35,372 35,061 34,938 34,512 32,217
--------- --------- --------- --------- ---------
Total Expense 60,425 60,773 61,299 61,500 59,410
--------- --------- --------- --------- ---------
Operating Income 53,805 55,788 55,476 52,303 53,610
Interest Expense 19,474 16,212 12,582 8,259 3,755
Interest Income 4,271 4,421 4,299 4,279 4,335
--------- --------- --------- --------- ---------
Net Income $ 38,602 $ 43,997 $ 47,192 $ 48,324 $ 54,190
========= ========= ========= ========= =========
EBITDA (1) 93,448 95,271 94,712 91,094 90,162
Capital Expenditures 14,386 15,532 4,666 4,403 4,535
Changes in Working Capital 94 548 835 1,314 639
Cash Flow Available for Debt Service 80,406 81,537 92,131 89,256 87,516
Annual Debt Service
Principal Outstanding (end of year) 186,799 148,513 101,094 51,833 0
Interest Expense 19,474 16,212 12,582 8,259 3,755
Principal Repayment 35,480 38,286 47,419 49,261 51,833
Total Annual Debt Service 54,954 54,498 60,001 57,520 55,588
Debt Service Reserve Balance (end of year) 30,732 34,313 33,272 32,569 0
Major Maintenance Reserve Balance (end of year) 15,532 4,666 4,403 4,535 0
Navy Sinking Fund Balance (end of year) 17,197 18,982 20,874 22,879 25,000
Unrestricted Cash Balance (end of year) 3,000 3,000 3,000 3,000 3,000
Debt Service Coverage Ratio 1.46x 1.50x 1.54x 1.55x 1.57x
Average Debt Service Coverage through 2001
Average Debt Service Coverage Ratio from 2002 through 2009
</TABLE>
(1) EBITDA is defined as net income plus interest expense plus depreciation
expense.
<PAGE>
Caithness Coso Funding Corp.
Consolidated Low Gas Case 2 Projected Operating Results
($ in thousands)
<TABLE>
<CAPTION>
May-Dec Year Ended December 31,
-------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
<S> <C> <C> <C> <C> <C> <C>
Contract Capacity 210 210 210 210 210 210
Net Plant Output (MWh) 1,579,903 2,323,352 2,324,010 2,321,842 2,327,803 2,295,820
Capacity Payment ($/kWyr)
Navy I $161.20 $161.20 $161.20 $161.20 $161.20 $161.20
BLM $175.00 $175.00 $175.00 $175.00 $175.00 $175.00
Navy II $176.00 $176.00 $176.00 $176.00 $176.00 $176.00
Average Capacity Factor (based on 240 MW) 111.1% 110.2% 110.2% 110.1% 110.4% 109.2%
Average Energy Payment ($/MWh) $68.01 $32.03 $30.76 $31.66 $33.06 $34.29
Revenue
Capacity Revenue $37,909 $42,830 $42,803 $42,808 $42,806 $42,815
Energy Revenue 107,445 74,409 71,496 73,498 76,953 78,734
--------- --------- --------- --------- --------- ---------
Gross Electric Revenue 145,354 117,239 114,299 116,306 119,759 121,548
Royalty Payments 15,703 12,879 12,032 12,124 12,604 14,375
Operating & Maintenance Expense
Operations 4,024 6,032 5,990 5,947 5,902 6,079
Maintenance & Engineering 3,842 5,569 5,527 5,483 5,439 5,602
Coso Services and G&A 3,788 5,491 5,448 5,405 5,360 5,521
Subordinated O&M Fees 1,600 1,500 1,250 1,250 1,250 1,250
Audit & Legal 3,150 2,417 989 1,019 1,049 1,081
Insurance 907 1,211 1,248 1,157 1,191 1,227
Property Tax 1,221 2,560 1,810 1,572 1,303 1,313
SCE Transmission Line Fee 544 816 816 816 816 816
Other 593 1,416 1,433 1,448 1,464 1,481
Depreciation Expense 25,689 36,199 36,808 37,254 36,707 35,589
--------- --------- --------- --------- --------- ---------
Total Expense 45,358 63,211 61,319 61,351 60,482 59,959
--------- --------- --------- --------- --------- ---------
Operating Income 84,293 41,149 40,949 42,831 46,673 47,215
Interest Expense 19,548 30,906 28,881 27,027 24,950 22,385
Interest Income 4,147 3,730 3,692 3,800 3,969 4,000
--------- --------- --------- --------- --------- ---------
Net Income $68,892 $13,973 $15,760 $19,603 $25,692 $28,831
========= ========= ========= ========= ========= =========
EBITDA (1) 114,129 81,079 81,448 83,885 87,349 86,805
Capital Expenditures 18,814 8,466 11,822 17,285 15,356 13,024
Changes in Working Capital (702) 5,975 1,291 664 481 692
Cash Flow Available for Debt Service 96,213 80,088 72,168 68,514 73,724 75,722
Annual Debt Service
Principal Outstanding (end of year) 360,335 330,067 303,000 281,229 253,611 222,279
Interest Expense 19,548 30,906 28,881 27,027 24,950 22,385
Principal Repayment 52,665 30,268 27,067 21,771 27,618 31,332
Total Annual Debt Service 72,213 61,174 55,948 48,798 52,568 53,717
Debt Service Reserve Balance (end of year) 34,633 30,108 26,379 28,763 29,708 30,704
Major Maintenance Reserve Balance (end of year) 8,466 11,822 17,285 15,356 13,024 14,386
Navy Sinking Fund Balance (end of year) 8,420 9,679 11,012 12,426 13,925 15,513
Unrestricted Cash Balance (end of year) 3,000 3,000 3,000 3,000 3,000 3,000
Debt Service Coverage Ratio 1.33x 1.31x 1.29x 1.40x 1.40x 1.41x
Average Debt Service Coverage through 2001 1.31x
Average Debt Service Coverage Ratio from 2002 through 2009 1.45x
</TABLE>
<TABLE>
<CAPTION>
May-Dec Year Ended December 31,
---------------------------------------------------------
2005 2006 2007 2008 2009
<S> <C> <C> <C> <C> <C>
Contract Capacity 210 210 210 210 210
Net Plant Output (MWh) 2,309,576 2,320,129 2,276,478 2,191,802 2,113,680
Capacity Payment ($/kWyr)
Navy I $161.20 $161.20 $161.20 $161.20 $161.20
BLM $175.00 $175.00 $175.00 $175.00 $175.00
Navy II $176.00 $176.00 $176.00 $176.00 $176.00
Average Capacity Factor (based on 240 MW) 109.6% 110.1% 108.0% 104.0% 100.3%
Average Energy Payment ($/MWh) $36.57 $37.20 $37.85 $38.80 $39.48
Revenue
Capacity Revenue $42,811 $42,794 $42,745 $42,646 $42,556
Energy Revenue 84,454 86,318 86,174 85,031 83,456
--------- --------- --------- --------- ---------
Gross Electric Revenue 127,266 129,112 128,919 127,678 126,012
Royalty Payments 15,496 15,956 16,246 16,353 15,699
Operating & Maintenance Expense
Operations 6,261 6,449 6,643 6,842 7,047
Maintenance & Engineering 5,770 5,943 6,121 6,305 6,494
Coso Services and G&A 5,686 5,857 6,033 6,214 6,400
Subordinated O&M Fees 1,250 1,250 1,250 1,250 1,250
Audit & Legal 1,113 1,147 1,181 1,217 1,253
Insurance 1,264 1,302 1,341 1,381 1,422
Property Tax 1,382 1,408 1,410 1,399 1,383
SCE Transmission Line Fee 816 816 816 816 816
Other 1,498 1,515 1,533 1,551 1,111
Depreciation Expense 35,372 35,061 34,938 34,512 32,217
--------- --------- --------- --------- ---------
Total Expense 60,412 60,748 61,265 61,486 59,393
--------- --------- --------- --------- ---------
Operating Income 51,358 52,408 51,408 49,839 50,920
Interest Expense 19,474 16,212 12,582 8,259 3,755
Interest Income 4,235 4,372 4,239 4,243 4,295
--------- --------- --------- --------- ---------
Net Income $36,119 $40,568 $43,065 $45,824 $51,460
========= ========= ========= ========= =========
EBITDA (1) 90,965 91,841 90,585 88,594 87,432
Capital Expenditures 14,386 15,532 4,666 4,403 4,535
Changes in Working Capital 194 684 943 1,076 670
Cash Flow Available for Debt Service 78,023 78,244 88,112 86,517 84,817
Annual Debt Service
Principal Outstanding (end of year) 186,799 148,513 101,094 51,833 0
Interest Expense 19,474 16,212 12,582 8,259 3,755
Principal Repayment 35,480 38,286 47,419 49,261 51,833
Total Annual Debt Service 54,954 54,498 60,001 57,520 55,588
Debt Service Reserve Balance (end of year) 30,732 34,313 33,272 32,569 0
Major Maintenance Reserve Balance (end of year) 15,532 4,666 4,403 4,535 0
Navy Sinking Fund Balance (end of year) 17,197 18,982 20,874 22,879 25,000
Unrestricted Cash Balance (end of year) 3,000 3,000 3,000 3,000 3,000
Debt Service Coverage Ratio 1.42x 1.44x 1.47x 1.50x 1.53x
Average Debt Service Coverage through 2001
Average Debt Service Coverage Ratio from 2002 through 2009
</TABLE>
(1) EBITDA is defined as net income plus interest expense plus depreciation
expense.
<PAGE>
EXHIBIT B
THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND
PRICE FORECAST
1999 - 2009
Prepared for:
Caithness Coso Funding Corp.
Date Submitted:
May 20, 1999
Prepared by:
Henwood Energy Services, Inc.
2710 Gateway Oaks Way, Suite 300N
Sacramento, CA 95833
http://www.hesinet.com
<PAGE>
THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND
PRICE FORECAST
1999 - 2009
Prepared for:
Caithness Coso Funding Corp.
Date Submitted:
May 20, 1999
Prepared by:
[Logo of HESI]
Henwood Energy Services, Inc.
2710 Gateway Oaks Way, Suite 300 North
Sacramento, CA 95833
(916) 569-0985 - Phone
(916) 569-0999 - Fax
http://www.hesinet.com
----------------------
Contact:
Keith Durand, Project Manager
<PAGE>
PROPRIETARY AND CONFIDENTIAL
THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
TABLE OF CONTENTS
- -----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
EXECUTIVE SUMMARY ES-1
- ------------------------------------------------------------------------------------------------
1 THE U.S. ELECTRIC POWER MARKET 1-1
1.1 Introduction 1-1
1.2 Federal Legislative and Regulatory Initiatives 1-1
1.2.1 Public Utility Regulatory Policies Act - 1978 1-1
1.2.2 Energy Policy Act - 1992 1-1
1.2.3 FERC Order 888 - 1996 1-2
1.3 California Legislative Initiatives 1-2
1.3.1 Assembly Bill 1890 1-2
2 THE CALIFORNIA WHOLESALE POWER MARKET 2-1
- ------------------------------------------------------------------------------------------------
2.1 The Market 1998 and Beyond 2-1
2.1.1 Market Size 2-2
2.1.2 Diversity of Energy Supply 2-2
2.1.3 California Investor Owned Utilities 2-3
2.1.4 Treatment of Qualifying Facilities (QFs) 2-4
2.2 California Municipal Utilities and Authorities 2-4
2.3 System Reliability 2-5
2.4 The California PX 2-5
2.4.1 California PX Prices 2-6
2.4.2 Short Run Avoided Costs 2-7
2.5 PX Prices as a Measure of Avoided Cost 2-9
3 SOUTHERN CALIFORNIA MCP FORECAST: KEY ASSUMPTIONS AND METHODOLOGY 3-1
- ------------------------------------------------------------------------------------------------
3.1 Modeling Methodology and Techniques 3-1
3.2 Assumptions Regarding the California Market Transition Period 3-2
3.3 Key Assumptions for Modeling the WSCC Power Market 3-3
3.3.1 Forecast Horizon 3-3
3.3.2 Market Structure 3-3
3.3.3 Existing Resource Base 3-3
3.3.4 Resource Retirements 3-3
3.3.5 Generic Resource Additions 3-4
3.3.6 Loads 3-4
3.3.7 Load Shape 3-5
3.3.8 Load Growth 3-5
</TABLE>
- --------------------------------------------------------------------------------
(C)1999 Henwood Energy Services, Inc. May 20, 1999
i
<PAGE>
PROPRIETARY AND CONFIDENTIAL
THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
3.3.9 Inflation 3-5
3.3.10 Fuel Prices 3-5
3.3.11 Natural Gas 3-5
3.3.12 Operations & Maintenance 3-16
3.3.13 Property Taxes 3-16
3.3.14 Insurance 3-16
3.3.15 Other Costs 3-16
3.4 WSCC Transmission System Configuration 3-17
3.5 Hydro Power 3-17
3.5.1 Median Year Case 3-17
3.5.2 Transactions 3-18
4 SOUTHERN CALIFORNIA MCP FORECAST : RESULTS 4-1
- ------------------------------------------------------------------------------------------------
4.1 Base Case Southern California MCP Forecast, 2000-2009 4-1
4.2 Sensitivity Cases 4-2
4.2.1 Low Gas Price Case 1 4-2
4.2.2 Low Gas Price Case 2 4-3
5 THE PROJECT AND THE CALIFORNIA MARKET 5-1
- ------------------------------------------------------------------------------------------------
5.1 Market Analysis Results 5-1
5.2 Southern California MCP Forecast and the Market Position of the Project 5-5
6 THE RENEWABLE RESOURCE FUNDING PROGRAM 6-1
- ------------------------------------------------------------------------------------------------
</TABLE>
LIST OF TABLES
--------------
<TABLE>
<S> <C>
TABLE 2-1 1997 NET SYSTEM POWER (ELECTRIC GENERATION) 2-3
TABLE 2-2 MONTHLY AVERAGE CALIFORNIA PX PRICES - APRIL 1998 TO
JANUARY 1999 ($/MWH) 2-7
TABLE 2-3 SCE ANNUAL AVERAGE SHORT-RUN AVOIDED COSTS OF ENERGY 2-9
TABLE 3-1 GENERIC RESOURCE CHARACTERISTICS (1996 DOLLARS) 3-4
TABLE 3-2 PROJECTED GAS COMMODITY PRICE GROWTH BY PRODUCER
BASIN (AVERAGE ANNUAL REAL PERCENT CHANGE) 3-10
TABLE 3-3 HESI BASE CASE SAN JUAN AND ALBERTA COMMODITY
PRICE FORECAST $98/MMBTU 3-11
TABLE 3-4 HESI BASE CASE NATURAL GAS CITY-GATE PRICE FORECAST $1998/MMBTU 3-15
TABLE 4-1 BASE CASE SOUTHERN CALIFORNIA MCP FORECAST 2000 -
2009 $/MWH 4-2
TABLE 4-2 MCP FORECAST UNDER THE LOW GAS PRICE CASE 1 4-3
TABLE 4-3 MCP FORECAST UNDER THE LOW GAS PRICE CASE 2 4-4
</TABLE>
- --------------------------------------------------------------------------------
(C)1999 Henwood Energy Services, Inc. May 20, 1999
ii
<PAGE>
PROPRIETARY AND CONFIDENTIAL
THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
TABLE 5-1 AVERAGE OPERATING COSTS BY PLANT TYPE IN THE WSCC
FROM PROSYM MODEL SIMULATION IN 2005 5-2
TABLE 5-2 MCP FREQUENCY ANALYSIS IN SOUTHERN CALIFORNIA
TRANSMISSION AREA, 2005 5-6
TABLE 6-1 AB 1890 ACCOUNTS - TOTAL FUNDING ALLOCATIONS BY
TECHNOLOGY $MILLIONS 6-1
TABLE 6-2 EXISTING RENEWABLE RESOURCE ACCOUNT - ALLOCATIONS BY
TIER $MILLIONS 6-2
TABLE 6-3 NEW RENEWABLE RESOURCE ACCOUNT - ALLOCATIONS BY YEAR, $MILLIONS 6-4
</TABLE>
LIST OF FIGURES
---------------
<TABLE>
<S> <C>
FIGURE 2-1 CALIFORNIA PX DAILY PRICES - HIGH, LOW AND AVERAGE 2-8
FIGURE 3-1 ALBERTA GAS COMMODITY PRICE FORECASTS 3-7
FIGURE 3-2 SAN JUAN GAS COMMODITY PRICE FORECASTS 3-8
FIGURE 3-3 ACTUAL AND ESTIMATED MONTHLY GAS PRICE VARIATION AT
TOPOCK 3-12
FIGURE 3-4 WSCC TRANSMISSION SYSTEM CONFIGURATION 3-17
FIGURE 5-1 BASE CASE ANNUAL AVERAGE MCP AND PROJECT OPERATING
COSTS 5-3
FIGURE 5-2 BASE CASE ANNUAL OFF-PEAK MCP AND PROJECT OPERATING
COSTS 5-4
FIGURE 5-3 LOW GAS PRICE CASE 2 ANNUAL OFF-PEAK MCP AND PROJECT OPERATING COSTS 5-5
</TABLE>
LIST OF APPENDICES
------------------
A Southern California Base Case MCP Forecast
B Southern California Low Gas case 1 MCP Forecast
C Southern California Low Gas case 2 MCP Forecast
D Southern California Edison SRAC Price and Tier 3 Renewable Energy Subsidy
Forecast
- --------------------------------------------------------------------------------
(C)1999 Henwood Energy Services, Inc. May 20, 1999
iii
<PAGE>
PROPRIETARY AND CONFIDENTIAL
THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND PRICE FORECAST
1999 - 2009
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
Caithness Coso Funding Corp. has retained Henwood Energy Services, Inc (HESI) to
provide a detailed assessment of the Coso Project (hereafter the "Project"). The
Project is an existing geothermal power plant located in southern California. It
has a take-or-pay Purchase Power Agreement (PPA) that requires it to operate
continuously.
In HESI's opinion, such an assessment includes consideration of the important
regulatory developments and power market fundamentals that influence the
southern California market, in addition to a forecast of wholesale power prices
over the long term. While the PPA ensures that the Project has a guaranteed
market for its output, thus lessening competitive issues in the future, HESI has
briefly examined the cost competitiveness of the Project with respect to other
generators operating in the Southern California market.
The analysis and conclusions presented here are based upon assumptions developed
and tested by HESI and the power price forecast is derived from HESI's
proprietary Electric Market Simulation System (EMSS) software. The assessment
and forecast contained in this report are presented in both quantitative and
qualitative fashion as listed below:
1. A brief discussion of the key regulatory and market developments that affect
the California wholesale electricity market.
2. A detailed description of the key assumptions used in assessing the market
and utilized as EMSS inputs.
3. Average monthly time-of-day market clearing prices (MCP) in the Southern
California transmission area for the years 2000 to 2009.
4. Two alternative MCP forecasts that assume low gas prices and which are
designed to assess the Projects' sensitivity to changes in power prices over
the long-term.
5. Estimates of Southern California Edison monthly SRAC prices between 1999 and
2001 using the current Transition Period formula.
- --------------------------------------------------------------------------------
(C)1999 Henwood Energy Services, Inc. May 20, 1999
ES-1
<PAGE>
PROPRIETARY AND CONFIDENTIAL
THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND PRICE FORECAST
1999 - 2009
- -------------------------------------------------------------------------------
6. A specific competitive assessment of the Project on a stand-alone basis
using the Southern California MCP forecast and Project cost estimates
provided by the Project Operator.
7. An assessment of the Project within the context of the competitive market
and how the Project compares with other generators.
8. An assessment and estimate of renewable energy subsidy payments available
from the California government.
Based on our analyses, the report's major conclusions are summarized below:
1. HESI's MCP forecast indicates that the Southern California annual average
power price will increase from $26.9/MWh in 2000 to $44.3/MWh by 2009 -
which translates into an average annual rate of increase of about 5.7
percent over that period (inflation is included in all prices and is equal
to 3 percent per year).
2. However, there are three distinct periods of price movement. Between 2000
and 2002, the "Transition Period" in California, prices increase at an
annual average rate of 12.6 percent. During this period, prices bid into the
California Power Exchange (PX) reflect short run marginal fuel costs because
most utility-owned generators receive payments for capacity from "Must-Run"
contracts, if in California, or through traditional tariffs, if outside of
California.
3. After the Transition Period ends in March 2002, the PX should cease to
behave as a marginal cost pool. This change is reflected in the forecast.
The average MCP increases from $34.1/MWh in 2002 to $40.4/MWh by 2005 - an
average rate of increase of about 5.7 percent per year. Price increases in
this period reflect attempts by generators in California to recover at least
a portion of fixed capacity costs through market sales.
4. Beyond 2005, prices are forecast to increase gradually but steadily, about
2.3 percent per year, which is less than the inflation rate. The growth rate
during the 2005 to 2009 period is influenced largely by the introduction
into the generation market of high efficiency gas-fired combined cycle
plants. These plants are frequently on the margin. That is, they establish
the market-clearing price, and thus are in a position to
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push power prices down gradually over time as they replace less efficient
thermal generation plants.
5. Based on HESI's long-run natural gas price forecast (described in Section
3.3.11 below) and a 3 percent annual inflation rate, we estimate Southern
California Edison SRAC prices of $31.3/MWh for the remaining months of 1999
(May - December), $32.4/MWh in 2000 and $33.4/MWh in 2001. These prices are
higher than HESI's forecast of power prices on the California Power Exchange
during the same period.
6. We expect the Project to be a low cost producer in all years of the study.
According to data provided by the Project Operator, the annual average
operating cost in 2005 is $10.83/MWh. About 70 percent of the electricity
produced in the Western Systems Coordinating Council (WSCC) in 2005 - the
first year of full competition, is generated from units with higher costs.
Of all the generation in the region, only hydro and wind generators have
lower operating costs (hydro and wind power account for about 24 and 1
percent, respectively, of all electric generation in California).
7. The Project's annual average operating costs are 69 percent below annual
Southern California power prices, averaged over all years of the forecast.
In fact, the Projects' operating costs are significantly below even the off-
peak MCP in all forecast years.
8. The low-cost relationship between the MCP forecast and Project operating
costs continues in the Low Gas Price sensitivity cases. Under the worst-case
scenario, Low Gas Price Case 2, the Project's operating costs are, on
average, 58 percent below off-peak prices.
9. We estimate that the Southern California MCP will be greater than or equal
to $19.7/MWh in 96 percent of all hours in 2005. This means that the
Project, with an average operating cost of $10.8/MWh, will be below the MCP
in each of those hours and, in the absence of a PPA, would be dispatched
accordingly.
10. The Project is eligible for AB 1890 sponsored renewable energy subsidies
under Tier 3 of the Existing Renewable Energy category. However, based on
client and HESI assumptions, the Transition Period SRAC price exceeds 3.0
cents per kWh (the floor price guaranteed by
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AB 1890) during most months of 2000 and 2001. Consequently, although subsidy
funds are available, SRAC prices are forecast to be sufficiently high that
Tier 3 producers will not require a subsidy in most months. In the event
that future SRAC prices are lower than forecast here, HESI believes that the
AB 1890 program has ample funds to ensure that Tier 3 producers receive the
minimum of 3.0 cents per kWh until the end of 2001
11. HESI has reviewed the methodology and assumptions used by Caithness to
estimate AB 1890 subsidy payments. We believe their assumptions to be
reasonable and their methodology and calculations consistent with and
similar to HESI's own procedures.
The Report is organized as follows. Section 1 presents a brief overview of the
important federal and California regulatory initiatives that affect electric
power generation. The key features of the California power market, including the
Power Exchange and the SRAC Transition Formula, are described in Section 2.
Section 3 contains a discussion of the assumptions and methodology incorporated
into HESI's forecast of power prices in the Southern California market. The Base
Case and Low Gas Price Case forecast results are presented in Section 4. The
Project's competitive position within the California power market is analyzed in
Section 5. Last, Section 6 presents a brief overview of the AB 1890 sponsored
renewable energy subsidy programs and an estimate of subsidy payments applicable
to the Project.
The MCP forecasts by month and time of day are shown in Appendix A through C.
Appendix D contains SRAC price forecasts and renewable energy subsidy estimates
by month between 1999 to 2001.
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1 THE U.S. ELECTRIC POWER MARKET
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1.1 INTRODUCTION
The U.S. electric power industry is undergoing a profound transformation. The
industry is evolving from a vertically integrated and cost-regulated monopoly to
one that is market-based with competitive prices. The transition began with the
passing of the Public Utility Regulatory Policies Act (PURPA) in 1978, which
made it possible for non-utility generators to enter the wholesale power market.
As a result, non-utility capacity additions grew 54 percent from 1990 to 1996
while utility capacity additions during the same period grew only 2 percent. The
deregulation process is likely to continue at the state level far into the next
decade.
1.2 FEDERAL LEGISLATIVE AND REGULATORY INITIATIVES
This section briefly discusses the major federal legislation and regulation that
established a framework for electric power industry deregulation and set the
stage for further legislative initiatives at the state level.
1.2.1 Public Utility Regulatory Policies Act - 1978
PURPA is one of five bills signed into law on November 9, 1978, as part of the
National Energy Act. It is the only one remaining in force. Enacted to combat
the "energy crisis," and the perceived shortage of petroleum and natural gas,
PURPA requires utilities to buy power from non-utility generating facilities
that use renewable energy sources or "cogeneration," i.e. the use of steam both
for heat and to generate electricity. The Act stipulates that electric utilities
must interconnect with and buy, at the utilities' avoided cost, the capacity and
energy offered by any non-utility facility ("Qualifying Facility") meeting
certain ownership, operating and efficiency criteria established by the Federal
Energy Regulatory Commission (FERC).
1.2.2 Energy Policy Act - 1992
The Energy Policy Act of 1992 (EPACT) opened access to transmission networks and
exempted certain non-utilities from the restrictions of the Public Utility
Holding Company Act of 1935 (PUHCA). EPACT therefore has made it even easier for
non-utility generators to enter the wholesale market for electricity.
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The Act also created a new category of power producers, called exempt wholesale
generators (EWGs). By exempting them from PUHCA regulation, the law eliminated a
major barrier for utility-affiliated and nonaffiliated power producers wanting
to compete to build new non-rate-based power plants. EWGs differ from PURPA QFs
in two ways. First, they are not required to meet PURPA's utility ownership,
cogeneration, or renewable fuels limitations. Second, utilities are not required
to purchase power from EWGs.
In addition to giving EWGs and QFs access to distant wholesale markets, EPACT
provides transmission-dependent utilities the ability to shop for wholesale
power supplies, thus releasing them - mostly municipals and rural cooperatives -
- - from their dependency on surrounding investor-owned utilities for wholesale
power requirements. The transmission provisions of EPACT have led to a
nationwide open-access electric power transmission grid for wholesale
transactions.
1.2.3 FERC Order 888 - 1996
With the passage of EPACT, Congress opened the door to wholesale competition in
the electric utility industry by authorizing FERC to establish regulations to
provide open access to the nation's transmission system. FERC's subsequent
rules, issued in April 1996 as Order 888, is designed to increase wholesale
competition in the nation's transmission system, remedy undue discrimination in
transmission, and establish standards for stranded cost recovery. A companion
ruling, Order 889, requires utilities to establish electronic systems to share
information about available transmission capacity.
1.3 CALIFORNIA LEGISLATIVE INITIATIVES
1.3.1 Assembly Bill 1890
The legislation that introduced electric power deregulation to California is
Assembly Bill 1890 (AB 1890). The Bill, which was passed in September 1996,
established a number of goals, including:
. An immediate 10 percent rate reduction for residential and small commercial
users.
. A new power market structure with an Oversight Board (OB), an Independent
System Operator (ISO) and a PX.
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. Limits the amount of costs (e.g. stranded assets) that are recoverable in the
transition to a deregulated market.
. Preserves public programs supporting energy efficiency, research &
development and low-income households.
. Provides approximately $540 million in subsidies to support renewable energy
programs, including geothermal power generation, such as the Project.
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2 THE CALIFORNIA WHOLESALE POWER MARKET
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AB 1890 established a four-year Transition Period between January 1998 and March
2002 during which the California power market would undergo the transition from
a regulated to a competitive industry. The ISO and PX were scheduled to commence
operations on January 1, 1998 but technical problems delayed their start until
March 31, 1998. At the end of the Transition Period, most of the protections
afforded California's investor owned-utilities (IOUs) for past uneconomic
investments and power contracts will be removed. It is anticipated that,
eventually, municipal utilities will also permit their retail customers to enter
into direct supply agreements with competitive power suppliers.
2.1 THE MARKET 1998 AND BEYOND
With deregulation, a steadily increasing percentage of customers will be allowed
to purchase power in an open market. Customers will have direct access to
generators. No longer restricted to buying power only from their local utility
company, they can freely select the power arrangement that suits their
preferences.
On March 31, 1998, the PX began operating the Day-ahead energy market, a
wholesale market-clearing auction into which PX participants bid energy supply
and demand for each of the next day's 24 hours. On the same date, the ISO took
control of the electric grid, and began operating a complementary set of
competitive auctions. The ISO relies on these auctions to manage transmission
line congestion, to procure a portion of the needed ancillary services (for
reliability purposes), and to balance physical generation with load in real
time.
During the Transition Period, utilities are afforded the opportunity to recover
certain "stranded costs" for generation-related investments. These costs had
been previously authorized by the CPUC for inclusion in rates, but are not
likely to be recoverable through the prices that emerge in the competitive
market. The mechanism for this cost recovery is an unavoidable Competition
Transition Charge (CTC) assessed against all customers served by the
distribution system of California IOUs.
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2.1.1 Market Size
California's electric power market is very large, with a summer peak demand of
53,217 MW and total power consumption of 275,876 GWh in 1997. The average retail
cost of electricity is about 9.5 cents/kWh. Electric sales by California
utilities equaled $21.75 billion in 1997. According to the WSCC, peak demand for
electricity is forecast to reach 58,305 MW by 2007 - a growth rate of about 1.0
percent per year between 1997 and 2007. /1/
Electricity sales by California's three largest IOU's - PG&E, SCE, and SDG&E,
equaled about 169,045 GWh in 1997, or approximately 74 percent of California's
statewide energy consumption. /2/
2.1.2 Diversity of Energy Supply
During the 1970s, over two-thirds of California's electricity was generated from
oil and natural gas. This decade, however, California has developed a more
diverse resource mix of electricity generation. As Table 2-1 shows, over half of
the state's 258,801 GWh of electricity production is now met with non-fossil
fuel sources. Further, over 11 percent of power generation is fueled by
renewable energy, mainly geothermal, small hydro and biomass (but excluding
large hydro).
California leads in developing new generation technologies. It has 40 percent of
the world's geothermal power plants, 30 percent of the installed wind capacity,
and 90 percent of the world's solar generation. The state also leads the nation
in the amount of electricity supplied by non-utility generators.
Table 2-1 also shows that just over 32 percent of electricity generation is
supplied by natural gas. Because of its cheap price and clean-burning
characteristics, natural gas has become California's fuel of choice,
particularly for electricity generation. According to the California Energy
Commission, natural gas will account for 38 percent of energy used for power
generation by 2009.
- ---------------------------------
/1/ Peak demand forecast from "WSCC 1998 Information Summary," Western Systems
Coordinating Council.
/2/ Electricity consumption and revenue data from the California Energy
Commission..
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Table 2-1
1997 Net System Power
(Electric Generation)
<TABLE>
<CAPTION>
Fuel Type GWh Percent of Total
- ----------------------------------------------------------------
<S> <C> <C>
Hydroelectric* 61,718 24.4%
- ----------------------------------------------------------------
Nuclear 36,741 14.5%
- ----------------------------------------------------------------
Coal* 51,543 20.3%
- ----------------------------------------------------------------
Oil 173 0.1%
- ----------------------------------------------------------------
Natural Gas* 81,256 32.1%
- ----------------------------------------------------------------
Geothermal 11,950 4.7%
- ----------------------------------------------------------------
Organic Waste 5,701 2.3%
- ----------------------------------------------------------------
Wind 2,739 1.1%
- ----------------------------------------------------------------
Solar 810 0.3%
- ----------------------------------------------------------------
Other 896 0.4%
- ----------------------------------------------------------------
Total 253,526 100.0%
- ----------------------------------------------------------------
</TABLE>
*Includes out of state imports.
Source: California Energy Facts, California Energy Commission
Natural gas pipeline capacity into California stood at about 8 Bcf/day in 1996.
Between 1990 and 1996, interstate pipeline capacity into California increased by
65 percent. The major sources of new capacity during this period were the
Mojave, El Paso and Tuscarora pipelines. /3/
2.1.3 California Investor Owned Utilities
As California's utility market moves toward free competition, over 17,800 MW of
generating assets owned by IOUs have been sold, or will be in the near future.
However, despite this divestiture of generation resources, the IOUs are expected
to retain ownership and control of substantial nuclear, QF, and hydropower
generation in California and jointly owned thermal coal-fired generation outside
of California.
The IOUs also buy and sell power from each other, as well as engage in
transactions with other utilities in California and the surrounding Western
states. Each has assumed responsibility for matching load and resources to
- ---------------------------------
/3/ Deliverability on the Interstate Natural Gas Pipeline System, Energy
Information Administration , May 1998.
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maintain frequency, and matching scheduled and actual flows at the tie points by
which utilities are connected to other power producers. Because of their
obligation to serve within their service territories, they also developed
generation and demand forecasts, operated generating plants, and entered into
long-term procurement contracts for the fuel used to generate electricity. They
also participated in short- and long-term bilateral contracts for electric power
in order to meet changes in demand and demand growth, respectively.
2.1.4 Treatment of Qualifying Facilities (QFs)
With the exception of those with fixed price contracts, most other California
QFs are currently compensated under a Transition Formula that calculates the
Short Run Avoid Cost (SRAC) of each of California's three major IOUs. This
formula links changes in utility SRAC directly to changes in the price of
natural gas. However, the formula approach to estimating utility avoided costs
is unlikely to last much longer. The California Public Utilities Commission
(CPUC), which has the regulatory authority to determine SRAC, in Decision 96-12-
028, stated its intention to change the formula to one based on the California
PX price once certain conditions are satisfied. These conditions are that the PX
is functioning properly and that either the IOUs have divested 90 percent of
their gas-fired fossil generation, or the fossil-fired generation units owned
directly or indirectly by the IOUs are recovering all of their going forward
costs from PX based prices. HESI believes these conditions will be met by the
beginning of 2000.
2.2 CALIFORNIA MUNICIPAL UTILITIES AND AUTHORITIES
While it is anticipated that municipal utilities and other governmental
authorities will participate in the PX and ISO, there is no regulatory
requirement for them to do so. The largest municipal utilities are the Los
Angeles Department of Water and Power (LADWP) and the Sacramento Municipal
Utility District (SMUD), which in combination own or control over 15,000 MW of
generating resources. To date, they have not announced plans regarding their
participation nor have they submitted their transmission resources to ISO
control. The Imperial Irrigation District has also not as yet announced plans to
relinquish its transmission system to ISO control.
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2.3 SYSTEM RELIABILITY
The ISO is the entity responsible for the security and operating reliability of
the statewide electric grid. In this function, the ISO will adhere to the North
American Electric Reliability Council (NERC) and Western Systems Coordinating
Council (WSCC) standards for reliable operation.
In the near term, the new market is designed to accommodate this centralized,
third-party control structure through the combined use of two mechanisms. One is
the ISO-conducted, competitive auction for eligible ancillary services, such as
operating (spinning and non-spinning) reserve, replacement reserve, and
regulation capacity that can be controlled electronically by the ISO.
The other mechanism available to the ISO for procurement of generating services
is the use of long-term contracts with generating facilities that are designated
as "reliability Must-Run" facilities. A Must-Run facility refers to an IOU
generation plant that has a contract with the ISO for the purposes of
maintaining system reliability. These contracts provide for a capacity payment
to the owners during all, or part, of the Transition Period.
As with the ancillary service auction, the ISO will use reliability Must-Run
contracts to obtain operating reserve, replacement reserve, "black start"
capability, voltage support, and regulation capacity. The prices established in
these must-run contracts are unrelated to PX market prices. Instead, they are
based on the actual costs of the generating units under contract. Most of the
IOU-owned generators in California were declared must-run by their owners. The
ISO will examine each must-run contract during the Transition and retain those
required for system reliability. The ISO's use of must-run contracts through the
Transition Period was authorized by AB 1890. Service procured under must-run
contracts will be replaced by those procured competitively after the end of the
AB 1890-specified Transition Period.
2.4 THE CALIFORNIA PX
The PX is responsible for managing the transactions for all power auctioned
through, and purchased by, market participants except those bound by contract.
It was mandated by AB 1890 and set-up as a private,
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non-profit corporation subject to regulation by FERC. The different auctions
include the Day-ahead Market, Hour-ahead Market, Real-time Market, and an
Ancillary Services Market.
The Day-ahead Market is the most forward-looking of the scheduled markets, and
is the largest in terms of total volume. It will give participants the
opportunity to buy and sell energy for each hour of the 24-hour trading day on a
day-ahead basis.
The Hour-ahead Market is also a forward-looking, scheduled market, but its scale
is much smaller in terms of both ahead-time and total volume. It will give
participants the opportunity to adjust their schedules two hours before the hour
of operation.
The Real-time Market is dramatically different from the scheduled Day-ahead and
Hour-ahead markets, in that it is not forward-looking. Rather, it seeks to
balance the real-time differences actually experienced between scheduled and
metered values for load and generation.
2.4.1 California PX Prices
Actual monthly average California PX prices are shown in Table 2-2 below. While
monthly average prices reveal some of the variation in power prices that
occurred in 1998, a truer depiction of the actual variability in prices day to
day, and even within a day, are displayed in Figure 2-1. The Figure shows actual
high, low and average prices in the California PX Day-ahead market throughout
1998 and for the first two weeks of January 1999. The average daily price is
highlighted in bold and the high/low range for the day is depicted by the length
of the gray-shaded vertical line.
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Table 2-2
Monthly Average California PX Prices-
April 1998 to January 1999
($/MWh)
<TABLE>
<CAPTION>
Month On-Peak Off-Peak Average
- --------------------------------------------------------------
<S> <C> <C> <C>
April, 1998 26.84 18.55 22.60
- --------------------------------------------------------------
May 17.37 6.92 11.49
- --------------------------------------------------------------
June 16.97 7.43 12.09
- --------------------------------------------------------------
July 40.61 24.39 32.42
- --------------------------------------------------------------
August 54.27 27.38 39.53
- --------------------------------------------------------------
September 42.18 26.19 34.01
- --------------------------------------------------------------
October 30.81 22.91 26.65
- --------------------------------------------------------------
November 29.45 22.50 25.74
- --------------------------------------------------------------
December 33.50 24.87 29.13
- --------------------------------------------------------------
January, 1999 24.78 17.81 20.96
- --------------------------------------------------------------
</TABLE>
Note: On-peak is defined as the weekday hours between the 7:00 A.M. and
11:00 P.M. Off-peak consists of the hours between 11:00 P.M. and 7:00
A.M. on weekdays and all hours during weekends and holidays.
2.4.2 Short Run Avoided Costs
All QFs are compensated on the basis of the SRAC of the IOU purchasing the
power. The Project currently receives payment under the SRAC "Transition
Formula" for Southern California Edison (SCE). This "formulaic" SRAC is a linear
function of the price of natural gas as measured at the "California Border."
Table 2-3 presents a forecast of the annual average SRAC price, as computed
pursuant to the existing SRAC Transition Formula for SCE. The gas prices
(southern California border prices) used to make this calculation are the same
as the long term gas price forecast used in the HESI model to produce the Base
Case MCP forecast.
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Figure 2-1
California PX Daily Prices - High, Low and Average
(GRAPHIC APPEARS HERE)
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Table 2-3
SCE Annual Average
Short-Run Avoided Costs of Energy
<TABLE>
<CAPTION>
Price of Gas SCE SRAC
YEAR ($/MMBtu) ($/MWh)
- ---------------------------------------------------------------
<S> <C> <C>
1999 2.39 29.5
- ---------------------------------------------------------------
2000 2.49 32.4
- ---------------------------------------------------------------
2001 2.59 33.4
- ---------------------------------------------------------------
</TABLE>
Note: The SRAC prices shown are weighted averages with the weights based
on the number of hours in each "time-of use" period as defined by Southern
California Edison. The 1999 estimate consists of actual values to April
and forecast values thereafter.
While HESI has estimated SCE SRAC prices through 2001, we believe, however, that
competitive-based PX pricing will replace the SRAC as early as the beginning of
2000. Appendix D shows monthly time of day SRAC estimates for the same time
period. Also in Appendix D are revised monthly SRAC price estimates using a more
up-to-date short-term monthly gas price forecast.
2.5 PX PRICES AS A MEASURE OF AVOIDED COST
The SRAC Transition Formula is expected to be in effect until several conditions
are met. One condition is the divestiture by California IOUs of their California
fossil-fired generation, a process expected to be completed in the next twelve
months. The other is a determination by the CPUC that the PX market is
"functioning properly." Currently, PX operations are being gradually phased in.
Once complete, the CPUC will likely wait several more months before determining
whether the PX is functioning properly - a determination which could be subject
to several more months of regulatory delay. However, if PX market prices are
substantially below Transition Period SRAC prices, utilities will be motivated
to seek a change in SRAC pricing more quickly. PX prices have been substantially
lower than SRAC prices for the most part. HESI's MCP forecasts support the
notion that annual average PX prices will likely continue to be lower than SRAC
prices throughout the Transition Period. Given the above considerations, the
change from the Transition Formula pricing to PX pricing should occur at the
beginning of 2000.
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3 SOUTHERN CALIFORNIA MCP FORECAST: KEY ASSUMPTIONS AND METHODOLOGY
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3.1 MODELING METHODOLOGY AND TECHNIQUES
To develop a forecast of market clearing prices for the Southern California
Transmission Area, simulation of the entire Western Systems Coordinating Council
(WSCC) electrical system was required. Such a simulation requires a vast amount
of data regarding power plants, fuel prices, transmission capability and
constraints, and customer demands.
HESI utilizes its proprietary Electric Market Simulation System (EMSS) and its
MULTISYM(TM) production cost model to simulate the operation of the WSCC. EMSS
is a sophisticated application of relational database technology, which operates
in conjunction with a state-of-the-art, multi-area, chronological, production
simulation model. It is used to manage the tens of thousands of individual data
points necessary to properly characterize the WSCC electric system for the
forecast.
The types of data managed by the EMSS database include the data necessary to
correctly consider the configuration of the regional transmission system. This
includes:
. individual power plant characteristics;
. transmission line interconnections, ratings, losses, and wheeling rates;
. forecasts of resource additions and fuel costs; and
. forecasts of loads for each utility in the region.
MULTISYM(TM) simulates the operation of the individual generators, utilities and
control areas (also referred to as transmission areas) within the region, taking
into consideration various system and operational constraints. Output from the
simulation is generated in hourly, station-level detail and provided in database
format. This data may then be aggregated and sorted for any level of aggregation
required by the user.
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3.2 ASSUMPTIONS REGARDING THE CALIFORNIA MARKET TRANSITION PERIOD
It is assumed during the Transition Period that the market will consist of a
limited number of generators that will be required to operate competitively in
the market. AB 1890-mandated regulatory Must-Take generation and regulatory
Must-Run contracts provide for the continuation of capacity payments through the
Transition Period. Must-Take includes power from QF resources, nuclear units,
and existing purchase power agreements that have minimum-take provisions. Must-
Take units not subject to competition are scheduled with the ISO on a must-take
basis. Must-Take units owned by municipal and public power agencies are assumed
to continue operating as they did in the past.
Units identified on the ISO's Must-Run contract list will end up with one of
three types of Must-Run contracts - A, B, or C. This study assumes that most
Must-Run contracts will be Must-Run "B". This type of contract allows generators
to cover their fixed costs of operation through a payment by the ISO. Those
units that do not sign the "B" contract and remain on an "A" contract will
generally be those that are must-run or follow load, such as hydroelectric.
There will also be few Must-Run "C" contracts. These contracts require that the
units be dedicated to the ISO in exchange for full cost recovery, but do not
allow the unit to bid independently into the market. The ISO has the right to
terminate any Must-Run contract it deems unnecessary on 90-days notice.
Since a majority of the generating units both inside and outside of California
will generally continue to bid to the PX just above their variable cost of
production until the end of the AB 1890 specified Transition Period, we assume
that the PX closely resembles a variable cost pool in the near term. At the end
of the Transition Period, fixed costs will also be recovered through the PX.
Thus, a relatively small number of units will be exposed to full competition
during the Transition Period.
We have forecasted the Must-Run contracts to impact the market through the end
of 2001 by putting downward pressure on PX prices. The Must-Run contract
payments cover much of the generators' costs by allowing fixed costs to be
recovered through the ISO. Thus, these generators will not require higher PX
prices to recover their fixed costs. When the contracts terminate during, or at
the end of, the Transition Period, all generators will be required to recover
their costs through normal,
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competitive trading activities. The model takes into account the phasing out of
the Must-Run contracts in the Transition Period, resulting in an increase in PX
prices.
3.3 KEY ASSUMPTIONS FOR MODELING THE WSCC POWER MARKET
3.3.1 Forecast Horizon
The forecast period covers a twenty-year period beginning January 1, 2000 and
ending December 31, 2009.
3.3.2 Market Structure
It is assumed that all generators in the WSCC, except a few in California that
were not declared Must-Run, receive some payment for capacity through 2001, the
end of the Transition Period specified in AB 1890. From 2002 through 2009 there
are no capacity payments to the California generators. We assume non-California
generators will continue to operate with regulated tariffs and capacity payments
from 2002 through 2004. We believe the market will become fully competitive by
2005 and, from that point forward, all generators will need to recover capacity
costs through the market.
3.3.3 Existing Resource Base
All existing generation units within the WSCC are included in the analysis.
HESI's database contains information regarding all such units and their
performance characteristics. This data has been updated to reflect the most
recent filings made by utilities regarding their resources. Much of this data
was taken from the "OE-411" and is current as of January 1, 1997. Generation
resource data were also supplemented by a review of specific utility resource
plan filings and reports generated by state agencies. Existing resources are
assumed to continue operating through the forecast horizon, except for those
resources that have specific retirement dates or assumed retirements.
3.3.4 Resource Retirements
We have conservatively estimated the retirements to be only those publicly
announced, except in the case of the nuclear units. Recent CPUC decisions on
rate recovery allow California utilities to recover investments in nuclear
plants on an accelerated schedule. Investments in Diablo Canyon and Palo Verde
will therefore be fully recovered by the end of 2001 and San Onofre by the end
of 2003. After this special rate treatment
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period ends, these plants must compete individually. All costs will have to be
recovered in the competitive energy market. HESI believes that Diablo Canyon and
San Onofre will not be competitive in the new environment and so will be shut
down shortly after their investments are recovered, in 2001 and 2003
respectively. Palo Verde is assumed to operate throughout the forecast period.
3.3.5 Generic Resource Additions
HESI believes that gas-fired combined cycle units (CC) and gas-fired combustion
turbines (CT) will be added as needed to meet the projected increase in customer
demand over the forecast period. HESI's analysis assumes that generation
resources will be added over the forecast period in a 3 CC MWs to 1 CT MW ratio
for all trans-areas.
Table 3-1 lists the cost and performance assumptions for these resources.
Table 3-1
Generic Resource Characteristics (1996 dollars)
<TABLE>
<CAPTION>
Combustion
Unit Characteristic Turbine Combined Cycle
- --------------------------------------------------------------------------
<S> <C> <C>
Capacity (MW) 120 240
- --------------------------------------------------------------------------
Heat Rate (Btu/kWh) 11,000 7,100
- --------------------------------------------------------------------------
Fixed O&M ($/kW- year) 3.00 10.00
- --------------------------------------------------------------------------
Variable O&M (dollars/MWh) 4.00 2.00
- --------------------------------------------------------------------------
Forced Outage Rate (%) 0.00 2.00
- --------------------------------------------------------------------------
Maintenance Outage Rate (%) 4.00 4.00
- --------------------------------------------------------------------------
</TABLE>
3.3.6 Loads
HESI is using the latest available data to project future customer demand and
energy requirements. This data was filed electronically by the utilities with
the Federal Energy Regulatory Commission (FERC) early in 1997, and represents
each utility's most recent recorded historic loads and their most recent load
forecast data. HESI has used data approved by the California Energy Commission
in its 1996 Electricity Report for the California utilities.
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3.3.7 Load Shape
The load shape is based on recent historic load data filed with the FERC by
utilities which reflects their complete hourly loads over calendar years 1993
through 1996. HESI has used these load shapes to create a load shape consistent
with the load forecasts provided by utilities. These "synthetic" load shapes are
used to project the shapes of future utility loads based on the load growth data
described in section below.
3.3.8 Load Growth
Based on the load forecasts filed with the FERC in 1996 under Form 714 and on
more recent information filed to state regulatory agencies, including California
ER96, peak demand and energy requirements for the entire WSCC are expected to
both grow at less than 2 percent per year through the study.
3.3.9 Inflation
General inflation drives a number of cost elements that underlie power market
prices, including operations and maintenance (O&M) costs and the cost of new
resource additions. General inflation is combined with expectations of real
price escalation in order to forecast future fuel prices. For this study
inflation was assumed to be 3.0 percent per year.
3.3.10 Fuel Prices
There are two principal fuels that drive electricity prices in the WSCC region -
- - natural gas and coal.
3.3.11 Natural Gas
Introduction
- ------------
Gas-fired generators are dispatched according to the cost of natural gas at the
burner-tip. HESI models gas burner-tip prices as the sum of the commodity
price - the cost of gas at a particular producing area, and all relevant
transportation charges involved in transporting it from the supply basin to the
generation plant.
Two of the major natural gas producing areas that supply natural gas to power
generators in the WSCC are the Western Canada Sedimentary Basin (WCSB), which is
located mainly in Alberta, Canada and the San Juan Basin, situated mainly in New
Mexico.
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Although generators within the WSCC sometimes use gas from other basins, HESI
assumes that only one gas basin will set the key marginal gas price for each
generator. Generating stations in New Mexico, Southern Nevada, Arizona, and
Southern California are supported by the San Juan Basin. The WSCB basin is
assumed to supply generating stations within Alberta and British Columbia.
Alberta also supplies electric generators located in Washington, Oregon, Idaho,
Montana, Wyoming, Utah, Northern Nevada, and Northern California.
The HESI methodology assumes therefore that the burner-tip gas price for each
gas-fired generation plant will depend mainly on its location relative to the
supply basins that are accessible to it and the cost of shipping gas from those
basins to the plant. The commodity and transportation components of natural gas
burner-tip prices are forecast separately and then added together to derive the
prices paid by generation plants appropriate to their geographic location. A
description of commodity and transportation cost forecast methodology is
presented in more detail below.
Gas Commodity Price Forecast Methodology
- ----------------------------------------
HESI utilizes a "Delphi" approach to forecasting gas commodity prices. That is,
HESI collects various recent expert forecasts of Alberta and San Juan commodity
prices and generally takes the simple average as the Base Case forecast.
The expert sources for the Alberta commodity price forecast are the "Natural Gas
Market Outlook" by the California Energy Commission (CEC), "Annual Energy
Outlook 1998 with Projections to 2020" by the Energy Information Administration
(EIA), and "Natural Gas: Review of 1997 and Outlook to 2005", from Natural
Resources Canada (NRCan)./4/ The NRCan report itself contains a survey of
Alberta commodity gas prices from various sources. The prices in the NRCAN
survey, combined with the CEC forecast, constitute the consensus from which the
HESI Base Case forecast is derived for the years 1998 to 2005.
- --------------------
/4/"Natural Gas Market Outlook," California Energy Commission, June 1998;
"Natural Gas: Review of 1997 and Outlook to 2005," Natural Gas Division, Natural
Resources Canada, May 1998; "Annual Energy Outlook 1998 with Projections to
2020," Energy Information Administration, Department of Energy, December 1997.
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Figure 3-1 shows the Alberta commodity price forecasts contained in the NRCan
report between 1999 and 2005, the CEC forecast, and the HESI Base Case forecast
derived from these sources./5/ From 2006 onward, the HESI Base Case forecast in
2005 is escalated according to the average of growth rates of the CEC's Alberta
commodity price forecast and the EIA's average Canadian import gas price
forecast. The EIA's forecast is therefore not directly shown in Figure 3-1, but
appears indirectly as a contributor to the projected growth rate of the HESI
forecast.
Figure 3-1
Alberta Gas Commodity Price Forecasts
[GRAPH APPEARS HERE]
The sources for the San Juan commodity price forecast are again the CEC's
"Natural Gas Market Outlook" and the EIA's "Annual Energy Outlook. The HESI Base
Case forecast is derived by averaging the CEC
- -------------------
/5/In Figure 3.1, ARC refers to the ARC Financial Corporation, a Calgary-based
oil and gas investment advisor. PIRA is the PIRA Energy Group, a New York-based
petroleum industry research firm and CERI is the Canadian Energy Research
Institute.
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and EIA forecasts in all years between 1998 and 2020./6/ These forecasts are
shown in Figure 3-2.
Figure 3-2
San Juan Gas Commodity Price Forecasts
[GRAPH APPEARS HERE]
Factors Affecting Future Gas Commodity Prices
- ---------------------------------------------
Natural Gas consumers in California and other Western states have enjoyed
relatively inexpensive natural gas commodity prices for a number of years. The
main reasons have been intense competition among gas producers to maintain or
expand market share and slower than anticipated demand growth in California.
Although both Alberta and the San Juan areas are major suppliers of natural gas
to the WSCC, both regions currently suffer from a lack of take-away capacity.
Consequently, producer prices, or netbacks, have been relatively weak compared
to prices received by producers in other producing regions, particularly the
Louisiana and Anadarko producing regions, which have access to large markets in
the Midwest and the Eastern U.S. However, most forecasters expect this situation
to change in the near future, particularly in Alberta's case, due to pipeline
capacity expansions that are either in-progress or
- --------------------
/6/ The CEC forecast shown is actually the current actual San Juan price
escalated according to the forecast annual average real growth rate contained in
the CEC forecast.
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planned over the next few years. As a result, expert opinion, such as the CEC,
the EIA and NRCan, expect commodity prices in these regions to increase at rates
that are above price rises projected for most other producer basins.
Accordingly, the HESI Base Case forecast assumes that Alberta and San Juan based
gas commodity prices will increase over the long term at average annual real
rates of 1.8 and 1.6 percent respectively. In comparison, the consensus opinion
is that Gulf Coast prices will increase, on average, in the range of 1 percent
per year over the long term. The following sections discuss developments in the
Alberta and San Juan producing regions that are likely to impact on gas prices
paid by generation plants in the WSCC.
Pipeline capacity in the San Juan basin was developed in the late 1980s to serve
the California market. However, the expected growth in demand never really
materialized. As a result, the region has suffered from excess capacity.
Currently, producers are attempting to expand deliverability eastward. According
to the EIA, the two major intestate pipelines in the area, Transwestern and El
Paso Natural Gas, are expanding facilities which would allow them to direct more
production to the market centers in Southwestern Texas, which would then allow
San Juan producers access to Midwest and Northeast markets./7/
Although TransCanada Pipeline, the major pipeline link between Canadian
producers and eastern U.S. markets, has increased domestic deliverability the
last few years, significant constraints still prevent Alberta producers from
fully accessing these markets. However, a number of projects are planned that
will greatly improve export capability. The most notable of these is the
Alliance project, which would tie Alberta and British Columbia producers
directly to the Chicago market. Also, Great Lakes Gas Transmission and Iroquois
Transmission plan to expand their systems in the Midwest and the Northeast
respectively. Finally, Foothills Pipe Line Ltd. and the Northern Border Pipeline
have obtained approval to expand export capability at the Montana border./8/
- --------------------
/7/"Deliverability on the Inter-state Natural Gas Pipeline System," Department
of Energy, Energy Information Administration, May 1998, page 125.
/8/IBID, page 126-127.
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Implications for the WSCC Region
- --------------------------------
Although the planned pipeline capacity expansions in the San Juan and Alberta
producing regions do not directly affect the volumes flowing to California and
other Western U.S. states, the impact will nonetheless be significant. This is
because generation plants in the WSCC will face greater competition for Alberta
and San Juan produced natural gas from bidders in other market regions.
The Alberta commodity price is therefore expected to rise towards prices in U.S.
markets as Alberta supply becomes more tightly linked to prices in the U.S. For
example, the EIA long term forecast expects Canadian import prices to increase
at about 1.5 percent per year in real terms from 1998 to 2020, while Gulf Coast
prices are projected to increase at only 0.8 percent real over the same period.
Similarly, Southwest prices, which include San Juan, increase at about 1.0
percent per year, somewhat above the U.S. wellhead average price forecast by the
EIA.
Following a similar analysis, the CEC expects both San Juan and Alberta
commodity prices to increase at 2 percent per year in constant dollars. In
comparison, prices in the Gulf Coast and Rocky Mountain regions increase at
about 1 percent per year. Table 3-2 shows projected commodity price growth rates
from the CEC and EIA source documents and the HESI Base Case growth rates,
which, as described, are derived from these projections. The HESI gas commodity
price forecast is shown for selected years in Table 3-3 on the accompanying
page.
Table 3-2
Projected Gas Commodity Price Growth by Producer Basin
(Average Annual Real Percent Change)
<TABLE>
<CAPTION>
CEC EIA HESI Base
Producing Region 1999 - 2019 1998 - 2020 1999 - 2009
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Henry Hub (Gulf Coast) 1.3% 0.8% NA
- --------------------------------------------------------------------------------------
Rocky Mountain 1.0% 1.5% NA
- --------------------------------------------------------------------------------------
Permian (SW Texas) 1.9% 1.0% NA
- --------------------------------------------------------------------------------------
Anadarko (mid-continent) 1.9% 0.8% NA
- --------------------------------------------------------------------------------------
San Juan (New Mexico) 2.0% 1.0% 1.6%
- --------------------------------------------------------------------------------------
Alberta (Canadian Imports) 2.0% 1.5% 1.8%
- --------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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Table 3-3
HESI Base Case San Juan and Alberta
Commodity Price Forecast
$98/MMBtu
<TABLE>
<CAPTION>
San Juan Alberta
- -----------------------------------------------
<S> <C> <C>
1999 2.17 1.50
- -----------------------------------------------
2000 2.20 1.57
- -----------------------------------------------
2001 2.22 1.63
- -----------------------------------------------
2002 2.24 1.68
- -----------------------------------------------
2003 2.27 1.70
- -----------------------------------------------
2004 2.30 1.74
- -----------------------------------------------
2005 2.33 1.78
- -----------------------------------------------
2010 2.54 1.94
- -----------------------------------------------
2015 2.74 2.03
- -----------------------------------------------
2009 2.86 2.11
- -----------------------------------------------
</TABLE>
The Estimation of Monthly Natural Gas Prices
- --------------------------------------------
HESI converts the Base Case annual average forecast of gas commodity prices to
monthly prices using a set of estimated monthly (seasonal) factors. These
factors are held constant throughout the forecast. The monthly factors are
derived from historical monthly average 30-day spot prices reported in the
Weekly Gas Price Index and published by Natural Gas Intelligence. In particular,
HESI estimates a set of "normalized" monthly factors that attempt to portray
typical or normal variation in gas prices. The annual San Juan commodity gas
price is converted to monthly prices using estimated monthly variation at
Topock - which represents the market pricing point for most natural gas
purchases in Southern California, Arizona, and Southern Nevada. Alberta-based
annual commodity prices are converted to monthly prices using estimated monthly
variation at Malin - a major pricing point for gas purchases in Northern
California, Oregon, and Northern Nevada.
The details of the estimation procedure are discussed with reference to Figure
3-3 below, which shows actual and estimated monthly variation in gas spot
prices, in ratio form, at Topock. Ratio form is defined here as the average of
actual monthly prices relative to the annual average price for all similar
months, using historical data from January 1991 and October 1998. In other
words, the January actual price shown in Figure 1-3 represents the average of
all January to annual ratios between 1991 and 1998. The ratios
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therefore represent the typical or average variation in monthly prices relative
to the annual average price observed at Topock over the last eight years.
Figure 3-3
Actual and Estimated Monthly Gas Price Variation at Topock
[GRAPH APPEARS HERE]
As a final step, the observed average variation is smoothed according to a
polynomial curve that is fitted by least squares regression. The smoothed
monthly factors are then adjusted slightly so that their average is equal to
unity. As the chart shows, in the case of Topock, most of the adjustment is
added to the January estimate - since the fitted line underestimates actual
variation in this month. An identical procedure is applied to the forecast of
annual average Alberta prices using historical monthly price variation at Malin.
Gas Transportation Price Methodology
- ------------------------------------
Pipeline transportation costs are added to basin prices to determine city-gate
gas prices. The city-gate is defined as the point of delivery from inter-state
transmission pipelines to Local Distribution Company (LDC)
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systems. Transportation costs can potentially consist of both inter-state
transmission charges and LDC costs. However, for most generators, city-gate
prices are the relevant marginal gas costs used to "dispatch" their electric
systems, either because the generation owners receive service directly from
pipelines or pay only nominal additional charges to an LDC. In other areas,
additional charges for intra-state or LDC transportation must be added to yield
the dispatch price of gas.
The forecasts of inter-state transportation costs in the HESI model reflect
historic differences between city-gate prices and commodity prices from the
respective gas supply basins. Additionally, the monthly price profile of the
referenced city-gate is used to approximate the monthly variation in gas
transportation costs arising from fluctuations in shipper volumes.
Local Distribution Company Charges
- ----------------------------------
The key generators receiving LDC gas transportation service are California's
electric generators. Thus, for these generators, LDC charges, based on LDC
tariffs, are added to the California border price./9/ Generators situated in
Northern California are assumed to purchase gas at prices equivalent to the
Northern California border price and generators situated in Southern California
purchase gas at prices that reflect the Southern California border. The Alberta
commodity price plus transportation costs to Malin, Oregon, (located just north
of the California border) constitutes the Northern California border price. The
San Juan commodity price plus transportation to Topock (south of Needles,
California near the California-Arizona border) represents the Southern
California border price.
The LDC charges are based upon estimates of actual 1996 charges and are held
constant in real dollars at these levels through the study horizon.
Historically, with the majority of generation owned by utilities, much of the
fixed cost of gas transportation would be included in fixed cost components of
electric retail customer rates, resulting in only a small portion of such gas
transportation being recognized in daily and hourly generation dispatch
decisions. This practice tended to reduce the assumed marginal generation cost
for an individual generation unit dispatch decision. In a competitive market,
buyers and sellers will determine what costs can be recovered and so generators
will not be able to rely upon
- --------------------
/9/The California border price is similar in some respects to a city-gate price
in that it represents the price of natural gas at a point where an inter-state
transmission line connects to an LDC distribution pipeline.
- --------------------------------------------------------------------------------
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regulated rates to automatically recover fixed costs of gas transportation.
Therefore, the full cost of gas transportation will need to be recovered from
energy sales, or generators will face the possibility of under-recovery of gas
transportation costs, which cannot be sustained on a long-term basis. This
change is expected to have some upward pressure on market clearing prices and is
reflected in the HESI market clearing price model.
Total Gas Costs
- ---------------
Table 3-4 summarizes much of this section's discussion. It shows the
relationship between generator location, producer basin and the city-gate. For
example, for generators in the Northwest, excluding the Seattle area, the
referenced basin is Alberta and the city-gate price consists of the Alberta
commodity price plus inter-state transportation costs to the market hub at
Stanfield, Oregon. In the case of generators located in the service territory of
Southern California Edison, the burner-tip price consists of the San Juan
commodity price, inter-state transportation costs from the San Juan producer
region basin to the Southern California border, near Topock, and finally LDC
charges on the SCE transmission system from Topock to the burner-tip.
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Table 3-4
HESI Base Case Natural Gas City-Gate Price Forecast
$1998/MMBtu
<TABLE>
<CAPTION>
Generation PNW- North South
Location Alberta B.C. Coastal PNW NV NV PG&E
- -----------------------------------------------------------------------------------------
Commodity
Basin WCSB WCSB WCSB WCSB WCSB San Juan WCSB
- -----------------------------------------------------------------------------------------
Referenced
Market PGE
Hub/City- City-
gate AECO-C Sumas Sumas Stanfield Malin South NV gate
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 1.50 1.71 1.71 1.80 1.97 2.33 2.15
- -----------------------------------------------------------------------------------------
2000 1.57 1.78 1.78 1.87 2.04 2.36 2.22
- -----------------------------------------------------------------------------------------
2001 1.63 1.84 1.84 1.93 2.10 2.38 2.28
- -----------------------------------------------------------------------------------------
2002 1.68 1.89 1.89 1.98 2.15 2.40 2.33
- -----------------------------------------------------------------------------------------
2003 1.70 1.91 1.91 2.00 2.17 2.43 2.35
- -----------------------------------------------------------------------------------------
2004 1.74 1.95 1.95 2.04 2.21 2.46 2.39
- -----------------------------------------------------------------------------------------
2005 1.77 1.98 1.98 2.07 2.24 2.49 2.42
- -----------------------------------------------------------------------------------------
2010 1.94 2.15 2.15 2.24 2.41 2.70 2.59
- -----------------------------------------------------------------------------------------
2015 2.03 2.24 2.24 2.33 2.50 2.90 2.68
- -----------------------------------------------------------------------------------------
2020 2.18 2.39 2.39 2.48 2.65 3.13 2.83
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Generation Rocky Mt
Location SCE Coolwater SDGE AZ/NM Rocky Mt -Colo.
- -----------------------------------------------------------------------------------------------
Commodity San San San San
Basin Juan Juan Juan Juan WCSB San Juan
- -----------------------------------------------------------------------------------------------
Referenced
Market SCE SCE SCE
Hub/City- City- City- City-
gate gate gate gate AZ/NM Opal Denver
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 2.32 2.32 2.32 2.31 1.78 2.17
- -----------------------------------------------------------------------------------------------
2000 2.35 2.35 2.35 2.34 1.85 2.20
- -----------------------------------------------------------------------------------------------
2001 2.37 2.37 2.37 2.36 1.91 2.22
- -----------------------------------------------------------------------------------------------
2002 2.39 2.39 2.39 2.38 1.96 2.24
- -----------------------------------------------------------------------------------------------
2003 2.42 2.42 2.42 2.41 1.98 2.27
- -----------------------------------------------------------------------------------------------
2004 2.45 2.45 2.45 2.44 2.02 2.30
- -----------------------------------------------------------------------------------------------
2005 2.48 2.48 2.48 2.47 2.05 2.33
- -----------------------------------------------------------------------------------------------
2010 2.69 2.69 2.69 2.68 2.22 2.54
- -----------------------------------------------------------------------------------------------
2015 2.89 2.89 2.89 2.88 2.31 2.74
- -----------------------------------------------------------------------------------------------
2020 3.12 3.12 3.12 3.11 2.46 2.97
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
(C)1999 Henwood Energy Services, Inc. May 20, 1999
</TABLE>
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Coal
- ----
HESI bases its coal prices on historic power plant specific coal price data
extracted from the "Form 423's" utilities regularly file with the FERC. The Form
423 data include historic consumption as well as both spot and average
(transportation and so-called fixed fees included) prices. Given the competitive
nature of fuel supply markets and the current pricing of coal relative to gas,
HESI expects no coal price escalation through the forecast period. HESI used
spot coal prices to simulate the economic operation of coal plants. Spot prices
are historically about 77 percent of average prices.
3.3.12 Operations & Maintenance
Power plant specific non-fuel O&M costs are reported by utilities in annual
reports to the FERC in a number of separate accounts. HESI averages these data
for the 1991 through 1995 time periods (normalized for constant year dollars) to
develop average starting O&M costs. The amounts in these various accounts are
then allocated between fixed and variable O&M. To derive a unit's fixed O&M
cost, the total O&M cost is decreased by the variable O&M cost component. Both
fixed and variable O&M costs are assumed to escalate with inflation.
3.3.13 Property Taxes
Property taxes are set by local jurisdiction and so vary throughout the WSCC. In
California they are 1.09 percent of remaining generation station book value. In
other jurisdictions, the rates range from 0.4 percent to approximately 4
percent. For purposes of establishing the property tax component of going
forward costs, jurisdictional tax rates will be used.
3.3.14 Insurance
Insurance is calculated as 0.2 percent of the remaining, undepreciated book
value of the power plant.
3.3.15 Other Costs
In addition to fuel costs, a power plant operator experiences other costs
associated with the on-going business of producing power. These costs include
O&M, property taxes and insurance. For the most part, these costs can be avoided
if a facility is "mothballed" or retired, and thus are included in power plant
bids when performing competitive market analysis.
- --------------------------------------------------------------------------------
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3.4 WSCC TRANSMISSION SYSTEM CONFIGURATION
In order to perform a study of the Southern California market prices likely to
result from the PX, the operation of the transmission system in the entire WSCC
region must be modeled. The transmission system configuration for this study is
shown in Figure 3-4. This characterization reflects the zones proposed by the
California IOUs in their PX applications to FERC.
Figure 3-4
WSCC Transmission System Configuration
[GRAPHIC APPEARS HERE]
3.5 HYDRO POWER
3.5.1 Median Year Case
HESI utilized average or median hydro conditions depending on the WSCC sub-
region and the data available. The sources for these data follow.
- -------------------------------------------------------------------------------
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THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
- -------------------------------------------------------------------------------
Pacific Northwest (PNW) Hydro Data
- ----------------------------------
The hydroelectric generation in the PNW accounts for almost half of the hydro
generation in the entire WSCC. HESI used the Bonneville Power Administration's
(BPA) 1996 Pacific Northwest Loads and Resources Study to update hydroelectric
data in the PNW. HESI calculated monthly capacity and energy values for each
hydroelectric station in the PNW based on this data, choosing the median
conditions from a recorded database of 50 years.
Hydro Data for Other Regions
- ----------------------------
Hydro data for the other regions come from a number of sources and are updated
periodically by HESI.
The WSCC Coordinated Bulk Power Supply Program document was used for the
majority of the plant capacity data for plants outside the Northwest. This
document is the WSCC's response to the Department of Energy's Form OE-411. It
includes summer and winter capacity ratings for all of the existing hydro and
thermal resources in the WSCC.
The McGraw Hill Electrical World Directory of Electric Utilities (The
"Bluebook") was the source of hydro plant energy data in a number of the WSCC
regions.
3.5.2 Transactions
HESI incorporates known firm, contracted power transactions into its model, as
reported by the WSCC in the annual FERC Form OE-411 Filing. The transactions are
reflected in the load requirements of the buying and selling utilities, in
transactions between regions, and by adjusting the transmission capacity. Any
remaining transmission capacity is used to facilitate additional power
transactions between regions.
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<PAGE>
PROPRIETARY AND CONFIDENTIAL
THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
4 SOUTHERN CALIFORNIA MCP FORECAST: RESULTS
- -------------------------------------------------------------------------------
The following sections summarize the model results from the Base Case and the
two Low Gas price sensitivity cases. Gas prices are sensitized due to the fact
that gas-burning generators are the marginal cost producers and therefore a
major influence on the MCP in California. Any additional baseload capacity must
therefore be a low cost producer and a price taker. Additional intermediate
capacity will need to be flexible enough to accommodate hourly load
fluctuations. The gas-fired combined-cycle and combustion turbines are the most
flexible technologies to meet these needs cost-effectively. The role of these
units and the impact of gas prices in setting wholesale power prices will
increase over time, making gas the ideal input to vary for sensitivity. To test
this sensitivity two gas price downside cases are developed as described in the
sections below.
4.1 BASE CASE SOUTHERN CALIFORNIA MCP FORECAST, 2000 - 2009
The Base Case annual average MCP forecast for the Southern California
transmission area is presented in Table 4-1.
The annual average MCP increases at an annual average of 12.6 percent per year
between 2000 to 2002. This is the Transition Period during which most market
players bid selling prices into the market which reflect their short run
marginal costs. During this period, most IOU-owned generators receive payments
for capacity from the ISO Must-Run contracts, if in California, or through
traditional tariffs, if outside of California. The capacity payments cease for
most ISO-contracted Must-Run generators by the end of 2001.
After the AB 1890 Transition Period ends in March 2002, the power pool should
cease to behave as a marginal cost pool. We believe California generators will
begin to recover some, though not all, of their fixed costs through their sales
through the PX. However, they will continue to compete with out-of-state
generators that continue to receive capacity payments through their regulated
rates and may continue to bid as if the PX was a marginal cost pool. This change
is reflected in the average annual MCP increasing from $34.13/MWh in 2002 to
$40.35/MWh by
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PROPRIETARY AND CONFIDENTIAL
THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
- -------------------------------------------------------------------------------
2005. From 2002 to 2005, California generators are exposed to the competitive
market, but their out-of-state competitors continue to receive capacity
payments. The average power price increases at an annual average rate of 5.7
percent during this period.
Table 4-1
Base Case Southern California MCP Forecast
2000 - 2009
$/MWh
<TABLE>
<CAPTION>
Average On-Peak Off-Peak
- -------------------------------------------------
<S> <C> <C> <C>
2000 26.93 32.74 21.64
- -------------------------------------------------
2001 28.60 34.62 23.14
- -------------------------------------------------
2002 34.13 41.32 27.60
- -------------------------------------------------
2003 36.17 44.00 29.05
- -------------------------------------------------
2004 37.67 45.53 30.54
- -------------------------------------------------
2005 40.35 49.05 32.45
- -------------------------------------------------
2006 41.63 51.28 32.86
- -------------------------------------------------
2007 42.37 52.20 33.44
- -------------------------------------------------
2008 43.01 52.82 34.09
- -------------------------------------------------
2009 44.27 54.75 34.75
- -------------------------------------------------
</TABLE>
HESI assumes that the entire WSCC will be competitive starting in 2005 and that
the bidding behavior of generators reflects their efforts to recover fixed costs
through sales to the PX. The MCP increases slowly but steadily from $40.35/MWh
in 2005 to $44.27/MWh by 2009 - an average rate of increase of 2.3 percent per
year, which is less than the rate of inflation.
4.2 SENSITIVITY CASES
4.2.1 Low Gas Price Case 1
In the Low Gas Case 1, the gas price decreases each year until it is 10 percent
below the Base Case gas price. It is then held constant at 10 percent below the
Base Case gas price in all remaining years of the analysis. This low gas
scenario, while unlikely, could occur if there was an oversupply of gas, for
which there was no market, followed by a lengthy
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ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
- -------------------------------------------------------------------------------
period of recovery and market demand. The MCP forecast under this assumption is
shown in Table 4-2.
Table 4-2
MCP Forecast under the Low Gas Price Case 1
<TABLE>
<CAPTION>
Base Case Low Gas 1
Sample Annual Average Annual Average Percent Below Base
Year MCP $/MWh MCP $/MWh Case Price
- -------------------------------------------------------------------------
<S> <C> <C> <C>
2000 26.93 25.86 -3.9%
- -------------------------------------------------------------------------
2001 28.60 27.14 -5.1%
- -------------------------------------------------------------------------
2002 34.13 32.15 -5.8%
- -------------------------------------------------------------------------
2003 36.17 33.64 -7.0%
- -------------------------------------------------------------------------
2004 37.67 35.11 -6.8%
- -------------------------------------------------------------------------
2005 40.35 37.75 -6.4%
- -------------------------------------------------------------------------
2009 44.27 40.91 -7.6%
- -------------------------------------------------------------------------
</TABLE>
4.2.2 Low Gas Price Case 2
In the Low Gas Case 2, the Base Case gas price forecast is reduced each year
until it is 15 percent below the Base Case forecast gas price. The Low Gas 2
gas price is then held at a constant 15 percent below the Base Case gas price
for the remaining years of the forecast. This scenario also requires an
oversupply of gas or a dramatic decline in demand followed by a lengthy period
of recovery. The results of this scenario are shown in Table 4-3.
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<PAGE>
PROPRIETARY AND CONFIDENTIAL
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ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
- -------------------------------------------------------------------------------
Table 4-3
MCP Forecast Under the Low Gas Price Case 2
<TABLE>
<CAPTION>
Base Case Low Gas 2 Percent
Sample Annual Ave Annual Ave Below Base
Year MCP $/MWh MCP $/MWh Case Prices
------------------------------------------------------
<S> <C> <C> <C>
2000 26.93 25.65 -4.7%
- ------------------------------------------------------
2001 28.60 26.85 -6.1%
- ------------------------------------------------------
2002 34.13 31.59 -7.4%
- ------------------------------------------------------
2003 36.17 32.99 -8.8%
- ------------------------------------------------------
2004 37.67 34.22 -9.2%
- ------------------------------------------------------
2005 40.35 36.53 -9.5%
- ------------------------------------------------------
2009 44.51 39.44 -10.9%
- ------------------------------------------------------
</TABLE>
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PROPRIETARY AND CONFIDENTIAL
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ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
5 THE PROJECT AND THE CALIFORNIA MARKET
- -------------------------------------------------------------------------------
5.1 Market Analysis Results
This section presents an analysis of the Project and its position in the
competitive California market. It consists of two sets of comparisons: 1) a
comparison of unit operating cost estimates provided by the Project and
operating costs of other types of generation; 2) a comparison of the Project's
operating costs and forecasted Southern California power prices. The latter set
of comparisons were performed using the Base Case and Low Gas Price cases.
The Project is expected to be a very low cost producer in all years of the
study. Table 5-1 lists the average operating costs projected in 2005 for several
categories of generators in the WSCC region, including the Project. We selected
the year 2005 for this analysis as it is the first year in which a fully
competitive market is assumed. According to data provided by the Project
Operator, the average operating cost of the Project in 2005 is $10.8/MWh.
Therefore, we estimate that about 70 percent of the electricity produced in the
WSCC in 2005 will be generated from units with higher costs, a strong indication
that the Project would be dispatched as baseload if the Project was operating
without a PPA. Of all the generation in the region, only hydroelectric and wind
generators have lower operating costs.
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<PAGE>
PROPRIETARY AND CONFIDENTIAL
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ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
- -------------------------------------------------------------------------------
Table 5-1
Average Operating Costs by Plant Type in the
WSCC from PROSYM Model Simulation in 2005/10/
<TABLE>
<CAPTION>
Electricity Generation Average Operating Cost
Plant Type (GWh) ($/MWh)/1/
- ---------------------------------------------------------------------------------
<S> <C> <C>
Internal Combustion Engines 62 62.22
- ---------------------------------------------------------------------------------
Gas Turbine 26,177 39.94
- ---------------------------------------------------------------------------------
Geothermal/2/ 18,890 37.49
- ---------------------------------------------------------------------------------
Gas/Cogeneration 21,917 26.85
- ---------------------------------------------------------------------------------
Gas/Combined Cycle 151,804 25.41
- ---------------------------------------------------------------------------------
Other Renewable/3/ 6,737 23.29
- ---------------------------------------------------------------------------------
Steam Plants 335,527 18.21
- ---------------------------------------------------------------------------------
Nuclear 35,885 13.33
- ---------------------------------------------------------------------------------
The Project/4/ 2,310 10.83
- ---------------------------------------------------------------------------------
Wind 3,435 10.45
- ---------------------------------------------------------------------------------
Hydroelectric 246,434 4.91/5/
- ---------------------------------------------------------------------------------
Total 846,867
- ---------------------------------------------------------------------------------
</TABLE>
[1] Cost based on fuel and variable O&M in nominal dollars.
[2] The operating costs of the Geothermal category reflect the fact that many of
the utility-owned geothermal facilities have long term steam contracts with
steam suppliers.
[3] Includes solar, biomass, and other renewable.
[4] Based on cost and production estimates provided by the Project Operator.
[5] Cost based on average aggregated operating expenses of hydroelectric
facilities in the WSCC as reported to FERC on FERC Form 1.
Project operating costs are compared to the Base Case annual average MCP in the
Figure 5-1 below. Inflation of 3 percent per year is embedded in both the price
and cost projections.
- ---------------------
/10/ The table displays operating cost by plant-type for various plant
categories in the Prosym simulation results. The values shown are for the
simulation year 2005 and are stated in nominal dollars. These values
reflect expenses for fuel and variable operation and maintenance only. They
do not include costs associated with fixed operation and maintenance, the
inclusion of which would increase overall costs for some plants
substantially. For example, inclusion of fixed operation and maintenance in
the nuclear category would increase the cost reported in the Table from
$13.33/MWh to $34.00/MWh. In as much as it is presently unclear what
portion of fixed costs will be recovered in the competitive market and
under what conditions, the Table should be viewed as a conservative
representation of the operational costs of these plants.
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<PAGE>
PROPRIETARY AND CONFIDENTIAL
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ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
- -------------------------------------------------------------------------------
Figure 5-1
Base Case Annual Average MCP and Project Operating Costs
[GRAPHIC APPEARS HERE]
As Figure 5-1 shows, Project operating costs are expected to be well below
HESI's Base Case average annual MCP forecast. In fact, over the 2000 to 2009
period, Project costs are, on average, 69 percent below Southern California
power prices.
Figure 5-2 below compares Project operating costs to the Base Case off-peak
power price forecast. Although off-peak prices are about 25 percent below
average annual power prices, the Project is still very competitive. Project
costs are, on average, 62 percent below Southern California off-peak annual
power prices.
- -------------------------------------------------------------------------------
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<PAGE>
PROPRIETARY AND CONFIDENTIAL
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ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
- -------------------------------------------------------------------------------
Figure 5-2
Base Case Annual Off-Peak MCP and Project Operating Costs
[GRAPHIC APPEARS HERE]
The last analysis compares Project operating costs to off-peak prices in the Low
Gas Price 2 Case, which is the worst-case scenario. Off-peak power prices are
about 27 percent below Base Case average annual power prices. The comparison is
shown in Figure 5-3 below. In this case, Project costs are, on average, 58
percent below off-peak prices.
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PROPRIETARY AND CONFIDENTIAL
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ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
- -------------------------------------------------------------------------------
Figure 5-3
Low Gas Price Case 2 Annual Off-Peak MCP
and Project Operating Costs
[GRAPHIC APPEARS HERE]
5.2 SOUTHERN CALIFORNIA MCP FORECAST AND THE MARKET POSITION OF THE PROJECT
For an additional perspective of the relative position of the Project in the
market, a table summarizing the frequency of the Southern California power price
forecast is developed. This approach captures more of the hour by hour price
variability than the preceding results. First, the hourly price results from the
Base Case year 2005 are ranked from highest to lowest. From this, the frequency
of price levels (i.e. the percentage of hours in which the price is at, or
above, a given level) is developed. The analysis for 2005 indicates that in 96
percent of the hours the power price is greater than, or equal to, $19.7/MWh.
This means that the Project, with an average operating cost of $10.8/MWh will
be below the average annual MCP more than 96 percent of the time.
- -------------------------------------------------------------------------------
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<PAGE>
PROPRIETARY AND CONFIDENTIAL
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ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
- -------------------------------------------------------------------------------
Table 5-2
MCP Frequency Analysis in
Southern California Transmission Area, 2005
<TABLE>
<CAPTION>
Minimum MCP
% of Time $/MWh
---------------------------
<S> <C>
70 31.45
---------------------------
75 28.24
---------------------------
80 26.27
---------------------------
85 24.50
---------------------------
90 22.98
---------------------------
95 21.22
---------------------------
96 19.69
---------------------------
</TABLE>
- -------------------------------------------------------------------------------
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<PAGE>
PROPRIETARY AND CONFIDENTIAL
THE SOUTHERN CALIFORNIA
ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
6 THE RENEWABLE RESOURCE FUNDING PROGRAM
- -------------------------------------------------------------------------------
AB 1890 established a $540 million fund to promote and develop renewable energy
projects and directed the CEC to administer and distribute the funds. In
response, the CEC established four separate accounts to deliver these funds over
the period January 1, 1998 to January 1, 2002. Each account has been allocated a
fixed percentage of the total fund and a different distribution mechanism is
used for each account. The four accounts and the amount of funds allocated to
each are shown in Table 6-1.
Table 6-1
AB 1890 Accounts - Total Funding
Allocations by Technology
$Millions
<TABLE>
<CAPTION>
Technology $Millions
----------------------------------------------------------
<S> <C>
Existing Technologies 243
----------------------------------------------------------
New Technologies 162
----------------------------------------------------------
Emerging Technologies 54
----------------------------------------------------------
Consumer-Side 81
----------------------------------------------------------
Total 540
----------------------------------------------------------
</TABLE>
Source: Policy Report on AB 1890 Renewables Funding, Report to the Legislature,
California Energy Commission, March 1998.
The "existing" and "new" categories are the most important, accounting for 75%
of the total fund disbursement. Further, these accounts are applicable to the
majority of active or economically feasible renewable energy projects in
California. The distinction between an existing and a new technology is a matter
of vintage. An existing technology refers to a facility that started operation
prior to September 23, 1996 and a new technology means a facility that started
generation on or after September 26, 1996 but before January 1, 2002. The
Project is eligible for funding under the Existing Renewable Resource category.
Existing facilities that are substantially refurbished on or after September 23,
1996 can apply for funding from the new technology category.
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ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
- -------------------------------------------------------------------------------
However, the non-refurbished portion of the facility cannot exceed 20% of the
refurbished facility's total value.
The "emerging" category is restricted to projects using small wind turbines of
10 kW or less, fuel cell technology and solar power - both photovoltaic and
solar thermal. A total of $54 million has been allocated to the emerging
technology account - $10.5 million of which became available on March 20 on a
first-come, first-served basis.
The consumer-side account is designed to promote customer participation in the
renewable energy market. This fund has been allocated $81 million in total,
which in turn is divided between two sub-accounts: a customer credit account -
which has been allotted most of the consumer-side funds, and secondly a consumer
information account.
Existing Renewable
- ------------------
The Existing Renewable Resource Account was designed to help maintain existing
renewable technologies during the first four years of the electric industry
restructuring. The total amount of funds allocated to the existing renewable
account is $243 million, which is divided among three tiers.
Existing technologies are assigned to a tier according to their cost
characteristics and potential for further cost efficiencies. Tier 1 contains
biomass and solar thermal technologies and is allocated 25% of the total
existing renewable account. Wind generation is placed in Tier 2 and is allocated
13% of the total. Tier 3 is allocated 7% of the existing renewable fund total
and consists of geothermal, small hydro, digester gas, and municipal solid waste
and landfill gas technologies.
Table 6-2
Existing Renewable Resource Account - Allocations by Tier
$Millions
<TABLE>
<CAPTION>
Tier 1 Tier 3
Biomass, Solar, Tier 2 Geothermal, Small
Thermal Wind Hydro, Other Total
- ---------------------------------------------------------------------
<S> <C> <C> <C>
$135 $70.2 $37.8 $243
- ---------------------------------------------------------------------
</TABLE>
Source: Policy Report on AB 1890 Renewables Funding, Report to the Legislature,
California Energy Commission, March 1998, page ES-8.
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1999-2009
- -------------------------------------------------------------------------------
The amount of funds available annually to each tier declines over the four year
period. The CEC structured the funding in this manner because they expect
renewable generation facilities to become more cost efficient over time.
Therefore, less financial help is required in order to compete in an unregulated
market.
The subsidy is distributed monthly to renewable suppliers through a simple cents
per kWh payment. However, the calculation of the subsidy is more complicated -it
is based on the lowest of three possible calculations: 1) the difference between
a Target Price and the market clearing price (the SRAC specific to each IOU is
used as a proxy for the market clearing price at present), 2) a pre-determined
cents per kWh price cap and 3) a funds adjusted price - which ensures that the
amount disbursed does not exceed the amount of funds available. The CEC
designated Target Price and Price Cap for Existing Renewable Resource Tier 3
facilities are 3.0 cents and 1.0 cents per kWh respectively. Between January and
December of 1998, the SRAC price applicable to Southern California Edison varied
from 2.7 to 3.1 cents per kWh. The average subsidy paid to eligible generators
was about 0.21 cents per kWh.
Of the $37.80 million targeted for eligible existing Tier 3 generation, $12.15
million was scheduled for disbursement in 1998, $10.80 million is planned for
1999, $8.10 million in 2000 and $6.75 in 2001. However, only $8.32 million was
actually paid out in 1998, leaving a $3.83 million surplus that can be used to
supplement funds allocated to future years. It appears therefore that additional
geothermal generation could financially benefit from the program without
adversely affecting the subsidy paid to current Tier 3 generators. However, as
shown in Appendix D, SRAC prices are forecast to be above the Target Price of
3.0 cents per kWh in all, or almost all, months in 2000 and 2001, depending upon
gas price levels. This situation is not exceptional. During 1998, a Tier 3
subsidy was not paid in six of the twelve months because the calculated SRAC
exceeded the target price.
In the event that future SRAC prices are lower than forecast here, HESI believes
that the AB 1890 program has ample funds to ensure that Tier 3 producers receive
the minimum of 3.0 cents per kWh until the end of 2001. It is important to note
that if PX-based pricing replaces the Transition Formula before March 2002, as
we expect, then the likelihood of positive Tier 3 subsidy payments is much
higher because PX prices are more likely to be below the Target Price than
formula-based SRAC prices.
- -------------------------------------------------------------------------------
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ELECTRICITY MARKET AND PRICE FORECAST
1999-2009
- -------------------------------------------------------------------------------
New Renewable Resource Account
- ------------------------------
The New Renewable Resources Account contains $162 million to support new
renewable power generation projects. According to the legislation, "new" in this
context means a renewable energy facility located in California that became
operational on or after September 23, 1996, but prior to January 1, 2002. As
Table 6-3 shows, the proportion of total funds devoted to new technologies
increases from $32.4 million in 1998 to $48.6 million by 2001. However, eligible
facilities receive subsidy payments over a 5 year period commencing when the
facility comes on-line - though funding will terminate at the end of 2006, or
five years after the last winning project begins operation.
Table 6-3
New Renewable Resource Account - Allocations by Year,
$Millions
<TABLE>
<S> <C> <C> <C> <C>
1998 1999 2000 2001 Total
- ----------------------------------------------------------
$32.4 $37.8 $43.2 $48.6 $162
- ----------------------------------------------------------
</TABLE>
Source: Policy Report on AB 1890 Renewables Funding, Report to the Legislature,
California Energy Commission, March 1998, page 33.
The full $162 million allocated to new renewable energy technologies was
disbursed in a single auction held in July of this year. Auction participants
were required to submit "bids" - a cents per kWh subsidy, and an estimate of
project generation over a 5 year period (however, acceptable bids were capped at
1.5 cents per kWh). The fund was then allocated from lowest to highest bidder
until it was exhausted. Winners will receive a payment for renewable electric
generation produced and sold in the first five years of project operation.
According to California Energy Commission records, 55 out of 56 bids,
representing 600 MW, divided up the $162 million allotment. The average bid was
1.2 cents per kilowatt hour. The winning bids consisted of approximately 300 MW
of wind; 157 MW of geothermal; 70 MW of landfill gas; 12 MW of biomass; 1
megawatt of digester gas; and 1 megawatt of small hydro.
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1999-2009
- -------------------------------------------------------------------------------
Emerging Renewables Account
- ---------------------------
The purpose of the emerging renewable subsidy program is to reduce the cost to
consumers of certain renewable energy generation equipment. Four types of
renewable power generation are eligible for these funds: small wind turbines of
10 kW or less, fuel cells that convert renewable fuels such as methane gas into
electric power, and solar power - both photovoltaic (PV) and solar thermal. The
first $10.5 million of the total $54 million allocated to this fund became
available March 20, 1998 from the CEC on a first-come, first-served basis.
The delivery mechanism for this Account is a cash rebate equal to 50 percent of
the purchase price or $3,000 per kW, whichever is less, of the cost of an
eligible power generating system. In order to receive the rebate, the system
must offset some or all of the electric power used by the consumer; have a full,
five-year guarantee; and be installed by an appropriately licensed contractor.
Most importantly, the system must be connected to local power lines. Remote,
self-contained systems that are not grid-connected do not qualify. The offer is
good only for systems installed in the service territories of the State's
largest three investor-owned utilities -- PG&E, SCE and SDG&E.
Consumer-Side Incentives
- ------------------------
The consumer-side account is designed to promote customer participation in the
renewable energy market. This account was allocated $81 million, or 15% of the
total fund. These funds in turn have been allocated to two sub-accounts - a
customer credit account, which has most of the allotted funds, and secondly to a
consumer information account.
The customer credit account provides "credits" to consumers who purchase CEC-
registered renewable power that satisfy certain eligibility criteria. Through
this program, residential and small commercial customers' electric power bill
who purchase renewable energy will automatically be credited up to 1.5 cents for
every kilowatt-hour of renewable electric power they consume up to the total
fund amount of $75.6 million. Funds for customer credits were distributed in
early 1998. For at least the first two years, payments to some customers have a
ceiling of $1,000 per year per customer.
As of early September, the CEC has not disbursed any monies under this program,
even though a number of power providers have obtained CEC registered status and
therefore are in a position to grant subsidies to
- -------------------------------------------------------------------------------
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1999-2009
- -------------------------------------------------------------------------------
consumers. The reason is largely due to the delay in getting deregulation
underway. The CEC expects that the first set of customer power bills eligible
for a rebate will begin coming in within a few weeks.
- -------------------------------------------------------------------------------
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6-6
<PAGE>
Appendix A - Southern California Base Case MCP Forecast
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Base Case Forecast TRANSAREA MARKET CLEARING PRICES BY MONTH AND PERIOD
------------------------------------------------------------------------------------------------------------
TransArea Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ANN
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SoCal On-Peak 33.98 30.20 31.34 27.80 28.50 27.54 33.86 38.70 37.04 34.87 34.39 34.26 32.74
2000 Off-Peak 26.49 21.35 20.95 18.39 15.20 13.77 19.14 21.44 23.77 25.43 26.94 26.72 21.64
Average 30.06 25.57 25.89 22.87 21.53 20.33 26.14 29.65 30.09 29.92 30.49 30.31 26.93
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 35.00 33.47 29.82 28.51 35.25 31.96 34.96 40.14 39.25 34.42 35.95 36.45 34.62
2001 Off-Peak 27.50 25.42 22.83 18.99 16.26 14.12 19.63 25.56 24.98 25.79 28.95 27.64 23.14
Average 31.07 29.25 26.16 23.52 25.30 22.62 26.93 32.50 31.78 29.90 32.28 31.84 28.60
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 43.58 39.64 33.81 33.54 34.02 32.63 42.49 49.05 49.17 45.78 45.96 45.83 41.32
2002 Off-Peak 32.12 29.60 26.68 22.42 20.01 17.67 24.03 31.47 30.41 30.44 33.37 32.90 27.60
Average 37.57 34.38 30.07 27.72 26.67 24.79 32.82 39.84 39.35 37.74 39.37 39.06 34.13
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 45.90 41.15 35.38 36.08 35.18 33.82 46.01 53.05 51.85 52.12 48.17 48.87 44.00
2003 Off-Peak 34.82 31.82 26.65 23.50 20.70 18.82 25.26 32.09 31.76 32.50 35.68 35.11 29.05
Average 40.09 36.27 30.80 29.49 27.59 25.96 35.13 42.07 41.33 41.84 41.63 41.66 36.17
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 48.56 41.34 37.70 35.34 37.80 35.88 47.22 57.83 54.94 48.39 51.30 49.48 45.53
2004 Off-Peak 35.11 29.80 27.80 25.93 22.83 21.39 28.26 32.45 32.95 34.84 37.52 37.36 30.54
Average 41.51 35.29 32.51 30.41 29.95 28.29 37.28 44.52 43.43 41.29 44.09 43.12 37.67
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 52.99 49.47 39.39 38.89 42.36 38.48 51.34 61.54 57.64 52.36 51.11 52.72 49.05
2005 Off-Peak 37.11 32.63 29.19 26.77 24.25 22.26 29.39 37.33 34.56 35.55 42.09 38.12 32.45
Average 44.67 40.65 34.04 32.55 32.86 29.99 39.83 48.85 45.55 43.55 46.39 45.06 40.35
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 55.79 49.21 47.35 39.05 41.66 40.94 51.36 63.51 58.02 55.14 56.52 56.28 51.28
2006 Off-Peak 36.88 33.89 29.20 27.52 25.24 23.01 31.41 37.72 35.15 36.72 38.36 39.05 32.86
Average 45.88 41.18 37.84 33.01 33.06 31.55 40.90 49.99 46.05 45.48 47.01 47.25 41.63
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 55.63 55.93 41.53 40.41 47.11 41.60 53.91 59.56 57.56 56.55 59.33 57.31 52.20
2007 Off-Peak 38.13 33.73 30.64 29.19 25.72 23.64 30.28 37.34 36.57 35.61 39.97 40.28 33.44
Average 46.45 44.30 35.82 34.53 35.90 32.20 41.53 47.91 46.57 45.58 49.19 48.38 42.37
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 59.34 46.42 46.56 43.88 48.11 42.04 57.14 60.81 58.34 56.33 56.12 57.80 52.82
2008 Off-Peak 38.37 31.45 31.13 30.04 28.01 24.18 32.70 38.28 36.68 36.10 41.04 40.72 34.09
Average 48.34 38.58 38.47 36.63 37.57 32.69 44.33 49.00 47.00 45.72 48.23 48.85 43.01
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 58.73 60.97 43.20 44.66 48.33 46.51 55.87 62.62 60.61 56.56 60.22 59.13 54.75
2009 Off-Peak 38.25 34.49 32.31 30.00 28.45 25.59 34.91 38.63 35.84 38.30 38.81 41.08 34.75
Average 48.00 47.10 37.49 36.98 37.91 35.55 44.89 50.05 47.64 46.99 49.01 49.67 44.27
------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Appendix B - Southern California Low Gas Case 1 MCP Forecast
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Low Gas Price Case 1 MARKET CLEARING PRICES FOR SOUTHERN CALIFORNIA TRANSMISSION AREA
- ---------------------------------------------------------------------------------------------------
Year Period Jan Feb Mar Apr May Jun
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2000 On-Peak 32.79 28.76 29.36 26.06 27.03 30.19
Off-Peak 25.53 17.93 20.22 17.72 14.66 13.39
Average 28.98 23.08 24.57 21.69 20.55 21.39
- ---------------------------------------------------------------------------------------------------
2001 On-Peak 34.44 31.05 30.96 26.93 29.35 31.86
Off-Peak 25.96 24.26 21.29 18.29 15.71 13.78
Average 30.00 27.49 25.89 22.41 22.20 22.39
- ---------------------------------------------------------------------------------------------------
2002 On-Peak 41.22 37.13 31.80 31.32 30.68 30.51
Off-Peak 31.00 28.21 24.89 21.23 18.92 17.12
Average 35.87 32.45 28.17 26.03 24.51 23.50
- ---------------------------------------------------------------------------------------------------
2003 On-Peak 43.32 39.85 32.59 32.43 32.40 32.20
Off-Peak 31.49 29.80 25.10 22.46 19.72 17.91
Average 37.12 34.59 28.66 27.21 25.75 24.71
- ---------------------------------------------------------------------------------------------------
2004 On-Peak 46.80 35.80 34.24 33.63 36.27 34.63
Off-Peak 32.91 28.11 25.87 24.32 21.57 20.22
Average 39.52 31.77 29.85 28.75 28.57 27.08
- ---------------------------------------------------------------------------------------------------
2005 On-Peak 50.18 46.56 36.48 35.16 41.80 36.62
Off-Peak 34.50 30.16 26.87 25.07 22.94 21.06
Average 41.96 37.97 31.44 29.88 31.91 28.47
- ---------------------------------------------------------------------------------------------------
2006 On-Peak 52.43 45.50 44.44 36.06 39.63 37.72
Off-Peak 34.11 31.81 27.10 25.71 23.88 21.74
Average 42.83 38.33 35.35 30.64 31.37 29.36
- ---------------------------------------------------------------------------------------------------
2007 On-Peak 52.10 46.96 39.47 39.35 42.57 38.14
Off-Peak 35.59 30.82 28.64 26.75 24.17 22.26
Average 43.45 38.50 33.79 32.75 32.93 29.83
- ---------------------------------------------------------------------------------------------------
2008 On-Peak 54.84 43.43 41.56 38.71 42.43 40.66
Off-Peak 35.61 29.59 28.93 28.01 26.36 22.84
Average 44.76 36.18 34.94 33.11 34.00 31.33
- ---------------------------------------------------------------------------------------------------
2009 On-Peak 55.12 50.26 41.09 40.07 44.24 41.73
Off-Peak 35.12 31.93 29.96 28.05 26.56 24.16
Average 44.63 40.66 35.26 33.78 34.97 32.53
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Low Gas Price Case 1 MARKET CLEARING PRICES FOR SOUTHERN CALIFORNIA TRANSMISSION AREA
- ---------------------------------------------------------------------------------------------------
Year Jul Aug Sep Oct Nov Dec ANN
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2000 33.94 37.40 35.85 32.58 32.72 33.60 31.72
18.39 20.76 23.02 23.57 25.62 25.38 20.55
25.79 28.68 29.13 27.86 29.01 29.29 25.86
- ---------------------------------------------------------------------------------------------------
2001 33.19 38.21 37.98 34.09 33.04 34.54 32.99
18.78 23.65 23.32 22.59 27.75 26.62 21.83
25.64 30.58 30.30 28.06 30.27 30.39 27.14
- ---------------------------------------------------------------------------------------------------
2002 41.16 46.69 45.94 42.95 43.56 42.92 38.85
23.16 28.91 28.41 29.13 30.96 30.88 26.07
31.73 37.37 36.76 35.71 36.96 36.61 32.15
- ---------------------------------------------------------------------------------------------------
2003 43.29 49.50 48.66 44.27 46.83 43.62 40.76
23.86 30.00 29.38 30.35 33.32 32.70 27.17
33.10 39.28 38.56 36.98 39.75 37.90 33.64
- ---------------------------------------------------------------------------------------------------
2004 45.16 51.54 49.49 45.52 47.63 46.66 42.34
26.46 30.59 30.65 32.55 34.79 34.15 28.53
35.36 40.56 39.62 38.72 40.91 40.10 35.11
- ---------------------------------------------------------------------------------------------------
2005 45.74 58.59 55.87 47.53 46.84 50.47 46.01
27.67 34.99 32.40 32.83 39.37 35.07 30.25
36.27 46.22 43.58 39.82 42.93 42.40 37.75
- ---------------------------------------------------------------------------------------------------
2006 47.76 60.79 55.73 49.50 50.53 52.63 47.77
29.23 35.41 32.38 34.50 35.66 36.67 30.69
38.04 47.48 43.51 41.64 42.75 44.26 38.83
- ---------------------------------------------------------------------------------------------------
2007 50.06 58.50 55.47 56.13 63.31 52.51 49.57
28.52 35.25 33.89 33.30 36.88 37.28 31.13
38.77 46.32 44.17 44.16 49.47 44.53 39.91
- ---------------------------------------------------------------------------------------------------
2008 52.55 58.89 57.12 53.57 51.78 53.95 49.19
30.40 35.37 34.42 33.50 38.39 37.81 31.80
40.94 46.56 45.23 43.05 44.77 45.49 40.08
- ---------------------------------------------------------------------------------------------------
2009 53.26 60.50 55.93 52.86 55.89 54.05 50.44
32.27 35.82 33.29 35.34 36.35 37.94 32.25
42.25 47.56 44.07 43.68 45.66 45.60 40.91
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Appendix C - Southern California Low Gas Case 2 MCP Forecast
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Low Gas Price Case 2 TRANSAREA MARKET CLEARING PRICES BY MONTH AND PERIOD
------------------------------------------------------------------------------------------------------------
TransArea Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ANN
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SoCal On-Peak 32.67 29.48 27.70 25.86 27.06 27.53 33.46 37.00 35.61 32.55 34.17 32.34 31.30
2000 Off-Peak 25.46 17.81 20.09 17.68 14.76 13.40 18.36 20.64 22.75 23.49 25.63 25.70 20.51
Average 28.89 23.37 23.71 21.57 20.61 20.13 25.55 28.42 28.88 27.80 29.70 28.86 25.65
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 33.14 31.55 30.57 26.63 30.85 30.77 32.77 38.42 36.86 32.44 33.21 33.25 32.55
2001 Off-Peak 25.63 24.06 21.26 18.08 15.59 13.70 18.89 24.03 23.11 22.24 27.39 26.12 21.67
Average 29.20 27.62 25.69 22.15 22.85 21.83 25.49 30.88 29.66 27.10 30.16 29.51 26.85
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 40.05 35.96 31.54 30.42 30.10 29.53 40.58 45.77 46.59 42.14 42.20 42.88 38.17
2002 Off-Peak 30.25 27.53 24.54 20.81 18.87 16.84 22.70 28.63 28.10 28.05 30.67 30.24 25.60
Average 34.92 31.54 27.87 25.39 24.21 22.89 31.21 36.79 36.90 34.75 36.16 36.26 31.59
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 42.65 38.98 32.44 32.10 31.86 31.27 42.31 49.99 47.28 42.77 43.68 43.89 39.96
2003 Off-Peak 31.14 28.93 24.83 21.61 19.46 17.62 23.56 29.48 28.74 29.80 32.98 31.81 26.66
Average 36.62 33.71 28.45 26.61 25.36 24.12 32.48 39.24 37.57 35.97 38.08 37.56 32.99
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 45.46 35.25 33.26 32.30 34.35 32.15 43.73 54.52 48.62 45.01 45.29 44.64 41.28
2004 Off-Peak 31.70 27.26 25.20 23.48 20.95 19.75 25.90 29.74 29.74 31.64 34.18 33.83 27.80
Average 38.25 31.06 29.04 27.68 27.32 25.66 34.38 41.53 38.74 38.00 39.47 38.97 34.22
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 48.84 43.85 34.98 35.39 39.33 33.70 45.04 55.26 55.19 46.99 45.64 48.85 44.45
2005 Off-Peak 32.85 28.76 25.93 24.30 22.25 20.54 26.72 33.89 30.99 31.88 39.67 34.14 29.34
Average 40.46 35.95 30.24 29.59 30.38 26.81 35.44 44.06 42.52 39.07 42.51 41.14 36.53
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 49.39 43.93 39.68 34.87 38.23 36.11 45.88 58.22 53.08 47.57 48.01 50.64 45.51
2006 Off-Peak 32.56 30.62 26.20 24.52 22.98 21.18 28.30 34.40 31.42 33.00 33.90 35.23 29.54
Average 40.57 36.96 32.61 29.45 30.24 28.29 36.66 45.73 41.74 39.93 40.62 42.56 37.14
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 50.03 44.97 39.80 35.84 43.80 35.74 47.27 57.40 51.45 49.66 52.25 50.08 46.56
2007 Off-Peak 34.14 29.91 27.17 25.73 23.39 21.51 27.47 33.76 32.39 32.33 35.42 34.96 29.86
Average 41.70 37.08 33.18 30.54 33.10 28.29 36.89 45.00 41.47 40.57 43.44 42.15 37.81
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 53.37 40.60 41.82 42.26 40.41 38.21 49.36 56.11 55.55 55.12 49.50 51.66 47.91
2008 Off-Peak 33.79 28.24 27.56 26.74 25.33 21.93 29.59 34.08 33.23 32.20 36.69 36.23 30.50
Average 43.11 34.13 34.35 34.13 32.51 29.69 39.00 44.57 43.86 43.11 42.79 43.58 38.78
------------------------------------------------------------------------------------------------------------
SoCal On-Peak 51.85 46.58 41.60 37.87 43.43 41.47 49.32 57.57 55.22 50.18 54.84 53.74 48.67
2009 Off-Peak 34.32 30.64 28.76 26.67 25.26 23.08 31.11 34.51 32.73 34.21 34.34 36.77 31.06
Average 42.66 38.23 34.87 32.00 33.90 31.84 39.77 45.48 43.44 41.81 44.11 44.84 39.44
------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Appendix Table D.1
Southern California Edison SRAC Prices by Month and Time-of-Day, 1999-2001
Cents per kWh
<TABLE>
<CAPTION>
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999
On Peak 4.212 4.254 4.334 4.451
Mid Peak 3.342 3.090 2.953 3.026 3.596 2.989 2.987 3.197 3.225 3.938 4.100 4.171
Off Peak 2.604 2.375 2.202 2.264 2.802 2.520 2.545 2.593 2.663 2.987 3.208 3.161
Super-Off 2.129 1.968 1.881 1.927 2.290 2.508 2.611 2.656
Average 2.743 2.536 2.424 2.483 2.952 2.956 2.985 3.041 3.123 3.231 3.365 3.423
Tier 3 Subsidy 0.257 0.464 0.576 0.517 0.048 0.044 0.015 0.000 0.000 0.000 0.000 0.000
2000
On Peak 4.358 4.401 4.485 4.607
Mid Peak 4.161 3.903 3.809 3.748 3.721 3.093 3.091 3.308 3.338 4.076 4.247 4.320
Off Peak 3.241 2.999 2.841 2.804 2.899 2.607 2.633 2.683 2.756 3.092 3.323 3.273
Super-Off 2.650 2.486 2.426 2.387 2.370 2.596 2.704 2.751
Average 3.415 3.203 3.126 3.076 3.054 3.058 3.088 3.147 3.232 3.345 3.485 3.545
Tier 3 Subsidy 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
2001
On Peak 4.494 4.541 4.626 4.754
Mid Peak 4.294 4.026 3.929 3.866 3.838 3.190 3.188 3.412 3.444 4.207 4.384 4.461
Off Peak 3.345 3.094 2.929 2.893 2.989 2.689 2.717 2.768 2.844 3.191 3.430 3.380
Super-Off 2.735 2.564 2.502 2.462 2.444 2.679 2.792 2.841
Average 3.524 3.304 3.224 3.173 3.149 3.153 3.186 3.246 3.336 3.452 3.598 3.661 3.334
Tier 3 Subsidy 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Note: Forecast based on HESI Base Case long term gas price forecast at Topock with 3% inflation per year.
See Table 2.3 for annual average SRAC values.
SRAC prices from January to April 1999 are actual.
</TABLE>
<PAGE>
Appendix Table D.2
Southern California Edison SRAC Prices by Month and Time-of-Day, 1999 - 2001
Cents per kWh
<TABLE>
<CAPTION>
Jan Feb Mar Apr May Jun Jul
<S> <C> <C> <C> <C> <C> <C> <C>
1999
On Peak 3.657 3.693
Mid Peak 3.342 3.090 2.953 3.026 3.123 2.596 2.594
Off Peak 2.604 2.375 2.202 2.264 2.433 2.188 2.210
Super-Off 2.129 1.968 1.881 1.927 1.989
Average 2.743 2.536 2.424 2.483 2.563 2.566 2.592
Tier 3 Subsidy 0.257 0.464 0.576 0.517 0.437 0.434 0.408
2000
On Peak 4.253 4.296
Mid Peak 4.027 3.808 3.717 3.658 3.631 3.018 3.017
Off Peak 3.137 2.926 2.772 2.737 2.829 2.544 2.570
Super-Off 2.565 2.425 2.367 2.330 2.312
Average 3.305 3.125 3.050 3.002 2.980 2.984 3.015
Tier 3 Subsidy 0.000 0.000 0.000 0.000 0.020 0.016 0.000
2001
On Peak 4.354 4.399
Mid Peak 4.126 3.900 3.807 3.746 3.718 3.090 3.089
Off Peak 3.214 2.997 2.838 2.803 2.896 2.605 2.632
Super-Off 2.628 2.484 2.424 2.385 2.368
Average 3.386 3.201 3.124 3.074 3.051 3.055 3.087
Tier 3 Subsidy 0.000 0.000 0.000 0.000 0.000 0.000 0.000
</TABLE>
<TABLE>
<CAPTION>
Aug Sep Oct Nov Dec
<S> <C> <C> <C> <C> <C>
1999
On Peak 3.759 3.857
Mid Peak 2.773 2.794 3.408 3.544 3.616
Off Peak 2.249 2.307 2.585 2.773 2.740
Super-Off 2.170 2.257 2.303
Average 2.638 2.706 2.797 2.908 2.967
Tier 3 Subsidy 0.362 0.294 0.203 0.092 0.033
2000
On Peak 4.377 4.496
Mid Peak 3.229 3.257 3.977 4.142 4.229
Off Peak 2.619 2.690 3.016 3.240 3.205
Super-Off 2.532 2.638 2.693
Average 3.072 3.155 3.263 3.399 3.470
Tier 3 Subsidy 0.000 0.000 0.000 0.000 0.000
2001
On Peak 4.482 4.604
Mid Peak 3.306 3.336 4.073 4.243 4.333
Off Peak 2.682 2.754 3.090 3.320 3.284
Super-Off 2.594 2.702 2.760
Average 3.145 3.231 3.343 3.482 3.556
Tier 3 Subsidy 0.000 0.000 0.000 0.000 0.000
Note: Forecast based on HESI short-term gas price forecast at Topock.
SRAC prices from January to April 1999 are actual.
</TABLE>
<PAGE>
EXHIBIT C
[GeothermEx, Inc. Letterhead]
INDEPENDENT REVIEW OF STEAM SUPPLY
AND RESOURCE-RELATED CAPITAL AND OPERATING COSTS
COSO GEOTHERMAL FIELD
for
CAITHNESS COSO FUNDING CORPORATION
New York, New York
by
GeothermEx, Inc.
Richmond, California
MAY 1999
<PAGE>
[GeothermEx, Inc. Letterhead]
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
EXECUTIVE SUMMARY...................................................iv
1. INTRODUCTION....................................................1-1
2. STEAM SUPPLY....................................................2-1
2.1 Introduction..............................................2-1
2.2 Production................................................2-2
2.3 Injection.................................................2-7
2.4 Gases in Steam............................................2-8
3. CAPITAL AND OPERATING COSTS.....................................3-1
</TABLE>
Tables
Figures
Appendices
Appendix A: Production Histories for Navy I Production Wells
Appendix B: Production Histories for Navy II Production Wells
Appendix C: Production Histories for BLM Production Wells
Appendix D: Injection Histories for Navy I Injection Wells
Appendix E: Injection Histories for Navy II Injection Wells
Appendix F: Injection Histories for BLM Injection Wells
ii
<PAGE>
[GeothermEx, Inc. Letterhead]
ILLUSTRATIONS
Table
- -----
2.1 H2S in Steam at Coso Wells
3.1 Summary of Drilling, Gathering Systems and Workover Costs for the Coso
Geothermal Project in Caithness financial projections
Figure
- ------
1.1 Location of the Coso geothermal field, California
1.2 Well location map, Coso geothermal field
2.1 Coso MW forecast from Caithness financial projections
2.2 Megawatts per well vs. time, Navy I
2.3 Megawatts per well vs. time, Navy II
2.4 Megawatts per well vs. time, BLM
2.5 Total NCG/steam vs. time, Navy II well 15-17RD
2.6 H2S/steam vs. time, Navy II well 15-17RD
2.7 Comparison of Caithness and GeothermEx MW forecasts
3.1 Planned drilling costs at Coso from Caithness financial projections
3.2 Planned gathering system costs at Coso from Caithness financial
projections
3.3 Planned workover costs at Coso from Caithness financial projections
iii
<PAGE>
[GeothermEx, Inc. Letterhead]
EXECUTIVE SUMMARY
GeothermEx has been requested by Caithness Coso Funding Corporation
("Caithness") to conduct a due diligence review of the geothermal resource at
the Coso Geothermal Field. This review has been conducted in connection with
the re-financing of Caithness' recent acquisition of the Coso assets from
CalEnergy Company, Inc. (CECI). The work by GeothermEx has consisted of:
. a review of the status of the steam supply from the geothermal field;
. a review of resource-related capital and operating costs; and
. an assessment of the reasonableness of the forecasts of power production
and resource-related costs as contained in Caithness' financial
projections.
GeothermEx has acted as the independent geothermal engineer for the Coso
projects (Navy I, Navy II, and BLM) since their initial financing in the late
1980s. Since 1993, GeothermEx has provided an annual independent assessment of
the resource supply as a requirement of CECI's bond issue; the last such
evaluation was prepared in June 1998.
Based upon this review, we have reached the following main conclusions:
. The resource data supplied to us by Caithness appear reasonable based
on our long familiarity with the Coso projects.
iv
<PAGE>
[GeothermEx, Inc. Letterhead]
. The Coso geothermal reservoir has supplied steam to the installed
plants for more than 10 years and has proven to be one of the most
reliable geothermal reservoirs in the United States.
. Geothermal energy reserves at Coso are more than sufficient to
support the existing plants for 30 years. However, as in all geothermal
fields, make-up well drilling will be necessary to maintain power
output.
. Development of leaseholds adjacent to the Caithness acreage is
unlikely, and the possibility of any impact of offsetting development
on the performance of the Caithness resource is remote.
. The financial projections by Caithness show a combined generation
capacity of about 264 net megawatts until year 2006 and declining
thereafter. The forecasts of the generation decline trend after year
2006 made by Caithness are reasonable and very similar to the
GeothermEx forecasts.
. The well drilling and workover programs assumed in Caithness's
financial projections are reasonable and should result in steam supply
sufficient to maintain the generation capacity forecast in Caithness's
financial projections.
. Resource-related capital and operating costs assumed in Caithness's
financial projections are reasonable and consistent with the historical
trend and industry practice.
v
<PAGE>
[GeothermEx, Inc. Letterhead]
In conducting the current review, GeothermEx has relied on resource and cost
data supplied by Caithness; these data appear reasonable based on our long
familiarity with the Coso projects. We have had numerous phone conversations
with members of Caithness' technical and managerial staff to clarify questions
relating to the data and to ensure that no significant resource issues have been
overlooked.
The Coso reservoir has been operated profitably for more than 10 years, and has
proven to be one of the most reliable geothermal reservoirs in the United
States. In our previous assessments of the resource, we have repeatedly
confirmed that the geothermal energy reserves at Coso are more than sufficient
to support the three existing power plants for 30 years. However, in all
geothermal fields, well productivity declines with time due to declines in
reservoir pressure; generation capacity is maintained by drilling "make-up"
wells to compensate for declining well productivity. Any decline in generation
capacity at Coso will not be caused by a shortage of reserves, but by the
economics of make-up well drilling in relation to the power price.
The financial projections presented by Caithness show the combined power
generation at the Coso projects to be approximately 264 net megawatts (NMW)
until 2006, declining thereafter at a rate of about 3.7% per year. The nearly
constant generation level during 1999-2006 is to be maintained by make-up well
drilling to compensate for declines in well productivity. After 2006, no make-
up wells will be drilled, and therefore, generation will decline. We have
forecast declines in steam supply based on decline curve analysis, a method that
extrapolates the past trends in well productivity decline into the future.
Caithness has conducted a similar decline curve analysis, which we have reviewed
herein.
Caithness has assumed a harmonic decline trend in its analysis. This is a
reasonable assumption. Geothermal wells in "two-phase" reservoirs (that is,
reservoirs containing both hot water and
vi
<PAGE>
[GeothermEx, Inc. Letterhead]
steam) such as Coso often exhibit exponential declines in capacity during their
first few years of operation, but later make a transition to a harmonic decline.
Unlike exponential decline, where the decline rate remains constant with time,
harmonic decline implies that the decline rate itself declines with time.
GeothermEx's review of historical well capacities indicates that the wells at
Coso are currently exhibiting harmonic declines. Also, there is still some spare
capacity above the electromechanical limit of the plants. This spare capacity
should allow a plateau of constant output for a year or so without drilling
additional geothermal production wells, provided existing wells are maintained
in good mechanical condition, which has generally been the case historically.
After 2006, the annual decline rate used in the financial projections is about
3.7% (harmonic). This is close to the decline rate of 4.1% (harmonic) starting
in 2006 estimated by GeothermEx. The forecasts of generation decline trend
after 2006 made by Caithness and GeothermEx differ by less than 5% throughout
the 13-year period of declining generation.
Resource-related costs reviewed herein include those related to drilling new
wells, connecting them to the gathering system (for wells drilled on pads with
existing production wells) or extending the gathering system (for wells drilled
on new pads) and working over existing wells. All projected costs are based on
1999 dollars and are escalated at 3% per year.
The historical drilling expenditures from 1995 to 1998 were in the range of $12
million to $15 million per year, with the exception of 1996, when drilling
expenditures were about $2 million. Going forward, the financial projections
include $6.5 million in drilling funds for 1999, about $4 million in 2000, $7
million in 2001, $10.5 million in 2002, and $7.5 to $8.5 million in 2003 - 2006.
No drilling is planned after 2006.
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The cost assumed in the financial projections for drilling a new well is $2.75
million in 1999, except for a BLM well to be drilled this year (see discussion
below). Based on documents provided by Caithness, a total of six new wells were
drilled in 1997 and 1998, with an average cost of $2.73 million and an average
depth of approximately 9,000 feet. Considering that the average depths of
future wells will be similar, the estimate of $2.75 million per well is
reasonable. The average productivity of these wells was approximately 8 MW
(gross); this includes the highly productive East Flank well 38B-9. Without
38B-9, the average productivity was approximately 5 MW (gross). Caithness has
reasonably assumed an average 1999 productivity of 5.6 MW for new wells. The
financial projections do not include any decline in the expected capacity of
make-up wells; it remains at 5.6 MW throughout the project life. Realistically,
this amount should be expected to decline according to the decline rate assigned
to each area of the field; as few make-up wells are planned and the decline rate
in well productivity is very small, the difference between the projections with
and without declining the capacity of make-up wells is not significant.
Several production wells were redrilled in 1997 and 1998, at an average cost of
$1.3 million, an average depth of 6,000 feet, and an average productivity of 3.2
MW (gross). No funds are allocated in the financial projections for production
well redrills, as Caithness does not plan to redrill any existing production
wells. However, Caithness reports that there is about $1.5 million per year in
the O&M section of the budget, which will be used for well clean-outs and other
well maintenance. Production well workovers are discussed below. Two
injection well redrills are planned for 1999, and one injection well redrill per
year is planned for years 2000 to 2006. The cost of injection well redrills in
1999 dollars is $1.2 million per well, which is reasonable.
In 1999, the drilling costs include injection well redrills in the BLM and Navy
II areas ($1.2 million each), a purchase of new drill pipe ($150,000, allocated
unequally between Navy II and BLM), drilling a slim exploration well in BLM
North ($400,000), deepening the existing BLM
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North well 43-7 ($726,000) and drilling BLM North well 43A-7 ($2.9 million). The
last is planned to a total depth of 10,000 feet, which is deeper than other
planned wells at Coso, and accounts for its slightly greater cost.
One injection well redrill and one BLM production well (43B-7) are planned for
2000. A total of 15 new wells are planned from 1999 through 2006, which
equates to nearly 11 MW per year, using Caithness' assumption of no decline in
the capacity of make-up wells. As indicated by drilling data provided by
Caithness, six new wells were drilled in the last two years. Therefore, we
would expect that two to three make-up wells would be needed each year to
maintain production, unless the make-up wells have a higher-than-average
capacity which is expected under Caithness' plans to drill in the East Flank
area, a relatively undrilled portion of the resource that should prove more
productive.
In addition to the cost of drilling a well, there are costs associated with
connecting the well to the gathering system. In the case where a new well is
drilled from a pad with existing production wells, the connection cost is
assumed by Caithness to be $500,000; these are "pad pipelines," which are
charged to the appropriate project. For wells drilled on new pads in the BLM
North and East Flank areas, additional expenses will be incurred to extend the
steam gathering pipelines; these are "trunk lines," which are shared equally
between the projects. There are also expenses associated with low-pressure (LP)
steam separation equipment included in this category in 1999. We have not
independently estimated the costs of pipelines or LP separation equipment. The
well connection costs are on the conservative side.
The assumptions page of the financial projections indicates a 1999 workover cost
of $700,000 per well; however, discussion with Caithness revealed that $700,000
is budgeted for each unit, which is adequate for two to three workovers each
year. This is escalated at 3% per year. Workovers
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are assumed to be needed throughout the life of the project. The workover costs
and frequencies are reasonable.
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1. INTRODUCTION
GeothermEx has been requested by Caithness Coso Funding Corporation
("Caithness") to conduct a due diligence review of the geothermal resource at
the Coso Geothermal Field. This review has been conducted in connection with
the re-financing of Caithness' recent acquisition of the Coso assets from
CalEnergy Company, Inc. (CECI). The work by GeothermEx has consisted of:
. a review of the status of the steam supply from the geothermal field;
. a review of resource-related capital and operating costs; and
. an assessment of the reasonableness of the forecasts of power production
and resource-related costs contained in the financial projections
prepared by Caithness.
The Coso Geothermal Field is located about 150 miles northeast of Los Angeles in
Inyo County, California (figure 1.1). Caithness recently took over operation of
the field from CECI, and is the operator of three geothermal projects in the
field: Navy I, Navy II, and BLM. Because Caithness has been a partner of CECI
in the development and operation of the Coso field, Caithness's staff has long
familiarity with this field. In addition, Caithness has retained most of the
CECI employees who ran the Coso project.
Each of the three projects consist of three turbine-generator units and
associated wells, pipelines and other surface facilities. For the purposes of
assessing the available steam supply from the wells, the Navy I, Navy II, and
BLM projects each have megawatt (MW) capacities of 80 MW. However, each project
has plant facilities physically capable of generating about 90 net megawatts
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(NMW) if sufficient steam is available from the wells, representing a total
installed plant capacity of about 270 NMW. The capacity expressed in NMW is net
of the power used by the plant facilities themselves ("parasitic power"). The
Navy I and Navy II projects have single plant sites containing three turbine-
generator units each. The BLM project has two plant sites: BLM East, with two
turbine-generator units; and BLM West, with one turbine-generator unit. Figure
1.2 shows the three project areas with their respective plant sites and well
locations.
The first turbine-generator unit at Navy I came on line in July 1987, and the
second and third units at Navy I came on line in December 1988. All three
units of the Navy II power plant came on line in December 1989. The BLM East
plant came on line in December 1988, and the BLM West plant came on line in
August 1989. Since the plants came on line, make-up wells have been drilled to
maintain or increase production, and the power plants have been modified to
improve the efficiency of steam use. This has allowed the output of the plants
to rise each year through 1996. The average fieldwide output over the past
three years has been 260 NMW, including down time for plant maintenance. This
represents a plant capacity factor of 96%, based on the electromechanical limit
of 270 NMW, and 108% based on 240 MW.
GeothermEx has acted as the independent geothermal engineer for the Coso
projects (Navy I, Navy II, and BLM) since their initial financing in the late
1980s. Since 1993, GeothermEx has provided independent annual evaluations of
the resource supply for CalEnergy; the last such evaluation was prepared in June
1998.
In conducting the current review, GeothermEx has relied on resource and cost
data supplied by Caithness. This data appear reasonable based on our long
familiarity with the Coso projects. We have had numerous phone conversations
with members of Caithness' technical and managerial staff to clarify questions
relating to the data and to ensure that no significant resource issues have
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been overlooked. Our review has focused on the geothermal resource and the
operation of the wellfield; considerations pertaining to the plants have not
been covered in this review.
Our review of the present and projected steam supply is described in detail in
Chapter 2. Our review of present and projected capital costs for drilling and
pipeline construction, as well as operating costs for workovers is presented in
Chapter 3.
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2. STEAM SUPPLY
2.1 Introduction
------------
The geothermal reservoir at Coso consists of a fractured body of granitic rock
with temperatures in the reservoir ranging from about 400(degrees) to
650(degrees)F. Since the early 1980s, approximately 150 wells have been drilled
in the field, ranging in depth from 1,300 feet to 13,000 feet. About 57% of
these wells have been commercially productive, another 18% have been used for
injection, and the remaining 25% have been non-commercial. Of these 150 wells,
56 were drilled from 1991 through 1998, during which time the drilling success
rate has been considerably higher. Of the 56 wells drilled in this period, only
five have been non-productive, and the others have been used for production (33
wells) or injection (18 wells), indicating a drilling success rate of 91%.
The Coso reservoir has been operated at capacity and profitability for more than
10 years, and has proven to be one of the most reliable geothermal reservoirs in
the United States. In our previous assessments of the resource, we have
repeatedly confirmed that the geothermal energy reserves at Coso are more than
sufficient to support the three existing power plants for 30 years. However, in
all geothermal fields, well productivity declines with time due to declines in
reservoir pressure; generation capacity is maintained by drilling "make-up"
wells to compensate for declining well productivity. Any decline in generation
capacity at Coso will not be caused by a shortage of reserves, but by the
economics of make-up well drilling in relation to the power price.
There are two productive areas: the main reservoir, consisting of the western
portions of the Navy I and Navy II areas and the northern portion of the BLM
area; and the "East Flank," located in the eastern portion of the Navy I and
Navy II areas. The main reservoir was the first part of the field to be
developed and has the greatest concentration of wells, as can be seen in figure
1.2. The
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East Flank was developed later and was tied into the plants in 1994. There are
pipelines allowing transfer of steam between projects, which allows flexibility
in making use of available steam anywhere in the field. To date, each project
has relied primarily on steam from wells within its own boundaries and has
consistently maintained a steam supply in excess of that required for nominal
generation. Leases offsetting the Caithness acreage do not appear to have
significant resource potential. It is unlikely that development of these
offsetting leases will occur, so the risk of any impact from offsetting
development on the performance of the Caithness leases is negligible.
Within the main reservoir, the hottest temperatures are located at BLM West.
However, the flow capacity of the reservoir rock (that is, the ability of the
rock to transmit fluids) generally increases from BLM West northward (toward
Navy II and Navy I) and eastward (toward BLM East). The resource is generally
deeper at BLM and becomes progressively shallower to the north; on the East
Flank, the reservoir is hotter and deeper, similar to the reservoir at BLM West.
2.2 Production
----------
Most of the wells at Coso produce a mixture of steam and boiling water. The
steam is separated from the water and used to generate electricity at the
plants. The separated water is returned to the reservoir by injection wells.
The steam at the power plants is condensed to water (or "condensate") downstream
of the turbines, and a portion of this condensate is also injected. Because
some of the condensate is lost to evaporation in the cooling towers, not all of
the mass from the production wells is returned to the reservoir. To some
extent, this loss of mass is replaced by a natural inflow of groundwater (or
"recharge"). However, as is commonly the case in geothermal projects using this
type of plant technology, the rate of recharge at Coso has been less than the
rate of mass lost to evaporation.
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As a result, reservoir pressures have decreased, and the flow rates of most of
the wells have declined. In addition, lower pressures have induced boiling in
the reservoir, resulting in the formation of a vapor zone (or "steam cap") in
the upper portions of the reservoir. As a consequence, many of the wells have
produced higher proportions of steam over time, and some wells have "dried out"
completely (that is, they have begun producing dry steam). These changes in the
geothermal reservoir are not unusual or unique to Coso, and additional drilling
and optimizing the location of injection has successfully compensated for them
in the past. Still, some decline in steam production is to be expected and is
considered normal for a development of this type.
The Caithness financial projections shows combined power generation at the Coso
projects maintaining a level of about 264 MW through 2006 and declining about
3.7% per year thereafter (figure 2.1). Production is to be maintained by
drilling make-up wells until 2006. The decline occurring thereafter reflects
the anticipated gradual decrease in the amount of steam available from the
wells.
Decline rates are determined by analyzing the historical behavior of the project
wells. The field operator has evaluated the capacity of each of the wells on a
quarterly basis since the projects started up; the capacities represent each
well's best consistent performance during the evaluation period. Because the
performance of individual wells is affected by the flow from other wells in the
gathering system, flow rates from each well have varied in the course of routine
operations. For instance, taking one well off line for maintenance work can
cause higher flow rates from other wells that share the same pipeline. The
variation in the flow rates of individual wells is illustrated in plots of
actual performance at Navy I, Navy II, and BLM (Appendices A, B, and C,
respectively).
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In its annual reports on the Coso project, GeothermEx has used essentially the
same methodology in estimating well capacities based on recent performance.
Although estimates for individual wells have differed, GeothermEx's annual
assessments of resource supply for each project (based on the sum of individual
well capacities) have consistently matched the field operator's estimates within
a few megawatts. For this reason, GeothermEx feels that operator's historical
well capacity estimates are a reasonable basis for decline curve analysis, and
have used them for that purpose in this study. The estimates for each well were
summed for each of the three projects. These sums were then divided by the by
the number of wells to achieve an estimate of average megawatt capacity per well
for each project. This averaged megawatt capacity was then plotted versus time.
The plots for Navy I, Navy II, and BLM are shown in figures 2.2 through 2.4.
Geothermal wells in "two-phase" reservoirs (that is, reservoirs containing both
hot water and steam) often exhibit exponential declines in capacity during their
first few years of operation, but later make a transition to a harmonic decline.
Unlike exponential decline, where the decline rate remains constant with time,
harmonic decline implies that the decline rate itself declines with time. In
each case, the projects showed initial exponential declines in the range of 20
to 30% per year, followed by a transition to harmonic decline rates starting in
early 1992.
Figure 2.2 shows the historical average megawatt capacity for wells in the Navy
I area. In mid-1995, the average capacity of Navy I wells actually rose,
apparently reflecting the effects of drying out of several wells in the
shallower portion of the reservoir. Another increase in average capacity
occurred in 1998, when new East Flank wells were tied into the gathering system.
As shown in figure 2.2, the decline rate in productivity of the Navy I wells
since January 1992 can be approximately fitted to a 3.4% initial harmonic trend.
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At Navy II (figure 2.3), the data since 1992 can be approximately matched by a
harmonic decline rate starting at 6.4%. At BLM (figure 2.4), well productivity
decline since 1995 can be matched approximately to a 16% initial harmonic
decline rate. It should be noted that between 1992 and mid-1995, the decline
rate at BLM was gentler. The cause of the steepened decline since mid-1995 is
not certain, but appears to be related to breakthrough of water from certain
injection wells to offsetting production wells in the BLM West area. The
configuration of injection wells in BLM West has been changed since 1992, and
the decline rate appears to be moderating.
The fieldwide transition from high exponential rates to moderate harmonic
decline rates in 1992 may represent an increase in the amount of recharge in
response to the decline in reservoir pressure. This hypothesis is consistent
with changes in the chemistry of produced steam over time. As part of the
current review, GeothermEx has investigated trends in the concentrations of
hydrogen sulfide (H2S) and total non-condensible gas (NCG) in Coso steam. These
trends are discussed in section 2.4, but in the context of productivity decline
curves, it is interesting to note that a large proportion of the Coso wells
showed an initial steep decline in the concentrations of H2S and total NCG,
followed by a transition to much more gradual declines or steady concentrations.
Figures 2.5 and 2.6 show the typical pattern in H2S and NCG concentrations from
a representative well at Navy II. The timing of this fieldwide transition in
gas concentrations coincides with the start of harmonic declines in well
capacities in 1992. This suggests that the transition reflects the same
underlying reservoir process, that is, the depletion of the fluids initially
present in the reservoir and the onset of production of a greater proportion of
recharge fluid with relatively low gas concentrations from surrounding areas.
For the purposes of this review, GeothermEx has used the estimated well
capacities based on its assessment of June 1998 as the starting point for its
forecast of power generation. To convert the gross capacities to net megawatts,
GeothermEx has assumed parasitic loads to be 10% of the
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gross megawatt output, which is consistent with the historic performance of the
Coso plants. GeothermEx has also assumed a plant capacity factor of 96% to allow
for plant down time, based on the ratio of the field's average net megawatt
output for the past three years (260 NMW) to the electromechanical limit of the
plants after parasitic loads (270 NMW). The plant capacity factor is
approximately 108% if the average net megawatts produced is compared to the
rated capacity of the plants (240 MW). With these adjustments, the combined net
megawatt capacity of the Coso projects as of mid-1996 was 273.5 NMW. This
represents a spare capacity of 11 NMW over the field's actual output of 262.5
NMW in 1996.
This amount of spare capacity should allow a plateau of constant output for a
year or so, provided existing wells are maintained in good mechanical condition
which has generally been the case historically. New wells planned for the
future will be drilled in relatively undeveloped portions of the reservoir, such
as the BLM North area (located west of Navy I and Navy II on acreage formerly
leased to the Los Angeles Department of Water and Power) and the northern
portion of the East Flank. As discussed further in Chapter 3, the projected
drilling costs in the financial projections are sufficient to drill two wells
per year from 1999 to 2006.
Figure 2.7 shows a comparison of GeothermEx's power generation forecast based on
decline curve analysis with the power generation forecast in the financial
projections. GeothermEx's forecast of power generation assumes a 4.1% harmonic
decline starting in 2006. The choice of this decline rate is explained below.
As discussed earlier, the current decline trends of Navy I and Navy II wells
could be approximately fitted to harmonic decline trends of 3.4% and 6.4%,
respectively, starting in January 1992. Similarly, the decline trend of the BLM
wells could be fitted to a harmonic decline trend of 16% starting in mid-1995.
However, since the decline rate itself declines with time in the case of
harmonic decline, these rates would be considerably lower by 2006.
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We estimate harmonic decline rates (as of January, 2006) of 2.4%, 3.5% and 6.4%
for Navy I, Navy II and BLM, respectively. Since these plants all have
approximately the same net generation, it is reasonable to estimate an
arithmetic average decline rate, which is 4.1%. In figure 2.7, the trend
according to GeothermEx's forecast is compared to that of Caithness, which lies
essentially parallel to and within 1 to 5% of GeothermEx's forecast. This
similarity between the two forecasts is remarkable considering that Caithness's
forecast was based on separate estimates of decline rates from six sub-areas
within the Coso field (Navy I West, Navy I East, Navy II West, Navy II East, BLM
East and West, and BLM North) compared to decline trend estimates for three sub-
areas into which the field was divided (Navy I, Navy II and BLM) in preparing
GeothermEx's forecast. We believe that Caithness's forecast is reasonable
because it is very similar to our independent forecast.
2.3 Injection
---------
The Coso projects currently have spare injection capacity to dispose of produced
water and steam condensate. Several injection wells are idle or under-utilized,
particularly at Navy I where many of the production wells have dried out. Plots
of individual injection well histories for the Navy I, Navy II, and BLM projects
are included in Appendices D, E, and F, respectively. Wellhead pressures on
active injectors are generally less than 150 pounds per square inch gauge
(psig). Some of the wellhead pressures in the plots show higher values when
injection rates are low or zero. This is because some injection wells fill with
a column of vapor (steam and NCG) when the rate of injection gets too low. In
this vapor-filled condition, these wells show pressures at the wellhead which
reflect the high pressures of the reservoir. However, once injection is started
again with a high-pressure pump, wellhead pressures typically fall, and the
wells again become capable of taking injection water.
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Some injection wells (particularly on Navy II and BLM) have been affected by the
formation of silica scale. Produced water is treated with sulfuric acid at
several locations in the field to control this scale in surface pipelines and in
injection wells. There has also been some success in using hydrofluoric acid
stimulations to restore the injectivity of wells that have been damaged by
silica scale. In the event of a sudden mechanical problem in an injection well,
it is possible to divert injection water through temporary lines to idle
injection wells until the problem well can be repaired or replaced.
The new low-pressure steam separation systems present some possibility of
silica-scaling in the separators, injection lines and injection wells, because
the low-pressure steam separation results in considerable over-saturation of
silica. To mitigate this scaling, the operator has been testing acidification
of the liquid phase and plans to use this method to control silica scale.
Acidification for scale control has been successfully used at other geothermal
projects, and it is reasonable to expect that it will be successful at Coso.
Properly controlled addition of acid should not result in undue corrosion, and
should provide a significant level of protection to the injection wells.
However, we cannot predict just what the remaining scaling effect on the
injection wells will turn out to be, or the frequency of re-drills or workovers
that could be needed to relieve the effects of downhole scale deposition.
2.4 Gases in Steam
--------------
Historical trends of the hydrogen sulfide (H2S) and the total non-condensible
gases (NCG) in steam have been examined by comparing measurements done since
June 1996 with graphs and detailed tabulations that were compiled in 1997. Gas
concentration trends bear a relationship to reservoir processes, and the H2S
component is of particular interest because releases of H2S to the
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atmosphere are regulated by the government and so H2S must be removed from the
other gases that are released.
Table 2.1 is a summary of the H2S concentration at mid-year at each well, from
1990 through 1998. The status of the H2S trend (stable, decreasing, increasing)
as of mid-1998 is indicated, along with an abbreviated description of the
overall trend during the production history of the well. Total NCG content in
steam is not separately tabulated, but trends of total NCG tend to correlate
closely with trends of H2S.
As of June 1998, nearly all wells had stable or nearly stable gas
concentrations. H2S was decreasing or possibly decreasing at 16 wells, and
possibly increasing at only three wells. Gases at BLM East and BLM West wells
remained particularly stable with one well decreasing and three possibly
decreasing. Most Navy I wells were stable, with three decreasing and three
possibly increasing, but none changing rapidly. At Navy II wells, the gases
were stable in about 2/3 of the cases, and decreasing in about 1/3 of the cases.
The highest concentrations of H2S occur in BLM West, and in the wells on the
East Flank.
The currently stable and decreasing gas concentrations follow earlier
instabilities and transient conditions. By 1996, it was established that most
wells with high initial NCG concentrations had shown rapid decreases in these
concentrations; then, commonly in 1991 or 1992 (1992-3 in the BLM areas), there
was a distinct break in slope to stable conditions or a more gentle and linear
decline trend.
In summary, current trends of gases in Coso steam are either stable of gently
decreasing, and it is unlikely that there will be any significant increase in
the concentrations of H2S or total NCG in Coso steam in the future.
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3. CAPITAL AND OPERATING COSTS
Resource-related costs reviewed herein include those related to drilling new
wells, connecting them to the gathering system (for wells drilled on pads with
existing production wells) or extending the gathering system (for wells drilled
on new pads) and working over existing wells. Figures 3.1, 3.2 and 3.3 show the
costs in these three categories as provided by Caithness, including both
historical data from 1995 through 1998 and projections for 1999 through 2009.
Also included in either the drilling or gathering system costs are the costs of
building low-pressure separators to enable the use of low-pressure steam.
Projected costs for the three projects are summarized in table 3.1. All
projected costs are based on 1999 dollars and are escalated at 3% per year.
As illustrated in figure 3.1, historical drilling expenditures from 1995 to 1998
were in the range of $12 million to $15 million per year, with the exception of
1996, when drilling expenditures were about $2 million. Going forward, the
financial projections include $6.5 million in drilling funds for 1999, about $4
million in 2000, $7 million in 2001, $10.5 million in 2002, and $7.5 to $8.5
million in 2003 - 2006. No drilling is planned after 2006. The number of new
wells to be drilled each year and injection well redrills, which together make
up the drilling costs, are included in table 3.1.
The cost assumed in the financial projections for drilling a new well is $2.75
million in 1999, except for a BLM well to be drilled this year (see discussion
below). Based on documents provided by Caithness, a total of six new wells were
drilled in 1997 and 1998, with an average cost of $2.73 million and an average
depth of approximately 9,000 feet. Considering that the average depths of
future wells will be similar, the estimate of $2.75 million per well is
reasonable. The average productivity of these wells was approximately 8 MW
(gross); this includes the highly
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productive East Flank well 38B-9. Without 38B-9, the average productivity was
approximately 5 MW (gross). Caithness has reasonably assumed an average 1999
productivity of 5.6 MW for new wells. The financial projections do not include
any decline in the expected capacity of make-up wells; it remains at 5.6 MW
throughout the project life. While this amount should be expected to decline
according to the decline rate assigned to each area of the field (see Chapter
2), as few make-up wells are planned and the decline rate in well productivity
is very small, the difference between the projections with and without declining
the make-up wells is not significant.
Several production wells were redrilled in 1997 and 1998, at an average cost of
$1.3 million, an average depth of 6,000 feet, and an average productivity of 3.2
MW (gross). No funds are allocated in the financial projections for production
well redrills, as Caithness does not plan to redrill any existing production
wells. However, Caithness reports that there is about $1.5 million per year in
the O&M section of the budget, which will be used for well clean-outs and other
well maintenance. Production well workovers are discussed below. One
injection well redrill per year is planned, with a 1999 cost of $1.2 million per
well, which is reasonable.
In 1999, the drilling costs include an injection well redrill in the BLM and
Navy II areas ($1.2 million each), a purchase of new drill pipe ($150,000,
allocated unequally between Navy II and BLM), drilling a slim exploration well
in BLM North ($400,000), deepening of the existing BLM North well 43-7
($726,000) and drilling BLM North well 43A-7 ($2.9 million). The last is
planned to a total depth of 10,000 feet, which is deeper than other planned
wells at Coso, and accounts for its slightly greater cost.
One injection well redrill and one BLM production well (43B-7) are planned for
2000 (table 3.1). A total of 15 new wells are planned from 1999 through 2006,
which equates to nearly 11 MW per year, using Caithness' assumption of no
decline in the capacity of make-up wells. As indicated by
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drilling data provided by Caithness, which are reflected in the costs in figure
3.1, six new wells were drilled in the last two years. Therefore, we would
expect that two to three make-up wells would be needed each year to maintain
production, unless the make-up wells have a higher-than-average capacity which
is expected under Caithness' plan to drill in the East Flank area.
In addition to the cost of drilling a well, there are costs associated with
connecting the well to the gathering system. In the case where a new well is
drilled from a pad with existing production wells, the connection cost is
assumed by Caithness to be $500,000; these are "pad pipelines," which are
charged to the appropriate project. For wells drilled on new pads in the BLM
North and East Flank areas, additional expenses will be incurred to extend the
steam gathering pipelines as indicated in table 3.1; these are "trunk lines,"
which are shared equally between the projects. There are also expenses
associated with additions or modifications to the steam separation equipment
included in this category in 1999 and 2006. The projected gathering system
costs are included in table 3.1 and figure 3.2. We have not independently
estimated the costs of pipelines or LP separation equipment. The well
connection costs are on the conservative side.
The assumptions page of the financial projections indicates a 1999 workover cost
of $700,000 per well; however, discussion with Caithness revealed that $700,000
is budgeted for each unit, which is adequate for approximately two workovers
each year. This is escalated at 3% per year. The workover costs and
frequencies are reasonable. Workovers are assumed to be needed throughout the
life of the project; the escalation of workover costs is shown in table 3.1 and
figure 3.3.
3-3
<PAGE>
Table 2.1: H2S in Steam at Coso Wells
<TABLE>
<CAPTION>
H2S in Steam (parts per million by weight - ppmw) /a/
---------------------------------------------------------- Status
June June June June June June June June June June Historical
Well No. 1990 1991 1992 1993 1994 1995 1996 1997 1998 1998 /b/ Trend to mid-96 /c/
- --------- ------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Navy 1
- ------------------------------------------------------------------------
66-6 30 insuff insuff
68-6 200 200 135 130 S-D insuff
78-6 130 110 110 110 110 110 110 105 100 S s
78A-6 50 40 40 100 170 170 150 160 S d-i(6/92)
78B-6 110 90 90 100 90 105 S s
43-7 340 insuff
52-7 90 60 45 80 150 170 180 185 185 S d-i(6/93)
52A-7 110 140 130 150 190 195 220 225 I? i-s
52B-7 160 140 140 140 140 175 180 S-I d-s
61-7 40 30 25 80 130 140 150 160 180 I d-i(6/92)
61A-7 45 55 80 110 150 170 170 180 180 I? i
63-7 70 70 70 60 65 75 85 90 95 S s
63A-7 40 40 25 25 50 50 50 60 90 I? d-i(6/92)
63B-7 40 30 55 60 65 100 I s
66-7 250 200 175 175 150 140 115 D d
66A-7 50 80 100 120 120 55 S? i
71-7 70 110 125 150 160 180 175 175 180 S i
71A-7 100 120 130 150 190 200 200 215 215 S i-s
71B-7 80 80 100 100 95 130 S? d-i(6/93)
73-7 20 20 20 120 90 90 90 90 90 S s-(jump 6/92)
73A-7 50 65 75 75 80 90 100 90 100 S i
75-7 225 150 125 120 120 120 120 105 95 D? d-s(6/92)
75A-7 200 140 125 115 115 110 110 95 85 D? d-s(6/92)
75B-7 100 100 100 100 100 100 85 75 D s
76-7 170 120 110 110 100 100 110 90 40 D d-s(6/91)
76A-7 75 75 75 100 100 S? s (irreg.)
76B-7 140 110 100 110 110 100 100 95 110 S d-s
77-7 150 100 100 100 100 100 90 80 85 S-D d-s(6/91)
78-7 300 200 175 150 125 125 125 125 165 S? d-s(6/91)
87-7 100 75 75 75 50 45 50 S d-s(6/92)
87A-7 100 100 100 100 125 S s
15A-8 225 125 100 100 90 90 90 80 80 S d-s(3/92)
16A-8RD 125 140 130 120 110 115 120 100 90 S-D d-s(6/93)
24-8 100 120 125 125 125 120 95 100 S s
47-8 130 100 80 80 80 90 S d-s
47A-8RD 150 150 100 95 95 105 115 S d-s
34A-9 1050 1050 insuff
38-9 500 1000 1000 500 S? insuff
38A-9 630 insuff insuff
Navy 2
- ------------------------------------------------------------------------
78-7 300 200 175 150 125 125 125 insuff d-s(6/91)
22-16 1400 1000 900 850 800 800 S d
51-16 600 600 600 570 530 D? irregular
51A-16 900 850 600 720 630 S insuff. data
64-16 600 450 400 240 D? insuff. data
83A-16 700 500 400 350 450 325 S? d
83B-16 325 250 225 320 140 D d
</TABLE>
Page 1 of 3
<PAGE>
Table 2.1: H2S in Steam at Coso Wells
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
H2S in Steam (parts per million by weight - ppmw) /a/
---------------------------------------------------------- Status
June June June June June June June June June June Historical
Well No. 1990 1991 1992 1993 1994 1995 1996 1997 1998 1998 /b/ Trend to mid-96 /c/
- --------- ------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15-17RD 430 300 260 230 210 200 180 140 175 S d-s(12/91)
15A-17RD 350 290 250 210 170 190 210 170 160 S-D d-s(3/94)
37-17 150 120 150 140 120 115 120 S s-d
37A-17 200 110 110 90 80 70 80 70 80 S d-s(6/91)
37B-17 175 125 140 150 140 100 S? s
58A-18 210 insuff
58B-18 290 insuff
63-18RD 375 240 170 150 130 100 100 95 120 S d-s(12/91)
63A-18 500 300 180 180 180 130 140 105 S d-s(6/92)
63B-18 200 150 110 100 100 100 insuff d-s(6/92)
65-18 650 430 400 375 320 330 350 325 235 D? d-s(12/91)
65A-18 900 500 450 500 375 375 375 360 270 D? d-s(6/92)
72-18 175 80 50 45 45 insuff d-s(6/92)
72A-18 175 100 70 50 60 80 95 25 D? d-s(6/92)
72B-18 200 100 75 60 60 60 60 85 45 D? d-s(6/92)
72C-18 200 100 80 70 75 65 65 120 75 S d-s(6/92)
73-18RD 400 150 100 100 80 80 80 65 60 S d-s(6/92)
73A-18 400 200 180 175 160 150 150 130 S d-s(12/91)
76-18 900 600 400 350 350 300 250 400 200 S-D d-s(6/92)
76A-18 650 400 350 300 270 240 200 320 140 D d-s(6/91)
81-18 170 125 100 100 100 100 100 90 110 S d-s(6/92)
81A-18RD 70 insuff
- ------------------------------------------------------------------------
BLM East
- ------------------------------------------------------------------------
16-20 60 55 50 50 40 35 S d-s(6/93)
16A-20 600 650 500 520 510 510 500 S d-s(6/94)
16B-20 175 200 225 250 210 235 S s
24-20 150 150 150 150 150 125 125 125 S s
24A-20 150 100 100 90 80 70 insuff d-s(6/93)
24B-20 80 60 45 50 65 85 60 S? s
32-20 220 140 125 110 100 100 100 100 125 S d-s(6/93)
32A-20 150 80 25 25 25 25 20 20 S d-s(12/92)
34-20 150 110 110 75 60 60 60 insuff d-s(6/93)
34A-20 110 80 60 40 60 50 60 insuff d-s(6/92)
35-20 150 160 150 50 50 40 40 40 S d-s(6/93)
35A-20 100 60 20 20 d-s(12/91)
35A-20RD 40 25 25 10 D? insuff
35B-20 35 25 25 25 25 20 20 5 D? s
- ------------------------------------------------------------------------
</TABLE>
Page 2 of 3
<PAGE>
Table 2.1: H2S in Steam at Coso Wells
<TABLE>
<CAPTION>
H2S in Steam (parts per million by weight - ppmw) /a/
------------------------------------------------------------------ Status
June June June June June June June June June June Historical
Well No. 1990 1991 1992 1993 1994 1995 1996 1997 1998 1998 /b/ Trend to mid-96 /c/
- --------- ------ ---- ---- ---- ---- ---- ---- ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BLM West
- --------------------------------------------------------------------------------
23-19RD 1050 850 750 700 700 930 830 S d-s(5/94)
33-19 1400 1000 900 800 600 600 600 620 500 S-D d-s?(6/94)
72A-19RD 400 500 500 S
72B-19 500 430 340 D insuff
73-19 1200 900 300 400 700 500 400 410 370 D d(irreg.)
74-19 900 700 600 350 350 400 450 600 580 S? d-s(6/93)
74A-19 500 325 300 275 260 250 250 230 250 S d-s(6/91)
74B-19RD 400 300 270 250 250 250 250 230 270 S d-s(6/91)
81-19 800 700 600 500 425 425 475 580 570 S? d-s(6/93)
81A-19RD 100 30 40 40 40 160 I? d-s(6/93)
81B-19 150 150 S?
33A-19 1300 1200 S?
33B-19 410 310 D?
- --------------------------------------------------------------------------------
</TABLE>
Notes:(a) H2S concentration in bold italics is the highest level.
H2S concentration in bold is the lowest level.
(b) Status June 1998 D = decreasing
S = stable
I = increasing
? = no data or very uncertain
Combined symbols indicate uncertain
condition; e.g.,
S-D = stable or decreasing
(c) Historical Trend d = decreasing
(shown only if there s = stable
is a distinct pattern) i = increasing
d-s = decreasing then stable
d-s (date) = strong decrease followed by
gentle decrease or stable; date
indicates approximate break in slope
d-i (date) = decreasing, followed by
increase; date indicates start of increase
<PAGE>
Table 3.1: Summary of Drilling, Gathering System and Workover Costs for the
Coso Geothermal Project in Caithness pro forma
<TABLE>
<CAPTION>
Drilling Gathering System Workover
--------------------------------------------------------------------------
Cost Cost Budget
Year Project Summary ($1,000s) Summary ($1,000s) ($1,000s)
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1999 Navy I 1/3 of each: East Flank LP
system; 43-7 trunk line; safety
None 0 platforms 1,248 700
-----------------------------------------------------------------------------------------------------------------
Navy II 1/3 of each: East Flank LP
Injection well redrill; system; 43-7 trunk line; safety
1/5 of drill pipe costs 1,225 platforms 1,248 700
-----------------------------------------------------------------------------------------------------------------
BLM deepen 43-7; drill 1/3 of each: East Flank LP
43A-7; injection well system; 43-7 trunk line; safety
redrill; slim platforms, plus BLM LP
exploration hole; 4/5 system; tie-in 43-7, 43A-7 and
of drill pipe costs 5,351 46-19RD 3,248 700
- ------------------------------------------------------------------------------------------------------------------------
2000 Navy I None 0 None 0 721
-----------------------------------------------------------------------------------------------------------------
Navy II Injection well redrill 1,224 None 0 721
-----------------------------------------------------------------------------------------------------------------
BLM Drill well 43B-7 2,918 Tie-in well 43B-7 531 721
- ------------------------------------------------------------------------------------------------------------------------
2001 Navy I Injection well redrill 1,249 None 0 743
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 743
-----------------------------------------------------------------------------------------------------------------
BLM Tie-in 43C-7 and 45-7; 45-7
Drill 43C-7 and 45-7 6,010 pad pipeline 1,639 743
- ------------------------------------------------------------------------------------------------------------------------
2002 Navy I None 0 1/3 Navy II/BLM trunk line 563 765
-----------------------------------------------------------------------------------------------------------------
Navy II Drill 22A-16 and 1/3 Navy II/BLM trunk line plus
22B-16 6,190 tie-in 22A-16 and 22B-16 1,688 765
-----------------------------------------------------------------------------------------------------------------
BLM Injection well redrill; 1/3 Navy II/BLM trunk line plus
drill well 46A-7 4,369 tie-in 46A-7 1,126 765
- ------------------------------------------------------------------------------------------------------------------------
Page 1 of 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Drilling Gathering System Workover
--------------------------------------------------------------------------
Cost Cost Budget
Year Project Summary ($1,000s) Summary ($1,000s) ($1,000s)
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
2003 Navy I None 0 1/3 Navy I/Navy II trunk line 386 788
-----------------------------------------------------------------------------------------------------------------
Navy II Injection well redrill 1,299 1/3 Navy I/Navy II trunk line 386 788
-----------------------------------------------------------------------------------------------------------------
BLM 1/3 Navy I/Navy II trunk line
Drill 66A-6 and plus tie-in 66A-6 and 66B-6;
66B-6 6,376 66-6 pad pipeline 2,415 788
- ------------------------------------------------------------------------------------------------------------------------
2004 Navy I Drill 38C-9; injection
well redrill 4,635 Tie-in 38C-9 597 812
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 812
-----------------------------------------------------------------------------------------------------------------
BLM Drill 66B-6 3,284 Tie-in 66B-6 597 812
- ------------------------------------------------------------------------------------------------------------------------
2005 Navy I None 0 None 0 836
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 836
-----------------------------------------------------------------------------------------------------------------
BLM Injection well redrill; Tie-in 48-7 and 48B-7; 48-7
drill 48-7 and 48B-7 8,143 pad pipeline 1,845 836
- ------------------------------------------------------------------------------------------------------------------------
2006 Navy I None 0 Separator modifications 950 861
-----------------------------------------------------------------------------------------------------------------
Navy II Injection well redrill 1,406 None 0 861
-----------------------------------------------------------------------------------------------------------------
BLM Drill 48B-7 and Tie-in 48B-7 and 88A-1; 88-1
88A-1 6,967 pad pipeline 2,438 861
- ------------------------------------------------------------------------------------------------------------------------
2007 Navy I None 0 None 0 887
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 887
-----------------------------------------------------------------------------------------------------------------
BLM None 0 None 0 887
- ------------------------------------------------------------------------------------------------------------------------
2008 Navy I None 0 None 0 913
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 913
-----------------------------------------------------------------------------------------------------------------
BLM None 0 None 0 913
- ------------------------------------------------------------------------------------------------------------------------
Page 2 of 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Drilling Gathering System Workover
--------------------------------------------------------------------------
Cost Cost Budget
Year Project Summary ($1,000s) Summary ($1,000s) ($1,000s)
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
2009 Navy I None 0 None 0 941
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 941
-----------------------------------------------------------------------------------------------------------------
BLM None 0 None 0 941
- ------------------------------------------------------------------------------------------------------------------------
2010 Navy I None 0 None 0 969
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 969
-----------------------------------------------------------------------------------------------------------------
BLM None 0 None 0 969
- ------------------------------------------------------------------------------------------------------------------------
2011 Navy I None 0 None 0 998
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 998
-----------------------------------------------------------------------------------------------------------------
BLM None 0 None 0 998
- ------------------------------------------------------------------------------------------------------------------------
2012 Navy I None 0 None 0 1,028
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 1,028
-----------------------------------------------------------------------------------------------------------------
BLM None 0 None 0 1,028
- ------------------------------------------------------------------------------------------------------------------------
2013 Navy I None 0 None 0 1,059
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 1,059
-----------------------------------------------------------------------------------------------------------------
BLM None 0 None 0 1,059
- ------------------------------------------------------------------------------------------------------------------------
2014 Navy I None 0 None 0 1,091
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 1,091
-----------------------------------------------------------------------------------------------------------------
BLM None 0 None 0 1,091
- ------------------------------------------------------------------------------------------------------------------------
2015 Navy I None 0 None 0 1,123
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 1,123
-----------------------------------------------------------------------------------------------------------------
BLM None 0 None 0 1,123
- ------------------------------------------------------------------------------------------------------------------------
Page 3 of 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Drilling Gathering System Workover
--------------------------------------------------------------------------
Cost Cost Budget
Year Project Summary ($1,000s) Summary ($1,000s) ($1,000s)
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
2016 Navy I None 0 None 0 1,157
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 1,157
-----------------------------------------------------------------------------------------------------------------
BLM None 0 None 0 1,157
- ------------------------------------------------------------------------------------------------------------------------
2017 Navy I None 0 None 0 1,192
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 1,192
-----------------------------------------------------------------------------------------------------------------
BLM None 0 None 0 1,192
- ------------------------------------------------------------------------------------------------------------------------
2018 Navy I None 0 None 0 1,228
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 1,228
-----------------------------------------------------------------------------------------------------------------
BLM None 0 None 0 1,228
- ------------------------------------------------------------------------------------------------------------------------
2019 Navy I None 0 None 0 1,264
-----------------------------------------------------------------------------------------------------------------
Navy II None 0 None 0 1,264
-----------------------------------------------------------------------------------------------------------------
BLM None 0 None 0 1,264
- -----------------=======================================================================================================
</TABLE>
Page 4 of 4
<PAGE>
Figure 1.1: Location of Coso geothermal field
[MAP APPEARS HERE]
1999, GeothermEx, Inc.
<PAGE>
Figure 1.2: Well location map, Coso geothermal field
[MAP APPEARS HERE]
1999, GeothermEx, Inc.
<PAGE>
Figure 2.1: Coso MW forecast from Caithness financial projections
[GRAPH APPEARS HERE]
1999, GeothermEx, Inc.
<PAGE>
Figure 2.2: Megawatts per well vs. time, Navy I
[GRAPH APPEARS HERE]
1999, GeothermEx, Inc.
<PAGE>
Figure 2.3: Megawatts per well vs. time, Navy II
[GRAPH APPEARS HERE]
1999, GeothermEx, Inc.
<PAGE>
Figure 2.4: Megawatts per well vs. time, BLM
[GRAPH APPEARS HERE]
1999, GeothermEx, Inc.
<PAGE>
Figure 2.5:
Total NCG/Steam Vs. Time - Navy II Well 15-17RD
[GRAPH APPEARS HERE]
Date
<PAGE>
Figure 2.6:
H2S/Steam Vs. Time - Navy II Well 15-17RD
[GRAPH APPEARS HERE]
Date
<PAGE>
Figure 2.7: Comparison of Caithness and GeothermEx MW forecasts
[GRAPH APPEARS HERE]
1999, GeothermEx, Inc.
<PAGE>
Figure 3.1: Planned drilling costs at Coso from Caithness financial projections
[GRAPH APPEARS HERE]
1999, GeothermEx, Inc.
<PAGE>
Figure 3.2: Planned gathering system costs at Coso from Caithness financial
projections
[GRAPH APPEARS HERE]
<PAGE>
Figure 3.3: Planned workover costs at Coso from Caithness financial projections
[GRAPH APPEARS HERE]
1999, GeothermEx, Inc.
<PAGE>
APPENDICES A THROUGH F
OF
GEOTHERMAL
CONSULTANT'S REPORT
APPENDICES A THROUGH F OF THE GEOTHERMAL CONSULTANT'S REPORT HAVE BEEN OMITTED
FROM THIS PROSPECTUS. YOU CAN OBTAIN COPIES OF THESE APPENDICES FROM US UPON
REQUEST.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
Until , 1999, all dealers that effect transactions in the Series B notes,
whether or nor participating in this exchange offer, may be required to deliver
a prospectus. This is in addition to the dealer(s) obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
Caithness Coso Funding Corp.
$110,000,000
6.80% Series B Senior Secured Notes due 2001
$303,000,000
9.05% Series B Senior Secured Notes due 2009
-----------------------
PROSPECTUS
-----------------------
Exchange Agent:
U.S. Bank Trust National Association
185 East Fifth Street
St. Paul, Minnesota 55101
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell the securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Caithness
Energy, L.L.C., Caithness Coso Funding Corp., Coso Finance Partners, Coso
Energy Developers or Coso Power Developers have not changed since the date
hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Pursuant to Section 102(b)(7) of the Delaware General Corporations Law,
Article IX of the Certificate of Incorporation for Funding Corp. (the
"Certificate of Incorporation") provides that no director of Funding Corp.
shall be liable to Funding Corp. or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except to the extent that exculpation
from liability is not permitted under the Delaware General Corporation Law as
in effect at the time such liability is determined.
Article X of the Certificate of Incorporation further provides that Funding
Corp. shall, to the fullest extent permitted under the laws of the State of
Delaware, indemnify, and upon request, advance expenses to its directors and
officers against liabilities that may arise by reason of their status or
service as directors, officers, trustees, partners, employees, or agents of the
Corporation. Officers and directors shall be indemnified against expenses
(including attorney's fees and expenses), judgments, fines, penalties, and
amounts paid in settlement incurred in connection with the investigation,
preparation, and defense of such actions, suits, proceedings, or claims.
However, Funding Corp. will not be required to indemnify or advance expenses to
any person in connection with such actions, suits, proceedings or claims when
the action, suit, proceeding or claim was initiated by or on behalf of the
officer or director seeking indemnity.
Article XIV of the general partnership agreement of each of Coso Power
Developers, Coso Finance Partners and Coso Energy Developers (collectively, the
"General Partnership Agreements") empower each such partnership to indemnify
and hold harmless its managing partner, and the officers, directors,
shareholders, and agents of its managing partner ("Indemnitees") from and
against any and all losses, claims, demands, costs, damages, judgments, fines,
settlements and expenses (including attorney's fees and disbursements) arising
out of or incidental to the business of each partnership provided that
Indemnitee's conduct did not constitute fraud, willful misconduct, or gross
negligence. Article XIV of each of the General Partnership Agreements also
provides that the managing partner, in its capacity as such, or its officers,
directors, shareholders, employees, or agents will not be held liable to their
respective partnership or other partners of such partnership for any expense,
loss, or liability suffered by such partnership or other partners of such
partnership in connection with that partnership's activities, provided that the
managing partner or its affiliates acted in good faith and without gross
negligence and had previously determined that such a course of conduct was in
the best interests of the partnership.
The foregoing discussion of the Certificate of Incorporation, Bylaws, the
General Partnership Agreements, and Delaware law is not intended to be
exhaustive and is qualified in its entirety by the Certificate of
Incorporation, Bylaws, the General Partnership Agreements and the relevant
provisions of Delaware Corporation Law.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.1 Certificate of Incorporation of Caithness Coso Funding Corp.
3.2 Bylaws of Caithness Coso Funding Corp.
3.3* Third Amended and Restated Partnership Agreement of Coso Finance
Partners, dated as of May 28, 1999.
3.4* Third Amended and Restated Partnership Agreement of Coso Energy
Developers, dated as of May 28, 1999.
3.5* Third Amended and Restated Partnership Agreement of Coso Power
Developers, dated as of May 28, 1999.
4.1 Indenture, dated as of May 28, 1999, among Caithness Coso Funding
Corp., Coso Finance Partners, Coso Energy Developers, Coso Power
Developers, and U.S. Bank Trust National Association as trustee and as
collateral agent.
4.2 Specimen Series B notes (included in Exhibit 4.1).
4.3 Notation of Guarantee, dated as of May 28, 1999, of Coso Finance
Partners.
4.4 Notation of Guarantee, dated as of May 28, 1999, of Coso Energy
Developers.
4.5 Notation of Guarantee, dated as of May 28, 1999, of Coso Power
Developers.
4.6 Registration Rights Agreement, dated as of May 28, 1999, by and among
Caithness Coso Funding Corp., Coso Finance Partners, Coso Energy
Developers, Coso Power Developers, and Donaldson, Lufkin & Jenrette
Securities Corporation.
5.1* Opinion of Riordan & McKinzie, A Professional Law Corporation.
5.2* Opinion of Reed Smith Shaw & McClay LLP.
10.1 Deposit and Disbursement Agreement, dated as of May 28, 1999, among
Caithness Coso Funding Corp., Coso Finance Partners, Coso Energy
Developers, Coso Power Developers, and U.S. Bank Trust National
Association, as collateral agent, as trustee, and as depositary.
10.2 Credit Agreement, dated as of May 28, 1999, between Caithness Coso
Funding Corp. and Coso Finance Partners.
10.3 Promissory Note due 2001 of Coso Finance Partners in favor of
Caithness Coso Funding Corp.
10.4 Promissory Note due 2009 of Coso Finance Partners in favor of
Caithness Coso Funding Corp.
10.5 Credit Agreement, dated as of May 28, 1999, between Caithness Coso
Funding Corp. and Coso Energy Developers.
10.6 Promissory Note due 2001 of Coso Energy Developers in favor of
Caithness Coso Funding Corp.
10.7 Promissory Note due 2009 of Coso Energy Developers in favor of
Caithness Coso Funding Corp.
10.8 Credit Agreement, dated as of May 28, 1999, between Caithness Coso
Funding Corp. and Coso Power Developers.
10.9 Promissory Note due 2001 of Coso Power Developers in favor of
Caithness Coso Funding Corp.
10.10 Promissory Note due 2009 of Coso Power Developers in favor of
Caithness Coso Funding Corp.
10.11 Purchase Agreement, dated as of May 21, 1999, by and among Caithness
Coso Funding Corp., as issuer, Coso Finance Partners, Coso Energy
Developers and Coso Power Developers, as guarantors, and Donaldson,
Lufkin & Jenrette Securities Corporation, as initial purchaser.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.12 Security Agreement, dated as of May 28, 1999, executed by and among
Caithness Coso Funding Corp. in favor of U.S. Bank Trust National
Association, as collateral agent.
10.13 Security Agreement, dated as of May 28, 1999, executed by and among
Coso Finance Partners in favor of U.S. Bank Trust National
Association, as collateral agent.
10.14 Security Agreement, dated as of May 28, 1999, executed by Coso Energy
Developers in favor of U.S. Bank Trust National Association, as
collateral agent.
10.15 Security Agreement, dated as of May 28, 1999, executed by Coso Power
Developers in favor of U.S. Bank Trust National Association, as
collateral agent.
10.16 Reserved.
10.17 Reserved.
10.18* Security Agreement (Navy I project permits), dated as of May 28, 1999,
executed by Coso Operating Company LLC in favor of U.S. Bank Trust
National Association, as collateral agent.
10.19 Security Agreement (BLM project permits), dated as of May 28, 1999,
executed by Coso Operating Company LLC in favor of U.S. Bank Trust
National Association, as collateral agent.
10.20 Security Agreement (Navy II project permits), dated as of May 28,
1999, executed by Coso Operating Company LLC in favor of U.S. Bank
Trust National Association, as collateral agent.
10.21 Security Agreement (Navy I project permits), dated as of May 28, 1999,
executed by FPL Energy Operating Services, Inc., in favor of U.S. Bank
Trust National Association, as collateral agent.
10.22 Security Agreement (BLM project permits), dated as of May 28, 1999,
executed by FPL Energy Operating Services, Inc., in favor of U.S. Bank
Trust National Association, as collateral agent.
10.23 Security Agreement (Navy II project permits), dated as of May 28,
1999, executed by FPL Energy Operating Services, Inc., in favor of
U.S. Bank Trust National Association, as collateral agent.
10.24 Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement, dated as of May 28, 1999, executed by Coso Finance Partners
in favor of U.S. Bank Trust National Association, as trustee, and as
beneficiary.
10.25 Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement, dated as of May 28, 1999, executed by Coso Energy
Developers in favor of U.S. Bank Trust National Association, as
trustee, and as beneficiary.
10.26 Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement, dated as of May 28, 1999, executed by Coso Power Developers
in favor of U.S. Bank Trust National Association, as trustee, and as
beneficiary.
10.27 Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement, dated as of May 28, 1999, executed by Coso Transmission
Line Partners in favor of U.S. Bank Trust National Association, as
trustee, and as beneficiary.
10.28 Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement, dated as of May 28, 1999, executed by China Lake Joint
Venture in favor of U.S. Bank Trust National Association, as trustee,
and as beneficiary.
10.29 Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement, dated as of May 28, 1999, executed by Coso Land Company in
favor of U.S. Bank Trust National Association, as trustee, and as
beneficiary.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.30 Stock Pledge Agreement, dated as of May 28, 1999, by Coso Finance
Partners, Coso Energy Developers and Coso Power Developers in favor of
U.S. Bank Trust National Association, as collateral agent.
10.31 Partnership Interest Pledge Agreement (Navy I), dated as of May 28,
1999, by ESCA, LLC and New CLOC Company, LLC, in favor of U.S. Bank
Trust National Association, as collateral agent.
10.32 Partnership Interest Pledge Agreement (BLM), dated as of May 28, 1999,
by Caithness Coso Holdings, LLC and New CHIP Company, LLC, in favor of
U.S. Bank Trust National Association, as collateral agent.
10.33 Partnership Interest Pledge Agreement (Navy II), dated as of May 28,
1999, by Caithness Navy II Group, LLC and New CTC Company, LLC, in
favor of U.S. Bank Trust National Association, as collateral agent.
10.34 Partnership Interest Pledge Agreement (CTLP), dated as of May 28,
1999, by Coso Energy Developers and Coso Power Developers, in favor of
U.S. Bank Trust National Association, as collateral agent.
10.35 Partnership Interest Pledge Agreement (CLJV), dated as of May 28,
1999, by Caithness Acquisition Company, LLC and Caithness Geothermal
1980 Ltd., L.P., in favor of U.S. Bank Trust National Association, as
collateral agent.
10.36 Partnership Interest Pledge Agreement (CLC), dated as of May 28, 1999,
by Caithness Acquisition Company, LLC and Caithness Geothermal 1980
Ltd., L.P., in favor of U.S. Bank Trust National Association, as
collateral agent.
10.37 Promissory Notes Security Agreement, dated as of May 28, 1999, by
Caithness Coso Funding Corp., in favor of U.S. Bank Trust National
Association, as collateral agent.
10.38 Original Service Contract N62474-79-C-5382, dated December 6, 1979,
between U.S. Naval Weapons Center and California Energy Company, Inc.,
Contractor (the "Navy Contract"), including all amendments thereto.
10.39 Escrow Agreement, dated December 16, 1992, as amended, by and among
Coso Finance Partners, Bank of America and the Navy.
10.40 Offer to Lease and Lease for Geothermal Resources, Serial No. 11402,
dated April 29, 1985 but effective May 1, 1985, from the United States
of America, acting through the Bureau of Land Management, to
California Energy Company, Inc.; as assigned by Assignment Affecting
Record Title to Geothermal Resources Lease, dated June 24, 1985, but
effective July 1, 1985 from California Energy Company, Inc. to Coso
Land Company; as assigned by Assignment of Record Title Interest in a
Lease for Oil and Gas or Geothermal Resources, dated April 20, 1988,
but effective May 1, 1988 from Coso Land Company to Coso Geothermal
Company; as assigned by Assignment of Record Title Interest in a Lease
for Oil and Gas or Geothermal Resources dated April 20, 1988 but
effective
May 1, 1988 from Coso Geothermal Company to Coso Energy Developers.
10.41 Geothermal Resources Lease, Serial No. CA-11383, by and between the
United States of America, acting through the Bureau of Land
Management, and the LADWP, effective as of January 1, 1988; as
assigned by Lease Assignment Agreement by and between LADWP and Coso
Land Company , dated September 10, 1997; as assigned by Assignment of
Record Title Interest in Lease for Oil and Gas or Geothermal
Resources, by and between the United States of America, acting through
the Bureau of Land Management, and Coso Land Company, effective
January 1, 1998; and as extended by extension of primary term of CACA-
11383 to September 23, 2004.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.42 Geothermal Resources Lease, Serial No. CA-11384, by and between the
United States of America, acting through the Bureau of Land
Management, and the LADWP, effective as of February 1, 1982; as
assigned by Lease Assignment Agreement by and between LADWP and Coso
Land Company, dated September 10, 1997; as assigned by Assignment of
Record Title Interest in a Lease for Oil and Gas or Geothermal
Resources (CACA-11384), by and between the United States of America,
acting through the Bureau of Land Management, and Coso Land Company,
effective as of January 1, 1998; and as extended by extension of
primary term of CACA-11385 to December 24, 2002.
10.43 Geothermal Resources Lease, Serial No. CA-11385, by and between the
United States of America, acting through the Bureau of Land
Management, and the LADWP, effective as of February 1, 1982; as
assigned by Lease Assignment Agreement by and between LADWP and Coso
Land Company, dated September 10, 1997; as assigned by Assignment of
Record Title Interest in a Lease for Oil and Gas or Geothermal
Resources (CACA-11385) by and between the United States of America,
acting through the Bureau of Land Management, and Coso Land Company,
effective as of January 1, 1998; and as extended by extension of
primary term of CACA-11385 to December 24, 2002.
10.44 License for Electric Power Plant Site Utilizing Geothermal Resources
between the United States of America, Licensor, through the Bureau of
Land Management, and Coso Energy Developers, Licensee, Serial No. CACA
22512, dated March 8, 1989 (expires 3/8/19).
10.45 License for Electric Power Plant Site Utilizing Geothermal Resources
between the United States of America, acting through the Bureau of
Land Management, and Coso Energy Developers, Licensee, Serial No.
25690, dated 12/29/1989 (expires 12/28/19).
10.46 Right of Way CA-18885 by and between the United States of America,
acting through the Bureau of Land Management, and California Energy
Company, Inc., dated May 7, 1986 (telephone cable) (expires 5/7/16).
10.47 Right of Way CA-13510 by and between the United States of America,
acting through the Bureau of Land Management, and California Energy
Company, Inc., dated April 12, 1984 (Coso office site) (expires
4/12/14).
10.48 Agreement of Transfer and Assignment (Navy I Transmission Line), dated
July 14, 1987, among China Lake Joint Venture and Coso Finance
Partners.
10.49 Agreement of Transfer and Assignment (Navy II Transmission Line),
dated July 31, 1989, among Coso Power Developers and Coso Transmission
Line Partners.
10.50 Agreement of Transfer and Assignment (BLM Transmission Line), dated
July 31, 1989, among Coso Energy Developers and Coso Transmission Line
Partners.
10.51 Agreement Regarding Overriding Royalty (CLC Royalty), dated May 5,
1988, between Coso Energy Developers and Coso Land Company.
10.52 Coso Geothermal Exchange Agreement, dated January 11, 1994, by and
among Coso Finance Partners, Coso Energy Developers, Coso Power
Developers, and California Energy Company, Inc.
10.53 Amendment to Coso Geothermal Exchange Agreement, dated April 12, 1995,
by and among Coso Finance Partners, Coso Energy Developers, Coso Power
Developers, and California Energy Company, Inc.
10.54 Reserved.
10.55 Operation and Maintenance Agreement (Navy I Project), dated May 28,
1999, by and among FPL Energy Operating Services, Inc. and Coso
Operating Company, LLC and New CLOC Company, LLC.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.56 Operation and Maintenance Agreement (BLM Project), dated May 28, 1999,
by and among FPL Energy Operating Services, Inc. and Coso Operating
Company, LLC and New CHIP Company, LLC.
10.57 Operation and Maintenance Agreement (Navy II Project), dated May 28,
1999, by and among FPL Energy Operating Services, Inc. and Coso
Operating Company, LLC and New CTC Company, LLC.
10.58 Field Operation and Maintenance Agreement (Navy I), dated February 25,
1999, between Coso Operating Company, LLC and New CLOC Company, LLC.
10.59 Field Operations and Maintenance Agreement (Navy II), dated February
25, 1999, between Coso Operating Company, LLC and New CTC Company,
LLC.
10.60 Field Operations and Maintenance Agreement (BLM), dated February 25,
1999, between Coso Operating Company, LLC and New CHIP Company, LLC.
10.61 Purchase Agreement, dated as of January 16, 1999, by and among
Caithness Energy, L.L.C., Caithness Acquisition Company, LLC, and
California Energy Company, Inc.
10.62 Agreement Concerning Consideration, dated as of February 25, 1999, by
and among Caithness Energy, L.L.C., Caithness Acquisition Company,
L.L.C., New CLOC Company, LLC, New CHIP Company, LLC, New CTC Company,
LLC, and CalEnergy Company, Inc.
10.63 Future Revenue Agreement, dated February 25, 1999, by and between
Caithness Energy, L.L.C., Caithness Acquisition Company, LLC, New CTC
Company, LLC, New CLOC Company, LLC, New CHIP Company, LLC, Coso
Finance Partners, Coso Energy Developers, Coso Power Developers, and
California Energy Company, Inc.
10.64 Acknowledgment and Agreement--Release, dated January 16, 1999,
executed by Caithness Resources, Inc., Caithness Corporation,
Caithness Power, L.L.C., James Bishop Sr.,and Caithness CEA
Geothermal, L.P. (appended to Exhibit 10.61).
10.65 Acknowledgment and Agreement--Indemnity, dated May 28, 1999, executed
by Coso Finance Partners, New CLOC Company, LLC, ESCA, LLC, Coso
Energy Developers, New CHIP Company, LLC, Caithness Coso Holdings,
LLC, Coso Power Developers, New CTC Company, LLC, and Caithness Navy
II Group, LLC.
10.66 Acknowledgment and Agreement--Release, dated May 28, 1999, executed by
Coso Finance Partners, New CLOC Company, LLC, ESCA, LLC, Coso Energy
Developers, New CHIP Company, LLC, Caithness Coso Holdings, LLC, Coso
Power Developers, New CTC Company, LLC, and Caithness Navy II Group,
LLC.
10.67 Acknowledgment and Agreement--Indemnity, dated January 16, 1999,
executed by Caithness Resources, Inc., Caithness Corporation,
Caithness Power, L.L.C., China Lake Operating Company, Coso Technology
Corporation and Coso Hotsprings Intermountain Power (appended to
Exhibit 10.61).
10.68 Power Purchase Agreement (modified Standard Offer No.4) (Navy I),
dated as of June 4, 1984, as amended, by and between Southern
California Edison Company and Coso Finance Partners (as assignee of
China Lake Joint Venture).
10.69 Power Purchase Agreement (modified Standard Offer No.4) (BLM), dated
as of February 1, 1985, by and between Southern California Edison
Company and Coso Energy Developers (as assignee of China Lake Joint
Venture).
10.70 Power Purchase Agreement (modified Standard Offer No.4) (Navy II),
dated as of February 1, 1985, by and between Southern California
Edison Company and Coso Power Developers (as assignee of China Lake
Joint Venture).
10.71 Reserved.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.72 Interconnection and Integration Facilities Agreement (BLM project),
dated December 15, 1988, between Southern California Edison Company
and Coso Energy Developers (as assignee of China Lake Joint Venture).
10.73 Interconnection and Integration Facilities Agreement (Navy II
project), dated December 15, 1988, between Southern California Edison
Company and Coso Power Developers (as assignee of China Lake Joint
Venture).
10.74 Operating Fee Subordination Agreement (Navy I), dated as of May 28,
1999, by and among FPL Energy Operating Services, Inc., and U.S. Bank
Trust National Association, as collateral agent.
10.75 Operating Fee Subordination Agreement (BLM), dated as of May 28, 1999,
by and among FPL Energy Operating Services, Inc., and U.S. Bank Trust
National Association, as collateral agent.
10.76 Operating Fee Subordination Agreement (Navy II), dated as of May 28,
1999, by and among FPL Energy Operating Services, Inc., and U.S. Bank
Trust National Association, as collateral agent.
10.77 Operating Fee Subordination Agreement (Navy I), dated as of May 28,
1999, by and among Coso Operating Company, LLC, and U.S. Bank Trust
National Association, as collateral agent.
10.78 Operating Fee Subordination Agreement (BLM), dated as of May 28, 1999,
by and among Coso Operating Company, LLC, and U.S. Bank Trust National
Association, as collateral agent.
10.79 Operating Fee Subordination Agreement (Navy II), dated as of May 28,
1999, by and among Coso Operating Company, LLC, and U.S. Bank Trust
National Association, as collateral agent.
10.80 Management Fee Subordination Agreement (Navy I), dated as of May 28,
1999, by and among ESCA, LLC, New CLOC Company, LLC, Coso Finance
Partners, and U.S. Bank Trust National Association, as collateral
agent.
10.81 Management Fee Subordination Agreement (BLM), dated as of May 28,
1999, by and among Caithness Coso Holdings, LLC, New CHIP Company,
LLC, Coso Energy Developers, and U.S. Bank Trust National Association,
as collateral agent.
10.82 Management Fee Subordination Agreement (Navy II), dated as of May 28,
1999, by and among Caithness Navy II Group, LLC, New CTC Company, LLC,
Coso Power Developers, and U.S. Bank Trust National Association, as
collateral agent.
10.83 Cotenancy Agreement, dated as of May 28, 1999, by and among Coso
Finance Partners, Coso Energy Developers, and Coso Power Developers.
10.84 Acquisition Agreement, dated as of May 28, 1999, among Coso Land
Company, Coso Finance Partners, Coso Energy Developers, Coso Power
Developers, and Coso Operating Company, LLC.
10.85 Assignment and Assumption Agreement, dated as of May 28, 1999, by and
among MidAmerican Energy Holdings Company as successor-in-interest to
Cal Energy Company, Inc., Coso Energy Developers, Coso Power
Developers and Coso Finance Partners.
12.1 Statement regarding computation of Coso Finance Partners ratio of
earnings to fixed charges.
12.2 Statement regarding computation of Coso Energy Developers ratio of
earnings to fixed charges.
12.3 Statement regarding computation of Coso Power Developers ratio of
earnings to fixed charges.
21.1 Subsidiaries of Caithness Coso Funding Corp., Coso Finance Partners,
Coso Energy Developers, and Coso Power Developers.
23.1 Consent of KPMG LLP, Independent Auditors.
23.2 Consent of PricewaterhouseCoopers LLP, Independent Auditors.
23.3 Consent of Sandwell Engineering Inc.
23.4 Consent of Henwood Energy Services, Inc.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
23.5 Consent of GeothermEx, Inc.
23.6 Consent of Riordan & McKinzie, A Professional Law Corporation
(included in Exhibit 5.1).
23.7 Consent of Reed Smith Shaw & McClay LLP (included in Exhibit 5.2).
24.1 Powers of Attorney (included on pages II-9, II-11, II-13 and II-15).
25.1 Form T-1 Statement of Eligibility and Qualification of U.S. Bank Trust
National Association as Trustee.
27.1 Financial Data Schedule--Caithness Coso Funding Corp.
27.2 Financial Data Schedule--Coso Finance Partners.
27.3 Financial Data Schedule--Coso Energy Developers.
27.4 Financial Data Schedule--Coso Power Developers.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
99.4* Letter to Clients.
</TABLE>
- ---------------------
* To be filed by amendment.
Item 22. Undertakings
The undersigned Registrant hereby undertakes as follows:
1. That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred by the payment of a
director, officer, or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
2. To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form,
within one business day of receipt of such requests, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
3. To supply by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein, that was not
the subject of and included in the registration statement when it became
effective.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned Registrant has duly caused this Registration Statement on Form S-4
to be signed on behalf of the undersigned thereunto duly authorized, in the
City of New York, on July 27, 1999.
Caithness Coso Funding Corp.,
a Delaware corporation
/s/ James D. Bishop, Sr.
By: _________________________________
James D. Bishop, Sr.
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints Leslie J. Gelber,
James D. Bishop, Jr. and Christopher T. McCallion as his/her true and lawful
attorneys-in-fact and agents, jointly and severally, with full power of
substitution and re-substitution, for and in his stead, in any and all
capacities, to sign on his behalf this registration statement on Form S-4 (the
"Registration Statement") and to execute any amendments thereto (including
post-effective amendments) that may be required in connection with the
Registration Statement, and to file the same, with all exhibits thereto, and
all other documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, jointly and severally, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James D. Bishop, Sr. Director, Chairman and Chief July 27, 1999
____________________________________ Executive Officer
James D. Bishop, Sr. (Principal Executive
Officer)
/s/ Christopher T. McCallion Director, Executive Vice July 27, 1999
____________________________________ President and Chief
Christopher T. McCallion Financial Officer
(Principal Accounting
Officer)
/s/ Leslie J. Gelber Director, President and July 27, 1999
____________________________________ Chief Operating Officer
Leslie J. Gelber
/s/ James D. Bishop, Jr. Director July 27, 1999
____________________________________
James D. Bishop, Jr.
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Larry K. Carpenter Director July 27, 1999
____________________________________
Larry K. Carpenter
/s/ James C. Sullivan Director July 27, 1999
____________________________________
James C. Sullivan
/s/ Mark A. Ferrucci Director July 27, 1999
____________________________________
Mark A. Ferrucci
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned Registrant has duly caused this Registration Statement on Form S-4
to be signed on behalf of the undersigned thereunto duly authorized, in the
City of New York, July 27, 1999.
Coso Finance Partners,
a California general partnership
By: New CLOC Company, LLC,
its Managing General Partner
/s/ Christopher T.
McCallion
By: ______________________________
Christopher T. McCallion
Executive Vice President
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints Leslie J. Gelber,
James D. Bishop, Jr. and Christopher T. McCallion as his/her true and lawful
attorneys-in-fact and agents, jointly and severally, with full power of
substitution and re-substitution, for and in his stead, in any and all
capacities, to sign on his behalf this registration statement on Form S-4 (the
"Registration Statement") and to execute any amendments thereto (including
post-effective amendments) that may be required in connection with the
Registration Statement, and to file the same, with all exhibits thereto, and
all other documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, jointly and severally, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James D. Bishop, Sr. Chief Executive Officer of July 27, 1999
____________________________________ New CLOC Company, LLC, as
James D. Bishop, Sr. Managing General Partner of
Registrant (Principal
Executive Officer);
Director of Caithness
Acquisition Company, LLC,
as Manager of New CLOC
Company, LLC, as Managing
General Partner of
Registrant
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Christopher T. McCallion Executive Vice President and July 27, 1999
____________________________________ Chief Financial Officer of
Christopher T. McCallion New CLOC Company, LLC, as
Managing General Partner of
Registrant (Principal
Financial Officer and
Principal Accounting
Officer); Director of
Caithness Acquisition
Company, LLC, as Manager of
New CLOC Company, LLC, as
Managing General Partner of
Registrant
/s/ Leslie Gelber President and Chief July 27, 1999
____________________________________ Operating Officer of New
Leslie Gelber CLOC Company, LLC, as
Managing General Partner of
Registrant; Director of
Caithness Acquisition
Company, LLC, as Manager of
New CLOC Company, LLC, as
Managing General Partner of
Registrant
/s/ James D. Bishop, Jr. Director of Caithness July 27, 1999
____________________________________ Acquisition Company, LLC,
James D. Bishop, Jr. as Manager of New CLOC
Company, LLC, as Managing
General Partner of
Registrant
/s/ Larry K. Carpenter Director of Caithness July 27, 1999
____________________________________ Acquisition Company, LLC,
Larry K. Carpenter as Manager of New CLOC
Company, LLC, as Managing
General Partner of
Registrant
/s/ James C. Sullivan Director of Caithness July 27, 1999
____________________________________ Acquisition Company, LLC,
James C. Sullivan as Manager of New CLOC
Company, LLC, as Managing
General Partner of
Registrant
/s/ Mark A. Ferrucci Independent Manager of New July 27, 1999
____________________________________ CLOC Company, LLC, as
Mark A. Ferrucci Managing General Partner of
Registrant
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned Registrant has duly caused this Registration Statement on Form S-4
to be signed on behalf of the undersigned thereunto duly authorized, in the
City of New York, on July 27, 1999.
Coso Energy Developers,
a California general partnership
By: New CHIP Company, LLC,
its Managing General Partner
/s/ Christopher T.
McCallion
By: ______________________________
Christopher T. McCallion
Executive Vice President
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints Leslie J. Gelber,
James D. Bishop, Jr. and Christopher T. McCallion as his/her true and lawful
attorneys-in-fact and agents, jointly and severally, with full power of
substitution and re-substitution, for and in his stead, in any and all
capacities, to sign on his behalf this registration statement on Form S-4 (the
"Registration Statement") and to execute any amendments thereto (including
post-effective amendments) that may be required in connection with the
Registration Statement, and to file the same, with all exhibits thereto, and
all other documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, jointly and severally, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James D. Bishop, Sr. Chief Executive Officer of July 27, 1999
____________________________________ New CHIP Company, LLC, as
James D. Bishop, Sr. Managing General Partner of
Registrant (Principal
Executive Officer);
Director of Caithness
Acquisition Company, LLC,
as Manager of New CHIP
Company, LLC, as Managing
General Partner of
Registrant
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Christopher T. McCallion Executive Vice President and July 27, 1999
____________________________________ Chief Financial Officer of
Christopher T. McCallion New CHIP Company, LLC, as
Managing General Partner of
Registrant (Principal
Financial Officer and
Principal Accounting
Officer); Director of
Caithness Acquisition
Company, LLC, as Manager of
New CHIP Company, LLC, as
Managing General Partner of
Registrant
/s/ Leslie Gelber President and Chief July 27, 1999
____________________________________ Operating Officer of New
Leslie Gelber CHIP Company, LLC, as
Managing General Partner of
Registrant; Director of
Caithness Acquisition
Company, LLC, as Manager of
New CHIP Company, LLC, as
Managing General Partner of
Registrant
/s/ James D. Bishop, Jr. Director of Caithness July 27, 1999
____________________________________ Acquisition Company, LLC,
James D. Bishop, Jr. as Manager of New CHIP
Company, LLC, as Managing
General Partner of
Registrant
/s/ Larry K. Carpenter Director of Caithness July 27, 1999
____________________________________ Acquisition Company, LLC,
Larry K. Carpenter as Manager of New CHIP
Company, LLC, as Managing
General Partner of
Registrant
/s/ James C. Sullivan Director of Caithness July 27, 1999
____________________________________ Acquisition Company, LLC,
James C. Sullivan as Manager of New CHIP
Company, LLC, as Managing
General Partner of
Registrant
/s/ Mark A. Ferrucci Independent Manager of New July 27, 1999
____________________________________ CHIP Company, LLC, as
Mark A. Ferrucci Managing General Partner of
Registrant
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned Registrant has duly caused this Registration Statement on Form S-4
to be signed on behalf of the undersigned thereunto duly authorized, in the
City of New York, on July 27, 1999.
Coso Power Developers,
a California general partnership
By: New CTC Company, LLC,
its Managing General Partner
/s/ Christopher T.
McCallion
By: ______________________________
Christopher T. McCallion
Executive Vice President
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints Leslie J. Gelber,
James D. Bishop, Jr. and Christopher T. McCallion as his/her true and lawful
attorneys-in-fact and agents, jointly and severally, with full power of
substitution and re-substitution, for and in his stead, in any and all
capacities, to sign on his behalf this registration statement on Form S-4 (the
"Registration Statement") and to execute any amendments thereto (including
post-effective amendments) that may be required in connection with the
Registration Statement, and to file the same, with all exhibits thereto, and
all other documents in connection therewith, with the Securities and Exchange
Commission and granting unto said attorneys-in-fact and agents, jointly and
severally, the full power and authority to do and perform each and every act
and thing necessary or advisable to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, jointly and severally, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James D. Bishop, Sr. Chief Executive Officer of July 27, 1999
____________________________________ New CTC Company, LLC, as
James D. Bishop, Sr. Managing General Partner of
Registrant (Principal
Executive Officer);
Director of Caithness
Acquisition Company, LLC,
as Manager of New CTC
Company, LLC, as Managing
General Partner of
Registrant
</TABLE>
II-15
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Christopher T. McCallion Executive Vice President and July 27, 1999
____________________________________ Chief Financial Officer of
Christopher T. McCallion New CTC Company, LLC, as
Managing General Partner of
Registrant ( Principal
Financial Officer and
Principal Accounting
Officer); Director of
Caithness Acquisition
Company, LLC, as Manager of
New CTC Company, LLC, as
Managing General Partner of
Registrant
/s/ Leslie Gelber President and Chief July 27, 1999
____________________________________ Operating Officer of New
Leslie Gelber CTC Company, LLC, as
Managing General Partner;
Director of Caithness
Acquisition Company, LLC,
as Manager of New CTC
Company, LLC, as Managing
General Partner of
Registrant
/s/ James D. Bishop, Jr. Director of Caithness July 27, 1999
____________________________________ Acquisition Company, LLC,
James D. Bishop, Jr. as Manager of New CTC
Company, LLC, as Managing
General Partner of
Registrant
/s/ Larry K. Carpenter Director of Caithness July 27, 1999
____________________________________ Acquisition Company, LLC,
Larry K. Carpenter as Manager of New CTC
Company, LLC, as Managing
General Partner of
Registrant
/s/ James C. Sullivan Director of Caithness July 27, 1999
____________________________________ Acquisition Company, LLC,
James C. Sullivan as Manager of New CTC
Company, LLC, as Managing
General Partner of
Registrant
/s/ Mark A. Ferrucci Independent Manager of New July 27, 1999
____________________________________ CTC Company, LLC, as
Mark A. Ferrucci Managing General Partner of
Registrant
</TABLE>
II-16
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.1 Certificate of Incorporation of Caithness Coso Funding Corp.
3.2 Bylaws of Caithness Coso Funding Corp.
3.3* Third Amended and Restated Partnership Agreement of Coso Finance
Partners, dated as of May 28, 1999.
3.4* Third Amended and Restated Partnership Agreement of Coso Energy
Developers, dated as of May 28, 1999.
3.5* Third Amended and Restated Partnership Agreement of Coso Power
Developers, dated as of May 28, 1999.
4.1 Indenture, dated as of May 28, 1999, among Caithness Coso Funding
Corp., Coso Finance Partners, Coso Energy Developers, Coso Power
Developers, and U.S. Bank Trust National Association as trustee and as
collateral agent.
4.2 Specimen Series B notes (included in Exhibit 4.1).
4.3 Notation of Guarantee, dated as of May 28, 1999, of Coso Finance
Partners.
4.4 Notation of Guarantee, dated as of May 28, 1999, of Coso Energy
Developers.
4.5 Notation of Guarantee, dated as of May 28, 1999, of Coso Power
Developers.
4.6 Registration Rights Agreement, dated as of May 28, 1999, by and among
Caithness Coso Funding Corp., Coso Finance Partners, Coso Energy
Developers, Coso Power Developers, and Donaldson, Lufkin & Jenrette
Securities Corporation.
5.1* Opinion of Riordan & McKinzie, A Professional Law Corporation.
5.2* Opinion of Reed Smith Shaw & McClay LLP.
10.1 Deposit and Disbursement Agreement, dated as of May 28, 1999, among
Caithness Coso Funding Corp., Coso Finance Partners, Coso Energy
Developers, Coso Power Developers, and U.S. Bank Trust National
Association, as collateral agent, as trustee, and as depositary.
10.2 Credit Agreement, dated as of May 28, 1999, between Caithness Coso
Funding Corp. and Coso Finance Partners.
10.3 Promissory Note due 2001 of Coso Finance Partners in favor of
Caithness Coso Funding Corp.
10.4 Promissory Note due 2009 of Coso Finance Partners in favor of
Caithness Coso Funding Corp.
10.5 Credit Agreement, dated as of May 28, 1999, between Caithness Coso
Funding Corp. and Coso Energy Developers.
10.6 Promissory Note due 2001 of Coso Energy Developers in favor of
Caithness Coso Funding Corp.
10.7 Promissory Note due 2009 of Coso Energy Developers in favor of
Caithness Coso Funding Corp.
10.8 Credit Agreement, dated as of May 28, 1999, between Caithness Coso
Funding Corp. and Coso Power Developers.
10.9 Promissory Note due 2001 of Coso Power Developers in favor of
Caithness Coso Funding Corp.
10.10 Promissory Note due 2009 of Coso Power Developers in favor of
Caithness Coso Funding Corp.
10.11 Purchase Agreement, dated as of May 21, 1999, by and among Caithness
Coso Funding Corp., as issuer, Coso Finance Partners, Coso Energy
Developers and Coso Power Developers, as guarantors, and Donaldson,
Lufkin & Jenrette Securities Corporation, as initial purchaser.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.12 Security Agreement, dated as of May 28, 1999, executed by and among
Caithness Coso Funding Corp. in favor of U.S. Bank Trust National
Association, as collateral agent.
10.13 Security Agreement, dated as of May 28, 1999, executed by and among
Coso Finance Partners in favor of U.S. Bank Trust National
Association, as collateral agent.
10.14 Security Agreement, dated as of May 28, 1999, executed by Coso Energy
Developers in favor of U.S. Bank Trust National Association, as
collateral agent.
10.15 Security Agreement, dated as of May 28, 1999, executed by Coso Power
Developers in favor of U.S. Bank Trust National Association, as
collateral agent.
10.16 Reserved.
10.17 Reserved.
10.18* Security Agreement (Navy I project permits), dated as of May 28, 1999,
executed by Coso Operating Company LLC in favor of U.S. Bank Trust
National Association, as collateral agent.
10.19 Security Agreement (BLM project permits), dated as of May 28, 1999,
executed by Coso Operating Company LLC in favor of U.S. Bank Trust
National Association, as collateral agent.
10.20 Security Agreement (Navy II project permits), dated as of May 28,
1999, executed by Coso Operating Company LLC in favor of U.S. Bank
Trust National Association, as collateral agent.
10.21 Security Agreement (Navy I project permits), dated as of May 28, 1999,
executed by FPL Energy Operating Services, Inc., in favor of U.S. Bank
Trust National Association, as collateral agent.
10.22 Security Agreement (BLM project permits), dated as of May 28, 1999,
executed by FPL Energy Operating Services, Inc., in favor of U.S. Bank
Trust National Association, as collateral agent.
10.23 Security Agreement (Navy II project permits), dated as of May 28,
1999, executed by FPL Energy Operating Services, Inc., in favor of
U.S. Bank Trust National Association, as collateral agent.
10.24 Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement, dated as of May 28, 1999, executed by Coso Finance Partners
in favor of U.S. Bank Trust National Association, as trustee, and as
beneficiary.
10.25 Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement, dated as of May 28, 1999, executed by Coso Energy
Developers in favor of U.S. Bank Trust National Association, as
trustee, and as beneficiary.
10.26 Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement, dated as of May 28, 1999, executed by Coso Power Developers
in favor of U.S. Bank Trust National Association, as trustee, and as
beneficiary.
10.27 Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement, dated as of May 28, 1999, executed by Coso Transmission
Line Partners in favor of U.S. Bank Trust National Association, as
trustee, and as beneficiary.
10.28 Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement, dated as of May 28, 1999, executed by China Lake Joint
Venture in favor of U.S. Bank Trust National Association, as trustee,
and as beneficiary.
10.29 Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement, dated as of May 28, 1999, executed by Coso Land Company in
favor of U.S. Bank Trust National Association, as trustee, and as
beneficiary.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.30 Stock Pledge Agreement, dated as of May 28, 1999, by Coso Finance
Partners, Coso Energy Developers and Coso Power Developers in favor of
U.S. Bank Trust National Association, as collateral agent.
10.31 Partnership Interest Pledge Agreement (Navy I), dated as of May 28,
1999, by ESCA, LLC and New CLOC Company, LLC, in favor of U.S. Bank
Trust National Association, as collateral agent.
10.32 Partnership Interest Pledge Agreement (BLM), dated as of May 28, 1999,
by Caithness Coso Holdings, LLC and New CHIP Company, LLC, in favor of
U.S. Bank Trust National Association, as collateral agent.
10.33 Partnership Interest Pledge Agreement (Navy II), dated as of May 28,
1999, by Caithness Navy II Group, LLC and New CTC Company, LLC, in
favor of U.S. Bank Trust National Association, as collateral agent.
10.34 Partnership Interest Pledge Agreement (CTLP), dated as of May 28,
1999, by Coso Energy Developers and Coso Power Developers, in favor of
U.S. Bank Trust National Association, as collateral agent.
10.35 Partnership Interest Pledge Agreement (CLJV), dated as of May 28,
1999, by Caithness Acquisition Company, LLC and Caithness Geothermal
1980 Ltd., L.P., in favor of U.S. Bank Trust National Association, as
collateral agent.
10.36 Partnership Interest Pledge Agreement (CLC), dated as of May 28, 1999,
by Caithness Acquisition Company, LLC and Caithness Geothermal 1980
Ltd., L.P., in favor of U.S. Bank Trust National Association, as
collateral agent.
10.37 Promissory Notes Security Agreement, dated as of May 28, 1999, by
Caithness Coso Funding Corp., in favor of U.S. Bank Trust National
Association, as collateral agent.
10.38 Original Service Contract N62474-79-C-5382, dated December 6, 1979,
between U.S. Naval Weapons Center and California Energy Company, Inc.,
Contractor (the "Navy Contract"), including all amendments thereto.
10.39 Escrow Agreement, dated December 16, 1992, as amended, by and among
Coso Finance Partners, Bank of America and the Navy.
10.40 Offer to Lease and Lease for Geothermal Resources, Serial No. 11402,
dated April 29, 1985 but effective May 1, 1985, from the United States
of America, acting through the Bureau of Land Management, to
California Energy Company, Inc.; as assigned by Assignment Affecting
Record Title to Geothermal Resources Lease, dated June 24, 1985, but
effective July 1, 1985 from California Energy Company, Inc. to Coso
Land Company; as assigned by Assignment of Record Title Interest in a
Lease for Oil and Gas or Geothermal Resources, dated April 20, 1988,
but effective May 1, 1988 from Coso Land Company to Coso Geothermal
Company; as assigned by Assignment of Record Title Interest in a Lease
for Oil and Gas or Geothermal Resources dated April 20, 1988 but
effective
May 1, 1988 from Coso Geothermal Company to Coso Energy Developers.
10.41 Geothermal Resources Lease, Serial No. CA-11383, by and between the
United States of America, acting through the Bureau of Land
Management, and the LADWP, effective as of January 1, 1988; as
assigned by Lease Assignment Agreement by and between LADWP and Coso
Land Company , dated September 10, 1997; as assigned by Assignment of
Record Title Interest in Lease for Oil and Gas or Geothermal
Resources, by and between the United States of America, acting through
the Bureau of Land Management, and Coso Land Company, effective
January 1, 1998; and as extended by extension of primary term of CACA-
11383 to September 23, 2004.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.42 Geothermal Resources Lease, Serial No. CA-11384, by and between the
United States of America, acting through the Bureau of Land
Management, and the LADWP, effective as of February 1, 1982; as
assigned by Lease Assignment Agreement by and between LADWP and Coso
Land Company, dated September 10, 1997; as assigned by Assignment of
Record Title Interest in a Lease for Oil and Gas or Geothermal
Resources (CACA-11384), by and between the United States of America,
acting through the Bureau of Land Management, and Coso Land Company,
effective as of January 1, 1998; and as extended by extension of
primary term of CACA-11385 to December 24, 2002.
10.43 Geothermal Resources Lease, Serial No. CA-11385, by and between the
United States of America, acting through the Bureau of Land
Management, and the LADWP, effective as of February 1, 1982; as
assigned by Lease Assignment Agreement by and between LADWP and Coso
Land Company, dated September 10, 1997; as assigned by Assignment of
Record Title Interest in a Lease for Oil and Gas or Geothermal
Resources (CACA-11385) by and between the United States of America,
acting through the Bureau of Land Management, and Coso Land Company,
effective as of January 1, 1998; and as extended by extension of
primary term of CACA-11385 to December 24, 2002.
10.44 License for Electric Power Plant Site Utilizing Geothermal Resources
between the United States of America, Licensor, through the Bureau of
Land Management, and Coso Energy Developers, Licensee, Serial No. CACA
22512, dated March 8, 1989 (expires 3/8/19).
10.45 License for Electric Power Plant Site Utilizing Geothermal Resources
between the United States of America, acting through the Bureau of
Land Management, and Coso Energy Developers, Licensee, Serial No.
25690, dated 12/29/1989 (expires 12/28/19).
10.46 Right of Way CA-18885 by and between the United States of America,
acting through the Bureau of Land Management, and California Energy
Company, Inc., dated May 7, 1986 (telephone cable) (expires 5/7/16).
10.47 Right of Way CA-13510 by and between the United States of America,
acting through the Bureau of Land Management, and California Energy
Company, Inc., dated April 12, 1984 (Coso office site) (expires
4/12/14).
10.48 Agreement of Transfer and Assignment (Navy I Transmission Line), dated
July 14, 1987, among China Lake Joint Venture and Coso Finance
Partners.
10.49 Agreement of Transfer and Assignment (Navy II Transmission Line),
dated July 31, 1989, among Coso Power Developers and Coso Transmission
Line Partners.
10.50 Agreement of Transfer and Assignment (BLM Transmission Line), dated
July 31, 1989, among Coso Energy Developers and Coso Transmission Line
Partners.
10.51 Agreement Regarding Overriding Royalty (CLC Royalty), dated May 5,
1988, between Coso Energy Developers and Coso Land Company.
10.52 Coso Geothermal Exchange Agreement, dated January 11, 1994, by and
among Coso Finance Partners, Coso Energy Developers, Coso Power
Developers, and California Energy Company, Inc.
10.53 Amendment to Coso Geothermal Exchange Agreement, dated April 12, 1995,
by and among Coso Finance Partners, Coso Energy Developers, Coso Power
Developers, and California Energy Company, Inc.
10.54 Reserved.
10.55 Operation and Maintenance Agreement (Navy I Project), dated May 28,
1999, by and among FPL Energy Operating Services, Inc. and Coso
Operating Company, LLC and New CLOC Company, LLC.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.56 Operation and Maintenance Agreement (BLM Project), dated May 28, 1999,
by and among FPL Energy Operating Services, Inc. and Coso Operating
Company, LLC and New CHIP Company, LLC.
10.57 Operation and Maintenance Agreement (Navy II Project), dated May 28,
1999, by and among FPL Energy Operating Services, Inc. and Coso
Operating Company, LLC and New CTC Company, LLC.
10.58 Field Operation and Maintenance Agreement (Navy I), dated February 25,
1999, between Coso Operating Company, LLC and New CLOC Company, LLC.
10.59 Field Operations and Maintenance Agreement (Navy II), dated February
25, 1999, between Coso Operating Company, LLC and New CTC Company,
LLC.
10.60 Field Operations and Maintenance Agreement (BLM), dated February 25,
1999, between Coso Operating Company, LLC and New CHIP Company, LLC.
10.61 Purchase Agreement, dated as of January 16, 1999, by and among
Caithness Energy, L.L.C., Caithness Acquisition Company, LLC, and
California Energy Company, Inc.
10.62 Agreement Concerning Consideration, dated as of February 25, 1999, by
and among Caithness Energy, L.L.C., Caithness Acquisition Company,
L.L.C., New CLOC Company, LLC, New CHIP Company, LLC, New CTC Company,
LLC, and CalEnergy Company, Inc.
10.63 Future Revenue Agreement, dated February 25, 1999, by and between
Caithness Energy, L.L.C., Caithness Acquisition Company, LLC, New CTC
Company, LLC, New CLOC Company, LLC, New CHIP Company, LLC, Coso
Finance Partners, Coso Energy Developers, Coso Power Developers, and
California Energy Company, Inc.
10.64 Acknowledgment and Agreement--Release, dated January 16, 1999,
executed by Caithness Resources, Inc., Caithness Corporation,
Caithness Power, L.L.C., James Bishop Sr., and Caithness CEA
Geothermal, L.P. (appended to Exhibit 10.61).
10.65 Acknowledgment and Agreement--Indemnity, dated May 28, 1999, executed
by Coso Finance Partners, New CLOC Company, LLC, ESCA, LLC, Coso
Energy Developers, New CHIP Company, LLC, Caithness Coso Holdings,
LLC, Coso Power Developers, New CTC Company, LLC, and Caithness Navy
II Group, LLC.
10.66 Acknowledgment and Agreement--Release, dated May 28, 1999, executed by
Coso Finance Partners, New CLOC Company, LLC, ESCA, LLC, Coso Energy
Developers, New CHIP Company, LLC, Caithness Coso Holdings, LLC, Coso
Power Developers, New CTC Company, LLC, and Caithness Navy II Group,
LLC.
10.67 Acknowledgment and Agreement--Indemnity, dated January 16, 1999,
executed by Caithness Resources, Inc., Caithness Corporation,
Caithness Power, L.L.C., China Lake Operating Company, Coso Technology
Corporation and Coso Hotsprings Intermountain Power (appended to
Exhibit 10.61).
10.68 Power Purchase Agreement (modified Standard Offer No.4) (Navy I),
dated as of June 4, 1984, as amended, by and between Southern
California Edison Company and Coso Finance Partners (as assignee of
China Lake Joint Venture).
10.69 Power Purchase Agreement (modified Standard Offer No.4) (BLM), dated
as of February 1, 1985, by and between Southern California Edison
Company and Coso Energy Developers (as assignee of China Lake Joint
Venture).
10.70 Power Purchase Agreement (modified Standard Offer No.4) (Navy II),
dated as of February 1, 1985, by and between Southern California
Edison Company and Coso Power Developers (as assignee of China Lake
Joint Venture).
10.71 Reserved.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.72 Interconnection and Integration Facilities Agreement (BLM project),
dated December 15, 1988, between Southern California Edison Company
and Coso Energy Developers (as assignee of China Lake Joint Venture).
10.73 Interconnection and Integration Facilities Agreement (Navy II
project), dated December 15, 1988, between Southern California Edison
Company and Coso Power Developers (as assignee of China Lake Joint
Venture).
10.74 Operating Fee Subordination Agreement (Navy I), dated as of May 28,
1999, by and among FPL Energy Operating Services, Inc., and U.S. Bank
Trust National Association, as collateral agent.
10.75 Operating Fee Subordination Agreement (BLM), dated as of May 28, 1999,
by and among FPL Energy Operating Services, Inc., and U.S. Bank Trust
National Association, as collateral agent.
10.76 Operating Fee Subordination Agreement (Navy II), dated as of May 28,
1999, by and among FPL Energy Operating Services, Inc., and U.S. Bank
Trust National Association, as collateral agent.
10.77 Operating Fee Subordination Agreement (Navy I), dated as of May 28,
1999, by and among Coso Operating Company, LLC, and U.S. Bank Trust
National Association, as collateral agent.
10.78 Operating Fee Subordination Agreement (BLM), dated as of May 28, 1999,
by and among Coso Operating Company, LLC, and U.S. Bank Trust National
Association, as collateral agent.
10.79 Operating Fee Subordination Agreement (Navy II), dated as of May 28,
1999, by and among Coso Operating Company, LLC, and U.S. Bank Trust
National Association, as collateral agent.
10.80 Management Fee Subordination Agreement (Navy I), dated as of May 28,
1999, by and among ESCA, LLC, New CLOC Company, LLC, Coso Finance
Partners, and U.S. Bank Trust National Association, as collateral
agent.
10.81 Management Fee Subordination Agreement (BLM), dated as of May 28,
1999, by and among Caithness Coso Holdings, LLC, New CHIP Company,
LLC, Coso Energy Developers, and U.S. Bank Trust National Association,
as collateral agent.
10.82 Management Fee Subordination Agreement (Navy II), dated as of May 28,
1999, by and among Caithness Navy II Group, LLC, New CTC Company, LLC,
Coso Power Developers, and U.S. Bank Trust National Association, as
collateral agent.
10.83 Cotenancy Agreement, dated as of May 28, 1999, by and among Coso
Finance Partners, Coso Energy Developers, and Coso Power Developers.
10.84 Acquisition Agreement, dated as of May 28, 1999, among Coso Land
Company, Coso Finance Partners, Coso Energy Developers, Coso Power
Developers, and Coso Operating Company, LLC.
10.85 Assignment and Assumption Agreement, dated as of May 28, 1999, by and
among MidAmerican Energy Holdings Company as successor-in-interest to
Cal Energy Company, Inc., Coso Energy Developers, Coso Power
Developers and Coso Finance Partners.
12.1 Statement regarding computation of Coso Finance Partners ratio of
earnings to fixed charges.
12.2 Statement regarding computation of Coso Energy Developers ratio of
earnings to fixed charges.
12.3 Statement regarding computation of Coso Power Developers ratio of
earnings to fixed charges.
21.1 Subsidiaries of Caithness Coso Funding Corp., Coso Finance Partners,
Coso Energy Developers, and Coso Power Developers.
23.1 Consent of KPMG LLP, Independent Auditors.
23.2 Consent of PricewaterhouseCoopers LLP, Independent Auditors.
23.3 Consent of Sandwell Engineering Inc.
23.4 Consent of Henwood Energy Services, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
23.5 Consent of GeothermEx, Inc.
23.6 Consent of Riordan & McKinzie, A Professional Law Corporation
(included in Exhibit 5.1).
23.7 Consent of Reed Smith Shaw & McClay LLP (included in Exhibit 5.2).
24.1 Powers of Attorney (included on pages II-9, II-11, II-13 and II-15).
25.1 Form T-1 Statement of Eligibility and Qualification of U.S. Bank Trust
National Association as Trustee.
27.1 Financial Data Schedule--Caithness Coso Funding Corp.
27.2 Financial Data Schedule--Coso Finance Partners.
27.3 Financial Data Schedule--Coso Energy Developers.
27.4 Financial Data Schedule--Coso Power Developers.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
99.4* Letter to Clients.
</TABLE>
- ---------------------
* To be filed by amendment.
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
CAITHNESS COSO FUNDING CORP.
FIRST: The name of the Corporation is CAITHNESS COSO FUNDING CORP.
SECOND: The registered office of the Corporation in the State of Delaware
is located at Corporation Service Company, 1013 Centre Road, Wilmington,
Delaware 19805-1297. The name of its registered agent is Corporation Service
Company.
THIRD: The exclusive purposes of the Corporation are:
a) to issue for the Corporation and as agent for Coso Finance
Partners, a California general partnership (the "Navy I Partnership"), Coso
Energy Developers, a California general partnership (the "BLM
Partnership"), and Coso Power Developers, a California general partnership
(the "Navy II Partnership," and, together with the Navy I Partnership and
the BLM Partnership, the "Partnerships"), senior secured notes
(collectively, the "Notes") pursuant to an Indenture, among the
Corporation, the Partnerships and U.S. Bank National Association, as
trustee, as now or hereafter amended or supplemented (the "Indenture"), and
other Permitted Indebtedness (as defined in the Indenture), and to loan the
proceeds of the Notes and other Permitted Indebtedness to one or more of
the Partnerships pursuant to various credit agreements and other ancillary
agreements thereto (the "Loans");
b) to execute and deliver any and all documents, certificates or
other instruments in connection with the issuance of the Notes and other
Permitted Indebtedness and the Loans described in clause (a) of this
paragraph THIRD (the "Operative Documents") to which the Corporation is or
becomes a party;
c) to satisfy and perform the obligations and to enforce the rights
of the Corporation under each such Operative Document to which the
Corporation is or becomes a party; and
d) to engage in such other activities and to exercise such other
powers permitted to corporations under the laws of the State of Delaware
(including executing, delivering and performing any other certificates or
agreements other than the Operative Documents) but only to the extent that
the Corporation or its Board of Directors deems such activities or powers
reasonably incidental to, or necessary to the accomplishment of, any of the
purposes described in clause (a), (b) or (c) of this paragraph THIRD.
-1-
<PAGE>
FOURTH: The Corporation shall not engage in any other activity so long as
any of the Notes are outstanding, including, without limitation, the following
activities:
a) create or incur or suffer to exist any Indebtedness (as defined in
the Indenture) except Permitted Indebtedness or contingently or otherwise
be or become liable in connection with any guarantee, except for
endorsements and similar obligations in the ordinary course of business;
b) grant, create, incur or suffer to exist any Liens (as defined in
the Indenture) upon any of its assets or property except for Permitted
Liens (as defined in the Indenture);
c) enter into any transaction of merger, consolidation or asset sale,
change its form of organization or its business, liquidate, wind-up or
dissolve itself or discontinue its business; or
d) engage in other activities or exercise other powers permitted to
corporations under the laws of the State of Delaware, except as permitted
under paragraph THIRD hereof or the Operative Documents.
FIFTH: The total number of shares of stock that the Corporation shall have
authority to issue is 1,000 shares of Common Stock, par value $0.01 per share.
Each share of Common Stock shall be entitled to one vote. All of the
Corporation's issued stock, exclusive of treasury shares, shall be represented
by certificates.
SIXTH: Except as provided to the contrary in the provisions establishing a
class or series of stock, the amount of the authorized stock of the Corporation
of any class or classes may be increased or decreased by the unanimous
affirmative vote of the holders of the stock of the Corporation entitled to
vote.
SEVENTH: The election of directors need not be by ballot unless the Bylaws
shall so require.
EIGHTH: In furtherance and not in limitation of the power conferred upon
the Board of Directors by law, the Board of Directors shall, with the unanimous
affirmative vote of the directors constituting the Board of Directors, have the
power to make, adopt, alter, amend and repeal from time to time the Bylaws of
this Corporation, subject to the unanimous affirmative vote by the stockholders
entitled to vote with respect thereto to alter and repeal Bylaws made by the
Board of Directors.
NINTH: A director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent that exculpation from liability is not
permitted under the Delaware General Corporation Law as in effect at the time
such liability is determined. No amendment or repeal of this paragraph
-2-
<PAGE>
NINTH shall apply to or have any effect on the liability or alleged liability of
any director of this Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment or repeal.
TENTH: The Corporation shall, to the maximum extent permitted from time to
time under the laws of the State of Delaware, indemnify, and upon request shall
advance expenses to, any person who is or was a party or is threatened to be
made a party to any threatened, pending or completed action, suit, proceeding or
claim, whether civil, criminal, administrative or investigative, by reason of
the fact that such person is or was or has agreed to be a director or an officer
of the Corporation or while a director or officer, partner, trustee, employee or
agent is or was serving at the request of the Corporation as an officer,
partner, trustee, employee or agent of any corporation, partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, against expenses (including attorneys' fees and expenses),
judgments, fines, penalties and amounts paid in settlement incurred in
connection with the investigation, preparation to defend or defense of such
action, suit, proceeding or claim; provided, however, that the foregoing shall
not require the Corporation to indemnify or advance expenses to any person in
connection with any action, suit, proceeding, claim or counterclaim initiated by
or on behalf of such person. Such indemnification shall not be exclusive of
other indemnification rights arising under any bylaw, agreement, vote of
stockholders or otherwise and shall inure to the benefit of the heirs and legal
representatives of such person. Any person seeking indemnification under this
paragraph TENTH shall be deemed to have met the standard of conduct required for
such indemnification unless the contrary shall be established. Any repeal or
modification of the foregoing provisions of this paragraph TENTH shall not
adversely affect any right or protection of any director or officer of the
Corporation with respect to any acts or omissions of such director or officer
occurring prior to such repeal or modification.
ELEVENTH: Notwithstanding any provision of this Certificate to the
contrary, or any provision of law that may otherwise empower the Corporation,
the Corporation shall not, without the unanimous affirmative vote of the Board
of Directors (which shall include an Independent Person, as defined below), so
long as any of the Notes are outstanding, institute any proceedings to
adjudicate the Corporation as a bankrupt or insolvent, or consent to the
institution of bankruptcy or insolvency proceedings against it, or file a
petition or answer or consent seeking or consenting to its reorganization or
relief under any applicable federal or state law relating to bankruptcy, or
consent to the appointment of, or taking possession by, a receiver, liquidator,
assignee, trustee, sequestrator, or other similar official of the Corporation or
any substantial part of its property, or make any assignment for the benefit of
creditors, or admit in writing its inability to pay its debts generally as they
become due, or take any corporate action in furtherance of any such action.
TWELFTH: Notwithstanding any other provision of this Certificate
(including paragraph ELEVENTH) and any provision of law that otherwise so
empowers the Corporation, the Corporation shall not, without (a) the unanimous
affirmative vote of the stockholders entitled to vote with respect thereto, and
(b) the unanimous affirmative vote of the Board of Directors
-3-
<PAGE>
(which shall include an Independent Person, as defined below), do any of the
following:
a) engage in any business or activity other than in accordance with
paragraph THIRD;
b) incur any indebtedness, or assume or guarantee any indebtedness of
any other entity, other than in connection with the activities described in
paragraph THIRD;
c) dissolve or liquidate, in whole or in part (including a
dissolution of the Corporation at the request of a majority of the holders
of the shares of stock of the Corporation);
d) consolidate with or merge into any other entity or sell, convey or
transfer all or substantially all of its properties and assets to any
entity or acquire all or substantially all of the assets or capital stock
or other ownership interest of any other corporation, company or entity;
e) institute any proceedings to be adjudicated bankrupt or insolvent,
or consent to the institution of bankruptcy or insolvency proceedings
against it, or file a petition or answer or consent seeking or consenting
to its reorganization or relief under any applicable federal or state law
relating to bankruptcy, or consent to the appointment of, or taking
possession by, a receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Corporation or any substantial part of its
property, or make any assignment for the benefit of creditors, or admit in
writing its inability to pay its debts generally as they become due, or
take any corporate action in furtherance of any such action; or
f) authorize any amendment or alteration to, or repeal of, this
Certificate (including, without limitation, this paragraph TWELFTH).
When voting on whether the Corporation will take any action in respect of
any matter described in paragraph (e) of this paragraph TWELFTH and otherwise
with regard to any act, or failure to act, in connection with any matter
referred to in paragraph (e) of this paragraph TWELFTH, each director shall owe
its primary fiduciary duty or other obligation to the Corporation (including,
without limitation, the Corporation's creditors) and not to the stockholders
(except as may be required by the Delaware General Corporation Law or by case
law). Every stockholder of the Corporation shall be deemed to have consented to
the foregoing by virtue of such stockholder's consent to this Certificate of
Incorporation.
THIRTEENTH: At all times, at least one of the directors serving on the
Board of Directors of this Corporation and any Executive Committee of the Board
of Directors shall be an Independent Person (as defined below) (except in the
event of the resignation, death or removal of any such person, in which event
the vacancy shall be immediately filled by another
-4-
<PAGE>
Independent Person). For the purposes hereof, the term "Independent Person"
means an individual who is not, and has not been within the preceding 12 months,
(i) a beneficial owner of any shares of the Common Stock of this Corporation, or
any of the voting securities, or other rights to elect members of the board of
directors, of any Controlling Entity (as defined below) (provided that indirect
--------
stock ownership of any Controlling Entity or of any affiliate thereof by any
person through a mutual fund or similar diversified investment pool shall not
disqualify such person from being an Independent Person unless such person
maintains direct or indirect control of the investment decisions of such mutual
fund or similar diversified investment pool); (ii) a director, officer or
employee of this Corporation or any Controlling Entity; (iii) a person related
to any person referred to in clauses (i) and (ii); nor (iv) a trustee,
conservator or receiver for any Controlling Entity. As defined herein,
"Controlling Entity" means any entity other than this Corporation (A) which owns
beneficially, directly or indirectly, 10% or more of the outstanding shares of
Common Stock of the Corporation, (B) of which 10% or more of the outstanding
voting securities are owned beneficially, directly or indirectly, by any entity
described in clause (A) above, or (C) which otherwise controls or is otherwise
controlled by or is under common control with any entity described in clause (A)
above; provided that, for purposes of this definition, the terms "control,"
--------
"controlled by" and "under common control with" shall have the meanings assigned
to them in Rule 405 under the Securities Act of 1933, as amended.
FOURTEENTH: The Corporation shall not commingle any of its assets with the
assets of any other entity or person. The Corporation shall maintain its
financial and accounting books and records separate from those of any other
person or entity.
FIFTEENTH: The books and records of the Corporation may (subject to any
statutory requirements) be kept outside the State of Delaware as may be
designated by the Board of Directors or in the Bylaws of the Corporation.
SIXTEENTH: The name and mailing address of the incorporator of the
Corporation is Gail Conboy, c/o Caithness Energy, L.L.C., 1114 Avenue of the
Americas, 41/st/ Floor, New York, New York 10036-7790.
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<PAGE>
I, THE UNDERSIGNED, being the sole incorporator, for the purpose of
forming a corporation under the laws of the State of Delaware do make, file and
record this Certificate of Incorporation, do certify that the facts herein
stated are true, and, accordingly, have hereunto set my hand and seal.
/s/ Gail Conboy
----------------------------------------
Gail Conboy
Incorporator
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<PAGE>
Exhibit 3.2
BYLAWS
OF
CAITHNESS COSO FUNDING CORP.
Section 1. LAW, CERTIFICATE OF INCORPORATION AND BYLAWS
1.1 These Bylaws are subject to the Certificate of Incorporation of the
corporation. In these Bylaws, references to law, the Certificate of
Incorporation and Bylaws mean respectively the law, the provisions of the
Certificate of Incorporation and the Bylaws as from time to time in effect.
Section 2. STOCKHOLDERS
2.1 Annual Meeting. The annual meeting of stockholders shall be held
--------------
at ten o'clock on the first Tuesday in March in each year, unless that day is a
legal holiday at the place where the meeting is to be held, in which case the
meeting shall be held at the same hour on the next succeeding day not a legal
holiday, or at such other date and time as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting, at which they
shall elect a Board of Directors and transact such other business as may be
required by law or these Bylaws or as may properly come before the meeting.
2.2 Special Meetings. A special meeting of the stockholders may be
----------------
called at any time by the chairman of the board, if any, the president on a
majority of the Board of Directors. A special meeting of the stockholders shall
be called by the secretary, or in the case of the death, absence, incapacity or
refusal of the secretary, by an assistant secretary or some other officer, upon
application of a majority of the directors. Any such application shall state the
purpose or purposes of the proposed meeting. Any such call shall state the
place, date, hour and purposes of the meeting.
2.3 Place of Meeting. All meetings of the stockholders for the
----------------
election of directors or for any other purpose shall be held at such place
within or without the State of Delaware as may be determined from time to time
by the chairman of the board, if any, the president or the Board of Directors.
Any adjourned session of any meeting of the stockholders shall be held at the
place designated in the vote of adjournment.
2.4 Notice of Meetings. Except as otherwise provided by law, a written
------------------
notice of each meeting of stockholders stating the place, day and hour thereof
and, in the case of a
<PAGE>
special meeting, the purposes for which the meeting is called, shall be given
not less than ten nor more than sixty days before the meeting, to each
stockholder entitled to vote thereat, and to each stockholder who, by law, by
the Certificate of Incorporation or by these Bylaws, is entitled to notice, by
leaving such notice with him, her or it or at his, her or its residence or usual
place of business, or by depositing it in the United States mail, postage
prepaid, and addressed to such stockholder at his, her or its address as it
appears in the records of the corporation. Such notice shall be given by the
secretary, or by an officer or person designated by the Board of Directors, or
in the case of a special meeting by the officer calling the meeting. As to any
adjourned session of any meeting of stockholders, notice of the adjourned
meeting need not be given if the time and place thereof are announced at the
meeting at which the adjournment was taken except that if the adjournment is for
more than thirty days or if after the adjournment a new record date is set for
the adjourned session, notice of any such adjourned session of the meeting shall
be given in the manner heretofore described. No notice of any meeting of
stockholders or any adjourned session thereof need be given to a stockholder if
a written waiver of notice, executed before or after the meeting or such
adjourned session by such stockholder, is filed with the records of the meeting
or if the stockholder attends such meeting without objecting at the beginning of
the meting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any meeting of the stockholders or any adjourned session thereof
need be specified in any written waiver of notice.
2.5 Quorum of Stockholders. At any meeting of the stockholders a
----------------------
quorum as to any matter shall consist of a majority of the votes entitled to be
cast on the matter, except where a larger quorum is required by law, by the
Certificate of Incorporation or by these Bylaws. Any meeting may be adjourned
from time to time by a majority of the votes properly cast upon the question,
whether or not a quorum is present. If a quorum is present at an original
meeting, a quorum need not be present at an adjourned session of that meeting.
Shares of its own stock belonging to the corporation or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation is held, directly or indirectly, by the corporation,
shall neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of any corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity.
2.6 Action by Vote. When a quorum is present at any meeting, a
--------------
plurality of the votes properly cast for election to any office shall elect to
such office and a majority of the votes properly cast upon any question other
than an election to an office shall decide the question, except when a larger
vote is required by law, by the Certificate of Incorporation or by these Bylaws.
No ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
2.7 Action without Meetings. Unless otherwise provided in the
-----------------------
Certificate of Incorporation, any action required or permitted to be taken by
stockholders for or in connection with any corporate action may be taken without
a meeting, without prior notice and
2
<PAGE>
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the corporation by delivery to its
registered office in Delaware by hand or certified or registered mail, return
receipt requested, to its principal place of business or to an officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Each such written consent shall bear the date of
signature of each stockholder who signs the consent. No written consent shall be
effective to take the corporate action referred to therein unless written
consents signed by a number of stockholders sufficient to take such action are
delivered to the corporation in the manner specified in this paragraph within
sixty days of the earliest dated consent so delivered.
If action is taken by consent of stockholders in accordance with the
foregoing, there shall be filed with the records of the meetings of stockholders
the writing or writings comprising such consent.
If action is taken by less than unanimous consent of stockholders,
prompt notice of the taking of such action without a meeting shall be given to
those who have not consented in writing and a certificate signed and attested to
by the secretary that such notice was given shall be filed with the records of
the meetings of stockholders.
In the event that the action which is consented to is such as would have
required the filing of a certificate under any provision of the Delaware General
Corporation Law, if such action had been voted upon by the stockholders at a
meeting thereof, the certificate filed under such provision shall state, in lieu
of any statement required by such provision concerning a vote of stockholders,
that written consent has been given under Section 228 of the Delaware General
Corporation Law and that written notice has been given as provided in such
Section 228.
2.8 Proxy Representation. Every stockholder may authorize another
--------------------
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether by waiving notice of any meeting, objecting
to or voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by his, her
or its attorney-in-fact. No proxy shall be voted or acted upon after three years
from its date unless such proxy provides for a longer period. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and, if, and only
as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. The authorization of a proxy may but need
not be limited to specified action, provided, however, that if a proxy limits
its authorization to a meeting or meetings of stockholders, unless otherwise
specifically provided
3
<PAGE>
such proxy shall entitle the holder thereof to vote at any adjourned session but
shall not be valid after the final adjournment thereof.
2.9 Inspectors. The directors or the person presiding at the meeting
----------
may, but need not, appoint one or more inspectors of election and any substitute
inspectors to act at the meeting or any adjournment thereof. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his or her ability. The inspectors,
if any, shall determine the number of shares of stock outstanding and the voting
power of each, the shares of stock represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the person
presiding at the meeting, the inspectors shall make a report in writing of any
challenge, question or matter determined by them and execute a certificate of
any fact found by them.
2.10 List of Stockholders. The secretary shall prepare and make, at
--------------------
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at such meeting, arranged in alphabetical order
and showing the address of each stockholder and the number of shares registered
in his, her or its name. The stock ledger shall be the only evidence as to who
are stockholders entitled to examine such list or to vote in person or by proxy
at such meeting.
Section 3. BOARD OF DIRECTORS
3.1 Number. The number of directors which shall constitute the whole
------
board shall not be less than three (3) nor more than nine (9) in number and
shall at all times include an Independent Person (as defined in the Certificate
of Incorporation). Thereafter, within the foregoing limits, the stockholders at
the annual meeting shall determine the number of directors and shall elect the
number of directors as determined. Within the foregoing limits, the number of
directors may be increased at any time or from time to time by the stockholders
or by the directors by vote of a majority of the directors then in office. The
number of directors may be decreased to any number permitted by the foregoing at
any time either by the stockholders or by the directors by vote of a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation or removal of one or more directors. Directors need
not be stockholders.
3.2 Tenure. Except as otherwise provided by law, by the Certificate of
------
Incorporation or by these Bylaws, each director shall hold office until the next
annual meeting and until his or her successor is elected and qualified, or until
he or she sooner dies, resigns, is removed or becomes disqualified.
4
<PAGE>
3.3 Powers. The business and affairs of the corporation shall be
------
managed by or under the direction of the Board of Directors who shall have and
may exercise all the powers of the corporation and do all such lawful acts and
things as are not by law, the Certificate of Incorporation or these Bylaws
directed or required to be exercised or done by the stockholders.
3.4 Vacancies. Vacancies and any newly created directorships resulting
---------
from any increase in the number of directors may be filled by vote of the
stockholders at a meeting called for the purpose, or by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. When one or more directors shall resign from the board, effective at
a future date, a majority of the directors then in office, including those who
have resigned, shall have power to fill such vacancy or vacancies, the vote or
action by writing thereon to take effect when such resignation or resignations
shall become effective. The directors shall have and may exercise all their
powers notwithstanding the existence of one or more vacancies in their number,
subject to any requirements of law or of the Certificate of Incorporation or of
these Bylaws as to the number of directors required for a quorum or for any vote
or other actions.
3.5 Committees. The Board of Directors may, by vote of a majority of
----------
the whole board, (a) designate, change the membership of or terminate the
existence of any committee or committees, each committee to consist of one or
more of the directors; (b) designate one or more directors as alternate members
of any such committee who may replace any absent or disqualified member at any
meeting of the committee; and (c) determine the extent to which each such
committee shall have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the corporation, including the
power to authorize the seal of the corporation to be affixed to all papers which
require it and the power and authority to declare dividends or to authorize the
issuance of stock; excepting, however, such powers which by law, by the
Certificate of Incorporation or by these Bylaws they are prohibited from so
delegating. In the absence or disqualification of any member of such committee
and his or her alternate, if any, the member or members thereof present at any
meeting and not disqualified from voting, whether or not constituting a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Except as the
Board of Directors may otherwise determine, any committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or such rules, its business shall be conducted as nearly as may be in the same
manner as is provided by these Bylaws for the conduct of business by the Board
of Directors. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors upon request.
3.6 Regular Meetings. Regular meetings of the Board of Directors may be
----------------
held without call or notice at such places within or without the State of
Delaware and at such times as the board may from time to time determine,
provided that notice of the first regular meeting following any such
determination shall be given to absent directors. A regular meeting of the
5
<PAGE>
directors may be held without call or notice immediately after and at the same
place as the annual meeting of stockholders.
3.7 Special Meetings. Special meetings of the Board of Directors may be
----------------
held at any time and at any place within or without the State of Delaware
designated in the notice of the meeting, when called by the chairman of the
board, if any, the president, or by one-third or more in number of the
directors, reasonable notice thereof being given to each director by the
secretary or by the chairman of the board, if any, the president or any one of
the directors calling the meeting.
3.8 Notice. It shall be reasonable and sufficient notice to a
------
director to send notice by mail at least forty-eight hours or by telegram at
least twenty-four hours before the meeting addressed to him or her at his or her
usual or last known business or residence address or to give notice to him or
her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any director if a written waiver of
notice, executed by him or her before or after the meeting, is filed with the
records of the meeting, or to any director who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him or
her. Neither notice of a meeting nor a waiver of a notice need specify the
purposes of the meeting.
3.9 Quorum. Except as may be otherwise provided by law, by the
------
Certificate of Incorporation or by these Bylaws, at any meeting of the directors
a majority of the directors then in office shall constitute a quorum; a quorum
shall not in any case be less than one-third of the total number of directors
constituting the whole board. Any meeting may be adjourned from time to time by
a majority of the votes cast upon the question, whether or not a quorum is
present, and the meeting may be held as adjourned without further notice.
3.10 Action by Vote. Except as may be otherwise provided by law, by the
--------------
Certificate of Incorporation or by these Bylaws, when a quorum is present at any
meeting the vote of a majority of the directors present shall be the act of the
Board of Directors.
3.11 Action Without a Meeting. Any action required or permitted to be
------------------------
taken at any meeting of the Board of Directors or a committee thereof may be
taken without a meeting if all the members of the Board of Directors or of such
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the records of the meetings of the Board of Directors or
of such committee. Such consent shall be treated for all purposes as the act of
the Board of Directors or of such committee, as the case may be.
3.12 Participation in Meetings by Conference Telephone. Members of the
-------------------------------------------------
Board of Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meetings can
6
<PAGE>
hear each other or by any other means permitted by law. Such participation shall
constitute presence in person at such meeting.
3.13 Compensation. In the discretion of the Board of Directors, each
------------
director may be paid such fees for his or her services as director and be
reimbursed for his or her reasonable expenses incurred in the performance of his
or her duties as director as the Board of Directors from time to time may
determine. Nothing contained in this section shall be construed to preclude any
director from serving the corporation in any other capacity and receiving
reasonable compensation therefor.
3.14 Interested Directors and Officers.
---------------------------------
(a) No contract or transaction between the corporation and one or
more of its directors or officers, or between the corporation and any other
corporation, partnership, association, or other organization in which one or
more of the corporation's directors or officers are directors or officers, or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the Board of Directors or committee thereof which authorizes the
contract or transaction, or solely because his, her or their votes are counted
for such purpose, if:
(1) the material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or
(2) the material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(3) the contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
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<PAGE>
Section 4. OFFICERS AND AGENTS
4.1 Officers. The officers of the corporation shall be a president, a
--------
treasurer, a secretary and such other officers, if any, as the Board of
Directors from time to time may in its discretion elect or appoint including,
without limitation, a chairman of the board, one or more vice presidents and a
controller. The corporation may also have such agents, if any, as the Board of
Directors from time to time may in its discretion choose. Any officer may be
but none need be a director or stockholder. Any two or more offices may be held
by the same person. Any officer may be required by the Board of Directors to
secure the faithful performance of his or her duties to the corporation by
giving bond in such amount and with sureties or otherwise as the Board of
Directors may determine.
4.2 Powers. Subject to law, to the Certificate of Incorporation and to
------
the other provisions of these Bylaws, each officer shall have, in addition to
the duties and powers herein set forth, such duties and powers as are commonly
incident to his or her office and such additional duties and powers as the Board
of Directors may from time to time designate.
4.3 Election. The officers may be elected by the Board of Directors at
--------
their first meeting following the annual meeting of the stockholders or at any
other time. At any time or from time to time the directors may delegate to any
officer their power to elect or appoint any other officer or any agents.
4.4 Tenure. Each officer shall hold office until his or her respective
------
successor is chosen and qualified unless a shorter period shall have been
specified by the terms of his or her election or appointment, or in each case
until he or she sooner dies, resigns, is removed or becomes disqualified. Each
agent shall retain his or her authority at the pleasure of the directors, or the
officer by whom he or she was appointed or by the officer who then holds agent
appointive power.
4.5 Chairman of the Board of Directors; President and Vice President.
----------------------------------------------------------------
The chairman of the board, if any, shall have such duties and powers as shall be
designated from time to time by the Board of Directors. Unless the Board of
Directors otherwise specifies, the chairman of the board, or if there is none
the chief executive officer, shall preside, or designate the person who shall
preside, at all meetings of the stockholders and of the Board of Directors.
Unless the Board of Directors otherwise specifies, the president shall be
the chief executive officer and shall have direct charge of all business
operations of the corporation and, subject to the control of the directors,
shall have general charge and supervision of the business of the corporation.
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<PAGE>
Any vice presidents shall have such duties and powers as shall be set
forth in these Bylaws or as shall be designated from time to time by the Board
of Directors or by the president.
4.6 Treasurer and Assistant Treasurers. Unless the Board of Directors
----------------------------------
otherwise specifies, the treasurer shall be the chief financial officer of the
corporation and shall be in charge of its funds and valuable papers, and shall
have such other duties and powers as may be designated from time to time by the
Board of Directors or by the president. If no controller is elected, the
treasurer shall, unless the Board of Directors otherwise specifies, also have
the duties and powers of the controller.
Any assistant treasurers shall have such duties and powers as shall be
designated from time to time by the Board of Directors, the president or the
treasurer.
4.7 Controller and Assistant Controllers. If a controller is elected,
------------------------------------
he or she shall, unless the Board of Directors otherwise specifies, be the chief
accounting officer of the corporation and be in charge of its books of account
and accounting records, and of its accounting procedures. He or she shall have
such other duties and powers as may be designated from time to time by the Board
of Directors, the president or the treasurer.
Any assistant controller shall have such duties and powers as shall be
designated from time to time by the Board of Directors, the president, the
treasurer or the controller.
4.8 Secretary and Assistant Secretaries. The secretary shall record all
-----------------------------------
proceedings of the stockholders, of the Board of Directors and of committees of
the Board of Directors in a book or series of books to be kept therefor and
shall file therein all actions by written consent of stockholders or directors.
In the absence of the secretary from any meeting, an assistant secretary, or if
there be none or he or she is absent, a temporary secretary chosen at the
meeting, shall record the proceedings thereof. Unless a transfer agent has been
appointed, the secretary shall keep or cause to be kept the stock and transfer
records of the corporation, which shall contain the names and record addresses
of all stockholders and the number of shares registered in the name of each
stockholder. He or she shall have such other duties and powers as may from time
to time be designated by the Board of Directors or the president.
Any assistant secretaries shall have such duties and powers as shall be
designated from time to time by the Board of Directors, the president or the
secretary.
Section 5. RESIGNATIONS AND REMOVALS
5.1 Any director or officer may resign at any time by delivering his or
her resignation in writing to the chairman of the board, if any, the president,
or the secretary or to a meeting of the Board of Directors. Such resignation
shall be effective upon receipt unless
9
<PAGE>
specified to be effective at some other time, and without in either case the
necessity of it being accepted unless the resignation shall so state. A director
(including persons elected by directors to fill vacancies in the board) may be
removed from office with or without cause by the vote of the holders of a
majority of the shares issued and outstanding and entitled to vote in the
election of directors. The Board of Directors may at any time remove any officer
either with or without cause. The Board of Directors may at any time terminate
or modify the authority of any agent. No director or officer resigning and
(except where a right to receive compensation shall be expressly provided in a
duly authorized written agreement with the corporation) no director or officer
removed shall have any right to any compensation as such director or officer for
any period following his or her resignation or removal, or any right to damages
on account of such removal, whether his or her compensation be by the month or
by the year or otherwise; unless, in the case of a resignation, the directors,
or, in the case of removal, the body acting on the removal, shall in their or
its discretion provide for compensation.
Section 6. VACANCIES
6.1 If the office of the president or the treasurer or the secretary
becomes vacant, the directors may elect a successor by vote of a majority of the
directors then in office. Each such successor shall hold office for the
unexpired term, and in the case of the president, the treasurer and the
secretary until his or her successor is chosen and qualified or in each case
until he or she sooner dies, resigns, is removed or becomes disqualified. Any
vacancy of a directorship shall be filled as specified in Section 3.4 of these
Bylaws.
Section 7. CAPITAL STOCK
7.1 Stock Certificates. Each stockholder shall be entitled to a
------------------
certificate stating the number and the class and the designation of the series,
if any, of the shares held by him, her or it, in such form as shall, in
conformity to law, the Certificate of Incorporation and the Bylaws, be
prescribed from time to time by the Board of Directors. Such certificate shall
be signed by the chairman or vice chairman of the board, if any, or the
president or a vice president and by the treasurer or an assistant treasurer or
by the secretary or an assistant secretary. Any of or all the signatures on the
certificate may be a facsimile. In case an officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed on such
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he or she were such officer, transfer agent, or registrar at
the time of its issue.
7.2 Loss of Certificates. In the case of the alleged theft, loss,
--------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon
10
<PAGE>
such terms, including receipt of a bond sufficient to indemnify the corporation
against any claim on account thereof, as the Board of Directors may prescribe.
Section 8. TRANSFER OF SHARES OF STOCK
8.1 Transfer on Books. Subject to the restrictions, if any, stated or
-----------------
noted on the stock certificate, shares of stock may be transferred on the books
of the corporation by the surrender to the corporation or its transfer agent of
the certificate therefor properly endorsed or accompanied by a written
assignment and power of attorney properly executed, with necessary transfer
stamps affixed, and with such proof of the authenticity of signature as the
Board of Directors or the transfer agent of the corporation may reasonably
require. Except as may be otherwise required by law, by the Certificate of
Incorporation or by these Bylaws, the corporation shall be entitled to treat the
record holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to receive notice and
to vote or to give any consent with respect thereto and to be held liable for
such calls and assessments, if any, as may lawfully be made thereon, regardless
of any transfer, pledge or other disposition of such stock until the shares have
been properly transferred on the books of the corporation.
It shall be the duty of each stockholder to provide the corporation with
his, her or its post office address.
8.2 Record Date and Closing Transfer Books. In order that the
--------------------------------------
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no such record date is fixed by the Board of Directors,
the record date for determining the stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
such record date has been fixed by the Board of Directors, the record date for
determining
11
<PAGE>
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by the
Delaware General Corporation Law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in Delaware by
hand or certified or registered mail, return receipt requested, to its principal
place of business or to an officer or agent of the corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. If no
record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by the Delaware General Corporation Law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action.
In order that the corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or to exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board of Directors may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be not
more than sixty days prior to such payment, exercise or other action. If no
such record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
Section 9. CORPORATE SEAL
9.1 Subject to alteration by the directors, the seal of the corporation
shall consist of a flat-faced circular die with the word "Delaware" and the name
of the corporation cut or engraved thereon, together with such other words,
dates or images as may be approved from time to time by the directors.
Section 10. EXECUTION OF PAPERS
10.1 Except as the Board of Directors may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
transfers, contracts, bonds, notes, checks, drafts or other obligations made,
accepted or endorsed by the corporation shall be signed by the chairman of the
board, if any, the president, a vice president or the treasurer.
Section 11. FISCAL YEAR
11.1 The fiscal year of the corporation shall end on December 31.
12
<PAGE>
Section 12. AMENDMENTS
12.1 These Bylaws may be adopted, amended or repealed by vote of 100% of
the directors then in office or by unanimous vote of 100% of the holders of the
stock outstanding and entitled to vote. Any bylaw, whether adopted, amended or
repealed by the stockholders or directors, may be amended or reinstated by the
stockholders or the directors.
13
<PAGE>
Exhibit 4.1
CAITHNESS COSO FUNDING CORP.
Issuer
COSO FINANCE PARTNERS
COSO ENERGY DEVELOPERS
COSO POWER DEVELOPERS
Guarantors
$450,000,000
6.80% SENIOR SECURED NOTES DUE 2001
9.05% SENIOR SECURED NOTES DUE 2009
INDENTURE
DATED AS OF May 28, 1999
U.S. BANK TRUST NATIONAL ASSOCIATION
Trustee and Collateral Agent
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.......................................................... 1
Section 1.01. Definitions..................................................................................... 1
Section 1.02. Other Definitions............................................................................... 25
Section 1.03. Trust Indenture Act Provisions.................................................................. 26
Section 1.04. Rules of Construction........................................................................... 26
ARTICLE 2. THE SENIOR SECURED NOTES............................................................................ 27
Section 2.01. Form and Dating................................................................................. 27
Section 2.02. Execution and Authentication.................................................................... 28
Section 2.03. Registrar and Paying Agent...................................................................... 29
Section 2.04. Paying Agent to Hold Money in Trust............................................................. 29
Section 2.05. Holder Lists.................................................................................... 29
Section 2.06. Transfer and Exchange........................................................................... 30
Section 2.07. Replacement Senior Secured Notes................................................................ 41
Section 2.08. Outstanding Senior Secured Notes................................................................ 41
Section 2.09. Treasury Notes.................................................................................. 42
Section 2.08. Temporary Senior Secured Notes.................................................................. 42
Section 2.09. Cancellation.................................................................................... 42
Section 2.10. Defaulted Interest.............................................................................. 42
ARTICLE 3. REDEMPTION AND PREPAYMENT........................................................................... 43
Section 3.01. Notices to Trustee.............................................................................. 43
Section 3.02. Selection of Senior Secured Notes to Be Redeemed................................................ 43
Section 3.03. Notice of Redemption............................................................................ 43
Section 3.04. Effect of Notice of Redemption.................................................................. 44
Section 3.05. Deposit of Redemption Price..................................................................... 44
</TABLE>
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<TABLE>
<S> <C>
Section 3.06. Senior Secured Notes Redeemed In Part.......................................................... 45
Section 3.07. Optional Redemption............................................................................. 45
Section 3.08. Mandatory Redemption............................................................................ 45
Section 3.09. Repurchase at the option of holders upon a change of control.................................... 46
ARTICLE 4. COVENANTS........................................................................................... 47
Section 4.01. Payment of Senior Secured Notes................................................................. 47
Section 4.02. Maintenance of Office or Agency................................................................. 48
Section 4.03. Reports......................................................................................... 48
Section 4.04. Compliance Certificate.......................................................................... 49
Section 4.05. Taxes........................................................................................... 49
Section 4.06. Stay, Extension and Usury Laws.................................................................. 49
Section 4.07. Restricted Payments............................................................................. 50
Section 4.08. Actions with Respect to Credit Agreements....................................................... 50
Section 4.09. Limitation on Indebtedness...................................................................... 50
Section 4. 10. Limitation on Liens............................................................................ 50
Section 4. 11. Limitations on Guarantees...................................................................... 50
Section 4.12. Prohibitions On Other Obligations or Assignments................................................ 50
Section 4.13. Books And Records............................................................................... 50
Section 4.14. Prohibitions On Fundamental Changes............................................................. 50
Section 4.15. Corporate Existence............................................................................. 51
Section 4.16. Rating Agency Information....................................................................... 51
ARTICLE 5. DEFAULTS AND REMEDIES............................................................................... 51
Section 5.01. Events of Default............................................................................... 51
Section 5.02. Enforcement of remedies......................................................................... 53
Section 5.03. Other Remedies.................................................................................. 55
Section 5.04. Waiver of Past Defaults......................................................................... 56
Section 5.05. Control by Majority............................................................................. 56
</TABLE>
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<TABLE>
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Section 5.06. Limitation on Suits............................................................................. 56
Section 5.07. Rights of Holders of Senior Secured Notes to Receive Payment.................................... 57
Section 5.08. Collection Suit by Trustee...................................................................... 57
Section 5.09. Trustee May File Proofs of Claim................................................................ 57
Section 5.10. Priorities...................................................................................... 57
Section 5.11. Undertaking for Costs........................................................................... 58
ARTICLE 6. TRUSTEE............................................................................................. 58
Section 6.01. Duties of Trustee............................................................................... 58
Section 6.02. Rights of Trustee............................................................................... 59
Section 6.03. Individual Rights of Trustee.................................................................... 60
Section 6.04. Trustee's Disclaimer............................................................................ 60
Section 6.05. Notice of Defaults.............................................................................. 60
Section 6.06. Reports by Trustee to Holders of the Senior Secured Notes....................................... 60
Section 6.07. Compensation and Indemnity...................................................................... 61
Section 6.08. Replacement of Trustee.......................................................................... 62
Section 6.09. Successor Trustee by Merger, etc................................................................ 62
Section 6.10. Eligibility; Disqualification................................................................... 63
Section 6.11. Preferential Collection of Claims Against Issuer................................................ 63
Section 6.12. Default Rate of Interest........................................................................ 63
Section 6.13. Receipt of Documents............................................................................ 63
ARTICLE 7. LEGAL DEFEASANCE AND COVENANT DEFEASANCE............................................................ 63
Section 7.01. Option to Effect Legal Defeasance or Covenant Defeasance........................................ 63
Section 7.02. Legal Defeasance and Discharge.................................................................. 63
Section 7.03. Covenant Defeasance............................................................................. 64
Section 7.04. Conditions to Legal or Covenant Defeasance...................................................... 64
Section 7.05. Release of collateral upon legal or covenant defeasance........................................ 65
Section 7.06. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions... 66
</TABLE>
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<TABLE>
<S> <C>
Section 7.07. Repayment to Issuer............................................................................. 66
Section 7.08. Reinstatement................................................................................... 66
ARTICLE 8. AMENDMENT, SUPPLEMENT AND WAIVER.................................................................... 67
Section 8.01. Without Consent of Holders of Senior Secured Notes.............................................. 67
Section 8.02. With Consent of Holders of Senior Secured Notes................................................. 68
Section 8.03. Revocation and Effect of Consents............................................................... 69
Section 8.04. Notation on or Exchange of Senior Secured Notes................................................. 69
Section 8.05. Trustee to Sign Amendments, etc................................................................. 69
Section 8.06. Additional Senior Secured Notes................................................................. 69
Section 8.07. Amendment Of Credit Agreements And Partnership Notes............................................ 70
ARTICLE 9. GUARANTEES.......................................................................................... 70
Section 9.01. Guarantee....................................................................................... 70
Section 9.02. Limitation on Guarantor Liability............................................................... 71
Section 9.03. Execution and Delivery of Guarantee............................................................. 71
Section 9.04. Guarantors May Consolidate, etc., on Certain Terms.............................................. 72
Section 9.05. Releases Following Sale of Assets............................................................... 72
ARTICLE 10. MISCELLANEOUS...................................................................................... 73
Section 10.01. Trust Indenture Act Controls................................................................... 73
Section 10.02. Notices........................................................................................ 73
Section 10.03. Communication by Holders of Senior Secured Notes with Other Holders of Senior Secured Notes.... 75
Section 10.04. Certificate and Opinion as to Conditions Precedent............................................. 75
Section 10.05. Statements Required in Certificate or Opinion.................................................. 75
Section 10.06. Rules by Trustee and Agents.................................................................... 75
Section 10.07. No Personal Liability of Directors, Officers, Employees and Stockholders....................... 76
Section 10.08. Governing Law.................................................................................. 76
Section 10.09. No Adverse Interpretation of Other Agreements.................................................. 76
</TABLE>
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Section 10.10. Successors..................................................................................... 76
Section 10.11. Severability................................................................................... 76
Section 10.12. Counterpart Originals.......................................................................... 76
Section 10.13. Table of Contents, Headings, etc............................................................... 76
</TABLE>
EXHIBITS
Exhibit A: FORM OF 2001 NOTE
Exhibit B: FORM OF 2009 NOTE
Exhibit C: FORM OF CERTIFICATE OF TRANSFER
Exhibit D: FORM OF CERTIFICATE OF EXCHANGE
Exhibit E: FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit F: FORM OF GUARANTEE
Exhibit G: FORM OF SUPPLEMENTAL INDENTURE
Exhibit H: FORM OF SUBORDINATION PROVISIONS
v
<PAGE>
INDENTURE dated as of May 28, 1999 among Caithness Coso Funding Corp.,
a Delaware corporation (the "Issuer"), Coso Finance Partners, a California
------
general partnership ("Navy I" or the "Navy I Partnership"), Coso Energy
------ ------------------
Developers, a California general partnership ("BLM" or the "BLM Partnership"),
--- ---------------
and Coso Power Developers, a California general partnership ("Navy II" or the
-------
"Navy II Partnership," and together with Navy I and BLM, the "Guarantors" or the
- -------------------- ----------
"Coso Partnerships"), and U.S. Bank Trust National Association as trustee (the
-----------------
"Trustee") and as collateral agent (the "Collateral Agent").
- -------- ----------------
The Issuer, the Guarantors and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the 6.80% Senior Secured Notes due 2001 (the "2001 Notes") and the 9.05% Senior
----------
Secured Notes due 2009 (the "2009 Notes," and together with the 2001 Notes, the
----------
"Senior Secured Notes"); and
--------------------
On the date hereof, pursuant to the terms of this Indenture, the
Issuer is issuing for the equal and ratable benefit of the Holders thereof
$110.0 million principal amount of the 2001 Notes and $303.0 million principal
amount of the 2009 Notes.
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"144A Global Note" means a global Note in the form of Exhibit A-1
----------------
hereto for the 2001 Notes and in the form of Exhibit B-1 hereto for the 2009
Notes bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary
Agent or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Senior Secured Notes sold in reliance on
Rule 144A.
"AB 1890" means California Assembly Bill 1890.
-------
"Accounts" means the accounts established under the Depositary
--------
Agreement.
"Acquisition Agreement" means that certain Acquisition Agreement,
---------------------
dated as of May 28, 1999, among CLC, the Coso Partnership and Coso Operating
Company LLC.
"Actual Geothermal Percentage" means a percentage calculated by
----------------------------
dividing the geothermal resource available at the wellhead or pursuant to a
contract for such geothermal resource by the resource that would be required to
meet the production level necessary to generate the energy projected in the
Independent Engineer's Base Case Projections.
"Additional BLM Real Estate Documents" means:
------------------------------------
(1) that certain Agreement of Transfer and Assignment among the BLM Partnership
and CTLP, dated July 31, 1989, recorded July 31, 1989 as File No. 89-5087;
(2) that certain Agreement of Overriding Royalty between the BLM Partnership
and CLC, dated May 5, 1988, as amended;
(3) that certain Agreement of Transfer and Assignment between the BLM
Partnership and the Navy II Partnership, dated July 3, 1989, recorded July
31, 1989 as File No. 89-5086;
<PAGE>
(4) that certain Agreement of Transfer and Assignment of Agreements and Rights
Relating to the BLM Project between Coso Geothermal Company and BLM dated
as of May 3, 1988, recorded May 9, 1988 as File No. 88-2097, and
(5) that certain Consents and Agreements of the United States Department of
Navy to Project and to Proposed Transmission Line among the U.S. Navy,
CECI, BLM and Credit Suisse, executed on May 2, 1988, recorded May 9, 1988
as File No. 88-2099.
"Additional Navy Contract Documents" means:
----------------------------------
(1) that certain Memorandum of Understanding, by and between the Navy and the
USBLM, dated December 6, 1977,
(2) that certain Amendment to Memorandum of Understanding, by and between the
Navy and the USBLM, dated July 8, 1980,
(3) that certain Amendment to Memorandum of Understanding, by and between the
Navy and the USBLM, November 7, 1994,
(4) that certain Assignment and Royalty Agreement between Coso Finance Partners
II and the Navy I Partnership, executed July 15, 1988, recorded July 15,
1988 as File No. 88-2954,
(5) that certain Agreement of Transfer and Assignment between the Navy II
Partnership and CTLP, recorded July 31, 1989 as File No. 89-5088,
(6) that certain Agreement between the U.S. Navy and the USBLM covering
geothermal leasing in the Coso Geothermal Area dated as of April 21, 1977,
(7) that certain Agreement of Transfer between CLJV and Navy I Partnership
dated as of July 14, 1987, recorded July 14, 1987 as File No. 87-2923,
(8) that certain Agreement of Transfer and Assignment dated as of March 17,
1989 between CLJV and BLM, recorded March 17, 1989 as File No. 89-1257,
(9) that certain Consent to Assignments by U.S. Navy executed on July 10, 1987,
(10) that certain Amendment to Consent to Assignments by U.S. Navy executed on
July 15, 1998,
(11) that certain Agreement of Transfer and Assignment between the BLM
Partnership and the Navy II Partnership, dated July 3, 1989, recorded July
31, 1989 as File No. 89-5086,
(12) that certain Memorandum of Termination of Coso Finance Partners II Royalty
Obligation dated May 28, 1999,
(13) that certain Consents and Agreements of the United States Department of
Navy to Project and to Proposed Transmission Line among the Navy, CECI, BLM
and Credit Suisse, executed on May 2, 1999, recorded May 9, 1988 as File
No. 88-2099,
2
<PAGE>
(14) that certain Consent Agreement Under N62474-79-C-5382 Concerning the 230-KV
Transmission Line among CLJV, Navy II, CTLP, BLM and the U.S. Navy,
effective as of July 31, 1989, recorded December 16, 1992 as File No. 92-
6902,
(15) that certain Consent Under Contract N62474-79-C-5382 concerning the Navy II
Project Assignment of Contractual Rights and Obligations from Coso Power
Developers to U.S. Bank Trust National Association, and
(16) that certain Consent Under Contract N62474-79-C-5382 concerning the Navy I
Project Assignment of Contractual Rights and Obligations from Coso Finance
Partners to U.S. Bank Trust National Association.
"Additional Project Document" means (a) any contract or undertaking
---------------------------
relating to the purchase or sale of electricity from the Projects entered into
by any of the Coso Partnerships after the Closing Date, (b) any consent or
security instrument entered into by any of the Coso Partnerships or any other
relevant party in connection with an Additional Project Document, or (c) any
contract or undertaking to which Issuer or any Coso Partnership is a party
entered into after the Closing Date, relating to (i) the supply, procurement or
transportation of consumables or other supplies to the Projects, (ii) the
design, construction, operation or maintenance of the Projects; or (iii) the
relationship between any Project or Coso Partnership and the Navy or USBLM; in
each case which is material to the applicable Project.
"Additional Senior Secured Notes" means additional senior secured
-------------------------------
notes, other than the Senior Secured Notes, having the same final maturity and
amortization as the Senior Secured Notes except as increased pro rata across all
payments to reflect such shorter term, if any.
"Additional USBLM Lease" means that certain Geothermal Resources
----------------------
Lease, Serial No. CA 11401 by and between the United States of America acting
through the USBLM and California Energy Company, Inc. ("CalEnergy"), effective
---------
January 1, 1982, recorded July 25, 1983 as No. 83-2943, Official Records of Inyo
County (expires November 17, 2002).
"Adjusted Treasury Rate" means, with respect to any date of
----------------------
redemption, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, assuming a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such date of redemption, plus 0.50%.
"Affiliate" of any specified Person means any other Person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"Agent" means any Registrar, Paying Agent or co-registrar.
-----
"Applicable Procedures" means, with respect to any transfer or
---------------------
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear or Cedel that apply to such transfer or
exchange.
3
<PAGE>
"Approved Related Party" with respect to any Change of Control means:
----------------------
(1) any direct or indirect controlling stockholder or 80% (or more) owned
Subsidiary of Caithness Energy, L.L.C.; or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, members, partners, owners or Persons beneficially holding an
80% or more controlling interest of which consist of Caithness Energy,
L.L.C. and/or such other Persons referred to in the immediately preceding
clause (1).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
--------------
state law for the relief of debtors.
"BLM Field O&M Agreement" means the Field Operation and Maintenance
-----------------------
Agreement dated as of May 28, 1999, by and between the BLM Partnership and Coso
Operating Company, LLC, a Delaware limited liability company.
"BLM Partners" means Caithness Coso Holdings, LLC, a Delaware limited
------------
liability company, and New CHIP Company, LLC, a Delaware limited liability
company, the general partners of the BLM Partnership.
"BLM Partnership" means Coso Energy Developers, a California general
---------------
partnership.
"BLM Plant O&M Agreement" means the Operation and Maintenance
-----------------------
Agreement dated as of May 28, 1999, by and among the BLM Partnership, CTLP, COC
and FPL Energy Operating Services, Inc.
"BLM Project" means, collectively, BLM East, which consists of two 30
-----------
MW turbine generators, and BLM West, which consists of one 30 MW turbine
generator and the lands described in the USBLM Lease and (after the same or an
interest therein is assigned to the BLM Partnership), the Additional USBLM Lease
and the USBLM/LADWP Lease.
"Business Day" means any day other than a Legal Holiday.
------------
"Capital Expenditure Reserve Account" means the account of such name
-----------------------------------
created under the Depositary Agreement.
"Capital Expenditure Reserve Required Balance" means an amount equal
--------------------------------------------
to the aggregate Capital Expenditures budgeted for the Projects for the next
succeeding twelve-month period (a) as approved by the Independent Engineer and
delivered to the Trustee at least annually and (b) as adjusted by management and
set forth in an Officers' Certificate delivered to the Trustee six months
following each budget approved by the Independent Engineer.
"Capital Expenditures" means Major Maintenance, any expenses incurred
--------------------
in connection with the development and implementation of any plan for the
drilling and maintenance of additional geothermal wells for the Projects and any
other expenses that are capitalized on the balance sheet and qualify as capital
expenditures of the relevant Coso Partnership in accordance with GAAP.
"Capital Stock" means:
-------------
(1) in the case of a corporation, corporate stock;
4
<PAGE>
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock;
(3) in the case of a partnership or limited liability company, partnership or
membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets
of, the issuing Person.
"CECI" means California Energy Company, Inc. a Delaware corporation,
----
currently known as MidAmerican Energy Holdings Company.
"Cedel" means Cedel Bank, SA.
-----
"Change of Control" means the occurrence of any of the following:
-----------------
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the properties or
assets of the Issuer and the Coso Partnerships taken as a whole to any
"person" (as that term is used in Section 13(d)(3) of the Exchange Act)
other than Caithness Energy, L.L.C. or an Approved Related Party;
(2) the adoption of a plan relating to the liquidation or dissolution of the
Issuer or any of the Coso Partnerships; or
(3) the first day on which Caithness Energy, L.L.C. ceases to own, directly or
indirectly, (a) 50% or more of the total voting power of the Voting Stock
of the Issuer and of each of the Coso Partnerships and (b) 25% or more of
the total economic ownership interests in the Issuer and each of the Coso
Partnerships.
"Change of Control Offer" shall have the meaning described in Section
-----------------------
3.09 (b) of this Indenture.
"Change of Control Payment" shall mean the payment by the Issuer, in
-------------------------
cash, of the Change of Control Offer price equal to 101% of the aggregate
principal amount of the Senior Secured Notes purchased pursuant to Section 3.09
of this Indenture, plus accrued and unpaid interest and Liquidated Damages
thereon, if any.
"Change of Control Payment Date" means the date, no earlier than 30
------------------------------
days and no later than 60 days after a notice of a Change of Control has been
sent to each Holder, wherein the Issuer offers to repurchase the Senior Secured
Notes pursuant to Section 3.09 (b) of this Indenture.
"CLC" means Coso Land Company, a California general partnership.
---
"CLJV" means the China Lake Joint Venture, a California general
----
partnership the general partners of which are Caithness Acquisition Company,
LLC, a Delaware limited liability company, and Caithness Geothermal 1980 Ltd.,
L.P., a Delaware limited partnership.
"Closing Date" means the date of the issuance of the Senior Secured
------------
Notes.
5
<PAGE>
"Collateral" means all collateral pledged, or in respect of which a
----------
lien is granted, pursuant to this Indenture and the Security Documents.
"Collateral Agent" means U.S. Bank Trust National Association, as
----------------
collateral agent for the benefit of the Secured Parties, together with its
successors and assigns.
"Comparable Treasury Issue" means the United States Treasury security
-------------------------
selected by a Reference Treasury Dealer as having a maturity comparable to the
Remaining Average Life of the 2009 Notes to be redeemed that would be utilized,
at the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
Remaining Average Life of such 2009 Notes.
"Comparable Treasury Price" means, with respect to any date of
-------------------------
redemption, (i) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such date of redemption, as set forth in the
daily statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities," or (ii) if such release (or any successor release) is
not published or does not contain such prices on such business day, (A) the
average of the Reference Treasury Dealer Quotations, or (B) if the Trustee
obtains fewer than three such Reference Treasury Dealer Quotations, the average
of all such Reference Treasury Dealer Quotations.
"Corporate Trust Office of the Trustee" shall be at the address of the
-------------------------------------
Trustee specified in Section 10.02 hereof or such other address as to which the
Trustee may give notice to the Issuer.
"Coso Partnerships" means the Navy I Partnership, the BLM Partnership,
-----------------
and the Navy II Partnership.
"Cotenancy Agreement" means that certain Cotenancy Agreement, executed
-------------------
by the Coso Partnerships, dated May 28, 1999.
"Credit Agreements" means (i) that certain Credit Agreement among the
-----------------
Issuer, as lender, the Navy I Partnership, as borrower, and the Trustee, (ii)
that certain Credit Agreement among the Issuer, as lender, and the BLM
Partnership, as borrower, and the Trustee, and (iii) that certain Credit
Agreement among the Issuer, as lender, and the Navy II Partnership, as borrower,
and the Trustee.
"Credit Agreement Event of Default" means a "Credit Agreement Event of
---------------------------------
Default" as defined in any of the Credit Agreements.
"Credit Parties" means each of the Coso Partnerships, each of the
--------------
Partners, and each Affiliate of the Coso Partnerships or a Partner that is a
party to any Security Document.
"Credit Suisse" means Credit Suisse First Boston.
-------------
"CTLP" means Coso Transmission Line Partners, a California general
---
partnership.
"CTLP Partnership Agreement" means that certain Amended and Restated
--------------------------
General Partnership Agreement of Coso Transmission Line Partners, dated as of
July 31, 1989, by and between the BLM Partnership and the Navy II Partnership,
as amended by the First Amendment to the Amended
6
<PAGE>
and Restated General Partnership Agreement of CTLP, dated as of December 16,
1998, by and between the BLM Partnership and the Navy II Partnership.
"Custodian" means, initially, the Trustee, and its successors and
---------
assigns or any other custodian performing similar functions.
"Debt Service Coverage Ratio" means for any period, without
---------------------------
duplication, the ratio of (i) the sum of (A) all revenues (including interest
and fee income but excluding any insurance proceeds and all other similar non-
recurring receipts in an aggregate amount in excess of $2.0 million in any
twelve-month period) of the Coso Partnerships for such period, minus (B) the
aggregate amount of Operating and Maintenance Costs of the Coso Partnerships for
such period, minus (C) all Capital Expenditures during such period, to (ii) the
sum of (A) all principal, premium (if any) and interest payable with respect to
Permitted Indebtedness outstanding (other than Subordinated Indebtedness) for
such period, plus (B) the aggregate amount of overdue principal, premium (if
any) and interest payments owed with respect to Permitted Indebtedness
outstanding (other than Subordinated Indebtedness) from previous periods; all as
determined on a cash basis in accordance with GAAP.
"Deeds of Trust" means (i) that certain Deed of Trust, Assignment of
--------------
Rents, Fixture Filing and Security Agreement executed by the Navy I Partnership
in favor of the trustee thereunder, and the Collateral Agent, as beneficiary,
(ii) that certain Deed of Trust, Assignment of Rents, Fixture Filing and
Security Agreement executed by the BLM Partnership in favor of the trustee
thereunder, and the Collateral Agent, as beneficiary, (iii) that certain Deed of
Trust, Assignment of Rents, Fixture Filing and Security Agreement executed by
the Navy II Partnership, in favor of the trustee thereunder, and the Collateral
Agent as beneficiary, (iv) that certain Deed of Trust, Assignment of Rents,
Fixture Filing and Security Agreement executed by CTLP in favor of the trustee
thereunder, and the Collateral Agent as beneficiary, (v) that certain Deed of
Trust, Assignment of Rents, Fixture Filing and Security Agreement executed by
CLJV in favor of the trustee thereunder, and Collateral Agent, as beneficiary,
(vi) that certain Deed of Trust, Assignment of Rents, Fixture Filing and
Security Agreement executed by CLC in favor of the trustee thereunder, and
Collateral Agent, as beneficiary, and (vii) any other deed of trust entered into
by any Credit Party in favor of the trustee thereunder, and the Collateral
Agent, as beneficiary.
"Default" means an event or condition that, with the giving of notice,
-------
lapse of time or failure to satisfy certain specified conditions, or any
combination thereof, would become a Credit Agreement Event of Default or an
Event of Default.
"Definitive Note" means a certificated Note registered in the name of
---------------
the Holder thereof and issued in accordance with Section 2.06 hereof, in the
form of Exhibit A-1 for the 2001 Notes and in the form of Exhibit B-1 for the
2009 Notes hereto except that such Note shall not bear the Global Note Legend
and shall not have the "Schedule of Exchanges of Interests in the Global Note"
attached thereto.
"Depositary Agent" means, with respect to the Senior Secured Notes
----------------
issuable or issued in whole or in part in global form, the Person specified in
Section 2.03 hereof as the Depositary Agent with respect to the Senior Secured
Notes, and any and all successors thereto appointed as depositary hereunder and
having become such pursuant to the applicable provision of this Indenture.
"Depositary" means U.S. Bank Trust National Association, as depositary
----------
under the Depositary Agreement.
7
<PAGE>
"Depositary Agreement" means the Deposit and Disbursement Agreement,
--------------------
dated as of the Closing Date, between the Issuer, the Collateral Agent, the
Depositary and the Coso Partnerships.
"Distribution Account" means the account of such name created under
--------------------
the Depositary Agreement.
"Distribution Suspense Account" means the account of such name created
-----------------------------
under the Depositary Agreement.
"Duff & Phelps" means Duff & Phelps Credit Rating Company.
-------------
"Eminent Domain Proceeds" means all amounts and proceeds (including
-----------------------
instruments) received by a Coso Partnership in respect of any Event of Eminent
Domain, after deducting all reasonable expenses incurred in litigating,
arbitrating, compromising, settling or consenting to the settlement of any
claims against the appropriate Governmental Authority (exclusive of any
termination by the Navy of the Navy Contract pursuant to the terms thereof.)
"Equity Interests" means Capital Stock and all warrants, options or
----------------
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
---------
office, as operator of the Euroclear system.
"Event of Default" shall have the meaning set forth in Section 5.01
----------------
hereof.
"Event of Eminent Domain" means any compulsory transfer or taking or
-----------------------
transfer under threat of compulsory transfer or taking of any material part of
the Collateral or Projects by any Governmental Authority or any other entity
with condemnation powers (excluding any termination of the Navy Contract by the
U.S. Government (Navy) pursuant to the terms of the Navy Contract.).
"Event of Loss" means an event which causes all or a portion of a
-------------
Project to be damaged, destroyed or rendered unfit for normal use for any reason
whatsoever, other than an Event of Eminent Domain or a Title Event.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Exchange Notes" means the Notes issued in the Exchange Offer pursuant
--------------
to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration Rights
--------------
Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in
-------------------------------------
the Registration Rights Agreement.
"Field O&M Agreements" means:
--------------------
(1) the Navy I Field O&M Agreement,
(2) the BLM Field O&M Agreement,
8
<PAGE>
(3) the Navy II Field O&M Agreement.
"Final Maturity Date" means the latest stated maturity date of any
-------------------
series of the Senior Secured Notes.
"Financing Documents" means, collectively, the Credit Agreements, the
-------------------
Guarantees, this Indenture, the Partnership Notes, the Depositary Agreement, the
Security Documents and the Senior Secured Notes.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of this Indenture.
"Geothermal Engineer" means GeothermEx Inc., or another widely
-------------------
recognized geothermal engineer retained as a geothermal engineer by the Issuer.
"Global Notes" means, individually and collectively, each of the
------------
Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A-1 and A-2 hereto for the 2001 Notes and in the form of Exhibit B-1 and
B-2 hereto for the 2009 Notes issued in accordance with the terms hereof.
"Global Note Legend" means the legend set forth in Section
------------------
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Governmental Approvals" means all governmental approvals,
----------------------
authorizations, consents, decrees, permits, waivers, privileges and filings with
all Governmental Authorities required to be obtained for the construction,
operation and maintenance of a Project.
"Governmental Authority" means the government of any federal, state,
----------------------
municipal or other political subdivision in which the Projects are located, and
any other government or political subdivision thereof exercising jurisdiction
over the Projects or any party to any of the Project Documents, including all
agencies and instrumentalities of such governments and political subdivisions.
"Government Securities" means direct obligations of, or obligations
---------------------
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"Guarantee" means (a) a Guarantee in the form of Exhibit F hereto by
---------
each Guarantor of the Issuer's payment obligations under this Indenture and the
Senior Secured Notes, executed pursuant to the provisions of this Indenture and
(b) the obligations of each Guarantor under Article 9 hereof.
"guarantee" means a guarantee (other than by endorsement of negotiable
---------
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantee Event of Default" means the failure of any Guarantor to pay
--------------------------
any amounts due pursuant to the Guarantee when the same shall be due, subject to
the same cure periods afforded the Issuer with respect to the relevant
underlying obligations being guaranteed.
9
<PAGE>
"Holder" means a Person in whose name a Senior Secured Note is
------
registered.
"Indebtedness" of any Person means, at any date, without duplication,
------------
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by Senior Secured Notes, debentures, notes or other
similar instruments (excluding "deposit only" endorsements on checks payable to
the order of such Person), (iii) all obligations of such Person to pay the
deferred purchase price of property or services (except accounts payable and
similar obligations arising in the ordinary course of business shall not be
included herein), (iv) all obligations of such Person as lessee under capital
leases to the extent required to be capitalized on the books of such Person in
accordance with GAAP and (v) all obligations of others of the type referred to
in clause (i) through (iv) above guaranteed by such Person, whether or not
secured by a lien or other security interest on any asset of such Person;
provided that "Indebtedness" shall exclude obligations of the Coso Partnerships
to the California Energy Commission and liens securing such obligations to the
extent that such obligations and liens do not exceed the dollar amounts paid, or
to be paid to, the Coso Partnerships pursuant to AB 1890.
"Indenture" means this Indenture, as amended or supplemented from time
---------
to time.
"Independent Engineer" means Sandwell Engineering, Inc. or another
--------------------
widely recognized independent engineering firm or engineer retained as
independent engineer by the Issuer.
"Independent Engineer's Base Case Projections" means the base case
--------------------------------------------
projections prepared by the Independent Engineer and included in the Independent
Engineer's Report.
"Independent Engineer's Report" means the Independent Engineer's
-----------------------------
Report, dated May 20, 1999, prepared by the Independent Engineer and attached to
the Offering Memorandum as Appendix A.
"Independent Investment Banker" means one of the Reference Treasury
-----------------------------
Dealers appointed by the Issuer.
"Indirect Participant" means a Person who holds a beneficial interest
--------------------
in a Global Note through a Participant.
"Initial Notes" means $413 million in aggregate principal amount of
-------------
Senior Secured Notes issued under this Indenture on the date hereof.
"Initial Purchaser" means Donaldson, Lufkin & Jenrette Securities
-----------------
Corporation.
"Interconnection Facilities Agreements" means:
-------------------------------------
(1) that certain Interconnection Facilities Agreement, dated as of May 29,
1985, by and between Southern California Edison Company and the Navy I
Partnership (as assignee of CLJV),
(2) that certain Interconnection Facilities Agreement, dated as of December 15,
1988, by and between Southern California Edison Company and the BLM
Partnership (as assignee of CLJV),
(3) that certain Interconnection Facilities Agreement, dated as of December 15,
1988, by and between Southern California Edison Company and the Navy II
Partnership (as assignee of CLJV).
10
<PAGE>
"Interest Account" means the account of such name created under the
----------------
Depositary Agreement.
"Interest Payment Date" means each December 15 and June 15, commencing
---------------------
December 15, 1999 and concluding on the Final Maturity Date.
"Investment Grade Rating" means a rating of "BBB--" or higher from S&P
-----------------------
and "Baa3" or higher from Moody's (or an equivalent rating by another nationally
recognized credit rating agency if none of such corporations is rating the
Senior Secured Notes).
"Issuer" means the Issuer, and any and all successors thereto.
------
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
-------------
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared
---------------------
by the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"Lien" means any mortgage, pledge, hypothecation, assignment,
----
mandatory deposit arrangement with any Person owning Indebtedness of such
Person, encumbrance, lien (statutory or other), preference, priority or other
security agreement of any kind or nature whatsoever which has the substantial
effect of constituting a security interest, including, without limitation, any
conditional sale or other title retention agreement, any financing lease having
substantially the same effect as any of the foregoing and the filing of any
financing statement or similar instrument under the Uniform Commercial Code or
comparable law of any jurisdiction, domestic or foreign.
"Liquidated Damages" shall have the same meaning as in Section 5 of
------------------
the Registration Rights Agreement.
"Loss Proceeds" means all net proceeds from an Event of Loss received
-------------
by a Coso Partnership, including, without limitation, insurance proceeds or
other amounts actually received, except proceeds of delayed opening or business
interruption insurance, on account of an event which causes all or a substantial
portion of the relevant Project to be damaged, destroyed or rendered unfit for
normal use.
"Loss Proceeds Account" means the account of such name created under
---------------------
the Depositary Agreement.
"Major Maintenance" means labor, materials and other direct expenses
-----------------
for any overhaul of or major maintenance procedure for any Project (including
major maintenance such as turbine overhauls) which requires significant
disassembly or shutdown of the relevant Project pursuant to manufacturers'
guidelines or recommendations, engineering or operating considerations or the
requirements of any applicable legal requirement; provided that such expenses
are capitalized on the balance sheet of the relevant Partnership and not
expensed on the statement of operations of the relevant Partnership, all in
accordance with GAAP.
11
<PAGE>
"Management Fees" means fees paid to the Partners or their
---------------
representatives pursuant to the partnership agreements of the Coso Partnerships
as determined by the management committee of each of the Coso Partnerships.
"Management Fees Account" means the Account of such name created under
-----------------------
the Depositary Agreement.
"Material Adverse Effect" means a material adverse effect on (i) the
-----------------------
financial position or results of operation of the Issuer and the Coso
Partnerships, taken as a whole, (ii) the Collateral or the validity or priority
of the Liens in favor of Collateral Agent on the Collateral, (iii) the ability
of the Issuer to perform its material obligations under this Indenture, the
Senior Secured Notes or any of the Financing Documents to which it is a party,
(iv) the ability of the Trustee to enforce any of the payment obligations of the
Issuer under this Indenture or the Senior Secured Notes, or (v) the ability of
the Coso Partnerships to perform any of their material obligations under their
respective Partnership Notes or the Financing Documents to which they are a
party.
"Moody's" means Moody's Investors Service, Inc., a corporation
-------
organized and existing under the laws of the State of Delaware, its successors
and assigns.
"Navy Contract" means:
-------------
(1) Original Service Contract N62474-79-C-5382, dated December 6, 1979 between
U.S. Naval Weapons Center and California Energy Company, Inc., Contractor
(the "Original Navy Contract");
----------------------
(2) Modification P00004 to the Original Navy Contract, between the U.S.
Government (Navy) and China Lake Joint Venture, c/o California Energy
Company, Inc., as Contractor, dated October 19, 1983;
(3) Modifications P0005 through P00044 to the Original Navy Contract, excluding
therefrom P00018, P00040, P00041 and P00042;
(4) Memorandum of Contract Affecting Real Property, between CLJV and the Navy,
dated February 14, 1986, recorded March 13, 1986 as File No. 86-1043;
(5) Escrow Agreement, executed by the Navy I Partnership, the U.S. Navy and
Bank of America, dated December 16, 1992, as amended;
(6) Novation Agreement dated as of July 31, 1989, among CLJV, Navy I, BLM and
the U.S.Navy, recorded December 16, 1992 as File No. 92-6898 (Navy II); and
(7) Novation Agreement dated as of May 25, 1999 between CLJV and the U.S. Navy.
"Navy I Field O&M Agreement" means the Field Operations and
--------------------------
Maintenance Agreement, dated as of May 28, 1999, by and between Navy I
Partnership and Coso Operating Company LLC.
"Navy II Field O&M Agreement" means the Field Operations and
---------------------------
Maintenance Agreement, dated as of May 28, 1999, by and between Navy II
Partnership and Coso Operating Company LLC.
12
<PAGE>
"Navy I Partners" means ESCA, LLC, a Delaware limited liability
---------------
company, and New CLOC Company, LLC, a Delaware limited liability company, the
general partners of the Navy I Partnership.
"Navy II Partners" means Caithness Navy II Group, LLC, a Delaware
----------------
limited liability company, and New CTC Company, LLC, a Delaware limited
liability company, the general partners of the Navy II Partnership.
"Navy I Partnership" means Coso Finance Partners, a California general
------------------
partnership.
"Navy II Partnership" means Coso Power Developers, a California
-------------------
general partnership.
"Navy I Plant O&M Agreement" means the Operations and Maintenance
--------------------------
Agreement, dated as of May 28, 1999, by and between Navy I Partnership and FPL
Energy Operating Services, Inc.
"Navy II Plant O&M Agreement" means the Operations and Maintenance
---------------------------
Agreement, dated as of May 28, 1999, by and between Navy II Partnership and FPL
Energy Operating Services, Inc.
"Navy I Project" means the ownership, development and operation of the
--------------
turbine generators and associated geothermal resource wells operated by the Navy
I Partnership on a portion of the lands described in Exhibit A of the Navy
Contract and, after an interest in the same has been assigned to the Navy I
Partnership, the lands described in the USBLM/LADWP Leases, and the Navy I
Partnership's ownership and operation of the 115kV transmission line to the
Edison substation at Inyokern, California.
"Navy II Project" means the ownership, development and operation of
---------------
the turbine generators and associated geothermal resource wells operated by the
Navy II Partnership on a portion of the lands described in Exhibit A of the Navy
Contract and, after the interest in the same has been assigned to the Navy II
Partnership, the lands described in the USBLM/LADWP Leases.
"Non-U.S. Person" means a Person who is not a U.S. Person.
---------------
"Obligations" means any principal, interest, penalties, fees,
-----------
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Senior Secured Notes by the
--------
Issuer.
"Offering Memorandum" means that certain offering memorandum dated May
-------------------
21, 1999 offering the Senior Secured Notes for sale.
"Officer" means, with respect to any Person, the Chairman of the
-------
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
---------------------
Issuer by two Officers of the Issuer, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Issuer, that meets the requirements of
Section 10.05 hereof.
13
<PAGE>
"Operating and Maintenance Costs" means, for any periods, all amounts
-------------------------------
disbursed by or on behalf of the Coso Partnerships for operation, maintenance
(excluding, after the first Interest Payment Date, Capital Expenditures),
administration, repair, or improvement of their Projects, including, without
limitation, premiums on insurance policies, property and other taxes, payments
under the relevant operating and maintenance agreements, leases, royalty and
other land use agreements, fees, expenses, and any other payments required under
the Project Documents (excluding the Operating and Maintenance Fees and the
Management Fees).
"Operating and Maintenance Fees" means fees payable to FPL Energy
------------------------------
Operating Services, Inc. and Coso Operating Company LLC or any successor
operators with respect to the Plant O&M Agreements and the Field O&M Agreements.
"Operating and Maintenance Fees Account" means the Account of such
--------------------------------------
name created under the Depositary Agreement.
"Operating Budget" means a budget of Operating and Maintenance Costs
----------------
and Capital Expenditures with respect to the Coso Partnerships and the Projects
for any given fiscal year, or part thereof, and prepared in good faith on the
basis of estimated requirements, showing such costs by category for such fiscal
year.
"Opinion of Counsel" means an opinion from legal counsel who is
------------------
reasonably acceptable to the Trustee, that meets the requirements of Section
10.05 hereof. The counsel may be an employee of or counsel to the Issuer, any
Affiliate of the Issuer or the Trustee.
"Outstanding Notes," means, as of the time in question, all Senior
-----------------
Secured Notes authenticated and delivered under this Indenture, except (i)
Senior Secured Notes theretofore canceled or required to be canceled under this
Indenture; (ii) Senior Secured Notes for which provision for payment shall have
been made in accordance with this Indenture; and (iii) Senior Secured Notes in
substitution for which other Senior Secured Notes have been authenticated and
delivered pursuant to this Indenture.
"Partners" means the BLM Partners, the Navy I Partners and the Navy II
--------
Partners.
"Participant" means, with respect to the Depositary, Euroclear or
-----------
Cedel, a Person who has an account with the Depositary Agent, Euroclear or
Cedel, respectively (and, with respect to The Depository Trust Company, shall
include Euroclear and Cedel).
"Partnership Agreements" means:
----------------------
(1) that certain Third Amended and Restated Partnership Agreement, executed by
the Navy I Partnership, dated May 28, 1999;
(2) that certain Third Amended and Restated Partnership Agreement, executed by
the BLM Partnership, dated May 28, 1999; and
(3) that certain Third Amended and Restated Partnership Agreement, executed by
the Navy II Partnership, dated May 28, 1999.
"Partnership Notes" means the promissory notes evidencing the Coso
-----------------
Partnerships' obligations to repay the loans made by the Issuer to the Coso
Partnerships.
14
<PAGE>
"Payment Date" means any Interest Payment Date or Principal Payment
------------
Date.
"Permitted Additional Senior Lender" shall mean a holder of any
----------------------------------
Permitted Indebtedness of the Issuer (other than the Senior Secured Notes and
Permitted Indebtedness described in clause (4) or (5) of the definition of
Permitted Indebtedness) or of any Permitted Guarantor Indebtedness of any Coso
Partnership described in clause (1) of the definition of Permitted Guarantor
Indebtedness (other than Permitted Indebtedness described in clause (4) or (5)
of the definition of Permitted Indebtedness), or any agent, depositary,
collateral agent, security trustee or similar such party acting on behalf of any
such holder or holders.
"Permitted Guarantor Indebtedness" means:
--------------------------------
(1) proceeds of Permitted Indebtedness loaned to any Coso Partnerships by the
Issuer or, incurred by a Coso Partnership;
(2) guarantees by one or more of the Coso Partnerships of Permitted
Indebtedness;
(3) the Guarantees;
(4) the Partnership Notes;
(5) Indebtedness of one Coso Partnership to another Coso Partnership; and
(6) Indebtedness of one or more of the Coso Partnerships not otherwise
described under clauses (1) through (5) hereof incurred solely for working
capital and operational needs of the Projects which, when aggregated with
the then outstanding principal balance of Indebtedness of the Issuer
permitted pursuant to clause (5) of the definition of Permitted
Indebtedness (but without duplication of amounts), does not exceed $5.0
million at any time outstanding.
"Permitted Indebtedness" means:
----------------------
(1) the Senior Secured Notes;
(2) Indebtedness incurred to finance the making of capital improvements to the
Projects required to maintain compliance with applicable law or anticipated
changes therein; provided that no such Indebtedness may be incurred unless
at the time of such incurrence (i) no Default or Event of Default has
occurred and is continuing, (ii) the Independent Engineer confirms as
reasonable a certification by the Issuer (containing customary
qualifications) that the proposed capital improvements are reasonably
expected to enable such Project to comply with applicable or anticipated
legal requirements, (iii) the calculations of the Issuer demonstrate that,
after giving effect to the incurrence of such Indebtedness, the minimum
projected Debt Service Coverage Ratio of the Issuer (x) for the next four
consecutive fiscal quarters, commencing with the quarter in which such
Indebtedness is incurred, taken as one annual period, and (y) for each
subsequent fiscal year through the Final Maturity Date, will not be less
than 1.25 to 1 and (iv) the Rating Agencies confirm that the incurrence of
such Indebtedness will not result in a Rating Downgrade;
(3) Indebtedness incurred to finance the making of capital improvements to the
Projects not required by applicable law so long as after giving effect to
the incurrence of such Indebtedness (i) no Default or Event of Default has
occurred and is continuing, (ii) the calculations of the Issuer
15
<PAGE>
demonstrates that, after giving effect to the incurrence of such
Indebtedness, the minimum projected Debt Service Coverage Ratio (x) for the
next four consecutive fiscal quarters, commencing with the quarter in which
such Indebtedness is incurred, taken as one annual period, and (y) for each
subsequent fiscal year through the Final Maturity Date, in each case will
not be less than (A) 1.3 to 1 if the Indebtedness is incurred on or before
December 30, 2001, or (B) 1.5 to 1 if the Indebtedness is incurred after
December 30, 2001, and (iii) each of the Rating Agencies confirm that the
incurrence of such Indebtedness will not result in a Rating Downgrade;
(4) (x) Subordinated Indebtedness accrued or incurred by BLM to Coso Land
Company constituting royalty payments pursuant to an agreement regarding
royalties between such parties as in effect on the Closing Date, (y)
Subordinated Indebtedness (other than as specified in subclause (x) of this
clause (4) of this definition of Permitted Indebtedness) from Affiliates in
an amount not to exceed $20.0 million or (z) any other Subordinated
Indebtedness so long as each of the Rating Agencies confirm that the
incurrence of such Subordinated Indebtedness will not result in a Rating
Downgrade, and in the case of both (x) and (y), which amounts shall be used
to finance capital, operating or other costs with respect to the Projects;
provided that all payments of principal of, and premium, if any, and
interest on, any such Subordinated Indebtedness shall constitute a
Restricted Payment under this Indenture; and
(5) Indebtedness not otherwise described under clauses (1) through (4) hereof
incurred solely for working capital and operational needs of the Projects
which, when aggregated with the then outstanding principal balance of
Indebtedness of one or more of the Coso Partnerships permitted pursuant to
clause (6) of the definition of Permitted Guarantor Indebtedness (but
without duplication of amounts), does not exceed $5.0 million at any time
outstanding.
"Permitted Investments" means an Investment in any of the following:
---------------------
(1) direct obligations of the Department of the Treasury of the United States
of America;
(2) obligations, representing full faith and credit of the United States of
America, of any of the following federal agencies: Export-Import Bank,
Farmers Home Administration, General Services Administration, U.S. Maritime
Administration, Small Business Administration, Government National Mortgage
Association (GNMA), U.S. Department of Housing & Urban Development (PHA's)
and Federal Housing Administration;
(3) obligations issued or fully guaranteed by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof and, at the time of the acquisition, having one of
the two highest ratings obtainable from either S&P's or Moody's;
(4) certificates of deposit and eurodollar time deposits, bankers' acceptances
and overnight bank deposits, in each case with any domestic or foreign
commercial bank having capital and surplus in excess of $250.0 million;
(5) notes, bonds, collateralized mortgage obligations or other evidences of
indebtedness rated "AAA" by S&P's and "Aaa" by Moody's issued by the
Federal Home Loan Bank, the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation;
(6) commercial paper rated in any one of the two highest rating categories by
Moody's or S&P's;
16
<PAGE>
(7) investment agreements with banks (foreign and domestic), broker/dealers,
and other financial institutions rated at the time of bid in any one of the
three highest rating categories by Moody's and S&P's;
(8) repurchase agreements with banks (foreign and domestic), broker/dealers,
and other financial institutions rated at the time of bid in any one of the
three highest rating categories by Moody's and S&P's, provided, (a)
collateral is limited to the securities specified in clauses (1) through
(5) above, (b) the margin levels for collateral must be maintained at a
minimum of 102% including principal and interest, (c) the Trustee shall
have a first perfected security interest in the collateral, (d) the
collateral will be delivered to a third party custodian, designated by the
Issuer, acting for the benefit of the Trustee and all fees and expenses
related to collateral custody will be the responsibility of the Issuer, (e)
the collateral must have been or will be acquired at the market price and
marked to market weekly and collateral level shortfalls cured within 24
hours, (f) unlimited right of substitution of collateral is allowed
provided that substitution collateral must be permitted collateral
substituted at a current market price and substitution fees of the
custodian shall be paid by the Issuer;
(9) asset-backed securities having the highest rating obtainable from either
S&P's or Moody's;
(10) forward purchase agreements delivering securities specified in clauses (1)
and (6) above with banks (foreign and domestic), broker/dealers, and other
financial institutions maintaining a long-term rating on the day of bid no
lower than investment grade by both S&P's and Moody's (such rating may be
at either the parent or subsidiary level); and
(11) money market funds rated "AAAm" or "AAAm-G" or better by S&P's and other
financial funds investing exclusively in investments of the types described
in clauses (1) through this clause (11) of this definition.
"Permitted Lien" means, collectively:
--------------
(1) Liens to secure Indebtedness described in clauses (1), (2) and (3) of the
definition of Permitted Indebtedness and described in clauses (1), (2), (3)
and (4) of the definition of Permitted Guarantor Indebtedness;
(2) mechanic's, workmen's, materialmen's, supplier's, construction or other
like Liens arising in the ordinary course of business that in each case,
have not become the subject of foreclosure or any other action or
proceeding;
(3) servitudes, easements, rights-of-way, restrictions, minor defects or
irregularities in title and such other encumbrances or charges against real
property or interests therein as are of a nature generally existing with
respect to properties of a similar character and which do not in any
material way interfere with the use thereof in the business of the Coso
Partnerships;
(4) other Liens incidental to the conduct of the Coso Partnerships' business or
the ownership of properties and assets which were not incurred in
connection with the borrowing of money or the obtaining of advances or
credit (other than vendor's liens for accounts payable in the ordinary
course of business), and which do not in the aggregate materially impair
the use thereof in the operation of their business; and
(5) All those certain exceptions contained in The Title Policy.
17
<PAGE>
"Permitted Power Contract Buy-Out" means (i) the termination of a
--------------------------------
Power Purchase Agreement or the negotiated reduction of capacity and/or energy
or the rates related thereto to be sold under a Power Purchase Agreement other
than pursuant to such agreement's terms and (ii) any payment or payments by
Southern California Edison Company made in connection therewith.
"Person" means any individual, sole proprietorship, corporation,
------
partnership, joint venture, limited liability partnership, limited liability
company, trust, unincorporated association, institution, Governmental Authority
or any other entity.
"Plant O&M Agreements" means:
--------------------
(1) the Navy I Plant O&M Agreement;
(2) the BLM Plant O&M Agreement; and
(3) the Navy II Plant O&M Agreement.
"Pledge Agreements" means, (i) that certain Partnership Interest
-----------------
Pledge Agreement by ESCA, LLC, a Delaware limited liability company, and New
CLOC Company, LLC, a Delaware limited liability company, in favor of the
Collateral Agent, (ii) that certain Partnership Interest Pledge Agreement by
Caithness Coso Holdings, LLC, a Delaware limited liability company, and New CHIP
Company, LLC, a Delaware limited liability company, in favor of the Collateral
Agent, (iii) that certain Partnership Interest Pledge Agreement by Caithness
Navy II Group, LLC, a Delaware limited liability company, and New CTC Company,
LLC, a Delaware limited liability company, in favor of the Collateral Agent,
(iv) that certain Stock Pledge Agreement by Navy I, BLM and Navy II, in favor of
the Collateral Agent, (v) that certain Partnership Interest Pledge Agreement
(CTLP) by BLM and Navy II, in favor of the Collateral Agent, (vi) that certain
Partnership Interest Pledge Agreement (CLJV) by Caithness Acquisition Company,
LLC, a Delaware limited liability company, and Caithness Geothermal 1980 Ltd.,
L.P., a Delaware limited partnership in favor of the Collateral Agent and (vii)
that certain Partnership Interest Pledge Agreement (CLC) by Caithness
Acquisition Company, LLC, a Delaware limited liability company, and Caithness
Geothermal 1980 Ltd., L.P., a Delaware limited partnership, in favor of the
Collateral Agent.
"Power Purchase Agreements" means:
-------------------------
(1) that certain Power Purchase Contract, dated as of June 4, 1984, as amended,
by and between Southern California Edison Company and the Navy I
Partnership (as assignee of CLJV);
(2) that certain Power Purchase Contract, dated as of February 1, 1985, as
amended, by and between Southern California Edison Company and the BLM
Partnership (as assignee of CLJV); and
(3) that certain Power Purchase Contract, dated as of February 1, 1985, as
amended, by and between Southern California Edison Company and the Navy II
Partnership (as assignee of CLJV).
"Principal Account" means the Account of such name created under the
-----------------
Depositary Agreement.
"Principal Payment Date" when used with respect to any Senior Secured
----------------------
Note means the date on which all or a portion of the principal of such Senior
Secured Note becomes due and payable
18
<PAGE>
as provided therein or in this Indenture, whether on a scheduled date for
payment of principal at a Redemption Date, the Final Maturity Date, a date of
declaration of acceleration, or otherwise.
"Private Placement Legend" means the legend set forth in Section
------------------------
2.06(g)(i) to be placed on all Senior Secured Notes issued under this Indenture
except where otherwise permitted by the provisions of this Indenture.
"Project Documents" means, individually and collectively, any of the
-----------------
following documents to which any of the Guarantors is a Party:
(1) the Additional USBLM Lease;
(2) the Additional BLM Real Estate Documents;
(3) the Additional Navy Contract Documents;
(4) the Acquisition Agreement;
(5) the CTLP Partnership Agreement;
(6) the Cotenancy Agreement;
(7) the Field O&M Agreements;
(8) the Interconnection Facilities Agreement;
(9) the Navy Contract;
(10) the Partnership Agreements;
(11) the Plant O&M Agreements;
(12) the Power Purchase Agreements;
(13) the Purchase Agreements;
(14) the Settlement Agreements;
(15) the Steam Exchange Agreements;
(16) the USBLM/LADWP Leases;
(17) the USBLM Lease;
(18) the USBLM Rights of Way;
(19) the USBLM Site Licenses; and
(20) any additional material existing agreements and documents which relate to
all or any portion of one or more of the Projects.
19
<PAGE>
"Projects" means the Navy I Project, the BLM Project and the Navy II
--------
Project.
"Purchase Agreements" means:
-------------------
(1) that certain Purchase Agreement, by and among Caithness Energy, L.L.C.,
Caithness Acquisition Company, LLC, and CalEnergy Company, Inc., dated as
of January 16, 1999;
(2) that certain Agreement Concerning Consideration, by and among Caithness
Energy, L.L.C., Caithness Acquisition Company, LLC, New CTC Company,LLC,
New CLOC Company, LLC, New CHIP Company, LLC, and CalEnergy Company, Inc.
dated as of February 25, 1999;
(3) that certain Future Revenue Agreement, by and between Caithness Energy,
L.L.C., Caithness Acquisition Company, LLC, New CTC Company, LLC, New CLOC
Company, LLC, New CHIP Company, LLC, the Coso Partnerships and CalEnergy
Company, Inc. dated as of February 25, 1999; and
(4) The Acquisition Agreement.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A
---
of the Securities Act.
"Rating" means the rating of the Senior Secured Notes by the Rating
------
Agencies.
"Rating Agency" means any of Moody's, S&P and Duff & Phelps.
-------------
"Rating Downgrade" means a lowering by the Rating Agencies of the
----------------
credit ratings as of the date of the Offering of the Senior Secured Notes.
"Redemption Account" means the Account of such name created under the
------------------
Depositary Agreement.
"Redemption Date" means the date on which Issuer redeems or shall
---------------
redeem any Senior Secured Notes in accordance with this Indenture.
"Reference Treasury Dealer" means any nationally recognized primary
-------------------------
U.S. Government securities dealer in New York City selected by the Issuer.
"Reference Treasury Dealer Quotations" means, with respect to each
------------------------------------
Reference Treasury Dealer and any date of redemption, the average, as determined
by the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such date of redemption.
"Registration Rights Agreement" means that certain Registration Rights
-----------------------------
Agreement, dated as of May 28, 1999, by and between the Issuer, the Guarantors
and the Initial Purchaser.
"Regulation S" means Regulation S promulgated under the Securities
------------
Act.
20
<PAGE>
"Regulation S Global Note" means a Regulation S Temporary Global Note
------------------------
or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global Senior
----------------------------------
Secured Note in the form of Exhibit A-1 for the 2001 Notes and in the form of
Exhibit B-1 for the 2009 Notes hereto bearing the Global Note Legend and the
Private Placement Legend and deposited with or on behalf of and registered in
the name of the Depositary Agent or its nominee, issued in a denomination equal
to the outstanding principal amount of the Regulation S Temporary Global Note
upon expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global Senior
----------------------------------
Secured Note in the form of Exhibit A-2 for the 2001 Notes and in the form of
Exhibit B-2 for the 2009 Notes hereto bearing the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary
Agent or its nominee, issued in a denomination equal to the outstanding
principal amount of the Senior Secured Notes initially sold in reliance on Rule
903 of Regulation S.
"Remaining Average Life" means, with respect to the 2009 Notes, the
----------------------
principal of which is to be redeemed (the "Called Principal"), the number of
years (calculated to the nearest one-twelfth year) obtained by dividing (i) such
Called Principal into (ii) the sum of the products obtained by multiplying (a)
the principal component of each Remaining Scheduled Payment (as defined below)
with respect to such Called Principal by (b) the number of years (calculated to
the nearest one-twelfth year) that will elapse between the date on which such
Called Principal is to be redeemed (the "Settlement Date") and the scheduled due
date of such Remaining Scheduled Payment. For purposes of this definition, the
term "Remaining Scheduled Payments" means, with respect to the Called Principal
of any 2009 Notes, all payments of such Called Principal and interest thereon
that would be due after the Settlement Date with respect to such Called
Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"Required Holders" means, at any time, Persons that at such time hold
----------------
not less than a majority in aggregate principal amount of the Outstanding Notes.
"Responsible Officer" means, with respect to knowledge of any default
-------------------
under this Indenture or the Credit Agreements, the chief executive officer,
president, chief financial officer, general counsel, principal accounting
officer, treasurer, or any vice president of the Issuer or a Coso Partnership,
as applicable, or other officer of such corporation who in the normal
performance of his or her operational duties would have knowledge of the subject
matter relating to such default.
"Responsible Trust Officer," when used with respect to the Trustee or
-------------------------
the Collateral Agent, means any officer within the Corporate Trust Office of the
Trustee (or any successor group of the Trustee) including any Managing Director,
Vice President, Assistant Vice President, Trust Officer, Secretary, Assistant
Secretary or Assistant Treasurer or any other officer of the Trustee or the
Collateral Agent customarily performing functions similar to those performed by
any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the
--------------------------
Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
----------------------
Placement Legend.
21
<PAGE>
"Restricted Payment" means, with respect to any Person, (i) the
------------------
declaration and payment of distributions, dividends, the issuance of Equity
Interests in such person or any other payment in respect of any Equity Interests
made in cash, property, obligations or other notes, (ii) any payment of the
principal of or interest on any Subordinated Indebtedness, or (iii) the making
of any loans or advances to any Affiliate (other than Permitted Indebtedness);
provided, however, that "Restricted Payment" shall not include payments under
any of the Project Documents for services rendered.
"Restricted Period" means the 40-day restricted period as defined in
-----------------
Regulation S.
"Revenue Account" means the Account of such name created under the
---------------
Depositary Agreement.
"Rule 144" means Rule 144 promulgated under the Securities Act.
--------
"Rule 144A" means Rule 144A promulgated under the Securities Act.
---------
"Rule 903" means Rule 903 promulgated under the Securities Act.
--------
"Rule 904" means Rule 904 promulgated the Securities Act.
--------
"S&P" means Standard & Poor's Rating Group Corporation, a corporation
---
organized and existing under the laws of the State of New York, its successors
and assigns.
"SEC" means the Securities and Exchange Commission.
---
"Secured Parties" means the Trustee, the Collateral Agent, the
---------------
Depositary, any Permitted Additional Senior Lender or any other Person that
becomes a Secured Party under any Financing Document.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Security Agreements" means (i) that certain Security Agreement
-------------------
executed by the Navy I Partnership in favor of the Collateral Agent, (ii) that
certain Security Agreement executed by the BLM Partnership in favor of the
Collateral Agent, (iii) that certain Security Agreement executed by the Navy II
Partnership in favor of the Collateral Agent, (iv) that certain Security
Agreement executed by Coso Operating Company LLC in favor of the Collateral
Agent, (v) that certain Security Agreement executed by FPL Energy Operating
Services, Inc. in favor of the Collateral Agent, and (vi) that certain Security
Agreement executed by the Issuer in favor of the Collateral Agent.
"Security Documents" means, collectively, the Depositary Agreement,
------------------
the Deeds of Trust, the Security Agreements, the Pledge Agreements and any other
document providing for any lien, pledge, encumbrance, mortgage or security
interest on (i) any or all of the assets of any of the Coso Partnerships, the
Issuer or the ownership interests thereof or (ii) the assets constituting or
relating to the Projects.
"Senior Indebtedness" means all of the Permitted Indebtedness of
-------------------
Issuer and the Coso Partnerships other than the Subordinated Indebtedness.
"Senior Secured Notes" has the meaning assigned to it in the preamble
--------------------
to this Indenture.
"Settlement Agreements" means:
---------------------
22
<PAGE>
(1) that certain Settlement Agreement, Release and Agreement to Arbitrate, by
and between the BLM Partnership, CalEnergy and The Dow Chemical Company,
dated November 18, 1997; and
(2) that certain Settlement Agreement and Release, by and between The Mission
Group, Mission Power Engineering Company, California Energy Company, Inc.,
and the Coso Partnerships, dated June 9, 1993.
"Significant Subsidiary" means any Subsidiary that would be a
----------------------
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date of this Indenture.
"Steam Exchange Agreements" means:
-------------------------
(1) that certain Coso Geothermal Exchange Agreement, by and between the Coso
Partnerships and CalEnergy, dated January 11, 1994;
(2) that certain Amendment to Coso Geothermal Exchange Agreement, by and
between the Coso Partnerships and CalEnergy, dated April 12, 1995;
(3) that certain Amendment to Coso Geothermal Exchange Agreement, by and
between the Coso Partnerships, dated May 28, 1999, as and when the same is
executed pursuant to the Acquisition Agreement;
(4) that certain Amendment Number P00029 to the Original Navy Contract, dated
October 4, 1994;
(5) that certain Amendment Number P00030 to the Original Navy Contract, dated
December 19, 1994;
(6) that certain Amendment P00033 to the Original Navy Contract, dated January
8, 1995;
(7) that certain Amendment P00039 to the Navy Contract, dated November 19,
1998;
(8) that certain Agreement for the Calculation of Mineral Royalties/Revenues in
the Coso Known Geothermal Resource Area, executed by the USBLM, MMS and
CalEnergy, dated December 16, 1994;
(9) that certain Amendment to the Agreement for the Calculation of Mineral
Royalties/Revenues in the Coso Known Geothermal Resource Area, by the
USBLM, MMS and the Coso Partnerships, to be entered into after the Closing
Date;
(10) the Cotenancy Agreement; and
(11) Amendment to 1988 Plan of Utilization, Development and Disposal for Lease
CA-11402, CA-11383, CA-11384 and CA-11385 dated May 1998 and Approval
Letter from the USBLM dated as of June 11, 1998.
23
<PAGE>
"Subordinated Indebtedness" means Indebtedness (and the note or other
-------------------------
instrument evidencing the same) which has been subordinated, on terms and
conditions substantially the same as those permitted under this Indenture, to
the prior payment of amounts owing under this Indenture and the Senior Secured
Notes, and the repayment of which shall be made only from Restricted Payments.
"Subsidiary" means, with respect to any Person, any corporation,
----------
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a combination
thereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
---
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA.
"Title Event" means the existence of any defect of title or lien or
-----------
encumbrance on a Project (other than certain Permitted Liens) in effect on the
Closing Date that entitles the Collateral Agent to make a claim under the Title
Policy.
"Title Event Proceeds" means all amounts and proceeds (including
--------------------
instruments) in respect of any Title Event.
"Title Policy" means the policy or policies of title insurance issued
------------
by Chicago Title Insurance Company in connection with the issuance of the Senior
Secured Notes.
"Transaction Documents" means the Project Documents and the Financing
---------------------
Documents.
"Treasury Rate" means, with respect to any date of redemption, the
-------------
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such date of redemption.
"Trustee" means the party named as such above until a successor
-------
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive Notes that
----------------------------
do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent global Senior Secured
------------------------
Note in the form of Exhibit A-1 for the 2001 Notes and in the form of Exhibit B-
1 for the 2009 Notes attached hereto that bears the Global Note Legend and that
has the "Schedule of Exchanges of Interests in the Global Note" attached
thereto, and that is deposited with or on behalf of and registered in the name
of the Depositary Agent, representing a series of Senior Secured Notes that do
not bear the Private Placement Legend.
"U.S. Bank" means U.S. Bank Trust National Association.
---------
"USBLM" means the United States of America Department of the Interior,
-----
acting through the Bureau of Land Management.
"USBLM/LADWP Leases" means:
------------------
24
<PAGE>
(1) that certain Geothermal Resources Lease, Serial No. CA-11383, by and
between the USBLM, and the LADWP, effective as of February 1, 1982;
(2) that certain Geothermal Resources Lease, Serial No. CA-11384, by and
between the USBLM, and the LADWP, effective as of February 1, 1982, and
(3) that certain Geothermal Resources Lease, Serial No. CA-11385, by and
between the USBLM, and the LADWP, effective as of February 1, 1982.
"USBLM Lease" means: that certain Offer to Lease and Lease for
-----------
Geothermal Resources, Serial No. 11402, dated April 29, 1985, and effective May
1, 1985, by and between the USBLM and CalEnergy.
"USBLM Rights of Way" means:
-------------------
(1) that certain Right of Way, CA-18885, by and between the USBLM, and
CalEnergy, dated May 7, 1986; and
(2) that certain Right of Way, CA-13510, by and between the USBLM, and
CalEnergy, dated April 12, 1984.
"USBLM Site Licenses" means:
-------------------
(1) that certain License for Electric Power Plant Site Utilizing Geothermal
Resources between the United States of America, Licensor, through the
USBLM, and the BLM Partnership, Licensee, Serial No. CACA 22512, dated
March 8, 1989; and
(2) that certain License for Electric Power Plant Site Utilizing Geothermal
Resources between the United States of America, Licensor, through the
USBLM, and the BLM Partnership, Licensee, Serial No. 25690, per Decision
dated December 29, 1989.
"U.S. Person" means a U.S. person as defined in Rule 902(o) of
-----------
Regulation S.
"Voting Stock" of any Person as of any date means the Capital Stock of
------------
such Person that is at the time entitled to vote in the election of the Board of
Directors or otherwise entitled to vote in the determination of the management
of such Person.
"2001 Note" means any Senior Secured Note due 2001.
---------
"2009 Note" means any Senior Secured Note due 2009.
---------
Section 1.02. Other Definitions.
Defined in
Term Section
"Authentication Order"............................. 2.02
--------------------
"Covenant Defeasance".............................. 7.03
--------------------
25
<PAGE>
"Event of Default"............................... 5.01
----------------
"incur".......................................... 4.09
-----
"Legal Defeasance"............................... 7.02
----------------
"Make-Whole Price"............................... 3.07
----------------
"Paying Agent"................................... 2.03
------------
"Registrar"...................................... 2.03
---------
Section 1.03. Trust Indenture Act Provisions
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Senior Secured Notes;
--------------------
"indenture security Holder" means a Holder of a Senior Secured Note;
-------------------------
"indenture to be qualified" means this Indenture;
-------------------------
"indenture trustee" or "institutional trustee" means the Trustee; and
-----------------
"obligor" on the Senior Secured Notes and the Guarantees means the
-------
Issuer and the Guarantors, respectively, and any successor obligor upon the
Senior Secured Notes and the Guarantees, respectively.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions;
(6) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement or successor sections or rules
adopted by the SEC from time to time;
(7) references to any gender include the other genders;
26
<PAGE>
(8) the term "including" is not limited and has the inclusive
meaning represented by the phrase "including without limitation", the term
"include" is not limited and has the inclusive meaning represented by the
phrase "include without limitation", and the term "includes" is not limited
and has the inclusive meaning represented by the phrase "includes" without
limitation";
(9) the term "hereof", "herein", "hereunder", "hereto", and similar
terms refer to this Agreement as a whole and not to any particular
provision of this Agreement; and
(10) references in this Agreement to any document, instrument or
agreement (including this Agreement) shall (i) include all exhibits,
schedules and other attachments thereto, (ii) include all documents,
instruments or agreements issued or executed in replacement thereof and
(iii) to the extent permitted hereby, mean such document, instrument or
agreement, or replacement or predecessor thereto, as amended, modified or
supplemented from time to time in accordance with its terms and in effect
at any given time.
ARTICLE 2.
THE SENIOR SECURED NOTES
Section 2.01. Form and Dating.
(a) General. The Senior Secured Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto for the
2001 Notes and substantially in the form of Exhibit B hereto for the 2009 Notes.
The Senior Secured Notes may have notations, legends or endorsements required by
law, stock exchange rule or usage. Each Senior Secured Note shall be dated the
date of its authentication. The Senior Secured Notes shall be issued in
denominations of $100,000 and integral multiples of $1,000 in excess thereof.
The terms and provisions contained in the Senior Secured Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Issuer, the Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
However, to the extent any provision of any Senior Secured Note conflicts with
the express provisions of this Indenture, the provisions of this Indenture shall
govern and be controlling.
(b) Global Notes. Senior Secured Notes issued in global form shall be
substantially in the form of Exhibits A-1 or A-2 for the 2001 Notes and
substantially in the form of Exhibit B-1 or B-2 for the 2009 Notes attached
hereto (including the Global Note Legend thereon and the "Schedule of Exchanges
of Interests in the Global Note" attached thereto). Senior Secured Notes issued
in definitive form shall be substantially in the form of Exhibit A-1 hereto for
the 2001 Notes and substantially in the form of Exhibit B-1 hereto for the 2009
Notes (but without the Global Note Legend thereon and without the "Schedule of
Exchanges of Interests in the Global Note" attached thereto). Each Global Note
shall represent such of the outstanding Senior Secured Notes as shall be
specified therein and each shall provide that it shall represent the aggregate
principal amount of outstanding Senior Secured Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Senior Secured
Notes represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the aggregate
principal amount of outstanding Senior Secured Notes represented thereby shall
be made by the Trustee or the note custodian, at the direction of the Trustee,
in accordance with instructions given by the Holder thereof as required by
Section 2.06 hereof.
(c) Temporary Global Notes. Senior Secured Notes offered and sold in
reliance on Regulation S shall be issued initially in the form of the Regulation
S Temporary Global Note, which shall
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be deposited on behalf of the purchasers of the Senior Secured Notes represented
thereby with the Trustee, at its St. Paul, Minnesota office, as custodian for
the Depositary Agent, and registered in the name of the Depositary Agent or the
nominee of the Depositary Agent for the accounts of designated agents holding on
behalf of Euroclear or Cedel Bank, duly executed by the Issuer and authenticated
by the Trustee as hereinafter provided. The Restricted Period shall be
terminated upon the receipt by the Trustee of (i) a written certificate from the
Depositary Agent, together with copies of certificates from Euroclear and Cedel
Bank certifying that they have received certification of non-United States
beneficial ownership of 100% of the aggregate principal amount of the Regulation
S Temporary Global Note (except to the extent of any beneficial owners thereof
who acquired an interest therein during the Restricted Period pursuant to
another exemption from registration under the Securities Act and who will take
delivery of a beneficial ownership interest in a 144A Global Note bearing a
Private Placement Legend, all as contemplated by Section 2.06(a)(ii) hereof),
and (ii) an Officers' Certificate from the Issuer. Following the termination of
the Restricted Period, beneficial interests in the Regulation S Temporary Global
Note shall be exchanged for beneficial interests in Regulation S Permanent
Global Notes pursuant to the Applicable Procedures. Simultaneously with the
authentication of Regulation S Permanent Global Notes, the Trustee shall cancel
the Regulation S Temporary Global Note. The aggregate principal amount of the
Regulation S Temporary Global Note and the Regulation S Permanent Global Notes
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary Agent or its nominee, as the case may
be, in connection with transfers of interest as hereinafter provided.
(d) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Temporary Global Note and the
Regulation S Permanent Global Notes that are held by Participants through
Euroclear or Cedel Bank.
(e) CUSIP and Private Placement Numbers. The issuer in issuing the Senior
Secured Notes may use "CUSIP" or "private placement" numbers (if then generally
in use), and, if so, the Trustee shall indicate the "CUSIP" or "private
placement" numbers of the Senior Secured Notes in notices of redemption and
related materials as a convenience to Holders; provided that any such notice may
--------
state that no representation is made as to the correctness of such numbers
either as printed on the Senior Secured Notes or as contained in any notice of
redemption and related materials.
Section 2.02. Execution and Authentication.
One Officer shall sign the Senior Secured Notes for the Issuer by
manual or facsimile signature.
If the Officer whose signature is on a Senior Secured Note no longer
holds that office at the time a Senior Secured Note is authenticated, the Senior
Secured Note shall nevertheless be valid.
A Senior Secured Note shall not be valid until authenticated by the
manual signature of the Trustee. The signature shall be conclusive evidence
that the Senior Secured Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Issuer signed by one
Officer (an "Authentication Order"), authenticate Senior Secured Notes for
--------------------
original issue up to the aggregate principal amount stated in paragraph 4 of the
Senior Secured Notes, any Additional Senior Secured Notes issued pursuant to
this Section 2.02 and in accordance with all the limitations set forth in
Section 4.09
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hereof. The aggregate principal amount of Senior Secured Notes outstanding at
any time may not exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Issuer to authenticate Senior Secured Notes. An authenticating agent may
authenticate Senior Secured Notes whenever the Trustee may do so. Each
reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with Holders or an Affiliate of the Issuer.
Section 2.03. Registrar and Paying Agent.
The Issuer shall maintain an office or agency where Senior Secured
Notes may be presented for registration of transfer or for exchange
("Registrar") and an office or agency where Senior Secured Notes may be
---------
presented for payment ("Paying Agent"). The Registrar shall keep a register of
------------
the Senior Secured Notes and of their transfer and exchange. The Issuer may
appoint one or more co-registrars and one or more additional paying agents. The
term "Registrar" includes any co-registrar and the term "Paying Agent" includes
any additional paying agent. The Issuer may change any Paying Agent or
Registrar without notice to any Holder. The Issuer shall notify the Trustee in
writing of the name and address of any Agent not a party to this Indenture. If
the Issuer fails to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act as such. The Issuer or any of its Affiliates may
act as Paying Agent or Registrar.
The Issuer initially appoints The Depository Trust Company ("DTC") to
---
act as Depositary Agent with respect to the Global Notes.
The Issuer initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Custodian with respect to the Global Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Issuer shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium, if any, or interest on the Senior Secured Notes, and will
notify the Trustee of any default by the Issuer in making any such payment.
While any such default continues, the Trustee may require a Paying Agent to pay
all money held by it to the Trustee. The Issuer at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon payment over to
the Trustee, the Paying Agent (if other than the Issuer or an Affiliate of the
Issuer) shall have no further liability for the money. If the Issuer or an
Affiliate of the Issuer acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the benefit of the Holders all money held by it as
Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the
Issuer or any of the Guarantors, the Trustee shall serve as Paying Agent for the
Senior Secured Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is
not the Registrar, the Issuer shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Senior Secured Notes and the Issuer shall otherwise comply with TIA (S) 312(a).
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Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary Agent to a nominee of the
Depositary Agent, by a nominee of the Depositary Agent to the Depositary Agent
or to another nominee of the Depositary Agent, the Depositary Agent or any such
nominee to a successor Depositary Agent or a nominee of such successor
Depositary Agent. All Global Notes will be exchanged by the Issuer for
Definitive Notes if (i) the Issuer delivers to the Trustee notice from the
Depositary Agent that it is unwilling or unable to continue to act as Depositary
Agent or that it is no longer a clearing agency registered under the Exchange
Act and, in either case, a successor Depositary Agent is not appointed by the
Issuer within 120 days after the date of such notice from the Depositary Agent
or (ii) the Issuer in its sole discretion determines that the Global Notes (in
whole but not in part) should be exchanged for Definitive Notes and delivers a
written notice to such effect to the Trustee; provided that in no event shall
the Regulation S Temporary Global Note be exchanged by the Issuer for Definitive
Notes prior to (x) the expiration of the Restricted Period and (y) the receipt
by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B)
under the Securities Act. Upon the occurrence of either of the preceding events
in (i) or (ii) above, Definitive Notes shall be issued in such names as the
Depositary Agent shall instruct the Trustee. Global Notes also may be exchanged
or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof.
Every Senior Secured Note authenticated and delivered in exchange for, or in
lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or
Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Note. A Global Note may not be exchanged for another
Note other than as provided in this Section 2.06(a), however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.06(b) or (c) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes. The
transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary Agent, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act. Transfers of
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in the
same Restricted Global Note in accordance with the transfer restrictions set
forth in the Private Placement Legend; provided, however, that prior to the
expiration of the Restricted Period, transfers of beneficial interests in the
Temporary Regulation S Global Note may not be made to a U.S. Person or for the
account or benefit of a U.S. Person (other than an Initial Purchaser).
Beneficial interests in any Unrestricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note. No written orders or instructions shall be required
to be delivered to the Registrar to effect the transfers described in this
Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of beneficial
interests that are not subject to Section 2.06(b)(i) above, the transferor of
such beneficial interest must deliver to the Registrar either (A) (1) a
written order from a Participant or an Indirect Participant given to the
Depositary Agent in accordance with the Applicable Procedures directing the
Depositary Agent to credit or cause to be credited a beneficial interest in
another Global Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given in accordance with the
Applicable Procedures
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containing information regarding the Participant account to be credited with
such increase or (B) (1) a written order from a Participant or an Indirect
Participant given to the Depositary Agent in accordance with the Applicable
Procedures directing the Depositary Agent to cause to be issued a Definitive
Note in an amount equal to the beneficial interest to be transferred or
exchanged and (2) instructions given by the Depositary Agent to the Registrar
containing information regarding the Person in whose name such Definitive Note
shall be registered to effect the transfer or exchange referred to in (1)
above; provided that in no event shall Definitive Notes be issued upon the
transfer or exchange of beneficial interests in the Regulation S Temporary
Global Note prior to (x) the expiration of the Restricted Period and (y) the
receipt by the Registrar of any certificates required pursuant to Rule 903
under the Securities Act. Upon consummation of an Exchange Offer by the
Company in accordance with Section 2.06(f) hereof, the requirements of this
Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the
Registrar of the instructions contained in the Letter of Transmittal delivered
by the Holder of such beneficial interests in the Restricted Global Notes.
Upon satisfaction of all of the requirements for transfer or exchange of
beneficial interests in Global Notes contained in this Indenture and the
Senior Secured Notes or otherwise applicable under the Securities Act, the
Trustee shall adjust the principal amount of the relevant Global Note(s)
pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Note. A beneficial interest in any Restricted Global Note may be transferred
to a Person who takes delivery thereof in the form of a beneficial interest in
another Restricted Global Note if the transfer complies with the requirements
of Section 2.06(b)(ii) above and the Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor must
deliver a certificate in the form of Exhibit C hereto, including the
certifications in item (1) thereof; and
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or the
Regulation S Global Note, then the transferor must deliver a certificate in
the form of Exhibit C hereto, including the certifications in item (2)
thereof.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in an Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof in the form of a beneficial
interest in an Unrestricted Global Note if the exchange or transfer complies
with the requirements of Section 2.06(b)(ii) above and the Registrar receives
the following:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the holder
of the beneficial interest to be transferred, in the case of an exchange,
or the transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a Person
who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
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(C) such transfer is effected by a Broker-Dealer pursuant to the
Exchange Offer Registration Statement in accordance with the Registration
Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
beneficial interest in an Unrestricted Global Note, a certificate from
such holder in the form of Exhibit D hereto, including the
certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in a Restricted
Global Note proposes to transfer such beneficial interest to a Person
who shall take delivery thereof in the form of a beneficial interest
in an Unrestricted Global Note, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item (4)
thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar
so requests or if the Applicable Procedures so require, an Opinion of
Counsel in form reasonably acceptable to the Registrar to the effect that
such exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
If any such transfer is effected pursuant to this subparagraph at a time
when an Unrestricted Global Note has not yet been issued, the Issuer shall issue
and, upon receipt of an Authentication Order in accordance with Section 2.02
hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in
an aggregate principal amount equal to the aggregate principal amount of
beneficial interests transferred pursuant to this subparagraph.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who takes
delivery thereof in the form of a Restricted Definitive Note, then, upon
receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Restricted Definitive Note, a certificate from
such holder in the form of Exhibit D hereto, including the
certifications in item (2)(a) thereof;
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(B) if such beneficial interest is being transferred to
a QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit C hereto,
including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to
a Non-U.S. Person in an offshore transaction in accordance with
Rule 903 or Rule 904 under the Securities Act, a certificate to
the effect set forth in Exhibit C hereto, including the
certifications in item (2) thereof;
(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of
the Securities Act in accordance with Rule 144 under the
Securities Act, a certificate to the effect set forth in Exhibit
C hereto, including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to
the Issuer or any of its Subsidiaries, a certificate to the
effect set forth in Exhibit C hereto, including the
certifications in item (3)(b) thereof; or
(F) if such beneficial interest is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit
C hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and
the Issuer shall execute and the Trustee shall authenticate and deliver to the
Person designated in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be
registered in such name or names and in such authorized denomination or
denominations as the holder of such beneficial interest shall instruct the
Registrar through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Definitive Notes to the
Persons in whose names such Senior Secured Notes are so registered. Any
Definitive Note issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(c)(i) shall bear the Private
Placement Legend and shall be subject to all restrictions on transfer
contained therein.
(ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not be
exchanged for a Definitive Note or transferred to a Person who takes delivery
thereof in the form of a Definitive Note prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act, except in
the case of a transfer pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 903 or Rule 904.
(iii) Beneficial Interests in Restricted Global Notes to Unrestricted
Definitive Notes. A holder of a beneficial interest in a Restricted Global Note
may exchange such beneficial interest for an Unrestricted Definitive Note or may
transfer such beneficial interest to a Person who takes delivery thereof in the
form of an Unrestricted Definitive Note only if the Registrar receives the
following:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the holder
of such beneficial interest,
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in the case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144)
of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the
Exchange Offer Registration Statement in accordance with the Registration
Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Definitive Note that does not bear the Private Placement Legend, a
certificate from such holder in the form of Exhibit D hereto,
including the certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a Restricted
Global Note proposes to transfer such beneficial interest to a Person
who shall take delivery thereof in the form of a Definitive Note that
does not bear the Private Placement Legend, a certificate from such
holder in the form of Exhibit C hereto, including the certifications
in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar
so requests or if the Applicable Procedures so require, an Opinion of
Counsel in form reasonably acceptable to the Registrar to the effect that
such exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.
(iv) Beneficial Interests in Unrestricted Global Notes to Unrestricted
Definitive Notes. If any holder of a beneficial interest in an Unrestricted
Global Note proposes to exchange such beneficial interest for a Definitive
Note or to transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Definitive Note, then, upon satisfaction of the
conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause
the aggregate principal amount of the applicable Global Note to be reduced
accordingly pursuant to Section 2.06(h) hereof, and the Issuer shall execute
and the Trustee shall authenticate and deliver to the Person designated in the
instructions a Definitive Note in the appropriate principal amount. Any
Definitive Note issued in exchange for a beneficial interest pursuant to this
Section 2.06(c)(iv) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from the Depositary
Agent and the Participant or Indirect Participant. The Trustee shall deliver
such Definitive Notes to the Persons in whose names such Senior Secured Notes
are so registered. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iv) shall not bear the Private
Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(i) Restricted Definitive Notes to Beneficial Interests in Restricted
Global Notes. If any Holder of a Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note or to
transfer such Restricted Definitive Notes to a Person who takes
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delivery thereof in the form of a beneficial interest in a Restricted Global
Note, then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the
form of Exhibit D hereto, including the certifications in item
(2)(b) thereof;
(B) if such Restricted Definitive Note is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in Exhibit
C hereto, including the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act, a
certificate to the effect set forth in Exhibit C hereto,
including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144
under the Securities Act, a certificate to the effect set forth
in Exhibit C hereto, including the certifications in item (3)(a)
thereof;
(E) if such Restricted Definitive Note is being
transferred to the Issuer or any of its Subsidiaries, a
certificate to the effect set forth in Exhibit C hereto,
including the certifications in item (3)(b) thereof; or
(F) if such Restricted Definitive Note is being
transferred pursuant to an effective registration statement under
the Securities Act, a certificate to the effect set forth in
Exhibit C hereto, including the certifications in item (3)(c)
thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause
to be increased the aggregate principal amount of, in the case of clause
(A) above, the appropriate Restricted Global Note, in the case of clause
(B) above, the 144A Global Note, in the case of clause (c) above, the
Regulation S Global Note, and in all other cases, the IAI Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Senior Secured Note for a beneficial interest in an Unrestricted
Global Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note only if the Registrar receives the following:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the Holder,
in the case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144)
of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
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(C) such transfer is effected by a Broker-Dealer pursuant to the
Exchange Offer Registration Statement in accordance with the Registration
Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to exchange
such Senior Secured Notes for a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in the form
of Exhibit D hereto, including the certifications in item (1)(c)
thereof; or
(2) if the Holder of such Definitive Notes proposes to transfer
such Senior Secured Notes to a Person who shall take delivery thereof
in the form of a beneficial interest in the Unrestricted Global Note,
a certificate from such Holder in the form of Exhibit C hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar
so requests or if the Applicable Procedures so require, an Opinion of
Counsel in form reasonably acceptable to the Registrar to the effect that
such exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in
this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note or
transfer such Definitive Notes to a Person who takes delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note at any time.
Upon receipt of a request for such an exchange or transfer, the Trustee shall
cancel the applicable Unrestricted Definitive Note and increase or cause to be
increased the aggregate principal amount of one of the Unrestricted Global
Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii) or (iii) above at
a time when an Unrestricted Global Note has not yet been issued, the Issuer
shall issue and, upon receipt of an Authentication Order in accordance with
Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted
Global Notes in an aggregate principal amount equal to the principal amount of
Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's
compliance with the provisions of this Section 2.06(e), the Registrar shall
register the transfer or exchange of Definitive Notes. Prior to such
registration of transfer or exchange, the requesting Holder shall present or
surrender to the Registrar the Definitive Notes duly endorsed or accompanied by
a written instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by his attorney, duly authorized in writing. In
addition, the requesting Holder shall provide any additional certifications,
documents and information, as applicable, required pursuant to the following
provisions of this Section 2.06(e).
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(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the name of
Persons who take delivery thereof in the form of a Restricted Definitive Note
if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A
under the Securities Act, then the transferor must deliver a
certificate in the form of Exhibit C hereto, including the
certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903
or Rule 904, then the transferor must deliver a certificate in
the form of Exhibit C hereto, including the certifications in
item (2) thereof; and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities
Act, then the transferor must deliver a certificate in the form
of Exhibit C hereto, including the certifications, certificates
and Opinion of Counsel required by item (3) thereof, if
applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes.
Any Restricted Definitive Note may be exchanged by the Holder thereof for an
Unrestricted Definitive Note or transferred to a Person or Persons who take
delivery thereof in the form of an Unrestricted Definitive Note if the
Registrar receives the following:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the Holder,
in the case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144)
of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes proposes
to exchange such Senior Secured Notes for an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit D hereto,
including the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes proposes
to transfer such Restricted Definitive Notes to a Person who shall
take delivery thereof in the form of an Unrestricted Definitive Note,
a certificate from such Holder in the form of Exhibit C hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar
so requests, an Opinion of Counsel in form reasonably acceptable to the
Issuer to the effect that such exchange or transfer is in compliance with
the Securities Act and that the restrictions on transfer
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contained herein and in the Private Placement Legend are no longer required
in order to maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes.
A Holder of Unrestricted Definitive Notes may transfer such Senior Secured
Notes to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note. Upon receipt of a request to register such a transfer, the
Registrar shall register the Unrestricted Definitive Notes pursuant to the
instructions from the Holder thereof.
(f) Exchange Offer.
Upon the occurrence of the Exchange Offer in accordance with the
Registration Rights Agreement, the Company shall issue and, upon receipt of an
Authentication Order in accordance with Section 2.02, the Trustee shall
authenticate (i) one or more Unrestricted Global Notes in an aggregate principal
amount equal to the principal amount of the beneficial interests in the
Restricted Global Notes tendered for acceptance by Persons that certify in the
applicable Letters of Transmittal that (x) they are not broker-dealers, (y) they
are not participating in a distribution of the Exchange Notes and (z) they are
not affiliates (as defined in Rule 144) of the Company, and accepted for
exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate
principal amount equal to the principal amount of the Restricted Definitive
Notes accepted for exchange in the Exchange Offer. Concurrently with the
issuance of such Notes, the Trustee shall cause the aggregate principal amount
of the applicable Restricted Global Notes to be reduced accordingly, and the
Company shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.
(g) Legends.
The following legends shall appear on the face of all Global Notes and
Definitive Notes issued under this Indenture unless specifically stated
otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) set right margin Except as permitted by
subparagraph (B) below, each Global Note and each Definitive Note
(and all Senior Secured Notes issued in exchange therefor or
substitution thereof) shall bear the legend in substantially the
following form:
"THE SENIOR SECURED NOTE (OR ITS PREDECESSOR) AND THE GUARANTEES EVIDENCED
HEREBY WERE ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE
SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING
ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT: (A) SUCH SECURITY MAY BE
OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) (a) INSIDE
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THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144(A)), (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT,
(c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, OR (d) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE ISSUER SO REQUESTS), (2)
TO THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND,
IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTION SET FORTH IN (A) ABOVE."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv),
(c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or
(f) to this Section 2.06 (and all Senior Secured Notes
issued in exchange therefor or substitution thereof) shall
not bear the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY AGENT (AS DEFINED IN THE
INDENTURE GOVERNING THIS SENIOR SECURED NOTE) OR ITS NOMINEE IN CUSTODY FOR
THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH
NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE
INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART
PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE
DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE
INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR
DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUER."
(iii) Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note shall bear a legend in substantially the following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES,
ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER
NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL
BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time
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prior to such cancellation, if any beneficial interest in a Global Note is
exchanged for or transferred to a Person who will take delivery thereof in the
form of a beneficial interest in another Global Note or for Definitive Notes,
the principal amount of Senior Secured Notes represented by such Global Note
shall be reduced accordingly and an endorsement shall be made on such Global
Note by the Trustee or by the Depositary Agent at the direction of the Trustee
to reflect such reduction; and if the beneficial interest is being exchanged for
or transferred to a Person who will take delivery thereof in the form of a
beneficial interest in another Global Note, such other Global Note shall be
increased accordingly and an endorsement shall be made on such Global Note by
the Trustee or by the Depositary Agent at the direction of the Trustee to
reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Issuer
shall execute and the Trustee shall authenticate Global Notes and Definitive
Notes upon the Issuer's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Issuer may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge
payable in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant to Sections
2.10, 3.06, 4.14 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer
of or exchange any Senior Secured Note selected for redemption in whole or in
part, except the unredeemed portion of any Senior Secured Note being redeemed
in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes shall
be the valid obligations of the Issuer, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Global Notes or Definitive
Notes surrendered upon such registration of transfer or exchange.
(v) The Issuer shall not be required (A) to issue, to register the
transfer of or to exchange any Senior Secured Notes during a period beginning
at the opening of business 15 days before the day of any selection of Senior
Secured Notes for redemption under Section 3.02 hereof and ending at the close
of business on the day of selection, (B) to register the transfer of or to
exchange any Senior Secured Note so selected for redemption in whole or in
part, except the unredeemed portion of any Senior Secured Note being redeemed
in part or (C) to register the transfer of or to exchange a Senior Secured
Note between a record date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Issuer may deem and treat the Person
in whose name any Note is registered as the absolute owner of such Note for
the purpose of receiving payment of principal of and interest on such Senior
Secured Notes and for all other purposes, and none of the Trustee, any Agent
or the Issuer shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.02 hereof.
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(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by facsimile.
Section 2.07. Replacement Senior Secured Notes.
If any mutilated Senior Secured Note is surrendered to the Trustee or
the Issuer and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Senior Secured Note, the Issuer shall issue
and the Trustee, upon receipt of an Authentication Order, shall authenticate a
replacement Senior Secured Note if the Trustee's requirements are met. If
required by the Trustee, Registrar or the Issuer, an indemnity must be supplied
by the Holder that is sufficient in the judgment of the Trustee, Registrar and
the Issuer to protect the Issuer, the Trustee, any Agent and any authenticating
agent from any loss that any of them may suffer if a Senior Secured Note is
replaced. The Issuer and the Trustee may charge the Holder for their respective
expenses in replacing a Senior Secured Note.
Every replacement Senior Secured Note is an additional obligation of
the Issuer and shall be entitled to all of the benefits of this Indenture
equally and proportionately with all other Senior Secured Notes duly issued
hereunder.
Section 2.08. Outstanding Senior Secured Notes.
The Senior Secured Notes outstanding at any time are all the Senior
Secured Notes authenticated by the Trustee except for those canceled by it,
those delivered to it for cancellation, those reductions in the interest in a
Global Note effected by the Trustee in accordance with the provisions hereof,
and those described in this Section as not outstanding. Except as set forth in
Section 2.09 hereof, a Senior Secured Note does not cease to be outstanding
because the Issuer or an Affiliate of the Issuer holds the Senior Secured Note;
however, Senior Secured Notes held by the Issuer or an Affiliate of the Issuer
shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof.
If a Senior Secured Note is replaced pursuant to Section 2.07 hereof,
it ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Senior Secured Note is held by a bona fide purchaser.
If the principal amount of any Senior Secured Note is considered paid
under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases
to accrue.
If the Paying Agent (other than the Issuer, or an Affiliate of the
Issuer) holds, on a redemption date or maturity date, money sufficient to pay
Senior Secured Notes payable on that date, then on and after that date such
Senior Secured Notes shall be deemed to be no longer outstanding and shall cease
to accrue interest.
In the event the Senior Secured Notes are issued in book-entry form
with the Depositary Agent: (i) the Trustee may deal with the Depositary Agent as
the authorized representative of the Holders; (ii) the rights of the Holders
shall be exercised only through the Depositary Agent and shall be limited to
those established by law and agreement between the Holders and the Depositary
Agent and/or direct participants of the Depositary Agent; (iii) the Depositary
Agent will make book-entry transfers among the direct participants of the
Depositary Agent and will receive and transmit distributions of principal and
interest on the Senior Secured Notes to such direct participants; and (iv) the
direct participants of the Depositary Agent shall have no rights under this
Indenture under or with respect to any of the Senior Secured Notes held on their
behalf by the Depositary Agent, and the Depositary Agent
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may be treated by the Trustee and its agents, employees, officers and directors
as the absolute owner of the Senior Secured Notes for all purposes whatsoever.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Senior Secured Notes have concurred in any direction, waiver or consent, Senior
Secured Notes owned by the Issuer, or by any Affiliate of the Issuer shall be
considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Senior Secured Notes that a Responsible Trust
Officer of the Trustee actually knows are so owned shall be so disregarded.
Section 2.08. Temporary Senior Secured Notes.
Until certificates representing Senior Secured Notes are ready for
delivery, the Issuer may prepare and the Trustee, upon receipt of an
Authentication Order, shall authenticate temporary Senior Secured Notes.
Temporary Notes shall be substantially in the form of certificated Senior
Secured Notes but may have variations that the Issuer considers appropriate for
temporary Senior Secured Notes and as shall be reasonably acceptable to the
Trustee. Without unreasonable delay, the Issuer shall prepare and the Trustee
shall authenticate definitive Senior Secured Notes in exchange for temporary
Senior Secured Notes.
Holders of temporary Senior Secured Notes shall be entitled to all of
the benefits of this Indenture.
Section 2.09. Cancellation.
The Issuer at any time may deliver Senior Secured Notes to the Trustee
for cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Senior Secured Notes surrendered to them for registration of transfer,
exchange or payment. The Trustee and no one else shall cancel all Senior Secured
Notes surrendered for registration of transfer, exchange, payment, replacement
or cancellation and shall destroy canceled Senior Secured Notes (subject to the
record retention requirement of the Exchange Act). Certification of the
destruction of all canceled Senior Secured Notes shall be delivered to the
Issuer. The Issuer may not issue new Senior Secured Notes to replace Senior
Secured Notes that it has paid or that have been delivered to the Trustee for
cancellation.
Section 2.10. Defaulted Interest.
If the Issuer defaults in a payment of interest on the Senior Secured
Notes, it shall pay the defaulted interest in any lawful manner plus, to the
extent lawful, interest payable on the defaulted interest, to the Persons who
are Holders on a subsequent special record date, in each case at the rate
provided in the Senior Secured Notes and in Section 4.01 hereof. The Issuer
shall notify the Trustee in writing of the amount of defaulted interest proposed
to be paid on each Senior Secured Note and the date of the proposed payment. The
Issuer shall fix or cause to be fixed each such special record date and payment
date, provided that no such special record date shall be less than 10 days prior
to the related payment date for such defaulted interest. At least 15 days before
the special record date, the Issuer (or, upon the written request of the Issuer,
the Trustee in the name and at the expense of the Issuer) shall mail or cause to
be mailed to Holders a notice that states the special record date, the related
payment date and the amount of such interest to be paid.
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Section 2.11. The Collateral Agent.
The Trustee on behalf of itself, the Holders of the Senior Secured
Notes and any Permitted Additional Senior Lender, on the terms and conditions
specified herein and the Security Documents hereby irrevocably appoints and
authorizes U.S. Bank Trust National Association to act as the Collateral Agent
hereunder and under the Security Documents to which the Collateral Agent is or
becomes a party, with such powers, rights and obligations as are expressly
delegated to the Collateral Agent by the terms of this Indenture and by the
Security Documents.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Issuer elects to redeem the 2009 Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of the 2009 Notes to be redeemed and (iv) the redemption price.
Section 3.02. Selection of Senior Secured Notes to Be Redeemed
If less than all of the Senior Secured Notes are to be redeemed or
purchased in an offer to purchase at any time, the Trustee shall select the
Senior Secured Notes to be redeemed or purchased among the Holders of the Senior
Secured Notes in compliance with the requirements of the principal national
securities exchange, if any, on which the Senior Secured Notes are listed or, if
the Senior Secured Notes are not so listed, on a pro rata basis, by lot or in
accordance with any other method the Trustee considers fair and appropriate;
provided that no Senior Secured Note less than $1,000 shall be redeemed in part
and provided, further, that in the case of redemption of the 2009 Notes at the
option of the Issuer, only 2009 Notes will be redeemed. In the event of partial
redemption by lot, the particular Senior Secured Notes to be redeemed shall be
selected, unless otherwise provided herein, not less than 30 nor more than 60
days prior to the redemption date by the Trustee from the outstanding Senior
Secured Notes not previously called for redemption.
The Trustee shall promptly notify the Issuer in writing of the Senior
Secured Notes selected for redemption and, in the case of any Senior Secured
Note selected for partial redemption, the principal amount thereof to be
redeemed. Senior Secured Notes and portions of Senior Secured Notes selected
shall be in denominations of $100,000 and integral multiples of $1,000 in excess
thereof; except that if all of the Senior Secured Notes of a Holder are to be
redeemed, the entire outstanding amount of Senior Secured Notes held by such
Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided
in the preceding sentence, provisions of this Indenture that apply to Senior
Secured Notes called for redemption also apply to portions of Senior Secured
Notes called for redemption.
Section 3.03. Notice of Redemption
A least 30 days but not more than 60 days before a redemption date,
the Issuer shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Senior Secured Notes are to be redeemed at its
registered address.
The notice shall identify the Senior Secured Notes to be redeemed and
shall state:
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(a) the redemption date;
(b) the redemption price;
(c) if any Senior Secured Note is being redeemed in part, the portion
of the principal amount of such Senior Secured Note to be redeemed and that,
after the redemption date upon surrender of such Senior Secured Note, a new Note
or Senior Secured Notes in principal amount equal to the unredeemed portion
shall be issued upon cancellation of the original Senior Secured Note;
(d) the name and address of the Paying Agent;
(e) that Senior Secured Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(f) that, unless the Issuer defaults in making such redemption
payment, interest on Senior Secured Notes called for redemption ceases to accrue
on and after the Redemption Date;
(g) the paragraph of the Senior Secured Notes and/or Section of this
Indenture pursuant to which the Senior Secured Notes called for redemption are
being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Senior
Secured Notes.
At the Issuer's request, the Trustee shall give the notice of
redemption in the Issuer's name and at its expense; provided, however, that the
Issuer shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
Section 3.04. Effect of Notice of Redemption
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Senior Secured Notes called for redemption become irrevocably due and
payable on the Redemption Date at the redemption price. A notice of redemption
may not be conditional.
Section 3.05. Deposit of Redemption Price
One Business Day prior to the Redemption Date, the Issuer shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Senior Secured Notes to be
redeemed on that date. The Trustee or the Paying Agent shall promptly return to
the Issuer any money deposited with the Trustee or the Paying Agent by the
Issuer in excess of the amounts necessary to pay the redemption price of, and
accrued interest on, all Senior Secured Notes to be redeemed.
If the Issuer complies with the provisions of the preceding paragraph,
on and after the Redemption Date, interest shall cease to accrue on the Senior
Secured Notes or the portions of Senior Secured Notes called for redemption. If
a Senior Secured Note is redeemed on or after an interest record date but on or
prior to the related interest payment date, then any accrued and unpaid interest
shall be paid to the Person in whose name such Senior Secured Note was
registered at the close of business on such record date. If any Senior Secured
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Issuer to comply with the preceding paragraph,
interest shall
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be paid on the unpaid principal, from the Redemption Date until such principal
is paid, and to the extent lawful on any interest not paid on such unpaid
principal, in each case at the rate provided in the Senior Secured Notes and in
Section 4.01 hereof.
Section 3.06. Senior Secured Notes Redeemed In Part.
Upon surrender of a Senior Secured Note that is redeemed in part, the
Issuer shall issue and, upon the Issuer's written request, the Trustee shall
authenticate for the Holder at the expense of the Issuer a new Senior Secured
Note equal in principal amount to the unredeemed portion of the Senior Secured
Note surrendered.
Section 3.07. Optional Redemption.
(a) The 2001 Notes will not be redeemable at the option of the
Issuer.
(b) The 2009 Notes will be redeemable at the option of the Issuer at
any time and from time to time, in whole or in part, upon not less than 30 nor
more than 60 days notice to each Holder of 2009 Notes, at a redemption price
equal to the Make-Whole Price. "Make-Whole Price" means an amount equal to the
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greater of (i) 100% of the principal amount of such 2009 Note and
(ii) as determined by an Independent Investment Banker, the sum of the present
values of the remaining scheduled payments of principal and interest thereon
discounted to the date of redemption on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus, in
each case, accrued and unpaid interest thereon to the Redemption Date. Unless
the Issuer defaults in payment of the redemption price, on and after the
Redemption Date, interest will cease to accrue on the 2009 Note or portions
thereof called for redemption.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption.
The Senior Secured Notes will be subject to mandatory redemption, in
whole or in part, ratably among each series at a redemption price equal to the
principal amount thereof plus accrued and unpaid interest to the Redemption
Date, (a) upon the receipt of Loss Proceeds or Eminent Domain Proceeds by a Coso
Partnership if the applicable Partnership determines that (i) the affected
Project cannot be rebuilt, repaired or restored to permit operations on a
commercially reasonable basis, or the applicable Coso Partnership determines not
to rebuild, repair or restore the affected Project, in which case the amount of
such Loss Proceeds or Eminent Domain Proceeds shall be available for such
redemption, or (ii) only a portion of the affected Project is capable of being
rebuilt, repaired or restored, in which case if excess proceeds exist after such
rebuild, repair or restoration, only the amount of such excess Loss Proceeds or
Eminent Domain Proceeds shall be made available for such redemption, (b) upon
the receipt by the applicable Coso Partnership of proceeds in connection with a
Title Event, in which case the amount of such Title Event Proceeds shall be made
available for such redemption, subject to reduction by the costs expended in
connection with collecting proceeds upon the occurrence of such Title Event, and
any additional reasonable costs or expenses that the Coso Partnerships will be
subject to as a result of the Title Event, (c) upon the receipt by the Coso
Partnerships of net proceeds in excess of $5.0 million realized in connection
with a Permitted Power Contract Buy-Out, or $10.0 million, when aggregated with
all previous Permitted Power Contract Buy-Outs, in which case the amount of all
proceeds associated with such Permitted Power Contract Buy-Outs shall be made
available for such redemption, unless each of the Rating Agencies confirm that a
Rating Downgrade will not occur if no
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redemption is made with such proceeds, (d) upon the receipt by the Coso
Partnerships of proceeds received in connection with a termination of the Navy
Contract under Section VIII(2) of the Navy Contract (P00004 Modification dated
October 9, 1983).
Other than as specifically provided in this Section 3.08, any purchase
pursuant to this Section 3.08 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
Section 3.09. Repurchase at the option of holders upon a change of control.
(a) Upon the occurrence of a Change of Control, each Holder of Senior
Secured Notes will have the right to require the Issuer to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's Senior
Secured Notes, pursuant to the offer described in Sections (b) and (c) below
(the "Change of Control Offer"), at an offer price in cash equal to 101% of the
-----------------------
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase (the "Change of
---------
Control Payment").
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(b) Within ten days following any Change of Control, the Issuer will
mail a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Senior Secured Notes
on the date specified in such notice, which date shall be no earlier than 30
days and no later than 60 days from the date such notice is maile d (the "Change
------
of Control Payment Date"), pursuant to the procedures required by this Indenture
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and described in such notice. The Issuer will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Senior Secured Notes as a result of a Change of
Control.
(c) On the Change of Control Payment Date, the Issuer will, to the
extent lawful:
(i) accept for payment all Senior Secured Notes or portions
thereof properly tendered pursuant to the Change of Control Offer;
(ii) deposit with the Paying Agent an amount equal to the
Change of Control Payment in respect of all Senior Secured Notes or portions
thereof so tendered, and
(iii) deliver or cause to be delivered to the Trustee the Senior
Secured Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Senior Secured Notes or portions thereof being
purchased by the Issuer. The Paying Agent will promptly mail to each Holder of
Senior Secured Notes so tendered the Change of Control Payment for such Senior
Secured Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each Holder a new Senior Secured Note equal in
principal amount to any unpurchased portion of the Senior Secured Notes
surrendered, if any; provided that each such new Senior Secured Note will be in
a principal amount of $1,000 or an integral multiple thereof. The Issuer will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
(d) The Change of Control provisions described above in (a), (b) and
(c) of this Section 3.09 will be applicable whether or not any other provisions
of this Indenture are applicable to any Change of Control.
(e) Except as provided in this Section 3.09 with respect to a Change
of Control, nothing in this Indenture shall permit the Holders of the Senior
Secured Notes to require that the Issuer repurchase or redeem the Senior Secured
Notes in the event of a takeover, recapitalization or similar transaction.
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(f) Notwithstanding anything in (a), (b) or (c) of Section this 3.09,
the Issuer will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in this
Indenture applicable to a Change of Control Offer made by the Issuer and
purchases all Senior Secured Notes validly tendered and not withdrawn under such
Change of Control Offer.
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Senior Secured Notes.
The Issuer shall pay or cause to be paid the principal of the
Senior Secured Notes as follows:
(a) For the 2001 Notes:
Percentage of Principal
Scheduled Payment Date Amount Payable
December 15, 1999 47.8773%
June 15, 2000 11.0736%
December 15, 2000 16.4427%
June 15, 2001 10.1900%
December 15, 2001 14.4164%
(b) For the 2009 Notes:
Percentage of Principal
Scheduled Payment Date Amount Payable
June 15, 2002........ 2.8743%
December 15, 2002.... 4.3109%
June 15, 2003........ 3.6564%
December 15, 2003.... 5.4584%
June 15, 2004........ 4.1363%
December 15, 2004.... 6.2043%
June 15, 2005........ 4.6838%
December 15, 2005.... 7.0257%
June 15, 2006........ 5.0541%
December 15, 2006.... 7.5815%
June 15, 2007........ 6.2601%
December 15, 2007.... 9.3898%
June 15, 2008........ 6.4927%
December 15, 2008.... 9.7650%
June 15, 2009........ 6.8231%
December 15, 2009.... 10.2835%
The Issuer shall pay or cause to be paid the principal of, premium, if
any, and interest on the Senior Secured Notes on the dates and in the manner
provided in the Senior Secured Notes. Principal,
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premium, if any, and interest shall be considered paid on the date due if the
Paying Agent, if other than the Issuer or an Affiliate thereof, holds as of
10:00 a.m. Eastern Time on the due date money deposited by the Issuer in
immediately available funds and designated for and sufficient to pay all
principal, premium, if any, and interest then due.
The Issuer shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Senior
Secured Notes to the extent lawful; it shall pay interest (including post-
petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace period) at the
same rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Issuer shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Senior Secured Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Issuer in respect of the Senior Secured Notes and this
Indenture may be served. The Issuer shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Issuer shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Issuer may also from time to time designate one or more other
offices or agencies where the Senior Secured Notes may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Issuer of its obligation to maintain an office or agency
in the Borough of Manhattan, the City of New York for such purposes. The Issuer
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
The Issuer hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Issuer in accordance with Section 2.03.
Section 4.03. Reports.
(a) Whether or not required by the rules and regulations of the SEC,
so long as any Senior Secured Notes are outstanding, the Issuer and the
Guarantors shall furnish to the Holders of Senior Secured Notes and to each
Rating Agency (i) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the
Issuer and the Guarantors were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the certified independent accountants of the Issuer and the Guarantors; (ii)
all current reports that would be required to be filed with the SEC on Form 8-K
if the Issuer and the Guarantors were required to file such reports, in each
case, within the time periods specified in the SEC's rules and regulations;
(iii) copies of material notices and (iv) written notice of any Credit Agreement
Event of Default or Event of Default or any event or condition that could
reasonably be expected to result in a Material Adverse Effect. The Issuer shall
at all times comply with TIA (S) 314(a).
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(b) For so long as any Senior Secured Notes remain outstanding, the
Issuer and the Guarantors shall furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Section 4.04. Compliance Certificate.
(a) The Issuer and each Guarantor (to the extent that such Guarantor
is so required under the TIA) shall deliver to the Trustee and to each Rating
Agency, within 90 days after the end of each fiscal year, an Officers'
Certificate stating that a review of the activities of the Issuer during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Issuer has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge the Issuer has kept, observed, performed and fulfilled each
and every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions of this
Indenture (or, if a Default or Event of Default shall have occurred, describing
all such Defaults or Events of Default of which he or she may have knowledge and
what action the Issuer is taking or proposes to take with respect thereto) and
that to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Senior Secured Notes is prohibited or if such event has
occurred, a description of the event and what action the Issuer is taking or
proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Issuer's independent public accountants (who shall be a
firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Issuer has violated any
provisions of Article 4 hereof or, if any such violation has occurred,
specifying the nature and period of existence thereof, it being understood that
such accountants shall not be liable directly or indirectly to any Person for
any failure to obtain knowledge of any such violation.
(c) The Issuer shall, so long as any of the Senior Secured Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Issuer is taking or proposes to
take with respect thereto.
Section 4.05. Taxes.
The Issuer shall pay, and shall cause each of the Guarantors to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings and
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Senior Secured Notes.
Section 4.06. Stay, Extension and Usury Laws.
The Issuer and each of the Guarantors (to the extent that it may
lawfully do so) shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Issuer and
each of the Guarantors (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and
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covenants that it shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
Section 4.07. Restricted Payments.
The Issuer shall not make any Restricted Payments or direct any
Restricted Payments to be made on behalf of any Guarantor except for payments
permitted under the Depositary Agreement.
Section 4.08. Actions with Respect to Credit Agreements
The Issuer will enforce all of its rights under the Credit Agreements
and the Partnership Notes for the benefit of the Trustee and the Holders. The
Issuer will not grant any consents or waivers thereunder, amend or modify any
provisions thereof or otherwise modify the Credit Agreements or the Partnership
Notes, except as provided in Article 8.
Section 4.09. Limitation on Indebtedness
The Issuer will not create, incur or suffer to exist any Indebtedness other
than Permitted Indebtedness.
Section 4.10. Limitation on Liens
The Issuer will not directly or indirectly create, incur, assume or suffer
to exist any Liens of any kind on any asset now or hereafter acquired, except
Permitted Liens described in clause (1) of the definition of Permitted Liens.
Section 4.11. Limitations on Guarantees
The Issuer will not contingently or otherwise be or become liable in
connection with any guarantee, except for endorsements and similar obligations
in the ordinary course of business.
Section 4.12. Prohibitions On Other Obligations or Assignments.
The Issuer shall not assign any of its rights or obligations under any
Financing Document, and shall not enter into additional contracts if entering
into such additional contracts would be reasonably expected to cause a Material
Adverse Effect. The Issuer may enter into additional contracts to the extent
contemplated under this Indenture, including entering into contracts in
connection with Permitted Investments.
Section 4.13. Books And Records
The Issuer shall cause the Guarantors to maintain their books and
records and give the Issuer, the Trustee, the Collateral Agent and the
Independent Engineer inspection rights at reasonable times and upon reasonable
prior notice.
Section 4.14. Prohibitions On Fundamental Changes.
The Issuer shall not enter into any transaction of merger or
consolidation, change its form of organization or its business, liquidate, wind-
up or dissolve itself or discontinue its business. The Issuer shall not engage
in any business other than in connection with the issuance of the Senior Secured
Notes,
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the incurrence of Permitted Indebtedness and the performance of its obligations
under the Transaction Documents. The Issuer shall not lease (as lessor) or sell,
transfer, assign, hypothecate, pledge or otherwise dispose of any of its
property or assets, except as may be contemplated by the Financing Documents.
Section 4.15. Corporate Existence.
The Issuer and the Guarantors shall do or cause to be done all things
necessary to preserve and keep in full force and effect (i) its corporate or
partnership existence, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Issuer or the
Guarantors and (ii) the rights (charter and statutory), licenses and franchises
of the Issuer and the Guarantors; provided, however, that the Issuer and the
Guarantors shall not be required to preserve any such right, license or
franchise, if the management committees of each of the Issuer and the Guarantors
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Issuer and the Guarantors, and that the loss
thereof is not adverse in any material respect to the Holders of the Senior
Secured Notes.
Section 4.16. RATING AGENCY INFORMATION.
The Issuer and the Guarantors shall do or cause to be done all things
necessary to (i) promptly (and in any case within five Business Days) following
the issuance of the Senior Secured Notes) provide all documentation required by
any Rating Agency in connection with the issuance of such Rating Agency's
initial Rating with respect to the Senior Secured Notes, and (ii), within any
time period required by any such Rating Agency, amend the organizational
documents of the Issuer, the Guarantors and their respective Affiliates and
amend any other Financing Documents (subject to the provisions in respect of
amendments contained herein and therein) to address comments, if any, received
from any Rating Agency with respect to this Indenture or any document or
instrument entered into herewith in connection with such Rating Agency's initial
Rating.
ARTICLE 5.
DEFAULTS AND REMEDIES
Section 5.01. Events of Default.
The following events constitute an "Event of Default":
(a) failure to pay any principal, interest or other amounts owed on any
Senior Secured Note when the same becomes due and payable, whether by scheduled
maturity or required prepayment or redemption or by acceleration or otherwise,
and such failure continues for 10 days or more following the due date for
payment;
(b) a Credit Agreement Event of Default or a Guarantee Event of Default
has occurred and is continuing;
(c) any representation or warranty made by the Issuer in this Indenture or
in any other Financing Document or any representation, warranty or statement in
any certificate, financial statement or other document furnished to the Trustee
or any other Person by or on behalf of the Issuer proves to have been untrue or
misleading in any material respect as of the time made, confirmed or furnished
and the fact, event or circumstance that gave rise to such inaccuracy has
resulted in, or could reasonably be
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expected to result in, a Material Adverse Effect and that fact, event or
circumstance continues uncured for 30 or more days from the date a Responsible
Officer of the Issuer receives notice thereof from the Trustee; provided that,
if the Issuer commences and diligently pursues efforts to cure such fact, event
or circumstance within such 30-day period and delivers written notice to the
Trustee thereof, the Issuer may continue to effect such cure, and such
misrepresentation shall not be deemed an "Event of Default" for an additional 60
days so long as the Issuer is diligently pursuing such cure;
(d) the Issuer fails to perform or observe any covenant or agreement
contained in this Indenture regarding maintenance of existence or restrictions
on Indebtedness, Liens, Restricted Payments, guarantees, disposition of assets,
amendments to the Credit Agreements or Partnership Notes or taking of actions
thereunder as directed by the Required Holders, fundamental changes, or nature
of business and such failure continues uncured for 30 or more days from the date
a Responsible Officer of the Issuer receives notice thereof from the Trustee;
(e) the Issuer fails to perform or observe any of its covenants contained
in this Indenture (other than those contained in (d) above) and such failure
continues uncured for 30 or more days from the date a Responsible Officer of the
Issuer receives notice thereof from the Trustee of such failure; provided that
if the Issuer commences and diligently pursues efforts to cure such default
within such 30-day period, the Issuer may continue to effect such cure of the
default and such default will not be deemed an "Event of Default" for an
additional 90 days so long as the Issuer is diligently pursuing such cure;
(f) the Issuer:
(1) admits in writing its inability, or is generally unable, to
pay its debts as the debts become due or makes a general assignment for the
benefit of creditors; or
(2) commences any case, proceeding or other action seeking
reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, adjustment,
insolvency, reorganization or similar laws affecting the rights or remedies
of creditors generally, as in effect from time to time (collectively,
"Debtor Relief Law"); or
-----------------
(3) in any involuntary case, proceeding or other action
commenced against it which seeks to have an order for relief (injunctive or
otherwise) entered against it, as debtor, or seeks reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or
its debts under any Debtor Relief Law, (A) fails to obtain a dismissal of
such case, proceeding or other action within ninety (90) days of its
commencement, or (B) converts the case from one chapter of the Bankruptcy
Reform Act of 1978, as amended, to another chapter, or (C) is the subject
of an order for relief; or
(4) has a trustee, receiver, custodian or other official
appointed for or take possession of all or any part of its property or has
any court take jurisdiction of any of its property, which action remains
undismissed for a period of ninety (90) days;
(g) any Pledge Agreement ceases to be in full force and effect or there is
a Material Adverse Effect on the Lien purported to be granted under any Pledge
Agreement such that it ceases to be a valid and perfected Lien in favor of the
Collateral Agent for the benefit of the Secured Parties on the Collateral
described therein with the priority purported to be created thereby; provided,
however, that the Issuer has 10 days after a Responsible Officer of the Issuer
obtains actual knowledge thereof to cure any such
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cessation, if curable, or to furnish to the Collateral Agent all documents or
instruments required to cure any such cessation, if curable; or
(h) any event of default under any Permitted Indebtedness of Issuer which
results in Permitted Indebtedness in excess of $2.5 million becoming due and
payable prior to its stated maturity.
Section 5.02. Enforcement of Remedies.
(a) If one or more Events of Default have occurred and are continuing,
then:
(i) in the case of an Event of Default described in Section 5.01(f)
above, the entire principal amount of the Outstanding Notes, all interest
accrued and unpaid thereon, and all premium and other amounts payable under
the Senior Secured Notes and this Indenture, if any, will automatically
become due and payable without presentment, demand, protest or notice of
any kind; or
(ii) in the case of an Event of Default described in Section 5.01(b)
(in connection with a Credit Agreement Event of Default or a Guarantee
Event of Default) relating to certain events involving the bankruptcy,
insolvency, receivership or reorganization of any of the Coso Partnerships,
the entire principal amount of the Outstanding Notes (on a pro rata basis),
all interest accrued and unpaid thereon, and all premium and other amounts
payable under the Senior Secured Notes and this Indenture, if any, will
automatically become due and payable without presentment, demand, protest
or notice of any kind; or
(iii) in the case of an Event of Default described in:
(A) Section 5.01(a), upon the written direction of the Holders
of no less than 25% in aggregate principal amount of the
Outstanding Notes, the Trustee will, by notice to the Issuer,
declare the entire principal amount of the Outstanding Notes,
all interest accrued and unpaid thereon, and all premium and
other amounts payable under the Senior Secured Notes and this
Indenture, if any, to be due and payable, or
(B) Section 5.01(b) (except as described in Section 5.02(a)(ii)
immediately above), (c), (d), (e), (g) or (h) upon the written
direction of the Required Holders, the Trustee will, by notice
to the Issuer, declare the entire principal amount of the Senior
Secured Notes, all interest accrued and unpaid thereon, and all
premium and other amounts payable under the Senior Secured Notes
and this Indenture, if any, to be due and payable.
If an Event of Default occurs and is continuing and is known to the
Trustee, the Trustee will mail to each Holder notice of the Event of Default
within 30 days after the occurrence thereof. Except in the case of an Event of
Default in payment of principal of or interest on any Senior Secured Note, the
Trustee may withhold the notice to the Holders if the Trustee in good faith
determines that withholding the notice is in the interest of the Holders.
If an Event of Default relating to failure to pay amounts owed on the
Senior Secured Notes has occurred and is continuing, the Trustee may declare the
principal amount of the Outstanding Notes, all interest accrued and unpaid
thereon, and all premium and other amounts payable under the
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Senior Secured Notes and this Indenture, if any, to be due and payable
notwithstanding the absence of direction from Holders of at least 25% in
aggregate principal amount of the Outstanding Notes directing the Trustee in
writing to accelerate the maturity of the Senior Secured Notes unless Holders of
more than 75% in aggregate principal amount of the Outstanding Notes direct the
Trustee not to accelerate the maturity of such Senior Secured Notes, if in the
good faith exercise of its discretion the Trustee determines that such action is
necessary to protect the interests of the Holders.
If an Event of Default relating to a Credit Agreement Event of Default
or a Guarantee Event of Default (other than a Credit Agreement Event of Default
related to failure to pay Partnership Notes or a Guarantee Event of Default
related to failure to make payments under the Guarantees) has occurred and is
continuing, the Trustee may declare the principal amount of the Outstanding
Notes referred to in Section 5.02 (a)(iii)(B), all interest accrued and unpaid
thereon, and all premium and other amounts payable under the Senior Secured
Notes and this Indenture, if any, to be due and payable notwithstanding the
absence of direction from the Required Holders directing the Trustee to
accelerate the maturity of the Senior Secured Notes unless the Required Holders
direct the Trustee in writing not to accelerate the maturity of such Senior
Secured Notes if in the good faith exercise of its discretion the Trustee
determines that such action is necessary to protect the interests of the
Holders.
In addition, if one or more of the Events of Default referred to in
Section 5.02(a)(iii)(B) has occurred and is continuing, the Trustee may declare
the entire principal amount of the Outstanding Notes, all interest accrued and
unpaid thereon, and all premium and other amounts payable under the Senior
Secured Notes and this Indenture, if any, to be due and payable notwithstanding
the absence of direction from the Required Holders directing the Trustee to
accelerate the maturity of the Senior Secured Notes unless the Required Holders
direct the Trustee in writing not to accelerate the maturity of the Senior
Secured Notes if in the good faith exercise of its discretion the Trustee
determines that such action is necessary to protect the interests of the
Holders.
(b) At any time after the principal of the Senior Secured Notes has become
due and payable upon a declared acceleration, and before any judgment or decree
for the payment of the money so due, or any portion thereof, has been entered,
the Holders of not less than a majority in aggregate principal amount of the
Outstanding Notes, by written notice to the Issuer and the Trustee, shall
rescind and annul such declaration and its consequences if:
(i) there has been paid to or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on the Senior Secured Notes,
(B) the principal of and premium, if any, on any Senior Secured
Notes that have become due (including overdue principal) other than by
such declaration of acceleration and interest thereon at the respective
rates provided in the Senior Secured Notes for overdue principal,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the respective rates provided in the
Senior Secured Notes for overdue interest, and
(D) all sums paid or advanced by the Trustee and the reasonable
compensation, expenses, disbursements, and advances of the Trustee and
its agents and counsel, and
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(E) all Events of Default, other than the nonpayment of the
principal of the Senior Secured Notes and the Partnership Notes that has
become due solely by such acceleration, have been cured or waived in
accordance with this Indenture.
(c) If an Event of Default relating to failure to pay amounts owed on the
Senior Secured Notes has occurred and is continuing and an acceleration has
occurred, the Trustee may (as the Holders of 25% in aggregate principal amount
of the Outstanding Notes request in writing) direct the Collateral Agent to take
possession of all Collateral.
(d) If an Event of Default relating to a Credit Agreement Event of Default
or a Guarantee Event of Default (other than a Credit Agreement Event of Default
related to failure to pay Partnership Notes or a Guarantee Event of Default
related to failure to pay amounts owed on the Senior Secured Notes) has occurred
and is continuing and an acceleration has occurred, the Trustee may (as the
Required Holders request in writing) direct the Collateral Agent to take
possession of all Collateral.
(e) If an Event of Default other than those referred to in Section 5.02(c)
and Section 5.02(d) has occurred and is continuing and an acceleration has
occurred, the Trustee may (as the Required Holders request in writing) direct
the Collateral Agent to take possession of all Collateral.
(f) If one or more Guarantee Events of Default shall have occurred and be
continuing under a Guarantee, the Trustee may (as the Required Holders request
in writing) direct the Collateral Agent to take possession of all Collateral.
(g) If an Event of Default occurs:
(i) by reason of any willful action or inaction taken or not taken by
or on behalf of the Issuer with the intention of avoiding payment of the premium
that the Issuer would have had to pay if the Issuer then had elected to redeem
the 2009 Notes pursuant to the optional redemption provisions of this Indenture,
a premium equal to the then applicable Treasury Rate shall also become and be
immediately due and payable to the extent permitted by law upon the acceleration
of the 2009 Notes.
(ii) at a time when any 2001 Notes are outstanding by reason of any
willful action or inaction, taken or not taken, by or on behalf of the Issuer
with the intention of avoiding the prohibition on redemption of the 2001 Notes,
then a premium equal to the then applicable Treasury Rate shall also become and
be immediately due and payable to the extent permitted by law upon the
acceleration of the 2001 Notes.
Section 5.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest and all other amounts payable on the Senior Secured Notes or
to enforce the performance of any provision of the Senior Secured Notes, this
Indenture or any other Financing Document.
The Trustee may maintain a proceeding even if it does not possess any
of the Senior Secured Notes or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Holder of a Note in exercising any
right or remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
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Section 5.04. Waiver of Past Defaults.
Required Holders by notice to the Trustee may on behalf of the Holders
of all of the Senior Secured Notes waive an existing Default or Event of Default
and its consequences hereunder, except a continuing Default or Event of Default
in the payment of the principal of, premium, if any, or interest on, the Senior
Secured Notes provided, however, that the Required Holders may rescind an
acceleration and its consequences, including any related payment default that
resulted from such acceleration. Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured for every purpose of this Indenture; but no such waiver shall extend
to any subsequent or other Default or impair any right consequent thereon.
Section 5.05. Control by Majority.
The Required Holders have the right to direct the time, place and
method of conducting any proceeding for any right or remedy available to the
Trustee or exercising any trust or power conferred on the Trustee in this
Indenture or in any other Financing Document. The Required Holders, acting
through the Trustee, have the right to direct the time, place and method for
exercising any right or remedy available to the Issuer under the Credit
Agreements and the Partnership Notes; provided that upon the occurrence of an
Event of Default related to failure to make payments on the Senior Secured
Notes, Holders of 25% in aggregate principal amount of the Outstanding Notes
have the right to cause the acceleration of the Partnership Notes.
Subject to the above paragraph, if an Event of Default has occurred
and is continuing and as a result thereof or in connection therewith or pursuant
to an acceleration of the Senior Secured Notes arising therefrom, payments on
the Senior Secured Notes are not made when due, the Trustee is required to
enforce the Guarantees and the rights of the Holders thereunder.
Section 5.06. Limitation on Suits.
A Holder of a Senior Secured Note may pursue a remedy with respect to
this Indenture or the Senior Secured Notes only if:
(a) the Holder of a Senior Secured Note gives to the Trustee written notice of
a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then outstanding
Senior Secured Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Senior Secured Note or Holders of Senior Secured Notes
offer and, if requested, provide to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after receipt
of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal amount of
the then outstanding Senior Secured Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Senior Secured Note may not use this Indenture to
prejudice the rights of another Holder of a Senior Secured Note or to obtain a
preference or priority over another Holder of a Senior Secured Note.
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Section 5.07. Rights of Holders of Senior Secured Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Senior Secured Note to receive payment of principal, premium, if
any, and interest on the Senior Secured Notes, on or after the respective due
dates expressed in the Senior Secured Notes (including in connection with an
offer to purchase), or to bring suit for the enforcement of any such payment on
or after such respective dates, shall not be impaired or affected without the
consent of such Holder.
Section 5.08. Collection Suit by Trustee.
If an Event of Default specified in Section 5.01(a) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Issuer for the whole amount of principal
of, premium, if any, and interest remaining unpaid on the Senior Secured Notes
and interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
Section 5.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Senior Secured Notes allowed in any judicial proceedings relative
to the Issuer (or any other obligor upon the Senior Secured Notes), its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 6.07 hereof.
To the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 6.07 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Senior Secured Notes or the rights of any Holder, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section 5.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall
be applied to amounts owed with respect to all Senior Secured Notes and all
other Senior Indebtedness on a pro rata basis and, in respect of Senior Secured
Notes of a series, will be applied ratably to the Holders of Senior Secured
Notes in the following order from time to time, on the date or dates fixed by
the Trustee: (i) first, to the payment of all amounts due to the Trustee or any
predecessor Trustee under this Indenture; (ii) second; (A) in case the unpaid
principal amount of the Outstanding Notes or other outstanding Senior
Indebtedness has not become due, to the payment of any overdue interest, (B) in
case the unpaid principal amount of a portion of the Outstanding Notes or other
outstanding Senior Indebtedness has
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become due, first to the payment of accrued interest on all Outstanding Notes
and all other Senior Indebtedness for overdue principal, premium, if any, and
overdue interest, and next to the payment of the overdue principal on all Senior
Secured Notes and all other Senior Indebtedness or (C) in case the unpaid
principal amount of all the Outstanding Notes and all other Senior Indebtedness
has become due, first to the payment of the whole amount then due and unpaid
upon the Outstanding Notes and all other Senior Indebtedness for principal,
premium, if any, and interest, together with interest for overdue principal,
premium, if any, and overdue interest; and (iii) third, in case the unpaid
principal amount of all the Outstanding Notes and all other Senior Indebtedness
has become due, and all of the outstanding principal, premium, if any, interest
and other amounts owed in connection with the Senior Secured Notes and all other
Senior Indebtedness have been fully paid, any surplus then remaining will be
paid to the Issuer, or to whomsoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Senior Secured Notes pursuant to this Section 5.10.
Section 5.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Senior Secured Note pursuant to Section 5.07 hereof, or a suit by Holders of
more than 10% in principal amount of the then outstanding Senior Secured Notes.
ARTICLE 6.
TRUSTEE
Section 6.01. Duties of Trustee.
(a) If an Event of Default actually known to a Responsible Trust Officer
has occurred and is continuing, the Trustee shall exercise such of the rights
and powers vested in it by this Indenture, and use the same degree of care and
skill in its exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only those
duties that are specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
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(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct or bad
faith, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received
by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Issuer. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 6.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require and
shall be entitled to an Officers' Certificate or an Opinion of Counsel or both.
The Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel. The
Trustee may consult with counsel and the advice, promptly confirmed in writing
thereafter, of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys, custodians, nominees and
agents and shall not be responsible for the misconduct or negligence of any
agent, attorney, custodian or nominee appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Issuer shall be sufficient if signed by an
Officer of the Issuer.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders unless such Holders shall have
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offered to the Trustee security or indemnity satisfactory to the Trustee against
the costs, expenses and liabilities that might be incurred by it in compliance
with such request or direction.
(g) In no event shall the Trustee be required to take notice of any
default or breach hereof or any Event of Default hereunder, except for Events of
Default specified in Sections 5.01(a) and (b) hereof, unless and until the
Trustee shall have received from a Holder or from the Issuer express written
notice of the circumstances constituting the breach, default or Event of Default
and stating that said circumstances constitute an Event of Default hereunder.
(h) If the Trustee is acting as Paying Agent or Transfer Agent and
Registrar hereunder, the rights and protections afforded to the Trustee pursuant
to this Article 6 will also be afforded to such Paying Agent or Transfer Agent
and Registrar.
Section 6.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Senior Secured Notes and may otherwise deal with the Issuer
or any Affiliate of the Issuer with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 6.10 and 6.11
hereof.
Section 6.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Senior Secured Notes, it
shall not be accountable for the Issuer's use of the proceeds from the Senior
Secured Notes or any money paid to the Issuer or upon the Issuer's direction
under any provision of this Indenture, it shall not be responsible for the use
or application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Senior Secured Notes or any other document in connection with
the sale of the Senior Secured Notes or pursuant to this Indenture other than
its certificate of authentication.
Section 6.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
actually known to a Responsible Trust Officer, or if appropriate notice is
provided in writing in accordance with Section 6.02(g), as applicable, the
Trustee shall mail to Holders of Senior Secured Notes a notice of the Default or
Event of Default within 90 days after it occurs. Except in the case of a
Default or Event of Default in payment of principal of, premium, if any, or
interest on any Senior Secured Note, the Trustee may withhold the notice if and
so long as a committee of its Responsible Trust Officers in good faith
determines that withholding the notice is in the interests of the Holders of the
Senior Secured Notes.
Section 6.06. Reports by Trustee to Holders of the Senior Secured Notes;
Information to Rating Agencies.
Within 60 days after each May 15 beginning with the May 15 following
the date hereof, and for so long as Senior Secured Notes remain outstanding, the
Trustee shall mail to the Holders of the Senior Secured Notes a brief report
dated as of such reporting date that complies with TIA (S) 313(a) (but if no
event described in TIA (S) 313(a) has occurred within the twelve months
preceding the reporting
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date, no report need be transmitted). The Trustee also shall comply with TIA (S)
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA (S) 313(c).
A copy of each report at the time of its mailing to the Holders of
Senior Secured Notes shall be mailed to the Issuer and filed with the SEC and
each stock exchange on which the Senior Secured Notes are listed in accordance
with TIA (S) 313(d). The Issuer shall promptly notify the Trustee in writing
when the Senior Secured Notes are listed on any stock exchange.
Trustee shall mail to each Rating Agency each report or certificate,
including without limitation operating reports and reports of independent
consultants, delivered to the Trustee by or on behalf of the Issuer and the
Guarantors and not otherwise required to be delivered directly to such Rating
Agency by Issuer or the Guarantors pursuant to Section 4.03, promptly, and in
any case within 30 days following Trustee's receipt thereof.
Section 6.07. Compensation and Indemnity.
The Issuer shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder as is
now or hereafter agreed to in writing by the Issuer and the Trustee. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Issuer shall reimburse the Trustee promptly
upon request for all reasonable and properly documented disbursements, advances
and expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable and properly documented
fees, disbursements and expenses of the Trustee's agents and counsel.
The Issuer shall indemnify the Trustee against any and all losses,
liabilities, damages or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture against the Issuer
(including this Section 6.07) and defending itself against any claim (whether
asserted by the Issuer or any Holder or any other person) or liability in
connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify the Issuer
promptly of any claim for which it may seek indemnity. Failure by the Trustee to
so notify the Issuer shall not relieve the Issuer of its obligations hereunder.
The Issuer shall defend the claim and the Trustee shall cooperate in the
defense. The Trustee may have separate counsel (reasonably acceptable to the
Issuer) and the Issuer shall pay the reasonable fees and expenses of such
counsel. The Issuer need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
The obligations of the Issuer under this Section 6.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Issuer's payment obligations in this Section, the
Trustee shall have a Lien prior to the Senior Secured Notes on all money or
property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Senior Secured Notes.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.01(f) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to
the extent applicable.
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Section 6.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Issuer. The Holders of Senior
Secured Notes of a majority in principal amount of the then outstanding Senior
Secured Notes may remove the Trustee by so notifying the Trustee and the Issuer
in writing. The Issuer may remove the Trustee if:
(a) the Trustee fails to comply with Section 6.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuer shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Senior Secured Notes
may appoint a successor Trustee to replace the successor Trustee appointed by
the Issuer.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer, or the
Holders of Senior Secured Notes of at least 10% in principal amount of the then
outstanding Senior Secured Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Senior
Secured Note who has been a Holder of a Senior Secured Note for at least six
months, fails to comply with Section 6.10, such Holder of a Senior Secured Note
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Senior Secured Notes. The retiring Trustee shall
promptly transfer all property held by it as Trustee to the successor Trustee,
provided all sums owing to the Trustee hereunder have been paid and subject to
the Lien provided for in Section 6.07 hereof. Notwithstanding replacement of
the Trustee pursuant to this Section 6.08, the Issuer's obligations under
Section 6.07 hereof shall continue for the benefit of the retiring Trustee.
Section 6.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
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Section 6.10. Eligibility; Disqualification.
There shall at all times be a Trustee under this Indenture, which
shall be a corporation having either (a) a combined capital and surplus of at
least $500.0 million, or (b) having a combined capital and surplus of at least
$100.0 million and being a wholly owned subsidiary of a corporation having a
combined capital and surplus of at least $500.0 million in each case subject to
supervision or examination by a Federal or State or District of Columbia
authority and having a corporate trust office in New York, New York, to the
extent there is such an institution eligible and willing to serve.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA
(S) 310(b).
Section 6.11. Preferential Collection of Claims Against Issuer..
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
Section 6.12. Default Rate of Interest.
All sums of money owed to the Trustee shall bear interest from the
date on which the same are due and payable until the date of payment at a rate
equal to the "Base Rate" of Bankers Trust Company, as such rate is announced
from time to time, said rate to change when and as the said Base Rate changes.
Section 6.13. Receipt of Documents.
In no event shall receipt by the Trustee of financial and other
reports from the Issuer as provided in this Indenture, review of which could
lead to the conclusion that an Event of Default exists hereunder, result,
without further action, in the occurrence of an Event of Default, or impose upon
the Trustee the obligation to review and examine the same, it being understood
that all such information shall be received by the Trustee as repository for
said information and documents with no obligation on the part of the Trustee to
review the same.
ARTICLE 7.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 7.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Issuer may, at the option of its shareholders evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 7.02 or 7.03 hereof be applied to all outstanding Senior Secured
Notes upon compliance with the conditions set forth below in this Article 7.
Section 7.02. Legal Defeasance and Discharge.
Upon the Issuer's exercise under Section 7.01 hereof of the option
applicable to this Section 7.02, the Issuer shall, subject to the satisfaction
of the conditions set forth in Section 7.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Senior Secured
Notes on the date the conditions set forth below are satisfied (hereinafter,
"Legal Defeasance"). For this purpose, Legal Defeasance means that the Issuer
----------------
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Senior Secured Notes, which shall thereafter be deemed to
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be "outstanding" only for the purposes of Section 7.05 hereof and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Senior Secured Notes and this
Indenture (and the Trustee, on demand of and at the expense of the Issuer, shall
execute proper instruments acknowledging the same), except for the following
provisions which shall survive until otherwise terminated or discharged
hereunder: (a) the rights of Holders of outstanding Senior Secured Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Senior Secured Notes when such payments are due from the trust referred
to below, (b) the Issuer's obligations with respect to the Senior Secured Notes
concerning issuing temporary Senior Secured Notes, registration of Senior
Secured Notes, mutilated, destroyed, lost or stolen Senior Secured Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (c) the rights, powers, trusts, duties, immunities and
indemnities of the Trustee, and the Issuer's obligations in connection therewith
and (d) this Article 7. Subject to compliance with this Article 7, the Issuer
may exercise its option under this Section 7.02 notwithstanding the prior
exercise of its option under Section 7.03 hereof.
Section 7.03. Covenant Defeasance.
Upon the Issuer's exercise under Section 7.01 hereof of the option
applicable to this Section 7.03, the Issuer shall, subject to the satisfaction
of the conditions set forth in Section 7.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13 and 4.14 hereof with respect to the outstanding Senior Secured
Notes on and after the date the conditions set forth in Section 7.04 are
satisfied (hereinafter, "Covenant Defeasance"), and the Senior Secured Notes
-------------------
shall thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Senior Secured Notes shall not be deemed outstanding for accounting purposes).
For this purpose, Covenant Defeasance means that, with respect to the
outstanding Senior Secured Notes, the Issuer may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 5.01 hereof, but, except as specified above, the remainder of this
Indenture and such Senior Secured Notes shall be unaffected thereby. In
addition, upon the Issuer's exercise under Section 7.01 hereof of the option
applicable to this Section 7.03 hereof, subject to the satisfaction of the
conditions set forth in Section 7.04 hereof, Sections 5.01(b) through 5.01(d)
hereof shall not constitute Events of Default.
Section 7.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 7.02 or 7.03 hereof to the outstanding Senior Secured Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Issuer must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders, cash in United States dollars, non-callable
Government Securities, or a combination thereof, in such amounts as shall be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Senior Secured Notes on the stated date for payment thereof or on
the applicable Redemption Date, as the case may be,
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and the Issuer must specify whether the Senior Secured Notes are being defeased
to maturity or to a particular redemption date;
(b) in the case of an election under Section 7.02 hereof, the Issuer shall
have delivered to the Trustee an Opinion of Counsel in the United States
confirming that (A) the Issuer has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date hereof, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such Opinion of Counsel shall confirm that,
the Holders of the outstanding Senior Secured Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of an election under Section 7.03 hereof, the Issuer shall
have delivered to the Trustee an Opinion of Counsel in the United States
confirming that the Holders of the outstanding Senior Secured Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit (other than a Default or Event of Default resulting
from the incurrence of Indebtedness all or a portion of the proceeds of which
will be used to defease the Senior Secured Notes pursuant to this Article 7
concurrently with such incurrence) or insofar as Section 5.01(f) hereof is
concerned, at any time in the period ending on the 91/st/ day after the date of
deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which the Issuer is a party or by
which the Issuer is bound;
(f) the Issuer shall have delivered to the Trustee an Opinion of Counsel
(which may be subject to customary exceptions) to the effect that on the 91/st/
day following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) the Issuer shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuer with the intent
of preferring the Holders over any other creditors of the Issuer or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Issuer; and
(h) the Issuer shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 7.05. Release of collateral upon legal or covenant defeasance.
Upon Legal Defeasance or Covenant Defeasance, and upon satisfaction of
the requirements of Section 7.04 above, as applicable, the Collateral Agent
shall release all the Collateral as to which a security interest has been
granted pursuant to this Indenture and the Security Documents. The Collateral
Agent shall take all necessary measures to effectuate such release, including,
but not limited to, filing UCC-2 termination statements in the appropriate
jurisdiction.
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Section 7.06. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 7.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 7.05, the
"Trustee") pursuant to Section 7.04 hereof in respect of the outstanding Senior
Secured Notes shall be held in trust and applied by the Trustee, in accordance
with the provisions of such Senior Secured Notes and this Indenture, to the
payment, either directly or through any Paying Agent (including the Issuer
acting as Paying Agent) as the Trustee may determine, to the Holders of such
Senior Secured Notes of all sums due and to become due thereon in respect of
principal, premium, if any, and interest, but such money need not be segregated
from other funds except to the extent required by law.
The Issuer shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 7.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Senior
Secured Notes.
Anything in this Article 7 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuer from time to time upon the request of
the Issuer any money or non-callable Government Securities held by it as
provided in Section 7.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 7.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
Section 7.07. Repayment to Issuer.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Issuer, in trust for the payment of the principal of, premium, if any, or
interest on any Senior Secured Note and remaining unclaimed for two years after
such principal, and premium, if any, or interest has become due and payable
shall be paid to the Issuer on its request or (if then held by the Issuer) shall
be discharged from such trust; and the Holder of such Senior Secured Note shall
thereafter, as a secured creditor, look only to the Issuer for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Issuer as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Issuer cause to
be published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
shall be repaid to the Issuer.
Section 7.08. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 7.02 or
7.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Issuer's obligations under this Indenture and the Senior
Secured Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 7.02 or 7.03 hereof until such time as the Trustee or Paying
Agent is permitted to apply all such money in accordance with Section 7.02 or
7.03 hereof, as the case may be; provided, however, that, if the Issuer
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makes any payment of principal of, premium, if any, or interest on any Senior
Secured Note following the reinstatement of its obligations, the Issuer shall be
subrogated to the rights of the Holders of such Senior Secured Notes to receive
such payment from the money held by the Trustee or Paying Agent.
ARTICLE 8.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 8.01. Without Consent of Holders of Senior Secured Notes.
Notwithstanding Section 8.02 of this Indenture, the Issuer, the
Guarantors, the Trustee and the Collateral Agent may amend, supplement or
execute a waiver of this Indenture, the Guarantees, the Senior Secured Notes and
any and all of the other Financing Documents without the consent of any Holder
of a Senior Secured Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to add additional covenants of the Issuer or to surrender rights
conferred upon the Issuer;
(c) to increase the assets securing the Issuer's obligations under this
Indenture;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Senior Secured Notes or that does not adversely
affect the legal rights hereunder of any Holder of the Senior Secured Note;
(e) to comply with requirements of the SEC in order to effect or maintain
the qualification of this Indenture under the TIA;
(f) to provide for the issuance of Additional Notes and other Senior
Indebtedness and Permitted Guarantor Indebtedness in accordance with the
limitations set forth in this Indenture and the Credit Agreements as of the date
hereof;
(g) to reflect any amendments required by a Rating Agency in circumstances
where confirmation of the Ratings is required or permitted under this Indenture;
or
(h) to make any change not inconsistent with the terms of this Indenture.
Upon the request of the Issuer accompanied by a resolution of its
shareholders authorizing the execution of any such amended or supplemental
Indenture or amendments to the other Financing Documents, and upon receipt by
the Trustee of the documents described in Section 6.02 hereof (other than in
connection with a request to enter into an amendment or supplement in connection
with the issuance of Additional Notes), the Trustee and the Collateral Agent
shall join with the Issuer and the Guarantors in the execution of any amended or
supplemental Indenture and any amendment to any of the other Financing Documents
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee and the Collateral Agent shall not be obligated to enter into such
amended or supplemental Indenture or amendments to the Financing Documents that
affects its own rights, duties, immunities, or indemnities under this Indenture
or otherwise.
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Section 8.02. With Consent of Holders of Senior Secured Notes.
Except as provided below in this Section 8.02, the Issuer, the
Guarantors, the Trustee and the Collateral Agent may amend or supplement this
Indenture (including Section 4.14 hereof), the Guarantees, the other Financing
Documents and the Senior Secured Notes may be amended or supplemented with the
consent of the Required Holders voting as a single class (including consents
obtained in connection with a tender offer or exchange offer for, or purchase
of, the Senior Secured Notes), and, subject to Sections 5.04 and 5.07 hereof,
any existing Default or Event of Default (other than a Default or Event of
Default in the payment of the principal of, premium, if any, or interest on the
Senior Secured Notes, except a payment default resulting from an acceleration
that has been rescinded) or compliance with any provision of this Indenture, the
Guarantees, the other Financing Documents or the Senior Secured Notes may be
waived with the consent of the Required Holders voting as a single class
(including consents obtained in connection with a tender offer or exchange offer
for, or purchase of, the Senior Secured Notes). Without the consent of at least
75% in principal amount of the Senior Secured Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for, or
purchase of, such Senior Secured Notes), no waiver or amendment to this
Indenture may make any change in the provisions of Article 9 hereof that
adversely affects the rights of any Holder of Senior Secured Notes. Section
2.08 and Section 8.06 hereof shall determine which Senior Secured Notes are
considered to be "outstanding" for purposes of this Section 8.02.
Upon the request of the Issuer accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Senior Secured Notes as aforesaid, and
upon receipt by the Trustee of the documents described in Section 6.02 hereof,
the Trustee shall join with the Issuer in the execution of such amended or
supplemental Indenture and amendments to the other Financing Documents unless
such amended or supplemental Indenture or amendments to the Financing Documents
directly affects the Trustee's own rights, duties, immunities or indemnities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture or such amendments.
It shall not be necessary for the consent of the Holders of Senior
Secured Notes under this Section 8.02 to approve the particular form of any
proposed amendment or waiver, but it shall be sufficient if such consent
approves the substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Issuer shall mail to the Holders of Senior Secured Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Issuer to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver or amendments to the Financing Documents.
Subject to Sections 5.04 and 5.07 hereof, the Holders of a majority in aggregate
principal amount of the Senior Secured Notes then outstanding voting as a single
class may waive compliance in a particular instance by the Issuer with any
provision of this Indenture or the Senior Secured Notes. However, without the
consent of all Holders of Outstanding Notes, an amendment or waiver under this
Section 8.02 may not (with respect to any Senior Secured Notes held by a non-
consenting Holder) modify:
(a) the principal, premium, if any, and interest payable upon the Senior
Secured Notes;
(b) the dates on which interest or principal on any Senior Secured Notes
is paid;
(c) the dates of maturity of any Senior Secured Notes; and
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(d) the procedures for amendment by a supplemental indenture or amendment.
Notwithstanding anything in this Section 8.02, the provisions in
Section 3.09 relating to a Change of Control and the related definitions as used
therein may be amended by the Holders of at least a majority in aggregate
principal amount of the Outstanding Notes.
Section 8.03. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Senior Secured Note is a continuing consent by the Holder
of a Senior Secured Note and every subsequent Holder of a Senior Secured Note or
portion of a Senior Secured Note that evidences the same debt as the consenting
Holder's Senior Secured Note, even if notation of the consent is not made on any
Senior Secured Note. However, any such Holder of a Senior Secured Note or
subsequent Holder of a Senior Secured Note may revoke the consent as to its
Senior Secured Note if the Trustee receives written notice of revocation before
the date the waiver, supplement or amendment becomes effective. An amendment,
supplement or waiver becomes effective in accordance with its terms and
thereafter binds every Holder.
Section 8.04. Notation on or Exchange of Senior Secured Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Senior Secured Note thereafter authenticated. The
Issuer in exchange for all Senior Secured Notes may issue and the Trustee shall,
upon receipt of an Authentication Order, authenticate new Senior Secured Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Senior Secured
Note shall not affect the validity and effect of such amendment, supplement or
waiver.
Section 8.05. Trustee to Sign Amendments, etc.
The Trustee and the Collateral Agent shall sign any amended or
supplemental Indenture and amendments to the other Financing Documents
authorized pursuant to this Article 8 if the amendment or supplement does not
adversely affect the rights, duties, liabilities, immunities or indemnities of
the Trustee. The Issuer may not sign an amendment or supplemental Indenture
until the Guarantors approve it. In executing any amended or supplemental
indenture or in executing any amendment or modification contemplated by Section
8.07 hereof, or amendments to the other Financing Documents, the Trustee and the
Collateral Agent shall be entitled to receive and (subject to Section 6.01
hereof) shall be fully protected in relying upon, in addition to the documents
required by Section 10.04 hereof, an Officer's Certificate and an Opinion of
Counsel stating that the execution of such amended or supplemental indenture or
amendment to the other Financing Documents is authorized or permitted by this
Indenture.
Section 8.06. Additional Senior Secured Notes.
In the event the Issuer incurs the Permitted Indebtedness in the form
of Additional Senior Secured Notes, whether issued pursuant to this Indenture or
a separate indenture, the holders of the Senior Secured Notes and the holders of
Additional Senior Secured Notes shall be treated as one class for all purposes
(including voting with respect to the exercise of remedies in the event of an
Event of Default). Notwithstanding anything to the contrary in this Indenture,
the Issuer and on the Trustee may amend this Indenture or enter into an
intercreditor agreement to implement such treatment.
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Section 8.07. Amendment Of Credit Agreements And Partnership Notes.
The Issuer and the Trustee may, without the consent of or notice to
the Senior Secured Note Holders, consent to any amendment or modification of the
Credit Agreements or Partnership Notes (i) as permitted by the provisions of
such Credit Agreements, Partnership Notes or this Indenture, (ii) to cure any
ambiguity, defect or inconsistency (iii) to add additional rights in favor of
the Issuer, or (iv) in connection with any amendment to the Credit Agreements or
Partnership Notes where such amendment is required by a Rating Agency in
circumstances where confirmation of the Ratings are required or permitted under
this Indenture or the Credit Agreements. Except as described above, the Issuer,
the Guarantors, the Trustee and the Collateral Agent shall not consent to any
other amendment or modification of the Credit Agreements or Partnership Notes or
grant any waiver or consent thereunder without the consent of the Required
Holders. An amendment to a Credit Agreement or Partnership Note which changes
the amounts of payments due thereunder (except in connection with the issuance
of additional Senior Secured Notes in accordance with the limitations set forth
in this Indenture as of the date hereof), the Person to whom such payments are
to be made or the dates on which such payments are to be made shall not be made
without the unanimous consent of the Holders.
ARTICLE 9.
GUARANTEES
Section 9.01. Guarantee.
Subject to this Article 9, each of the Guarantors hereby, jointly and
severally, unconditionally guarantees to each Holder of a Senior Secured Note
authenticated and delivered by the Trustee and to the Trustee and its successors
and assigns, irrespective of the validity and enforceability of this Indenture,
the Senior Secured Notes or the obligations of the Issuer hereunder or
thereunder, that: (a) the principal of and interest on the Senior Secured Notes
shall be promptly paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of and interest
on the Senior Secured Notes, if any, if lawful, and all other obligations of the
Issuer to the Holders or the Trustee hereunder or thereunder shall be promptly
paid in full or performed, all in accordance with the terms hereof and thereof;
and (b) in case of any extension of time of payment or renewal of any Senior
Secured Notes or any of such other obligations, that same shall be promptly paid
in full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise. Failing
payment when due of any amount so guaranteed or any performance so guaranteed
for whatever reason, the Guarantors shall be jointly and severally obligated to
pay the same immediately. Each Guarantor agrees that this is a guarantee of
payment and not a guarantee of collection.
The Guarantors hereby agree that their obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Senior Secured Notes or this Indenture, the absence of any action to enforce the
same, any waiver or consent by any Holder of the Senior Secured Notes with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Issuer, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. Each Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Issuer, any right to require a proceeding first against the Issuer,
protest, notice and all demands whatsoever and covenant that this Guarantee
shall not be discharged except by complete performance of the obligations
contained in the Senior Secured Notes and this Indenture.
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If any Holder or the Trustee is required by any court or otherwise to
return to the Issuer, the Guarantors or any custodian, trustee, liquidator or
other similar official acting in relation to either the Issuer or the
Guarantors, any amount paid by either to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. Each
Guarantor further agrees that, as between the Guarantors, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 5 hereof
for the purposes of this Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article 5 hereof, such obligations (whether or
not due and payable) shall forthwith become due and payable by the Guarantors
for the purpose of this Guarantee. Each Guarantor shall have the right to seek
contribution from any non-paying Guarantor so long as the exercise of such right
does not impair the rights of the Holders hereunder.
Section 9.02. Limitation on Guarantor Liability.
Each Guarantor, and by its acceptance of Senior Secured Notes, each
Holder, hereby confirms that it is the intention of all such parties that the
Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance
for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal or state law to the
extent applicable to any Guarantee. To effectuate the foregoing intention, the
Trustee, the Holders and the Guarantors hereby irrevocably agree that the
obligations of such Guarantor under its Guarantee and this Article 9 shall be
limited to the maximum amount as will, after giving effect to such maximum
amount and all other contingent and fixed liabilities of such Guarantor that are
relevant under such laws, and after giving effect to any collections from,
rights to receive contribution from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other Guarantor under this
Article 9, result in the obligations of such Guarantor under its Guarantee not
constituting a fraudulent transfer or conveyance.
Section 9.03. Execution and Delivery of Guarantee.
To evidence its Guarantee set forth in Section 9.01 hereof, each
Guarantor hereby agrees that a notation of such Guarantee substantially in the
form included in Exhibit F shall be endorsed by an Officer of such Guarantor on
each Senior Secured Note authenticated and delivered by the Trustee and that
this Indenture shall be executed on behalf of such Guarantor by its General
Partner.
Each Guarantor hereby agrees that its Guarantee set forth in Section
9.01 hereof shall remain in full force and effect notwithstanding any failure to
endorse on each Senior Secured Note a notation of such Guarantee.
If the Officer whose signature is on this Indenture or on the
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Guarantee is endorsed, the Guarantee shall be valid
nevertheless.
The delivery of any Senior Secured Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the Guarantee
set forth in this Indenture on behalf of the Guarantors.
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Section 9.04. Guarantors May Consolidate, etc., on Certain Terms.
No Guarantor may consolidate with or merge with or into (whether or
not such Guarantor is the surviving Person) another corporation, Person or
entity whether or not affiliated with such Guarantor unless:
(1) subject to Section 9.05 hereof, the Person formed by or surviving any
such consolidation or merger (if other than a Guarantor or the Issuer)
unconditionally assumes all the obligations of such Guarantor, pursuant
to a supplemental indenture in form and substance reasonably satisfactory
to the Trustee, under the Senior Secured Notes, this Indenture and the
Guarantee on the terms set forth herein or therein; and
(2) immediately after giving effect to such transaction, no Default or Event
of Default exists.
In case of any such consolidation, merger, sale or conveyance and upon
the assumption by the successor Person, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the
Guarantee endorsed upon the Senior Secured Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Guarantor, such successor Person shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor Person thereupon may cause to be signed
any or all of the Guarantees to be endorsed upon all of the Senior Secured Notes
issuable hereunder which theretofore shall not have been signed by the Issuer
and delivered to the Trustee. All the Guarantees so issued shall in all
respects have the same legal rank and benefit under this Indenture as the
Guarantees theretofore and thereafter issued in accordance with the terms of
this Indenture as though all of such Guarantees had been issued at the date of
the execution hereof.
Except as set forth in Articles 4 hereof, and notwithstanding clauses
(1) and (2) above, nothing contained in this Indenture or in any of the Senior
Secured Notes shall prevent any consolidation or merger of a Guarantor with or
into another Guarantor, or shall prevent any sale or conveyance of the property
of a Guarantor as an entirety or substantially as an entirety to the Issuer or
another Guarantor.
Section 9.05. Releases Following Sale of Assets.
In the event of a sale or other disposition of all of the assets of
any Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, then such Guarantor
(in the event of a sale or other disposition, by way of merger, consolidation or
otherwise, of all of the capital stock of such Guarantor) or the corporation
acquiring the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor) shall be released and
relieved of any obligations under its Guarantee; provided that the net proceeds
of such sale or other disposition are applied in accordance with the applicable
provisions of this Indenture. Upon delivery by the Issuer or a Guarantor to the
Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that
such sale or other disposition was made by the Issuer or a Guarantor in
accordance with the applicable provisions of this Indenture, the Trustee shall
execute any documents reasonably required in order to evidence the release of
any Guarantor from its obligations under its Guarantee.
Any Guarantor not released from its obligations under its Guarantee
shall remain liable for the full amount of principal of and interest on the
Senior Secured Notes and for the other obligations of any Guarantor under this
Indenture as provided in this Article 9.
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The Guarantees are partially secured by the Deeds of Trust executed by
the Guarantors, which may be foreclosed upon if an Event of Default has occurred
and is continuing.
ARTICLE 10.
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA (S) 318(c), the imposed duties shall control.
Section 10.02. Notices.
Any notice or communication by the Issuer, any Guarantor or the
Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the others' address
If to the Issuer and/or any Guarantor:
Caithness Coso Funding Corp.
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Telecopier No.: (212) 921-9239
Attention: Christopher T. McCallion
With a copy to:
Riordan & McKenzie
300 South Grand Avenue
Twenty-Ninth Floor
Los Angeles, CA 90071
Telecopier No.: (213) 629-4824
Attention: Thomas L. Harnsberger, Esq.
If to the Trustee and Collateral Agent:
U.S. Bank Trust National Association
One California Street
Fourth Floor
San Francisco, California 94111
Telecopier No.: (415) 273-4590
Telephone No.: (415) 273-4580
Attention: Corporate Trust REF: Corporate Trust REF: Account #95463660
If to Moody's:
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Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Telecopier No.: (212) 553-0468
Telephone No.: (212) 553-7822
Attention: Corporate Utilities Department
If to S&P:
Standard & Poor's Rating Group
25 Broadway
New York, New York 10004
Telecopier No.: (212) 208-8946
Telephone No.: (212) 208-1651
Attention: Corporate Finance Department Electric Utilities Group
If to Duff & Phelps:
Duff & Phelps Rating Company
55 E. Monroe
Suite 3500
Chicago, IL 60603
Telecopier No. (312) 368-3155
Telephone No. (312) 606-2329
Attention: John Kunkle
The Issuer, any Guarantor or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA (S) 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Issuer mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
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Section 10.03. Communication by Holders of Senior Secured Notes with Other
Holders of Senior Secured Notes.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders
with respect to their rights under this Indenture or the Senior Secured Notes.
The Issuer, the Trustee, the Registrar and anyone else shall have the protection
of TIA (S) 312(c).
Section 10.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Issuer to the Trustee to take
any action under this Indenture, the Issuer shall furnish to the Trustee:
(a) an Officers' Certificate (which shall include the statements set forth in
Section 10.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this
Indenture relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel (which shall include the statements set forth in
Section 10.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
Section 10.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA
(S) 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has read
such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been satisfied.
Section 10.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
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Section 10.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No past, present or future director, officer, employee, incorporator,
management committee, stockholder or partner of the Issuer or any Guarantor, as
such, or any manager, director, officer, employee, incorporator, stockholder,
partner, management committee, or member of any partner of any Guarantor, as
such, shall have any liability for any obligations of the Issuer or such
Guarantor under the Senior Secured Notes, the Guarantees, this Indenture, any
Financing Document or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder by accepting a Senior Secured
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Senior Secured Notes.
Section 10.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE SENIOR SECURED NOTES AND THE GUARANTEES WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 10.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan
or Indebtedness agreement of the Issuer or its Affiliates or of any other
Person. Any such indenture, loan or Indebtedness agreement may not be used to
interpret this Indenture.
Section 10.10. Successors.
All agreements of the Issuer in this Indenture and the Senior Secured
Notes shall bind its successors. All agreements of Guarantors in this Indenture
shall bind their respective successors. All agreements of the Trustee in this
Indenture shall bind its successors.
Section 10.11. Severability.
In case any provision in this Indenture or in the Senior Secured Notes
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 10.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 10.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
76
<PAGE>
SIGNATURES:
CAITHNESS COSO FUNDING CORP.,
a Delaware corporation
By: /s/ Christopher T. McCallion
-----------------------------
Name: Christoper T. McCallion
Its: Executive Vice President
COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
77
<PAGE>
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
78
<PAGE>
COSO POWER DEVELOPERS
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Trustee and Collateral Agent
By: /s/ Judy P. Manansala
-----------------------
Name: Judy P. Manansala
its: Trust Officer
79
<PAGE>
EXHIBIT A-1
(Face of Global Note)
================================================================================
CUSIP/CINS 128017AA8
6.80% Senior Secured Notes due 2001
No.__ $____________
Caithness Coso Funding Corp.
promises to pay to Cede & Co., or registered assigns, the principal sum of
______________
Dollars in accordance with Paragraph 1 herein.
Principal Payment Dates: June 15 and December 15 (commencing December 15, 1999)
Interest Payment Dates: June 15 and December 15 (commencing December 15, 1999)
Record Dates: June 1 and December 1
Additional provisions are set forth on
the other side of this Senior Secured Note.
Dated:
Caithness coso Funding Corp.
By:_____________________________
Name:
Title:
This is one of the Global Notes referred to
in the within-mentioned Indenture:
U.S. Bank Trust National Association,
as Trustee
By:__________________________________
Name:
================================================================================
A1-1
<PAGE>
(Back of Note)
6.80% Senior Secured Notes due 2001
[Insert the Global Note legend, if applicable, pursuant to the provisions of the
Indenture]
[Insert the Private Placement legend, if applicable, pursuant to the provisions
of the Indenture]
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Principal and Interest. Caithness Coso Funding Corp., a Delaware
corporation (the "Issuer"), promises to pay the principal of this 2001 Note in
------
the manner described in Section 4.01 of the Indenture dated as of May 28, 1999
(as amended or supplemented from time to time, the "Indenture") among the
Issuer, the Guarantors on the signature pages thereto (the "Guarantors"), and
----------
U.S. Bank Trust National Association, as trustee (the "Trustee") and as
-------
collateral agent (the "Collateral Agent"). The Issuer also promises to pay
----------------
interest on the principal amount of this 2001 Note at 6.80% per annum from the
date of issuance until maturity. The Issuer shall pay interest semi-annually in
arrears on June 15 and December 15 of each year (the "Interest Payment Date"),
---------------------
or if any such day is not a Business Day, on the next succeeding Business Day.
Interest on the 2001 Notes will accrue from the most recent Interest Payment
Date to which interest has been paid or, if no interest has been paid, from the
date of issuance; provided that if there is no existing Default in the payment
of interest, and if this Senior Secured Note is authenticated between a record
date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be December 15,
1999. The Issuer shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the rate
then in effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment. The Issuer will pay principal on the 2001 Notes to
the Persons who are registered Holders of 2001 Notes at the close of business on
the June 1 and December 1 next preceding the relevant payment date for
principal, even if such 2001 Notes are canceled after such record date and on or
before such payment date for principal. The Issuer will pay interest on the 2001
Notes (except defaulted interest) to the Persons who are registered Holders of
the 2001 Notes at the close of business on the June 1 or December 1 next
preceding the Interest Payment Date, even if such 2001 Notes are canceled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest. The 2001
Notes will be payable as to principal, premium, if any, and interest at the
office or agency of the Issuer maintained for such purpose within or without the
City and State of New York, or, at the option of the Issuer, payment of interest
may be made by check mailed to the Holders at their addresses set forth in the
register of Holders, and provided that payment by wire transfer of immediately
available funds will be required with respect to principal of, interest and
premium on all Global Notes and all other Senior Secured Notes the Holders of
which shall have provided wire transfer instructions to the Issuer or the Paying
Agent. Such payment shall be in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts.
3. Paying Agent and Registrar. Initially, U.S. Bank Trust National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Issuer may change any Paying
A1-1
<PAGE>
Agent or Registrar without notice to any Holder. The Issuer or any of its
Affiliates may act in any such capacity.
4. Indenture. The Issuer issued the 2001 Notes under the Indenture and
the terms of the 2001 Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The 2001 Notes are subject to all
such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. To the extent any provision of this Senior Secured
Note conflicts with the express provisions of the Indenture, the provisions of
the Indenture shall govern and be controlling. The Senior Secured Notes are
general, unsecured obligations of the Issuer limited to $413 million in
aggregate principal amount.
5. Optional Redemption.
(a) The 2001 Notes are not redeemable at the option of the Issuer.
6. Mandatory Redemption. The Senior Secured Notes will be subject to
mandatory redemption, in whole or in part, ratably among each series at a
redemption price equal to the principal amount thereof plus accrued and unpaid
interest to the Redemption Date, (a) upon the receipt of Loss Proceeds or
Eminent Domain Proceeds by a Coso Partnership if the applicable Coso Partnership
determines that (i) the affected Project cannot be rebuilt, repaired or restored
to permit operations on a commercially reasonable basis, or the applicable Coso
Partnership determines not to rebuild, repair or restore the affected Project,
in which case the amount of such Loss Proceeds or Eminent Domain Proceeds shall
be available for such redemption, or (ii) only a portion of the affected Project
is capable of being rebuilt, repaired or restored, in which case if excess
proceeds exist after such rebuild, repair, or restoration, only the amount of
such excess Loss Proceeds or Eminent Domain Proceeds shall be made available for
such redemption, (b) upon the receipt by the applicable Coso Partnership of
proceeds in connection with a Title Event, in which case the amount of such
Title Event Proceeds shall be made available for such redemption, subject to
reduction by the costs expended in connection with collecting proceeds upon the
occurrence of such Title Event, and any additional reasonable costs or expenses
that the Coso Partnerships will be subject to as a result of the Title Event,
(c) upon the receipt by the Coso Partnerships of net proceeds in excess of $5.0
million realized in connection with a Permitted Power Contract Buy-Out, or $10.0
million, when aggregated with all previous Permitted Power Contract Buy-Outs, in
which case the amount of all proceeds associated with such Permitted Power
Contract Buy-Outs shall be made available for such redemption, unless each of
the Rating Agencies confirm that a Rating Downgrade will not occur if no
redemption is made with such proceeds and (d) the receipt by the Coso
Partnerships of proceeds received in connection with a termination of the Navy
Contract under Section VIII(2) of the Navy Contract (P00004 Modification dated
October 9, 1983).
7. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Senior Secured Notes are to be redeemed at its registered address. The Trustee
shall promptly notify the Issuer in writing of the 2001 Notes selected for
redemption and, in the case of any 2001 Note selected for partial redemption,
the principal amount thereof to be redeemed. 2001 Notes and portions of 2001
Notes selected shall be in denominations of $100,000 and integral multiples of
$1,000; except that if all of the 2001 Notes of a Holder are to be redeemed, the
entire outstanding amount of 2001 Notes held by such Holder, even if not a
multiple of $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to 2001 Notes called for
redemption also apply to portions of 2001 Notes called for redemption.
8. Denominations, Transfer, Exchange. The 2001 Notes are in registered
form without coupons in denominations of $100,000 and integral multiples of
$1,000 in excess thereof. The transfer
A1-2
<PAGE>
of the 2001 Notes may be registered and 2001 Notes may be exchanged as provided
in the Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and the
Issuer may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuer need not exchange or register the
transfer of any 2001 Notes or portion of a 2001 Note selected for redemption,
except for the unredeemed portion of any 2001 Note being redeemed in part. Also,
the Issuer need not exchange or register the transfer of any 2001 Notes for a
period of 15 days before a selection of the 2001 Notes to be redeemed or during
the period between a record date and the corresponding Interest Payment Date.
9. Persons Deemed Owners. The registered Holder of a 2001 Note may be
treated as its owner for all purposes.
10. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture, the Guarantees or the 2001 Notes may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
then outstanding 2001 Notes and any existing default or compliance with any
provision of the Indenture, the Guarantees or the 2001 Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Senior Secured Notes. Without the consent of any Holder of a 2001
Note, the Indenture, the Guarantees or the 2001 Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to add additional
covenants of the Issuer or to surrender rights conferred upon the Issuer, to
increase the assets securing the Issuer's obligations under this Indenture, to
make any change that would provide any additional rights or benefits to the
Holders of the Senior Secured Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, to comply with the requirements
of the Secuirites and Exchange Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act, to provide for the
Issuance of Additional Notes and other Senior Indebtedness and Permitted
Guarantor Indebtedness in accordance with the limitations set forth in the
Indenture, to make any change not in consistent with the terms of the Indenture
or to reflect any amendments required by a Rating Agency in circumstances where
confirmation of the Ratings is required or permitted under this Indenture.
11. Defaults and Remedies. Events of Default include: (i) failure to pay
any principal, interest or other amounts owed on any Senior Secured Note when
the same becomes due and payable, whether by scheduled maturity or required
prepayment or redemption or by acceleration or otherwise, and such failure
continues for 10 days or more following the due date for payment; (ii) a Credit
Agreement Event of Default or a Guarantee Event of Default has occurred and is
continuing; (iii) any representation or warranty made by the Issuer in the
Indenture or in any other Financing Document or any representation, warranty or
statement in any certificate, financial statement or other document furnished to
the Trustee or any other Person by or on behalf of the Issuer proves to have
been untrue or misleading in any material respect as of the time made, confirmed
or furnished and the fact, event or circumstance that gave rise to such
inaccuracy has resulted in, or could reasonably be expected to result in, a
Material Adverse Effect and that fact, event or circumstance continues uncured
for 30 or more days from the date a Responsible Officer of the Issuer receives
notice thereof from the Trustee; provided that, if the Issuer commences and
diligently pursues efforts to cure such fact, event or circumstance within such
30-day period and delivers written notice to the Trustee thereof, the Issuer may
continue to effect such cure, and such misrepresentation shall not be deemed an
"Event of Default" for an additional 60 days so long as the Issuer is diligently
pursuing such cure; (iv) the Issuer fails to perform or observe any covenant or
agreement contained in the Indenture regarding maintenance of existence or
restrictions on Indebtedness, Liens, Restricted Payments, guarantees,
disposition of assets, amendments to the Credit Agreements or Partnership Notes
or taking of actions thereunder as directed by the Required Holders, fundamental
changes, or nature of business and such failure continues uncured for 30 or more
days from the date a Responsible Officer of the Issuer receives notice thereof
from the Trustee; (v) the Issuer fails to perform or observe any of its
covenants contained in the Indenture (other than those contained in (iv)
A1-3
<PAGE>
above) and such failure continues uncured for 30 or more days from the date a
Responsible Officer of the Issuer receives notice thereof from the Trustee of
such failure; provided that if the Issuer commences and diligently pursues
efforts to cure such default within such 30-day period, the Issuer may continue
to effect such cure of the default and such default will not be deemed an "Event
of Default" for an additional 90 days so long as the Issuer is diligently
pursuing such cure; (vi) certain events involving the bankruptcy, insolvency,
receivership or reorganization of the Issuer described in Section 5.01(f) of the
Indenture; (vii) any Pledge Agreement ceases to be in full force and effect or
there is a Material Adverse Effect on the Lien purported to be granted under any
Pledge Agreement such that it ceases to be a valid and perfected Lien in favor
of the Collateral Agent for the benefit of the Secured Parties on the Collateral
described therein with the priority purported to be created thereby; provided,
however, that the Issuer has 10 days after a Responsible Officer of the Issuer
obtains actual knowledge thereof to cure any such cessation, if curable, or to
furnish to the Collateral Agent all documents or instruments required to cure
any such cessation, if curable; (viii) any event of default under any Permitted
Indebtedness of Issuer which results in Permitted Indebtedness in excess of $2.5
million becoming due and payable prior to its stated maturity. If an Event of
Default (other than bankruptcy or insolvency) relating to failure to pay amounts
owed on the Senior Secured Notes has occurred and is continuing, the Trustee may
declare the principal amount of the Outstanding Notes, all interest accrued and
unpaid thereon, and all premium and other amounts payable under the Senior
Secured Notes and the Indenture, if any, to be due and payable notwithstanding
the absence of direction from Holders of at least 25% in aggregate principal
amount of the Outstanding Notes directing the Trustee, in writing, to accelerate
the maturity of the Senior Secured Notes unless Holders of more than 75% in
aggregate principal amount of the Outstanding Notes direct the Trustee not to
accelerate the maturity of such Senior Secured Notes, if in the good faith
exercise of its discretion the Trustee determines that such action is necessary
to protect the interests of the Holders. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, all Outstanding Notes will become due and payable immediately. The
Issuer is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Issuer is required upon becoming aware of
any Default or Event of Default to deliver to the Trustee a statement specifying
such Default or Event of Default.
12. Trustee Dealings with Issuer. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Issuer or its Affiliates, and may otherwise deal with the Issuer or its
Affiliates, as if it were not the Trustee.
13. No Recourse Against Others. A past, present or future director,
officer, employee, incorporator, management committee, stockholder or partner of
the Issuer or any Guarantor, as such, or any manager, director, officer,
employee, incorporator, management committee, partner, stockholder, or member of
any partner of any Guarantor, as such, shall not have any liability for any
obligations of the Issuer or such Guarantor under the Senior Secured Notes, the
Guarantees, the Indenture, any Financing Documents or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Senior Secured Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Senior
Secured Notes.
14. Authentication. This 2001 Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
15. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
A1-4
<PAGE>
16 CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuer has caused
CUSIP numbers to be printed on the 2001 Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the 2001 Notes
or as contained in any notice of redemption and reliance may be placed only on
the other identification numbers placed thereon.
The Issuer will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
Caithness Coso Funding Corp.
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Telecopier No.: (212) 921-9239
Attention: Christopher T. McCallion
A1-5
<PAGE>
Assignment Form
To assign this 2001 Note, fill in the form below: For value received (I) or
(we) assign and transfer this 2001 Note to
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this 2001 Note on the books of the Issuer. The agent may substitute
another to act for him.
Date: Your Signature:_____________________________________
(Sign exactly as your name appears on
the 2001 Note)
Tax Identification No:______________________________
Signature Guarantee.
Medallion No.:
Notice: Signature must be guaranteed by a member firm of the STAMP, SEMP or MSP
signature guaranty medallion program
A1-6
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE/1/
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:
<TABLE>
<CAPTION>
Amount of Amount of increase Principal Amount
decrease in in Principal of this Global Signature of
Principal Amount Amount Note following authorized officer
of this of this such decrease (or of Trustee or
Date of Exchange Global Note Global Note increase) Custodian
- ---------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
</TABLE>
_____________________
/1/ This should be included only if the Note is issued in global form.
A1-7
<PAGE>
EXHIBIT A-2
(Face of Regulation S Temporary Global Note)
================================================================================
CUSIP/CINS U12295AA6
6.80% Senior Secured Notes due 2001
No.__ U.S. $______
Caithness Coso Funding Corp.
promises to pay to Cede & Co., or registered assigns, the principal sum of
_______________ Dollars in accordance with Paragraph 1 herein.
Principal Payment Dates: June 15 and December 15 (commencing December 15, 1999)
Interest Payment Dates: June 15 and December 15 (commencing December 15, 1999)
Record Dates: June 1 and December 1
Dated:
Caithness Coso Funding Corp.
By:_________________________
Name:
Title:
This is one of the Global Notes referred to
in the within-mentioned Indenture:
U.S. Bank Trust National Association,
as Trustee
By: ______________________________
================================================================================
A2-1
<PAGE>
(Back of Regulation S Temporary Global Note)
6.80% Senior Secured Notes due 2001
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY AGENT (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUER."
THIS SENIOR SECURED NOTE AND THE GUARANTEES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS SENIOR
SECURED NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY, REQUIRED UNDER THE INDENTURE
PURSUANT TO WHICH THIS SENIOR SECURED NOTE IS ISSUED) AND IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER
EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) (a) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144(A), (b) AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN
"ACCREDITED INVESTOR"), (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE ISSUER SO REQUESTS),
SUBJECT TO THE RECEIPT BY THE REGISTRAR OF A CERTIFICATION OF THE TRANSFEROR AND
AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (2) TO THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
A2-2
<PAGE>
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE
RESALE RESTRICTION SET FORTH IN (A) ABOVE.
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Principal and Interest. Caithness Coso Funding Corp., a Delaware
corporation (the "Issuer"), promises to pay the principal of this 2001 Note in
------
the manner described in Section 4.01 of the Indenture dated as of May 28, 1999
(as amended or supplemented from time to time, the "Indenture") among the
---------
Issuer, the Guarantors on the signature pages thereto (the "Guarantors"), and
----------
U.S. Bank Trust National Association, as trustee (the "Trustee") and as
-------
collateral agent (the "Collateral Agent"). The Issuer also promises to pay
----------------
interest on the principal amount of this 2001 Note at 6.80% per annum from the
date of issuance until maturity. The Issuer shall pay interest semi-annually in
arrears on June 15 and December 15 of each year (the "Interest Payment Date"),
---------------------
or if any such day is not a Business Day, on the next succeeding Business Day.
Interest on the 2001 Notes will accrue from the most recent Interest Payment
Date to which interest has been paid or, if no interest has been paid, from the
date of issuance; provided that if there is no existing Default in the payment
of interest, and if this Senior Secured Note is authenticated between a record
date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be December 15,
1999. The Issuer shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the rate
then in effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment. The Issuer will pay principal on the 2001 Notes to
the Persons who are registered Holders of 2001 Notes at the close of business on
June 1 or December 1 next preceding the relevant payment date for principal,
even if such 2001 Notes are canceled after such record date and on or before
such payment date for principal. The Issuer will pay interest on the 2001 Notes
(except defaulted interest) to the Persons who are registered Holders of the
2001 Notes at the close of business on the June 1 or December 1 next preceding
the Interest Payment Date, even if such 2001 Notes are canceled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The 2001
Notes will be payable as to principal, premium, if any, and interest at the
office or agency of the Issuer maintained for such purpose within or without the
City and State of New York, or, at the option of the Issuer, payment of interest
may be made by check mailed to the Holders at their addresses set forth in the
register of Holders, and provided that payment by wire transfer of immediately
available funds will be required with respect to principal of, interest and
premium on all Global Notes and all other Senior Secured Notes the Holders of
which shall have provided wire transfer instructions to the Issuer or the Paying
Agent. Such payment shall be in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts.
3. Paying Agent and Registrar. Initially, U.S. Bank Trust National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Issuer may change any Paying
A2-3
<PAGE>
Agent or Registrar without notice to any Holder. The Issuer or any of its
Affiliates may act in any such capacity.
4. Indenture. The Issuer issued the 2001 Notes under the Indenture and
the terms of the 2001 Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The 2001 Notes are subject to all
such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. To the extent any provision of this Senior Secured
Note conflicts with the express provisions of the Indenture, the provisions of
the Indenture shall govern and be controlling. The Senior Secured Notes are
general, unsecured obligations of the Issuer limited to $413 million in
aggregate principal amount.
5. Optional Redemption.
(a) The 2001 Notes are not redeemable at the option of the Issuer.
6. Mandatory Redemption. The Senior Secured Notes will be subject to
mandatory redemption, in whole or in part, ratably among each series at a
redemption price equal to the principal amount thereof plus accrued and unpaid
interest to the Redemption Date, (a) upon the receipt of Loss Proceeds or
Eminent Domain Proceeds by a Coso Partnership if the applicable Coso Partnership
determines that (i) the affected Project cannot be rebuilt, repaired or restored
to permit operations on a commercially reasonable basis, or the applicable Coso
Partnership determines not to rebuild, repair or restore the affected Project,
in which case the amount of such Loss Proceeds or Eminent Domain Proceeds shall
be available for such redemption, or (ii) only a portion of the affected Project
is capable of being rebuilt, repaired or restored, in which case if excess
proceeds exist after such rebuild, repair, or restoration, only the amount of
such excess Loss Proceeds or Eminent Domain Proceeds shall be made available for
such redemption, (b) upon the receipt by the applicable Coso Partnership of
proceeds in connection with a Title Event, in which case the amount of such
Title Event Proceeds shall be made available for such redemption, subject to
reduction by the costs expended in connection with collecting proceeds upon the
occurrence of such Title Event, and any additional reasonable costs or expenses
that the Coso Partnerships will be subject to as a result of the Title Event,
(c) upon the receipt by the Coso Partnerships of net proceeds in excess of $5.0
million realized in connection with a Permitted Power Contract Buy-Out, or $10.0
million, when aggregated with all previous Permitted Power Contract Buy-Outs, in
which case the amount of all proceeds associated with such Permitted Power
Contract Buy-Outs shall be made available for such redemption, unless each of
the Rating Agencies confirm that a Rating Downgrade will not occur if no
redemption is made with such proceeds and (d) the receipt by the Coso
Partnerships of proceeds received in connection with a termination of the Navy
Contract under Section VIII(2) of the Navy Contract (P00004 Modification dated
October 9, 1983).
7. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Senior Secured Notes are to be redeemed at its registered address. The Trustee
shall promptly notify the Issuer in writing of the 2001 Notes selected for
redemption and, in the case of any 2001 Note selected for partial redemption,
the principal amount thereof to be redeemed. 2001 Notes and portions of 2001
Notes selected shall be in denominations of $100,000 and integral multiples of
$1,000; except that if all of the 2001 Notes of a Holder are to be redeemed, the
entire outstanding amount of 2001 Notes held by such Holder, even if not a
multiple of $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to 2001 Notes called for
redemption also apply to portions of 2001 Notes called for redemption.
A2-4
<PAGE>
8. Denominations, Transfer, Exchange. The 2001 Notes are in registered
form without coupons in denominations of $100,000 and integral multiples of
$1,000 in excess thereof. The transfer of the 2001 Notes may be registered and
2001 Notes may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Issuer may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. The Issuer
need not exchange or register the transfer of any 2001 Notes or portion of a
2001 Note selected for redemption, except for the unredeemed portion of any 2001
Note being redeemed in part. Also, the Issuer need not exchange or register the
transfer of any 2001 Notes for a period of 15 days before a selection of the
2001 Notes to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
9. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
10. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture, the Guarantees or the 2001 Notes may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
then outstanding 2001 Notes and any existing default or compliance with any
provision of the Indenture, the Guarantees or the 2001 Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Senior Secured Notes. Without the consent of any Holder of a 2001
Note, the Indenture, the Guarantees or the 2001 Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to add additional
covenants of the Issuer or to surrender rights conferred upon the Issuer, to
increase the assets securing the Issuer's obligations under this Indenture, to
make any change that would provide any additional rights or benefits to the
Holders of the Senior Secured Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, to comply with the requirements
of the Securities and Exchange Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act, to provide for the
Issuance of Additional Notes and other Senior Indebtedness and Permitted
Guarantor Indebtedness in accordance with the limitations set forth in the
Indenture, to make any change not in consistent with the terms of the Indenture
or to reflect any amendments required by a Rating Agency in circumstances where
confirmation of the Ratings is required or permitted under this Indenture.
11. Defaults and Remedies. Events of Default include: (i) failure to pay
any principal, interest or other amounts owed on any Senior Secured Note when
the same becomes due and payable, whether by scheduled maturity or required
prepayment or redemption or by acceleration or otherwise, and such failure
continues for 10 days or more following the due date for payment; (ii) a Credit
Agreement Event of Default or a Guarantee Event of Default has occurred and is
continuing; (iii) any representation or warranty made by the Issuer in the
Indenture or in any other Financing Document or any representation, warranty or
statement in any certificate, financial statement or other document furnished to
the Trustee or any other Person by or on behalf of the Issuer proves to have
been untrue or misleading in any material respect as of the time made, confirmed
or furnished and the fact, event or circumstance that gave rise to such
inaccuracy has resulted in, or could reasonably be expected to result in, a
Material Adverse Effect and that fact, event or circumstance continues uncured
for 30 or more days from the date a Responsible Officer of the Issuer receives
notice thereof from the Trustee; provided that, if the Issuer commences and
diligently pursues efforts to cure such fact, event or circumstance within such
30-day period and delivers written notice to the Trustee thereof, the Issuer may
continue to effect such cure, and such misrepresentation shall not be deemed an
"Event of Default" for an additional 60 days so long as the Issuer is diligently
pursuing such cure; (iv) the Issuer fails to perform or observe any covenant or
agreement contained in the Indenture regarding maintenance of existence or
restrictions on Indebtedness, Liens, Restricted Payments, guarantees,
disposition of assets, amendments to the Credit
A2-5
<PAGE>
Agreements or Partnership Notes or taking of actions thereunder as directed by
the Required Holders, fundamental changes, or nature of business and such
failure continues uncured for 30 or more days from the date a Responsible
Officer of the Issuer receives notice thereof from the Trustee; (v) the Issuer
fails to perform or observe any of its covenants contained in the Indenture
(other than those contained in (iv) above) and such failure continues uncured
for 30 or more days from the date a Responsible Officer of the Issuer receives
notice thereof from the Trustee of such failure; provided that if the Issuer
commences and diligently pursues efforts to cure such default within such 30-day
period, the Issuer may continue to effect such cure of the default and such
default will not be deemed an "Event of Default" for an additional 90 days so
long as the Issuer is diligently pursuing such cure; (vi) certain events
involving the bankruptcy, insolvency, receivership or reorganization of the
Issuer described in Section 5.01(f) of the Indenture; (vii) any Pledge Agreement
ceases to be in full force and effect or there is a Material Adverse Effect on
the Lien purported to be granted under any Pledge Agreement such that it ceases
to be a valid and perfected Lien in favor of the Collateral Agent for the
benefit of the Secured Parties on the Collateral described therein with the
priority purported to be created thereby; provided, however, that the Issuer has
10 days after a Responsible Officer of the Issuer obtains actual knowledge
thereof to cure any such cessation, if curable, or to furnish to the Collateral
Agent all documents or instruments required to cure any such cessation, if
curable; (viii) any event of default under any Permitted Indebtedness of Issuer
which results in Permitted Indebtedness in excess of $2.5 million becoming due
and payable prior to its stated maturity. If an Event of Default (other than
bankruptcy or insolvency) relating to failure to pay amounts owed on the Senior
Secured Notes has occurred and is continuing, the Trustee may declare the
principal amount of the Outstanding Notes, all interest accrued and unpaid
thereon, and all premium and other amounts payable under the Senior Secured
Notes and the Indenture, if any, to be due and payable notwithstanding the
absence of direction from Holders of at least 25% in aggregate principal amount
of the Outstanding Notes directing the Trustee, in writing, to accelerate the
maturity of the Senior Secured Notes unless Holders of more than 75% in
aggregate principal amount of the Outstanding Notes direct the Trustee not to
accelerate the maturity of such Senior Secured Notes, if in the good faith
exercise of its discretion the Trustee determines that such action is necessary
to protect the interests of the Holders. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, all Outstanding Notes will become due and payable immediately. The
Issuer is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Issuer is required upon becoming aware of
any Default or Event of Default to deliver to the Trustee a statement specifying
such Default or Event of Default.
12. Trustee Dealings with Issuer. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Issuer or its Affiliates, and may otherwise deal with the Issuer or its
Affiliates, as if it were not the Trustee.
13. No Recourse Against Others. A past, present or future director,
officer, employee, incorporator, management committee, stockholder or partner of
the Issuer or any Guarantor, as such, or any manager, director, officer,
employee, incorporator, management committee, partner, stockholder, or member of
any partner of any Guarantor, as such, shall not have any liability for any
obligations of the Issuer or such Guarantor under the Senior Secured Notes, the
Guarantees, the Indenture, any Financing Documents or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Senior Secured Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Senior
Secured Notes.
14. Authentication. This 2001 Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
A2-6
<PAGE>
15. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
16. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuer has caused
CUSIP numbers to be printed on the 2001 Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the 2001 Notes
or as contained in any notice of redemption and reliance may be placed only on
the other identification numbers placed thereon.
The Issuer will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
Caithness Coso Funding Corp.
c/o Cathness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Telecopier No.: (212) 921-9239
Attention: Christopher T. McCallion
A2-7
<PAGE>
Assignment Form
To assign this 2001 Note, fill in the form below: for value received (I) or (we)
assign and transfer this 2001 Note to
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this 2001 Note on the books of the Issuer. The agent may substitute
another to act for him.
Date: Your Signature:_________________________________________
(Sign exactly as your name appears on the
2001 Note)
Tax Identification No:__________________________________
Signature Guarantee.
Medallion No.:
Notice: Signature must be guaranteed by a member firm of the STAMP, SEMP or MSP
signature guaranty medallion program.
A2-8
<PAGE>
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S Temporary
Global Note for an interest in another Global Note, or of other Restricted
Global Notes for an interest in this Regulation S Temporary Global Note, have
been made:
<TABLE>
<CAPTION>
Amount of Amount of increase Principal Amount
decrease in in Principal of this Global Signature of
Principal Amount Amount Note following authorized officer
of this of this such decrease (or of Trustee or
Date of Exchange Global Note Global Note increase) Custodian
- ---------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
</TABLE>
A2-9
<PAGE>
EXHIBIT B-1
(Face of Note)
================================================================================
CUSIP/CINS 128017AD2
9.05% Senior Secured Notes due 2009
No.__ $__________
Caithness Coso Funding Corp.
promises to pay to Cede & Co., or registered assigns, the principal sum of
_______________ Dollars in accordance with Paragraph 1 herein.
Principal Payment Date: June 15 and December 15 (commencing June 15, 2002)
Interest Payment Dates: June 15 and December 15 (commencing December 15, 1999)
Record Dates: June 1 and December 1
Additional provisions are set forth on the
other side of this Senior Secured Note.
Dated:
Caithness coso Funding Corp.
By:_____________________________________
Name:
Title:
This is one of the Global Notes referred to
in the within-mentioned Indenture:
U.S. Bank Trust National Association
as Trustee
By:__________________________________
Name:
================================================================================
B1-1
<PAGE>
(Back of Note)
9.05% Senior Secured Notes due 2009
[Insert the Global Note legend, if applicable, pursuant to the provisions of the
Indenture]
[Insert the Private Placement legend, if applicable, pursuant to the provisions
of the Indenture]
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Principal and Interest. Caithness Coso Funding Corp., a Delaware
corporation (the "Issuer"), promises to pay the principal of this 2009 Note in
------
the manner described in Section 4.01 of the Indenture dated as of May 28, 1999
(as amended or supplemented from time to time, the "Indenture") among the
---------
Issuer, the Guarantors on the signature pages thereto (the "Guarantors"), and
----------
U.S. Bank Trust National Association, as trustee (the "Trustee") and as
-------
collateral agent (the "Collateral Agent"). The Issuer also promises to pay
----------------
interest on the principal amount of this 2009 Note at 9.05% per annum from the
date of issuance until maturity. The Issuer shall pay interest semi-annually in
arrears on June 15 and December 15 of each year (the "Interest Payment Date"),
---------------------
or if any such day is not a Business Day, on the next succeeding Business Day.
Interest on the 2009 Notes will accrue from the most recent Interest Payment
Date to which interest has been paid or, if no interest has been paid, from the
date of issuance; provided that if there is no existing Default in the payment
of interest, and if this Senior Secured Note is authenticated between a record
date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be December 15,
1999. The Issuer shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the rate
then in effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment. The Issuer will pay principal on the 2009 Notes to
the Persons who are registered Holders of 2009 Notes at the close of business on
the June 1 or December 1 next preceding the relevant payment date for principal,
even if such 2009 Notes are canceled after such record date and on or before
such payment date for principal; provided that the Issuer shall not commence the
payment of principal on the 2009 Notes until June 15, 2002. The Issuer will pay
interest on the 2009 Notes (except defaulted interest) to the Persons who are
registered Holders of the 2009 Notes at the close of business on the June 1 or
December 1 next preceding the Interest Payment Date, even if such 2009 Notes are
canceled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture with respect to defaulted
interest. The Senior Secured Notes will be payable as to principal, premium, if
any, and interest at the office or agency of the Issuer maintained for such
purpose within or without the City and State of New York, or, at the option of
the Issuer, payment of interest may be made by check mailed to the Holders at
their addresses set forth in the register of Holders, and provided that payment
by wire transfer of immediately available funds will be required with respect to
principal of, interest and premium on all Global Notes and all other Senior
Secured Notes the Holders of which shall have provided wire transfer
instructions to the Issuer or the Paying Agent. Such payment shall be in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts.
B1-2
<PAGE>
3. Paying Agent and Registrar. Initially, U.S. Bank Trust National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Issuer may change any Paying Agent or Registrar without notice
to any Holder. The Issuer or any of its Affiliates may act in any such
capacity.
4. Indenture. The Issuer issued the 2009 Notes under the Indenture and
the terms of the 2009 Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Senior Secured Notes are
subject to all such terms, and Holders are referred to the Indenture and such
Act for a statement of such terms. To the extent any provision of this Senior
Secured Note conflicts with the express provisions of the Indenture, the
provisions of the Indenture shall govern and be controlling. The Senior Secured
Notes are general, unsecured obligations of the Issuer limited to $413 million
in aggregate principal amount.
5. Optional Redemption.
(a) The Senior Secured Notes will be redeemable at the option of the
Issuer at any time and from time to time, in whole or in part, upon not less
than 30 nor more than 60 days notice to each Holder of 2009 Notes, at a
redemption price equal to the Make-Whole Price. "Make-Whole Price" means an
----------------
amount equal to the greater of (i) 100% of the principal amount of such 2009
Note and (ii) as determined by an Independent Investment Banker, the sum of the
present values of the remaining scheduled payments of principal and interest
thereon discounted to the date of redemption on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate,
plus, in each case, accrued and unpaid interest thereon to the Redemption Date.
Unless the Issuer defaults in payment of the redemption price, on and after the
Redemption Date, interest will cease to accrue on the 2009 Note or portions
thereof called for redemption.
6. Mandatory Redemption. The Senior Secured Notes will be subject to
mandatory redemption, in whole or in part, ratably among each series at a
redemption price equal to the principal amount thereof plus accrued and unpaid
interest to the Redemption Date, (a) upon the receipt of Loss Proceeds or
Eminent Domain Proceeds by a Coso Partnership if the applicable Coso Partnership
determines that (i) the affected Project cannot be rebuilt, repaired or restored
to permit operations on a commercially reasonable basis, or the applicable Coso
Partnership determines not to rebuild, repair or restore the affected Project,
in which case the amount of such Loss Proceeds or Eminent Domain Proceeds shall
be available for such redemption, or (ii) only a portion of the affected Project
is capable of being rebuilt, repaired or restored, in which case if excess
proceeds exist after such rebuild, repair, or restoration, only the amount of
such excess Loss Proceeds or Eminent Domain Proceeds shall be made available for
such redemption, (b) upon the receipt by the applicable Coso Partnership of
proceeds in connection with a Title Event, in which case the amount of such
Title Event Proceeds shall be made available for such redemption, subject to
reduction by the costs expended in connection with collecting proceeds upon the
occurrence of such Title Event, and any additional reasonable costs or expenses
that the Coso Partnerships will be subject to as a result of the Title Event,
(c) upon the receipt by the Coso Partnerships of net proceeds in excess of $5.0
million realized in connection with a Permitted Power Contract Buy-Out, or $10.0
million, when aggregated with all previous Permitted Power Contract Buy-Outs, in
which case the amount of all proceeds associated with such Permitted Power
Contract Buy-Outs shall be made available for such redemption, unless each of
the Rating Agencies confirm that a Rating Downgrade will not occur if no
redemption is made with such proceeds and (d) the receipt by the Coso
Partnerships of proceeds received in connection with a termination of the Navy
Contract under Section VIII(2) of the Navy Contract (P00004 Modification dated
October 9, 1983).
B1-3
<PAGE>
7. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Senior Secured Notes are to be redeemed at its registered address. The Trustee
shall promptly notify the Issuer in writing of the 2009 Notes selected for
redemption and, in the case of any 2009 Note selected for partial redemption,
the principal amount thereof to be redeemed. 2009 Notes and portions of 2009
Notes selected shall be in denominations of $100,000 and integral multiples of
$1,000; except that if all of the 2009 Notes of a Holder are to be redeemed, the
entire outstanding amount of 2009 Notes held by such Holder, even if not a
multiple of $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to 2009 Notes called for
redemption also apply to portions of 2009 Notes called for redemption.
8. Denominations, Transfer, Exchange. The 2009 Notes are in registered
form without coupons in denominations of $100,000 and integral multiples of
$1,000 in excess thereof. The transfer of the 2009 Notes may be registered and
2009 Notes may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Issuer may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. The Issuer
need not exchange or register the transfer of any 2009 Notes or portion of a
2009 Note selected for redemption, except for the unredeemed portion of any 2009
Note being redeemed in part. Also, the Issuer need not exchange or register the
transfer of any 2009 Notes for a period of 15 days before a selection of the
2009 Notes to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
9. Persons Deemed Owners. The registered Holder of a 2009 Note may be
treated as its owner for all purposes.
10. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture, the Guarantees or the 2009 Notes may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
then outstanding 2009 Notes and any existing default or compliance with any
provision of the Indenture, the Guarantees or the 2009 Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Senior Secured Notes. Without the consent of any Holder of a 2009
Note, the Indenture, the Guarantees or the 2009 Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to add additional
covenants of the Issuer or to surrender upon the Issuer, to increase the assets
securing the Issuer's obligations under this Indenture, to make any change that
would provide any additional rights or benefits to the Holders of the Senior
Secured Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, to comply with the requirements of the Secuirites
and Exchange Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act, to provide for the Issuance of
Additional Notes and other Senior Indebtedness and Permitted Guarantor
Indebtedness in accordance with the limitations set forth in the Indenture, to
make any change not in consistent with the terms of the Indenture or to reflect
any amendments required by a Rating Agency in circumstances where confirmation
of the Ratings is required or permitted under this Indenture.
11. Defaults and Remedies. Events of Default include: (i) failure to pay
any principal, interest or other amounts owed on any Senior Secured Note when
the same becomes due and payable, whether by scheduled maturity or required
prepayment or redemption or by acceleration or otherwise, and such failure
continues for 10 days or more following the due date for payment; (ii) a Credit
Agreement Event of Default or a Guarantee Event of Default has occurred and is
continuing; (iii) any representation or warranty made by the Issuer in the
Indenture or in any other Financing Document or any representation, warranty or
statement in any certificate, financial statement or other document
B1-4
<PAGE>
furnished to the Trustee or any other Person by or on behalf of the Issuer
proves to have been untrue or misleading in any material respect as of the time
made, confirmed or furnished and the fact, event or circumstance that gave rise
to such inaccuracy has resulted in, or could reasonably be expected to result
in, a Material Adverse Effect and that fact, event or circumstance continues
uncured for 30 or more days from the date a Responsible Officer of the Issuer
receives notice thereof from the Trustee; provided that, if the Issuer commences
and diligently pursues efforts to cure such fact, event or circumstance within
such 30-day period and delivers written notice to the Trustee thereof, the
Issuer may continue to effect such cure, and such misrepresentation shall not be
deemed an "Event of Default" for an additional 60 days so long as the Issuer is
diligently pursuing such cure; (iv) the Issuer fails to perform or observe any
covenant or agreement contained in the Indenture regarding maintenance of
existence or restrictions on Indebtedness, Liens, Restricted Payments,
guarantees, disposition of assets, amendments to the Credit Agreements or
Partnership Notes or taking of actions thereunder as directed by the Required
Holders, fundamental changes, or nature of business and such failure continues
uncured for 30 or more days from the date a Responsible Officer of the Issuer
receives notice thereof from the Trustee; (v) the Issuer fails to perform or
observe any of its covenants contained in the Indenture (other than those
contained in (iv) above) and such failure continues uncured for 30 or more days
from the date a Responsible Officer of the Issuer receives notice thereof from
the Trustee of such failure; provided that if the Issuer commences and
diligently pursues efforts to cure such default within such 30-day period, the
Issuer may continue to effect such cure of the default and such default will not
be deemed an "Event of Default" for an additional 90 days so long as the Issuer
is diligently pursuing such cure; (vi) certain events involving the bankruptcy,
insolvency, receivership or reorganization of the Issuer described in Section
5.01(f) of the Indenture; (vii) any Pledge Agreement ceases to be in full force
and effect or there is a Material Adverse Effect on the Lien purported to be
granted under any Pledge Agreement such that it ceases to be a valid and
perfected Lien in favor of the Collateral Agent for the benefit of the Secured
Parties on the Collateral described therein with the priority purported to be
created thereby; provided, however, that the Issuer has 10 days after a
Responsible Officer of the Issuer obtains actual knowledge thereof to cure any
such cessation, if curable, or to furnish to the Collateral Agent all documents
or instruments required to cure any such cessation, if curable; (viii) any event
of default under any Permitted Indebtedness of Issuer which results in Permitted
Indebtedness in excess of $2.5 million becoming due and payable prior to its
stated maturity. If an Event of Default (other than bankruptcy or insolvency)
relating to failure to pay amounts owed on the Senior Secured Notes has occurred
and is continuing, the Trustee may declare the principal amount of the
Outstanding Notes, all interest accrued and unpaid thereon, and all premium and
other amounts payable under the Senior Secured Notes and the Indenture, if any,
to be due and payable notwithstanding the absence of direction from Holders of
at least 25% in aggregate principal amount of the Outstanding Notes directing
the Trustee, in writing, to accelerate the maturity of the Senior Secured Notes
unless Holders of more than 75% in aggregate principal amount of the Outstanding
Notes direct the Trustee not to accelerate the maturity of such Senior Secured
Notes, if in the good faith exercise of its discretion the Trustee determines
that such action is necessary to protect the interests of the Holders.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all Outstanding Notes will become
due and payable immediately. The Issuer is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and the Issuer is
required upon becoming aware of any Default or Event of Default to deliver to
the Trustee a statement specifying such Default or Event of Default.
12. Trustee Dealings with Issuer. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Issuer or its Affiliates, and may otherwise deal with the Issuer or its
Affiliates, as if it were not the Trustee.
B1-5
<PAGE>
13. No Recourse Against Others. A past, present or future director,
officer, employee, incorporator, management committee, stockholder or partner of
the Issuer or any Guarantor, as such, or any manager, director, officer,
employee, incorporator, management committee, partner, stockholder, or member of
any partner of any Guarantor, as such, shall not have any liability for any
obligations of the Issuer or such Guarantor under the Senior Secured Notes, the
Guarantees, the Indenture, any Financing Documents or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Senior Secured Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Senior
Secured Notes.
14. Authentication. This 2009 Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
15. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
16 CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuer has caused
CUSIP numbers to be printed on the 2009 Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the 2009 Notes
or as contained in any notice of redemption and reliance may be placed only on
the other identification numbers placed thereon.
The Issuer will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
Caithness Coso Funding Corp.
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Telecopier No.: (212) 921-9239
Attention: Christopher T. McCallion
B1-6
<PAGE>
Assignment Form
To assign this 2009 Note, fill in the form below: For value received (I) or (we)
assign and transfer this 2009 Note to
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this 2009 Note on the books of the Issuer. The agent may substitute
another to act for him.
Date: Your Signature:________________________________
(Sign exactly as your name appears on
the 2009 Note)
Tax Identification No:_______________________________
Signature Guarantee.
Medallion No.:
Notice: Signature must be guaranteed by a member firm of the STAMP, SEMP or MSP
signature guaranty medallion program
B1-7
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE/1/
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:
<TABLE>
<CAPTION>
Amount of Amount of increase Principal Amount
decrease in in Principal of this Global Signature of
Principal Amount Amount Note following authorized officer
of this of this such decrease (or of Trustee or
Date of Exchange Global Note Global Note increase) Custodian
- ---------------- --------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
_____________________
/1/This should be included only if the Note is issued in global form.
B1-8
<PAGE>
EXHIBIT B-2
(Face of Regulation S Temporary Global Note)
================================================================================
CUSIP/CINS U12295AB4
9.05% Senior Secured Notes due 2009
No.__ U.S.$________
Caithness Coso Funding Corp.
promises to pay to Cede & Co., or registered assigns, the principal sum of______
Dollars in accordance with Paragraph 1 herein.
Principal Payment Dates: June 15 and December 15 (commencing December 15, 2002)
Interest Payment Dates: June 15 and December 15 (commencing December 15, 1999)
Record Dates: June 1 and December 1
Dated:
Caithness Coso Funding Corp.
By:___________________________
Name:
Title:
This is one of the Global Notes referred to
in the within-mentioned Indenture:
U.S. Bank Trust National Association,
as Trustee
By: ______________________________
================================================================================
B2-1
<PAGE>
(Back of Regulation S Temporary Global Note)
9.05% Senior Secured Notes due 2009
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
THIS SENIOR SECURED NOTE AND THE GUARANTEES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS SENIOR
SECURED NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY, REQUIRED UNDER THE INDENTURE
PURSUANT TO WHICH THIS SENIOR SECURED NOTE IS ISSUED) AND IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER
EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) (a) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144(A), (b) AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN
"ACCREDITED INVESTOR"), (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE ISSUER SO REQUESTS),
SUBJECT TO THE RECEIPT BY THE REGISTRAR OF A CERTIFICATION OF THE TRANSFEROR AND
AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (2) TO THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL AND EACH SUBSEQUENT HOLDER IS REQUIRED TO NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTION SET FORTH IN
(A) ABOVE.
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Principal and Interest. Caithness Coso Funding Corp., a Delaware
corporation (the "Issuer"), promises to pay the principal of this 2009 Note in
------
the manner described in Section 4.01 of the Indenture dated as of May 28, 1999
(as amended or supplemented from time to time, the "Indenture")
---------
B2-2
<PAGE>
among the Issuer, the Guarantors on the signature pages thereto (the
"Guarantors"), and U.S. Bank Trust National Association, as trustee (the
----------
"Trustee") and as collateral agent (the "Collateral Agent"). The Issuer also
------- ----------------
promises to pay interest on the principal amount of this 2009 Note at 9.05% per
annum from the date of issuance until maturity. The Issuer shall pay interest
semi-annually in arrears on June 15 and December 15 of each year (the "Interest
--------
Payment Date"), or if any such day is not a Business Day, on the next succeeding
- ------------
Business Day. Interest on the 2009 Notes will accrue from the most recent
Interest Payment Date to which interest has been paid or, if no interest has
been paid, from the date of issuance; provided that if there is no existing
Default in the payment of interest, and if this Senior Secured Note is
authenticated between a record date referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided, further, that the first Interest
Payment Date shall be December 15, 1999. The Issuer shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue principal and premium, if any, from time to time on demand at a rate
that is 1% per annum in excess of the rate then in effect; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest (without regard to any applicable grace
periods) from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. Method of Payment. The Issuer will pay principal on the 2009 Notes to
the Persons who are registered Holders of 2009 Notes at the close of business on
the June 1 or December 1 next preceding the relevant payment date for principal,
even if such 2009 Notes are canceled after such record date and on or before
such payment date for principal; provided that the Issuer shall not commence the
payment of principal on the 2009 Notes until June 15, 2002 . The Issuer will pay
interest on the 2009 Notes (except defaulted interest) to the Persons who are
registered Holders of the 2009 Notes at the close of business on the June 1 or
December 1 next preceding the Interest Payment Date, even if such 2009 Notes are
canceled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture with respect to defaulted
interest. The Senior Secured Notes will be payable as to principal, premium, if
any, and interest at the office or agency of the Issuer maintained for such
purpose within or without the City and State of New York, or, at the option of
the Issuer, payment of interest may be made by check mailed to the Holders at
their addresses set forth in the register of Holders, and provided that payment
by wire transfer of immediately available funds will be required with respect to
principal of, interest and premium on all Global Notes and all other Senior
Secured Notes the Holders of which shall have provided wire transfer
instructions to the Issuer or the Paying Agent. Such payment shall be in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, U.S. Bank Trust National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Issuer may change any Paying Agent or Registrar without notice
to any Holder. The Issuer or any of its Affiliates may act in any such
capacity.
4. Indenture. The Issuer issued the 2009 Notes under the Indenture and
the terms of the 2009 Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Senior Secured Notes are
subject to all such terms, and Holders are referred to the Indenture and such
Act for a statement of such terms. To the extent any provision of this Senior
Secured Note conflicts with the express provisions of the Indenture, the
provisions of the Indenture shall govern and be controlling. The Senior Secured
Notes are general, unsecured obligations of the Issuer limited to $413 million
in aggregate principal amount.
B2-3
<PAGE>
5. Optional Redemption. The 2009 Notes will be redeemable at the option
of the Issuer at any time and from time to time, in whole or in part, upon not
less than 30 nor more than 60 days notice to each Holder of 2009 Notes, at a
redemption price equal to the Make-Whole Price. "Make-Whole Price" means an
----------------
amount equal to the greater of (i) 100% of the principal amount of such 2009
Note and (ii) as determined by an Independent Investment Banker, the sum of the
present values of the remaining scheduled payments of principal and interest
thereon discounted to the date of redemption on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate,
plus, in each case, accrued and unpaid interest thereon to the Redemption Date.
Unless the Issuer defaults in payment of the redemption price, on and after the
Redemption Date, interest will cease to accrue on the 2009 Note or portions
thereof called for redemption.
6. Mandatory Redemption. The Senior Secured Notes will be subject to
mandatory redemption, in whole or in part, ratably among each series at a
redemption price equal to the principal amount thereof plus accrued and unpaid
interest to the Redemption Date, (a) upon the receipt of Loss Proceeds or
Eminent Domain Proceeds by a Coso Partnership if the applicable Coso Partnership
determines that (i) the affected Project cannot be rebuilt, repaired or restored
to permit operations on a commercially reasonable basis, or the applicable Coso
Partnership determines not to rebuild, repair or restore the affected Project,
in which case the amount of such Loss Proceeds or Eminent Domain Proceeds shall
be available for such redemption, or (ii) only a portion of the affected Project
is capable of being rebuilt, repaired or restored, in which case if excess
proceeds exist after such rebuild, repair, or restoration, only the amount of
such excess Loss Proceeds or Eminent Domain Proceeds shall be made available for
such redemption, (b) upon the receipt by the applicable Coso Partnership of
proceeds in connection with a Title Event, in which case the amount of such
Title Event Proceeds shall be made available for such redemption, subject to
reduction by the costs expended in connection with collecting proceeds upon the
occurrence of such Title Event, and any additional reasonable costs or expenses
that the Coso Partnerships will be subject to as a result of the Title Event,
(c) upon the receipt by the Coso Partnerships of net proceeds in excess of $5.0
million realized in connection with a Permitted Power Contract Buy-Out, or $10.0
million, when aggregated with all previous Permitted Power Contract Buy-Outs, in
which case the amount of all proceeds associated with such Permitted Power
Contract Buy-Outs shall be made available for such redemption, unless each of
the Rating Agencies confirm that a Rating Downgrade will not occur if no
redemption is made with such proceeds and (d) the receipt by the Coso
Partnerships of proceeds received in connection with a termination of the Navy
Contract under Section VIII(2) of the Navy Contract (P00004 Modification dated
October 9, 1983).
7. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Senior Secured Notes are to be redeemed at its registered address. The Trustee
shall promptly notify the Issuer in writing of the 2009 Notes selected for
redemption and, in the case of any 2009 Note selected for partial redemption,
the principal amount thereof to be redeemed. 2009 Notes and portions of 2009
Notes selected shall be in denominations of $100,000 and integral multiples of
$1,000; except that if all of the 2009 Notes of a Holder are to be redeemed, the
entire outstanding amount of 2009 Notes held by such Holder, even if not a
multiple of $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to 2009 Notes called for
redemption also apply to portions of 2009 Notes called for redemption.
8. Denominations, Transfer, Exchange. The 2009 Notes are in registered
form without coupons in denominations of $100,000 and integral multiples of
$1,000 in excess thereof. The transfer of the 2009 Notes may be registered and
2009 Notes may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
B2-4
<PAGE>
endorsements and transfer documents and the Issuer may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. The Issuer
need not exchange or register the transfer of any 2009 Notes or portion of a
2009 Note selected for redemption, except for the unredeemed portion of any 2009
Note being redeemed in part. Also, the Issuer need not exchange or register the
transfer of any 2009 Notes for a period of 15 days before a selection of the
2009 Notes to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
9. Persons Deemed Owners. The registered Holder of a 2009 Note may be
treated as its owner for all purposes.
10. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture, the Guarantees or the 2009 Notes may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
then outstanding 2009 Notes and any existing default or compliance with any
provision of the Indenture, the Guarantees or the 2009 Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Senior Secured Notes. Without the consent of any Holder of a 2009
Note, the Indenture, the Guarantees or the 2009 Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to add additional
covenants of the Issuer or to surrender rights conferred upon the Issuer, to
increase the assets securing the Issuer's obligations under this Indenture, to
make any change that would provide any additional rights or benefits to the
Holders of the Senior Secured Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, to comply with the requirements
of the Securities and Exchange Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act, to provide for the
Issuance of Additional Notes and other Senior Indebtedness and Permitted
Guarantor Indebtedness in accordance with the limitations set forth in the
Indenture, to make any change not inconsistent with the terms of the Indenture
or to reflect any amendments required by a Rating Agency in circumstances where
confirmation of the Ratings is required or permitted under this Indenture.
11. Defaults and Remedies. Events of Default include: (i) failure to pay
any principal, interest or other amounts owed on any Senior Secured Note when
the same becomes due and payable, whether by scheduled maturity or required
prepayment or redemption or by acceleration or otherwise, and such failure
continues for 10 days or more following the due date for payment; (ii) a Credit
Agreement Event of Default or a Guarantee Event of Default has occurred and is
continuing; (iii) any representation or warranty made by the Issuer in the
Indenture or in any other Financing Document or any representation, warranty or
statement in any certificate, financial statement or other document furnished to
the Trustee or any other Person by or on behalf of the Issuer proves to have
been untrue or misleading in any material respect as of the time made, confirmed
or furnished and the fact, event or circumstance that gave rise to such
inaccuracy has resulted in, or could reasonably be expected to result in, a
Material Adverse Effect and that fact, event or circumstance continues uncured
for 30 or more days from the date a Responsible Officer of the Issuer receives
notice thereof from the Trustee; provided that, if the Issuer commences and
diligently pursues efforts to cure such fact, event or circumstance within such
30-day period and delivers written notice to the Trustee thereof, the Issuer may
continue to effect such cure, and such misrepresentation shall not be deemed an
"Event of Default" for an additional 60 days so long as the Issuer is diligently
pursuing such cure; (iv) the Issuer fails to perform or observe any covenant or
agreement contained in the Indenture regarding maintenance of existence or
restrictions on Indebtedness, Liens, Restricted Payments, guarantees,
disposition of assets, amendments to the Credit Agreements or Partnership Notes
or taking of actions thereunder as directed by the Required Holders, fundamental
changes, or nature of business and such failure continues uncured for 30 or more
days from the date a Responsible Officer of the Issuer receives notice thereof
from the Trustee; (v) the Issuer fails to perform or observe any of its
covenants contained in the Indenture (other than those contained in (iv)
B2-5
<PAGE>
above) and such failure continues uncured for 30 or more days from the date a
Responsible Officer of the Issuer receives notice thereof from the Trustee of
such failure; provided that if the Issuer commences and diligently pursues
efforts to cure such default within such 30-day period, the Issuer may continue
to effect such cure of the default and such default will not be deemed an "Event
of Default" for an additional 90 days so long as the Issuer is diligently
pursuing such cure; (vi) certain events involving the bankruptcy, insolvency,
receivership or reorganization of the Issuer described in Section 5.01(f) of the
Indenture; (vii) any Pledge Agreement ceases to be in full force and effect or
there is a Material Adverse Effect on the Lien purported to be granted under any
Pledge Agreement such that it ceases to be a valid and perfected Lien in favor
of the Collateral Agent for the benefit of the Secured Parties on the Collateral
described therein with the priority purported to be created thereby; provided,
however, that the Issuer has 10 days after a Responsible Officer of the Issuer
obtains actual knowledge thereof to cure any such cessation, if curable, or to
furnish to the Collateral Agent all documents or instruments required to cure
any such cessation, if curable; (viii) any event of default under any Permitted
Indebtedness of Issuer which results in Permitted Indebtedness in excess of $2.5
million becoming due and payable prior to its stated maturity. If an Event of
Default (other than bankruptcy or insolvency) relating to failure to pay amounts
owed on the Senior Secured Notes has occurred and is continuing, the Trustee may
declare the principal amount of the Outstanding Notes, all interest accrued and
unpaid thereon, and all premium and other amounts payable under the Senior
Secured Notes and the Indenture, if any, to be due and payable notwithstanding
the absence of direction from Holders of at least 25% in aggregate principal
amount of the Outstanding Notes directing the Trustee, in writing, to accelerate
the maturity of the Senior Secured Notes unless Holders of more than 75% in
aggregate principal amount of the Outstanding Notes direct the Trustee not to
accelerate the maturity of such Senior Secured Notes, if in the good faith
exercise of its discretion the Trustee determines that such action is necessary
to protect the interests of the Holders. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, all Outstanding Notes will become due and payable immediately. The
Issuer is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Issuer is required upon becoming aware of
any Default or Event of Default to deliver to the Trustee a statement specifying
such Default or Event of Default.
12. Trustee Dealings with Issuer. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Issuer or its Affiliates, and may otherwise deal with the Issuer or its
Affiliates, as if it were not the Trustee.
13. No Recourse Against Others. A past, present or future director,
officer, employee, incorporator, management committee, stockholder or partner of
the Issuer or any Guarantor, as such, or any manager, director, officer,
employee, incorporator, management committee, partner, stockholder, or member of
any partner of any Guarantor, as such, shall not have any liability for any
obligations of the Issuer or such Guarantor under the Senior Secured Notes, the
Guarantees, the Indenture, any Financing Documents or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Senior Secured Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Senior
Secured Notes.
14. Authentication. This 2009 Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
15. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
B2-6
<PAGE>
16. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuer has caused
CUSIP numbers to be printed on the 2009 Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the 2009 Notes
or as contained in any notice of redemption and reliance may be placed only on
the other identification numbers placed thereon.
The Issuer will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
Caithness Coso Funding Corp.
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Telecopier No.: (212) 921-9239
Attention: Christopher T. McCallion
B2-7
<PAGE>
Assignment Form
To assign this 2009 Note, fill in the form below: For value received (I) or (we)
assign and transfer this 2009 Note to
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this 2009 Note on the books of the Issuer. The agent may substitute
another to act for him.
Date: Your Signature:______________________________
(Sign exactly as your name
appears on the 2009 Note)
Tax Identification No:_______________________
Signature Guarantee.
Medallion No.:
Notice: Signature must be guaranteed by a member firm of the STAMP, SEMP or MSP
signature guaranty medallion program.
B2-8
<PAGE>
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S Temporary
Global Note for an interest in another Global Note, or of other Restricted
Global Notes for an interest in this Regulation S Temporary Global Note, have
been made:
<TABLE>
<CAPTION>
Amount of Amount of increase Principal Amount
decrease in in Principal of this Global Signature of
Principal Amount Amount Note following authorized officer
of this of this such decrease (or of Trustee or
Date of Exchange Global Note Global Note increase) Custodian
- ---------------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C>
</TABLE>
B2-9
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF TRANSFER
Caithness Coso Funding Corp.
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Telecopier No.: (212) 921-9239
Attention: Christopher T. McCallion
[_________________]
[Address]
Re: 6.80% Senior Secured Notes Due 2001
9.05% Senior Secured Notes Due 2009
Reference is hereby made to the Indenture, dated as of ________, 1999
(the "Indenture"), among Caithness Coso Funding Corp. (the "Issuer"), as issuer,
--------- ------
Coso Finance Partners, Coso Energy Developers and Coso Power Developers (the
"Guarantors"), as guarantors, and U.S. Bank Trust National Association, as
----------
trustee and collateral agent. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
______________, (the "Transferor") owns and proposes to transfer the
----------
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
--------
to __________ (the "Transferee"), as further specified in Annex A hereto. In
----------
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [_] Check if Transferee will take delivery of a beneficial interest in the
----------------------------------------------------------------------
144A Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer is
- -----------------------------------------------------------
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
---------- ---
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
C-1
<PAGE>
2. [_] Check if Transferee will take delivery of a beneficial interest in the
----------------------------------------------------------------------
Temporary Regulation S Global Note, the Regulation S Global Note or a Definitive
- --------------------------------------------------------------------------------
Note pursuant to Regulation S. The Transfer is being effected pursuant to and
- -----------------------------
in accordance with Rule 903 or Rule 904 under the Securities Act and,
accordingly, the Transferor hereby further certifies that (i) the Transfer is
not being made to a person in the United States and (x) at the time the buy
order was originated, the Transferee was outside the United States or such
Transferor and any Person acting on its behalf reasonably believed and believes
that the Transferee was outside the United States or (y) the transaction was
executed in, on or through the facilities of a designated offshore securities
market and neither such Transferor nor any Person acting on its behalf knows
that the transaction was prearranged with a buyer in the United States, (ii) no
directed selling efforts have been made in contravention of the requirements of
Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act and (iii)
the transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act and (iv) if the proposed transfer is being
made prior to the expiration of the Restricted Period, the transfer is not being
made to a U.S. Person or for the account or benefit of a U.S. Person (other than
an Initial Purchaser). Upon consummation of the proposed transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will be subject to the restrictions on Transfer enumerated in
the Private Placement Legend printed on the Regulation S Global Note , the
Temporary Regulation S Global Note and/or the Definitive Note and in the
Indenture and the Securities Act.
3. [_] Check and complete if Transferee will take delivery of a beneficial
-------------------------------------------------------------------
interest in a Global Note or a Definitive Note pursuant to any provision of the
- -------------------------------------------------------------------------------
Securities Act other than Rule 144A or Regulation S. The Transfer is being
- ---------------------------------------------------
effected in compliance with the transfer restrictions applicable to beneficial
interests in Restricted Global Notes and Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act and any applicable blue
sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) [_] such Transfer is being effected pursuant to and in accordance with
Rule 144 under the Securities Act;
or
(b) [_] such Transfer is being effected to the Issuer or a subsidiary thereof;
or
(c) [_] such Transfer is being effected pursuant to an effective registration
statement under the Securities Act and in compliance with the prospectus
delivery requirements of the Securities Act;
or
(d) [_] such Transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A, Rule
144 or Rule 904, and the Transferor hereby further certifies that it has
not engaged in any general solicitation within the meaning of Regulation D
under the Securities Act and the Transfer complies with the transfer
restrictions applicable to beneficial interests in a Restricted Global Note
or Restricted Definitive Notes and the requirements of the exemption
claimed, which certification is supported by (1) a certificate executed by
the Transferee in the form of Exhibit D to the Indenture and (2) if such
Transfer is in respect of a principal amount of Senior Secured Notes at the
time of transfer of less than $250,000, an Opinion of Counsel provided by
the Transferor or the Transferee (a copy of which the Transferor has
attached to this certification), to the effect that such Transfer is in
compliance with the Securities Act. Upon consummation of the proposed
transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will be subject to the
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<PAGE>
restrictions on transfer enumerated in the Private Placement Legend printed
on the Global Note and/or the Definitive Notes and in the Indenture and the
Securities Act.
4. [_] Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) [_] Check if Transfer is pursuant to Rule 144. (i) The Transfer
is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) [_] Check if Transfer is Pursuant to Regulation S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(c) [_] Check if Transfer is Pursuant to Other Exemption. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer.
________________________________________
[Insert Name of Transferor]
By:_____________________________________
Name:
Title:
Dated: __________, ____
C-3
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
----------------------------------
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [_] a beneficial interest in the:
(i) [_] 144A Global Note (CUSIP _________), or
(ii) [_] Regulation S Global Note (CUSIP _________), or
(b) [_] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [_] a beneficial interest in the:
(i) [_] 144A Global Note (CUSIP ________), or
(ii) [_] Regulation S Global Note (CUSIP ________), or
(iii) [_] Unrestricted Global Note (CUSIP ________); or
(b) [_] a Restricted Definitive Note; or
(c) [_] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
C-4
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE OF EXCHANGE
Caithness Coso Funding Corp.
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Telecopier No.: (212) 921-9239
Attention: Christopher T. McCallion
[_________________]
[Address]
Re: 6.80% Senior Secured Notes Due 2001
9.05% Senior Secured Notes Due 2009
(CUSIP______________)
Reference is hereby made to the Indenture, dated as of _______, 1999
(the "Indenture"), among Caithness Coso Funding Corp. (the "Issuer"), as issuer,
--------- ------
Coso Finance Partners, Coso Energy Developers and Coso Power Developers (the
"Guarantors"), as guarantors, and U.S. Bank Trust National Association, as
----------
trustee and collateral agent. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
____________, (the "Owner") owns and proposes to exchange the Note[s]
-----
or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
--------
the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Definitive Notes or Beneficial Interests
in an Unrestricted Global Note
(a) [_] Check if Exchange is from beneficial interest in a Restricted
-------------------------------------------------------------
Global Note to beneficial interest in an Unrestricted Global Note. In
- -----------------------------------------------------------------
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to the
Global Notes and pursuant to and in accordance with the United States Securities
Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on
--------------
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest in an Unrestricted Global Note is being acquired in
compliance with any applicable blue sky securities laws of any state of the
United States.
D-1
<PAGE>
(b) [_] Check if Exchange is from beneficial interest in a
--------------------------------------------------
Restricted Global Note to Unrestricted Definitive Note. In connection with the
- ------------------------------------------------------
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the Definitive Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(c) [_] Check if Exchange is from Restricted Definitive Note to
-------------------------------------------------------
beneficial interest in an Unrestricted Global Note. In connection with the
- --------------------------------------------------
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) [_] Check if Exchange is from Restricted Definitive Note to
-------------------------------------------------------
Unrestricted Definitive Note. In connection with the Owner's Exchange of a
- ----------------------------
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial Interests in
Restricted Global Notes for Restricted Definitive Notes or Beneficial Interests
in Restricted Global Notes.
(a) [_] Check if Exchange is from beneficial interest in a Restricted
-------------------------------------------------------------
Global Note to Restricted Definitive Note. In connection with the Exchange of
- -----------------------------------------
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.
(b) [_] Check if Exchange is from Restricted Definitive Note to
-------------------------------------------------------
beneficial interest in a Restricted Global Note. In connection with the
- -----------------------------------------------
Exchange of the Owner's Restricted Definitive Note for a beneficial interest in
the [CHECK ONE] "144A Global Note", "Regulation S Global Note", "IAI Global
Note" with an equal principal amount, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner's own account without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any applicable
blue
D-2
<PAGE>
sky securities laws of any state of the United States. Upon consummation of
the proposed Exchange in accordance with the terms of the Indenture, the
beneficial interest issued will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the relevant Restricted
Global Note and in the Indenture and the Securities Act.
D-3
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer.
[Insert Name of Owner]
By:__________________________________________
Name:
Title:
Dated: __________, ____
D-4
<PAGE>
EXHIBIT E
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Caithness Coso Funding Corp.
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st
New York, New York 10036
Telecopier No.: (212) 921-9239
Attention: Christopher T. McCallion
[_________________]
[Address]
Re: 6.80% Senior Secured Notes Due 2001
9.05% Senior Secured Notes Due 2009
Reference is hereby made to the Indenture, dated as of ________, 1999 (the
"Indenture"), among Caithness Coso Funding Corp. (the "Issuer"), as issuer, Coso
--------- ------
Finance Partners, Coso Energy Developers, and Coso Power Developers (the
"Guarantors"), as guarantors, and U.S. Bank Trust National Association, as
----------
trustee and collateral agent. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of:
(a) [_] a beneficial interest in a Global Note, or
(b) [_] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Senior Secured Notes or
any interest therein is subject to certain restrictions and conditions set
forth in the Indenture and the undersigned agrees to be bound by, and not
to resell, pledge or otherwise transfer the Senior Secured Notes or any
interest therein except in compliance with, such restrictions and
conditions and the United States Securities Act of 1933, as amended (the
"Securities Act").
--------------
2. We understand that the offer and sale of the Senior Secured Notes have not
been registered under the Securities Act, and that the Senior Secured Notes
and any interest therein may not be offered or sold except as permitted in
the following sentence. We agree, on our own behalf and on behalf of any
accounts for which we are acting as hereinafter stated, that if we should
sell the Senior Secured Notes or any interest therein, we will do so only
(A) to the Issuer or any subsidiary thereof, (B) in accordance with Rule
144A under the Securities Act to a "qualified
E-1
<PAGE>
institutional buyer" (as defined therein), (c) to an institutional
"accredited investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you
and to the Issuer a signed letter substantially in the form of this letter
and, if such transfer is in respect of a principal amount of Senior Secured
Notes, at the time of transfer of less than $250,000, an Opinion of Counsel
in form reasonably acceptable to the Issuer to the effect that such
transfer is in compliance with the Securities Act, (D) outside the United
States in accordance with Rule 904 of Regulation S under the Securities
Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act
or (F) pursuant to an effective registration statement under the Securities
Act, and we further agree to provide to any person purchasing the
Definitive Note or beneficial interest in a Global Note from us in a
transaction meeting the requirements of clauses (A) through (E) of this
paragraph a notice advising such purchaser that resales thereof are
restricted as stated herein.
3. We understand that, on any proposed resale of the Senior Secured Notes or
beneficial interest therein, we will be required to furnish to you and the
Issuer such certifications, legal opinions and other information as you and
the Issuer may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. We further understand that the
Senior Secured Notes purchased by us will bear a legend to the foregoing
effect. We further understand that any subsequent transfer by us of the
Senior Secured Notes or beneficial interest therein acquired by us must be
effected through one of the Placement Agents.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Senior Secured Notes, and we and any accounts for which we are acting are
each able to bear the economic risk of our or its investment.
5. We are acquiring the Senior Secured Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of
which is an institutional "accredited investor") as to each of which we
exercise sole investment discretion.
You and the Issuer are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby.
________________________________________
[Insert Name of Accredited Investor]
By:_____________________________________
Name:
Title:
Dated: __________________, ____
E-2
<PAGE>
EXHIBIT F
FORM OF NOTATION OF GUARANTEE
For value received, each Guarantor (which term includes any successor
Person under the Indenture referred to herein) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and subject
to the provisions in the Indenture dated as of _______, 1999 (the "Indenture")
---------
among Caithness Coso Funding Corp. (the "Issuer"), as issuer, Coso Finance
------
Partners, Coso Energy Developers and Coso Power Developers (the "Guarantors"),
----------
as guarantors, and U.S. Bank Trust National Association (the "Trustee"), as
-------
trustee and collateral agent, (a) the due and punctual payment of the principal
of, premium, if any, and interest on the Senior Secured Notes (as defined in the
Indenture), whether at maturity, by acceleration, redemption or otherwise, the
due and punctual payment of interest on overdue principal and premium, and, to
the extent permitted by law, interest, and the due and punctual performance of
all other obligations of the Issuer to the Holders or the Trustee all in
accordance with the terms of the Indenture and (b) in case of any extension of
time of payment or renewal of any Senior Secured Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. The obligations of the Guarantors to
the Holders of Senior Secured Notes and to the Trustee pursuant to the Guarantee
and the Indenture are expressly set forth in Article 9 of the Indenture and
reference is hereby made to the Indenture for the precise terms of the
Guarantee. Each Holder of a Senior Secured Note, by accepting the same, (a)
agrees to and shall be bound by such provisions, (b) authorizes and directs the
Trustee, on behalf of such Holder, to take such action as may be necessary or
appropriate to effectuate the provisions as provided in the Indenture and (c)
appoints the Trustee attorney-in-fact of such Holder for such purpose.
[Name of Guarantors]
By:_____________________________________
Name:
Title:
By:_____________________________________
Name:
Title:
F-1
<PAGE>
EXHIBIT G
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
Supplemental Indenture (this "Supplemental Indenture"), dated as of
----------------------
________________, among __________________ (the "Guarantor"), Caithness Coso
---------
Funding Corp. (the "Issuer"), the other Guarantors (as defined in the Indenture
------
referred to herein) U.S. Bank Trust National Association, as trustee under the
indenture referred to below (the "Trustee").
-------
W I T N E S S E T H
WHEREAS, the Issuer has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of May 28, 1999 providing for
---------
the issuance of an aggregate principal amount of up to $110,000,000 million of
6.80% Senior Secured Notes due 2001 (the "2001 Notes"); and $303,000,000 million
----------
of 9.05% Senior Secured Notes due 2009 (the "2009 Notes," and together with the
----------
2001 Notes, the "Senior Secured Notes");
--------------------
WHEREAS, the Indenture provides that under certain circumstances the
Guarantor shall execute and deliver to the Trustee a supplemental indenture
pursuant to which the Guarantor shall unconditionally guarantee all of the
Issuer's Obligations under the Senior Secured Notes and the Indenture on the
terms and conditions set forth herein (the "Guarantee"); and
---------
WHEREAS, pursuant to Section 8.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Senior Secured Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guarantor hereby agrees as follows:
(a) Along with all Guarantors named in the Indenture, to jointly and
severally Guarantee to each Holder of a Senior Secured Note
authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and
enforceability of the Indenture, the Senior Secured Notes or the
obligations of the Issuer hereunder or thereunder, that:
(i) the principal of and interest on the Senior Secured Notes
will be promptly paid in full when due, whether at maturity,
by acceleration, redemption or otherwise, and interest on
the overdue principal of and interest on the Senior Secured
Notes, if any, if lawful, and all other obligations of the
Issuer to the Holders or the Trustee hereunder or thereunder
will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and
G-1
<PAGE>
(ii) in case of any extension of time of payment or renewal of
any Senior Secured Notes or any of such other obligations,
that same will be promptly paid in full when due or
performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or
otherwise. Failing payment when due of any amount so
guaranteed or any performance so guaranteed for whatever
reason, the Guarantors shall be jointly and severally
obligated to pay the same immediately.
(b) The obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Senior Secured Notes
or the Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Senior Secured Notes with
respect to any provisions hereof or thereof, the recovery of any
judgment against the Issuer, any action to enforce the same or any
other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor.
(c) The following is hereby waived: diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Issuer, any right to require a proceeding first
against the Issuer, protest, notice and all demands whatsoever.
(d) This Guarantee shall not be discharged except by complete
performance of the obligations contained in the Senior Secured Notes
and the Indenture.
(e) If any Holder or the Trustee is required by any court or otherwise
to return to the Issuer, the Guarantors, or any Custodian, Trustee,
liquidator or other similar official acting in relation to either the
Issuer or the Guarantors, any amount paid by either to the Trustee or
such Holder, this Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect.
(f) The Guarantor shall not be entitled to any right of subrogation in
relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby.
(g) As between the Guarantors, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations
guaranteed hereby may be accelerated as provided in Article 5 of the
Indenture for the purposes of this Guarantee, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in
respect of the obligations guaranteed hereby, and (y) in the event of
any declaration of acceleration of such obligations as provided in
Article 5 of the Indenture, such obligations (whether or not due and
payable) shall forthwith become due and payable by the Guarantors for
the purpose of this Guarantee.
(h) The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not
impair the rights of the Holders under the Guarantee.
(i) Pursuant to Section 9.03 of the Indenture, after giving effect to
any maximum amount and any other contingent and fixed liabilities that
are relevant under any applicable Bankruptcy or fraudulent conveyance
laws, and after giving effect to any collections from,
G-2
<PAGE>
rights to receive contribution from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other
Guarantor under Article 9 of the Indenture shall result in the
obligations of such Guarantor under its Guarantee not constituting a
fraudulent transfer or conveyance.
3 Execution and Delivery. Each Guarantor agrees that the Guarantees shall
remain in full force and effect notwithstanding any failure to endorse on
each Note a notation of such Guarantee.
4. Guarantor May Consolidate, Etc. on Certain Terms.
(a) The Guarantor may not consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person) another
corporation, Person or entity whether or not affiliated with such
Guarantor unless:
(i) subject to Section 9.04 of the Indenture, the Person formed by
or surviving any such consolidation or merger (if other than a
Guarantor or the Issuer) unconditionally assumes all the
obligations of such Guarantor, pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the
Trustee, under the Senior Secured Notes, the Indenture and the
Guarantee on the terms set forth herein or therein; and
(ii) immediately after giving effect to such transaction, no Default
or Event of Default exists.
(b) In case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor corporation, by supplemental
indenture, executed and delivered to the Trustee and satisfactory in
form to the Trustee, of the Guarantee endorsed upon the Senior Secured
Notes and the due and punctual performance of all of the covenants and
conditions of the Indenture to be performed by the Guarantor, such
successor corporation shall succeed to and be substituted for the
Guarantor with the same effect as if it had been named herein as a
Guarantor. Such successor corporation thereupon may cause to be signed
any or all of the Guarantees to be endorsed upon all of the Senior
Secured Notes issuable hereunder which theretofore shall not have been
signed by the Issuer and delivered to the Trustee. All the Guarantees
so issued shall in all respects have the same legal rank and benefit
under the Indenture as the Guarantees theretofore and thereafter
issued in accordance with the terms of the Indenture as though all of
such Guarantees had been issued at the date of the execution hereof.
(c) Except as set forth in Articles 4 of the Indenture, and
notwithstanding clauses (a) and (b) above, nothing contained in the
Indenture or in any of the Senior Secured Notes shall prevent any
consolidation or merger of a Guarantor with or into the Issuer or
another Guarantor, or shall prevent any sale or conveyance of the
property of a Guarantor as an entirety or substantially as an entirety
to the Issuer or another Guarantor.
5. Releases.
(a) In the event of a sale or other disposition of all of the assets of
any Guarantor, by way of merger, consolidation or otherwise, or a sale
or other disposition of all of the capital stock of any Guarantor,
then such Guarantor (in the event of a sale or other disposition, by
way of merger, consolidation or otherwise, of all of the capital stock
of such Guarantor) or the
G-3
<PAGE>
corporation acquiring the property (in the event of a sale or other
disposition of all or substantially all of the assets of such
Guarantor) will be released and relieved of any obligations under its
Guarantee; provided that the net proceeds of such sale or other
disposition are applied in accordance with the applicable provisions
of the Indenture, including without limitation Section 5.10 of the
Indenture. Upon delivery by the Issuer to the Trustee of an Officers'
Certificate and an Opinion of Counsel to the effect that such sale or
other disposition was made by the Issuer in accordance with the
provisions of the Indenture, the Trustee shall execute any documents
reasonably required in order to evidence the release of any Guarantor
from its obligations under its Guarantee.
(b) Any Guarantor not released from its obligations under its Guarantee
shall remain liable for the full amount of principal of and interest
on the Senior Secured Notes and for the other obligations of any
Guarantor under the Indenture as provided in Article 9 of the
Indenture.
6. No Recourse Against Others. A past, present or future director, officer,
employee, incorporator, the management committee, stockholder or partner of
the Issuer or any Guarantor, as such, or any manager, director, officer,
employee, incorporator, the management committee, partner, stockholder, or
member of any partner of any Guarantor, as such, shall not have any
liability for any obligations of the Issuer or such Guarantor under the
Senior Secured Notes, the Guarantees, this Indenture, any Financing
Documents or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Senior Secured
Note waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of the Senior Secured Notes.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL
GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
8. Counterparts The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
9. Effect of Headings. The Section headings herein are for convenience only
and shall not affect the construction hereof.
10. The Trustee. The Trustee shall not be responsible in any manner whatsoever
for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of
which recitals are made solely by the Guarantor and the Issuer.
G-4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first
above written.
Dated: _______________, ____
[GUARANTOR]
By: _______________________________
Name:
Title:
Caithness Coso Funding Corp.
By: _______________________________
Name:
Title:
[EXISTING GUARANTORS]
By: _______________________________
Name:
Title
U.S. Bank Trust National
Association as Trustee
By: _______________________________
Name:
Title:
G-5
<PAGE>
EXHIBIT H
SUBORDINATION PROVISIONS
[NAME OF SUBORDINATED LENDER] (together with its successors and
assigns, the "Subordinated Lender") hereby agrees for the benefit of the Secured
-------------------
Parties that all [DESCRIBE SUBORDINATED LIABILITIES] (the "Subordinated
------------
Obligations") are and shall be junior and subordinate to the extent and in the
- -----------
manner set forth hereinafter, in right of payment to the prior indefeasible
payment or satisfaction in full of all Senior Indebtedness. In furtherance
thereof, each of the Secured Parties, the Collateral Agent and the Subordinated
Lender further agrees that:
a) (i) The Subordinated Lender shall not ask, demand, sue for,
take or receive from the Issuer or any Guarantor, directly or
indirectly, in cash or other property or by set-off or in any other
manner (including without limitation, from or by way of the Collateral
or any guarantee of payment or performance), payment of all or any of
the Subordinated Obligations (A) unless and until the Senior
Indebtedness shall have been paid or otherwise satisfied in full or
(B) except to the extent of distributions permitted to be made from
the Distribution Account under the Depositary Agreement. For the
purposes of these provisions, the Senior Indebtedness shall not be
deemed to have been paid or satisfied in full until those Senior
Indebtedness shall have been indefeasibly so paid to the Secured
Parties or so otherwise satisfied (after the passage of any relevant
preference periods).
(ii) Upon any distribution of all or any of the assets of the
Issuer or any Guarantor to creditors of the Issuer or any Guarantor
upon the dissolution, winding up, liquidation, arrangement,
reorganization or composition of the Issuer or any Guarantor, whether
in any bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceedings or upon an assignment for the
benefit of creditors or any other Issuer or any other marshalling of
the assets and liabilities of the Issuer or any Guarantor or
otherwise, any payment or distribution of any kind (whether in cash,
property or securities) which otherwise would be payable or
deliverable upon or with respect to the Subordinated Obligations shall
be paid or delivered directly to the Collateral Agent for application
(in the case of cash) to, or as collateral (in the case of non-cash
property or securities) for, the payment or prepayment of the Senior
Indebtedness until the Senior Indebtedness shall have been paid or
otherwise satisfied in full.
(iii) Each of the Secured Parties may demand specific
performance of these terms of subordination, whether or not the Issuer
or any Guarantor shall have complied with any of the provisions hereof
applicable to them at any time when the Subordinated Lender shall have
failed to comply with any of such provisions applicable to it. The
Subordinated Lender hereby irrevocably waives any defense based on the
adequacy of a remedy at law, which might be asserted as a bar to such
remedy of specific performance.
(iv) So long as any of the Senior Indebtedness shall remain
unpaid or otherwise unsatisfied, the Subordinated Lender shall not
commence or join with any creditor other than the Collateral Agent in
commencing any proceeding referred to in subsection (ii) above for the
payment of any amounts which otherwise would be payable or deliverable
upon or with respect to the Subordinated Obligations.
H-1
<PAGE>
(v) Subject to the indefeasible payment or satisfaction in
full of all of the Senior Indebtedness, the Subordinated Lender shall
be subrogated to the rights of the Secured Parties to receive payments
or distributions of assets of the Issuer or any Guarantor made on
Senior Indebtedness until the Subordinated Obligations have been
satisfied in full.
The foregoing provisions regarding subordination are for the
benefit of the Secured Parties and shall be enforceable by them directly against
the Subordinated Lender, and no Secured Party shall be prejudiced in its right
to enforce subordination of any of the Subordinated Obligations by any act or
failure to act by either the Issuer or any Guarantor or anyone in custody of any
of their respective assets or property. Notwithstanding anything to the contrary
contained in the foregoing provisions, the Subordinated Lender may receive
distributions in respect of the Subordinated Obligations from the Issuer or any
Guarantor to the extent that such distributions are permitted pursuant to the
Depositary Agreement.
(b) So long as any Senior Indebtedness remains outstanding, the
following provisions shall apply:
(i) Subject to the terms of the Indenture and the Security
Documents, the Collateral Agent, on behalf of the Secured Parties
shall be permitted and is hereby authorized to take any and all
actions to exercise any and all rights, remedies and options which it
may have under the Security Documents.
(ii) The Subordinated Lender shall not, without the prior
written consent of the Secured Parties, (a) exercise any rights or
enforce any remedies or assert any claim with respect to the
Collateral, (b) seek to sell the Collateral, or (c) take any action,
directly or indirectly, or institute any proceedings, directly or
indirectly, with respect to any of the foregoing.
(iii) The Subordinated Lender hereby waives: (a) notice of the
existence, creation or non-payment of all or any of the Senior
Indebtedness and (b) to the fullest extent permitted by law, any right
it may have to require the Collateral Agent to marshall assets.
(c) The Secured Parties may, at any time and from time to time,
without any consent of or notice to the Subordinated Lender and
without impairing or releasing the obligations of the Subordinated
Lender: (i) amend in any manner any agreement under which any of the
Senior Indebtedness is outstanding in accordance with the terns
thereof; (ii) sell, exchange, release, not perfect and otherwise deal
with any Collateral or other property at any time pledged, assigned or
mortgaged to secure the Senior Indebtedness in accordance with the
Security Documents; (iii) release anyone liable in any manner under or
in respect of the Senior Indebtedness; (iv) exercise or refrain from
exercising any rights against the Issuer or any Guarantor and others;
and (v) apply any sums from time to time received to the payment or
satisfaction of the Senior Indebtedness.
H-2
<PAGE>
Exhibit 4.3
NOTATION OF GUARANTEE
For value received, each Guarantor (which term includes any successor
Person under the Indenture referred to herein) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and subject
to the provisions in the Indenture dated as of May 28, 1999 (the "Indenture")
---------
among Caithness Coso Funding Corp. (the "Issuer"), as issuer, Coso Finance
------
Partners, Coso Energy Developers and Coso Power Developers (the "Guarantors"),
as guarantors, and U.S. Bank Trust National Association (the "Trustee"), as
-------
trustee and collateral agent, (a) the due and punctual payment of the principal
of, premium, if any, and interest on the Senior Secured Notes (as defined in the
Indenture), whether at maturity, by acceleration, redemption or otherwise, the
due and punctual payment of interest on overdue principal and premium, and, to
the extent permitted by law, interest, and the due and punctual performance of
all other obligations of the Issuer to the Holders or the Trustee all in
accordance with the terms of the Indenture and (b) in case of any extension of
time of payment or renewal of any Senior Secured Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. The obligations of the Guarantors to
the Holders of Senior Secured Notes and to the Trustee pursuant to the Guarantee
and the Indenture are expressly set forth in Article 9 of the Indenture and
reference is hereby made to the Indenture for the precise terms of the
Guarantee. Each Holder of a Senior Secured Note, by accepting the same, (a)
agrees to and shall be bound by such provisions, (b) authorizes and directs the
Trustee, on behalf of such Holder, to take such action as may be necessary or
appropriate to effectuate the provisions as provided in the Indenture and (c)
appoints the Trustee attorney-in-fact of such Holder for such purpose.
COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
Exhibit 4.4
NOTATION OF GUARANTEE
For value received, each Guarantor (which term includes any successor
Person under the Indenture referred to herein) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and subject
to the provisions in the Indenture dated as of May 28, 1999 (the "Indenture")
---------
among Caithness Coso Funding Corp. (the "Issuer"), as issuer, Coso Finance
------
Partners, Coso Energy Developers and Coso Power Developers (the "Guarantors"),
as guarantors, and U.S. Bank Trust National Association (the "Trustee"), as
-------
trustee and collateral agent, (a) the due and punctual payment of the principal
of, premium, if any, and interest on the Senior Secured Notes (as defined in the
Indenture), whether at maturity, by acceleration, redemption or otherwise, the
due and punctual payment of interest on overdue principal and premium, and, to
the extent permitted by law, interest, and the due and punctual performance of
all other obligations of the Issuer to the Holders or the Trustee all in
accordance with the terms of the Indenture and (b) in case of any extension of
time of payment or renewal of any Senior Secured Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. The obligations of the Guarantors to
the Holders of Senior Secured Notes and to the Trustee pursuant to the Guarantee
and the Indenture are expressly set forth in Article 9 of the Indenture and
reference is hereby made to the Indenture for the precise terms of the
Guarantee. Each Holder of a Senior Secured Note, by accepting the same, (a)
agrees to and shall be bound by such provisions, (b) authorizes and directs the
Trustee, on behalf of such Holder, to take such action as may be necessary or
appropriate to effectuate the provisions as provided in the Indenture and (c)
appoints the Trustee attorney-in-fact of such Holder for such purpose.
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
--------------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
--------------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
Exhibit 4.5
NOTATION OF GUARANTEE
For value received, each Guarantor (which term includes any successor
Person under the Indenture referred to herein) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and subject
to the provisions in the Indenture dated as of May 28, 1999 (the "Indenture")
---------
among Caithness Coso Funding Corp. (the "Issuer"), as issuer, Coso Finance
------
Partners, Coso Energy Developers and Coso Power Developers (the "Guarantors"),
as guarantors, and U.S. Bank Trust National Association (the "Trustee"), as
-------
trustee and collateral agent, (a) the due and punctual payment of the principal
of, premium, if any, and interest on the Senior Secured Notes (as defined in the
Indenture), whether at maturity, by acceleration, redemption or otherwise, the
due and punctual payment of interest on overdue principal and premium, and, to
the extent permitted by law, interest, and the due and punctual performance of
all other obligations of the Issuer to the Holders or the Trustee all in
accordance with the terms of the Indenture and (b) in case of any extension of
time of payment or renewal of any Senior Secured Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. The obligations of the Guarantors to
the Holders of Senior Secured Notes and to the Trustee pursuant to the Guarantee
and the Indenture are expressly set forth in Article 9 of the Indenture and
reference is hereby made to the Indenture for the precise terms of the
Guarantee. Each Holder of a Senior Secured Note, by accepting the same, (a)
agrees to and shall be bound by such provisions, (b) authorizes and directs the
Trustee, on behalf of such Holder, to take such action as may be necessary or
appropriate to effectuate the provisions as provided in the Indenture and (c)
appoints the Trustee attorney-in-fact of such Holder for such purpose.
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
---------------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
---------------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
Exhibit 4.6
REGISTRATION RIGHTS AGREEMENT
by and among
CAITHNESS COSO FUNDING CORP.
COSO FINANCE PARTNERS
COSO ENERGY DEVELOPERS
COSO POWER DEVELOPERS
and
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
May 28, 1999
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of May 28, 1999, by and among Caithness Coso Funding Corp. (the
"Issuer"), Coso Finance Partners ("Navy I Partnership"), Coso Energy Developers
------ ------------------
("Navy II Partnership"), Coso Power Developers ("BLM Partnership," and together
------------------- ---------------
with Navy I Partnership and Navy II Partnership, the "Guarantors"), and
----------
Donaldson, Lufkin & Jenrette Securities Corporation (the "Purchaser") who has
---------
agreed to purchase $110,000,000 in principal amount of the Issuer's 6.80% Senior
Secured Notes due 2001 (the "2001 Notes") and $303,000,000 in principal amount
----------
of the Issuer's 9.05% Senior Secured Notes due 2009 (the "2009 Notes," and
----------
together with the 2001 Notes, the "Series A Notes"), pursuant to the Purchase
--------------
Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated May
21, 1999 (the "Purchase Agreement"), by and among the Issuer, the Guarantors and
------------------
the Purchaser. In order to induce the Purchaser to purchase the Series A Notes,
each of the Issuer and the Guarantors has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of this
Agreement is a condition to the obligations of the Purchaser set forth in
Section 2 of the Purchase Agreement. Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them by the Indenture,
dated as of May 28, 1999, among the Issuer, the Guarantors and U.S. Bank Trust
National Association, in its capacity as trustee (the "Trustee") and as
-------
collateral agent (the "Collateral Agent"), relating to the Series A Notes and
----------------
the Series B Notes (the "Indenture").
---------
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
2001 Notes: As defined in the Preamble.
----------
2009 Notes: As defined in the Preamble.
----------
Affiliate: As defined in Rule 144 of the Securities Act.
---------
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
-------------
Business Day: Means any day other than a Saturday, a Sunday or a day on
------------
which banking institutions in the City of New York or at a place of payment with
respect to the Notes are authorized by law, regulation or executive order to
remain closed.
Certificated Securities: Definitive Notes, as defined in the Indenture.
-----------------------
Closing Date: The date hereof.
------------
Commission: The Securities and Exchange Commission.
----------
Consummate: An Exchange Offer shall be deemed "Consummated" for purposes
----------
of this Agreement upon the occurrence of (a) the filing and effectiveness under
the Securities Act of the Exchange Offer Registration Statement relating to the
Series B Notes to be issued in the Exchange Offer, (b) the maintenance of such
Exchange Offer Registration Statement continuously effective and the keeping of
the Exchange Offer open for a period not less than the period required pursuant
to Section 3(b) hereof and (c) the issuance by the Issuer to the Registrar under
the Indenture of Series B Notes in
<PAGE>
the same aggregate principal amount as the aggregate principal amount of Series
A Notes tendered by Holders thereof pursuant to the Exchange Offer.
Effectiveness Target Date: As defined in Section 3(a) and 4(a) hereof.
-------------------------
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
Exchange Offer: The exchange and issuance by the Issuer of a principal
--------------
amount of Series B Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement relating
-------------------------------------
to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Purchaser propose to sell
--------------
the Series A Notes to certain "qualified institutional buyers," as such term is
defined in Rule 144A under the Securities Act and outside of the United States
pursuant to Regulation S under the Securities Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
---------------
Guarantors: The Guarantors defined in the preamble hereto and any person
----------
which becomes a guarantor of either series of Notes, in each case after the date
hereof pursuant to the terms of the Indenture.
Holders: As defined in Section 2 hereof.
-------
Indemnified Holder: As defined in Section 8(a) hereof.
------------------
Liquidated Damages: As defined in Section 5 hereof.
------------------
Notes: The Series A Notes and the Series B Notes (including guarantees
-----
thereof by the Guarantors).
Prospectus: The prospectus included in a Registration Statement at the
----------
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
-------------------
Registration Default: As defined in Section 5 hereof.
--------------------
Registration Statement: Any registration statement of the Issuer and the
----------------------
Guarantors relating to (a) an offering of Series B Notes pursuant to an Exchange
Offer or (b) the registration for resale of Transfer Restricted Notes pursuant
to the Shelf Registration Statement, in each case, (i) that is filed pursuant to
the provisions of this Agreement and (ii) including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.
2
<PAGE>
Regulation S: Regulation S promulgated under the Securities Act.
------------
Restricted Broker-Dealer: Any Broker-Dealer that holds Series B Notes that
------------------------
were acquired in the Exchange Offer in exchange for Series A Notes that such
Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Notes acquired
directly from the Issuer or any of its affiliates).
Rule 144: Rule 144 promulgated under the Securities Act.
--------
Securities Act: The Securities Act of 1933, as amended.
--------------
Series A Notes: As defined in the Preamble.
--------------
Series B Notes: The Issuer's 6.80% Series B Senior Secured Notes due 2001
--------------
and 9.05% Series B Senior Secured Notes due 2009 to be issued pursuant to the
Indenture (i) in the Exchange Offer or (ii) as contemplated by Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
----------------------------
Suspension Notice: As defined in Section 6(d) hereof.
-----------------
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
---
in effect on the date of the Indenture.
Transfer Restricted Notes: Each Series A Note, until the earliest to occur
-------------------------
of (a) the date on which such Series A Note has been exchanged by a Person other
than a broker-dealer for a Series B Note in the Exchange Offer; (b) following
the exchange by a Restricted Broker-Dealer in the Exchange Offer of a Series A
note for a Series B Note, the date on which such Series B Note is sold to a
purchaser who receives from such Restricted Broker-Dealer on or prior to the
date of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement; (c) the date on which such Series A Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement; or (d) the date on which such Series A
Note is distributed to the public pursuant to Rule 144 under the Securities Act.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Notes (each, a
"Holder") whenever such Person owns Transfer Restricted Notes.
- -------
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable federal
law (after the procedures set forth in Section 6(a)(i) below have been complied
with), the Issuer and the Guarantors shall (i) cause the Exchange Offer
Registration Statement to be filed with the Commission as soon as practicable
after the Closing Date, but in no event later than 90 days after the Closing
Date (such 90th day being the "Filing Deadline"), (ii) use its best efforts to
---------------
cause such Exchange Offer Registration Statement to become effective at the
earliest possible time, but in no event later than 180 days after the Closing
Date (such 180th day being the "Effectiveness Target Date"), (iii) in connection
-------------------------
with the foregoing, (A) file all pre-effective amendments to such Exchange Offer
Registration Statement as may be necessary in order to cause it to become
effective, (B) file, if applicable, a post-effective amendment to such Exchange
Offer Registration Statement pursuant to Rule 430A under the Securities Act and
(C)
3
<PAGE>
cause all necessary filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Series B Notes to be offered in
exchange for the Series A Notes that are Transfer Restricted Notes and to permit
resales of Series B Notes by Broker-Dealers that tendered in the Exchange Offer
Series A Notes that such Broker-Dealer acquired for its own account as a result
of market making activities or other trading activities (other than Series A
Notes acquired directly from the Issuer or any of its Affiliates) as
contemplated by Section 3(c) below.
(b) The Issuer and the Guarantors shall use their respective best efforts
to cause the Exchange Offer Registration Statement to be effective continuously,
and shall keep the Exchange Offer open for a period of not less than the minimum
period required under applicable federal and state securities laws to Consummate
the Exchange Offer; provided, however, that in no event shall such period be
less than 20 Business Days. The Issuer and the Guarantors shall cause the
Exchange Offer to comply with all applicable federal and state securities laws.
No securities other than the Series B Notes (and the Guarantees thereof) shall
be included for registration in the Exchange Offer Registration Statement. The
Issuer and the Guarantors shall use their respective best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 30 Business Days after the Effectiveness Target Date.
(c) The Issuer shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Notes that were
acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Transfer Restricted Notes
acquired directly from the Issuer or any Affiliate of the Issuer), may exchange
such Transfer Restricted Notes pursuant to the Exchange Offer; however, such
Broker-Dealer may be deemed to be an "underwriter" within the meaning of the
Securities Act and must, therefore, deliver a prospectus meeting the
requirements of the Securities Act in connection with its initial sale of any
Series B Notes received by such Broker-Dealer in the Exchange Offer and that the
Prospectus contained in the Exchange Offer Registration Statement may be used to
satisfy such prospectus delivery requirement. Such "Plan of Distribution"
section shall also contain all other information with respect to such sales by
such Restricted Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Restricted Broker-Dealer or disclose the amount of Transfer
Restricted Notes held by any such Restricted Broker-Dealer, except to the extent
required by the Commission. See the Shearman & Sterling no-action letter
(available July 2, 1993).
To the extent necessary to ensure that the Prospectus contained in the
Exchange Offer Registration Statement is available for sales of Series B Notes
by Restricted Broker-Dealers, the Issuer and the Guarantors agree to use their
respective best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Section 6(c) hereof and in conformity with the requirements of this
Agreement, the Securities Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period of 180 days from the
date on which the Exchange Offer is Consummated, or such shorter period as will
terminate when all Transfer Restricted Notes covered by such Registration
Statement have been sold pursuant thereto. The Issuer and the Guarantors shall
promptly provide sufficient copies of the latest version of such Prospectus to
such Restricted Broker-Dealers promptly upon request, and in no event later than
three Business Days after such request, at any time during such period.
4
<PAGE>
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Issuer and the Guarantors are not
------------------
required to file the Exchange Offer Registration Statement or permitted to
Consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or commission policy (after the Issuer and the Guarantors have
complied with the procedures set forth in Section 6(a)(i) below) or (ii) any
Holder of Transfer Restricted Notes shall notify the Issuer within 20 days
following the Consummation of the Exchange Offer (and confirm such notice in
writing within two days) that (A) based upon written advice of counsel such
Holder was prohibited by law or Commission policy from participating in the
Exchange Offer or (B) based upon written advice of counsel such Holder may not
resell the Series B Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the Prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales by
such Holder or (C) such Holder is a Broker-Dealer and holds Series A Notes
acquired directly from the Issuer or any of its Affiliates, then the Issuer and
the Guarantors shall:
(x) cause to be filed, on or prior to 45 days after the earlier of (i)
the date on which the Issuer determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above
and (ii) the date on which the Issuer receives the notice specified in
clause (a) (ii) above (such earlier date, the "Filing Deadline"), a shelf
---------------
registration statement pursuant to Rule 415 under the Securities Act, which
may be an amendment to the Exchange Offer Registration Statement (in either
event, the "Shelf Registration Statement"), relating to the resale of
----------------------------
Transfer Restricted Notes, by the Holders thereof who have provided the
information required pursuant to Section 4(b) of this Agreement; and
(y) shall use their respective best efforts to cause such Shelf
Registration Statement to become effective on or prior to 90 days after the
Filing Deadline for the Shelf Registration Statement (such 90th day the
"Effectiveness Target Date").
-------------------------
If, after the Issuer has filed an Exchange Offer Registration Statement
that satisfies the requirements of Section 3(a) above, the Issuer is required to
file and make effective a Shelf Registration Statement solely because the
Exchange Offer is not permitted under applicable federal law, then the filing of
the Exchange Offer Registration Statement shall be deemed to satisfy the
requirements of clause (x) above; provided that, in such event, the Issuer shall
remain obligated to meet the Effectiveness Target Date set forth in clause (y).
The Issuer and the Guarantors shall use their respective best efforts to
keep the Shelf Registration Statement required by this Section 4(a) continuously
effective, supplemented and amended as required by and subject to the provisions
of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is
available for sales of Transfer Restricted Notes by the Holders thereof entitled
to the benefit of this Section 4(a), and to ensure that it conforms with the
requirements of this Agreement, the Securities Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of at
least two years (as extended pursuant to Section 6(c)(i)) following the date on
which such Shelf Registration Statement first becomes effective under the
Securities Act, or such shorter period as will terminate when all Transfer
Restricted Notes covered by such Registration Statement have been sold pursuant
thereto.
(b) Provision by Holders of Certain Information in Connection with the
------------------------------------------------------------------
Shelf Registration Statement. No Holder of Transfer Restricted Notes may
- ----------------------------
include any of its Transfer Restricted Notes in any Shelf Registration Statement
pursuant to this Agreement unless and until such Holder furnishes to the Issuer
in writing, within 10 Business Days after receipt of a request therefor, the
information
5
<PAGE>
specified in Item 507 or 508 of Regulation S-K, as applicable, of the Securities
Act for use in connection with any Shelf Registration Statement or Prospectus or
preliminary Prospectus included therein. No Holder of Transfer Restricted Notes
shall be entitled to Liquidated Damages pursuant to Section 5 hereof unless and
until such Holder shall have provided all such information. Each Holder as to
which any Shelf Registration Statement is being effected agrees to promptly
furnish additional information required to be disclosed in order to make the
information previously furnished to the Issuer by such Holder not materially
misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the applicable Filing Deadline, (ii) any such
Registration Statement has not been declared effective by the Commission on or
prior to the applicable Effectiveness Target Date, (iii) the Exchange Offer has
not been Consummated within 30 Business Days after the Exchange Offer
Registration Statement is first declared effective by the Commission or (iv) any
Registration Statement required by this Agreement is filed and declared
effective but shall thereafter cease to be effective or fail to be usable for
its intended purpose without being succeeded immediately by a post-effective
amendment to such Registration Statement that cures such failure and that is
itself declared effective immediately (each such event referred to in clauses
(i) through (iv), a "Registration Default"), then the Issuer and the Guarantors
--------------------
hereby jointly and severally agree to pay to each Holder of Transfer Restricted
Notes affected thereby liquidated damages ("Liquidated Damages") in an amount
------------------
equal to $.05 per week per $1,000 in principal amount of Transfer Restricted
Notes held by such Holder for each week or portion thereof that the Registration
Default continues for the first 90-day period immediately following the
occurrence of such Registration Default. The amount of the Liquidated Damages
shall increase by an additional $.05 per week per $1,000 in principal amount of
Transfer Restricted Notes with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $.25 per week per $1,000 in principal amount of Transfer Restricted
Notes; provided that the Issuer and the Guarantors shall in no event be required
to pay Liquidated Damages for more than one Registration Default at any given
time. Notwithstanding anything to the contrary set forth herein, (1) upon
filing of the Exchange Offer Registration Statement (and/or, if applicable, the
Shelf Registration Statement), in the case of (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the Liquidated
Damages payable with respect to the Transfer Restricted Notes as a result of
such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued Liquidated Damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Series A Notes. All obligations of the Issuer and the Guarantors set forth in
the preceding paragraph that are outstanding with respect to any Transfer
Restricted Note at the time such Note ceases to be a Transfer Restricted Note
shall survive until such time as all such obligations with respect to such
security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the Exchange
-------------------------------------
Offer, the Issuer and the Guarantors shall comply with all applicable provisions
of Section 6(c) below, shall use
6
<PAGE>
their respective best efforts to effect such exchange and to permit the resale
of Series B Notes by Broker-Dealers that tendered in the Exchange Offer Series A
Notes that such Broker-Dealer acquired for its own account as a result of its
market making activities or other trading activities (other than Series A Notes
acquired directly from the Issuer or any of its Affiliates) being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If, following the date hereof there has been announced the
formal adoption of a change in Commission policy with respect to exchange
offers such as the Exchange Offer, that in the reasonable opinion of
counsel to the Issuer raises a substantial question as to whether the
Exchange Offer is permitted by applicable federal law, the Issuer and the
Guarantors hereby agree to use all commercially reasonable efforts to
determine whether they would be permitted to Consummate an Exchange Offer
for Transfer Restricted Notes; provided that the Issuer and the Guarantors
shall not be required to seek a no-action letter or other favorable
decision from the Commission allowing the Issuer and the Guarantors to
Consummate an Exchange Offer for Transfer Restricted Notes.
(ii) As a condition to its participation in the Exchange Offer, each
Holder of Transfer Restricted Notes (including, without limitation, any
Holder who is a Broker-Dealer) shall furnish, upon the request of the
Issuer, prior to the Consummation of the Exchange Offer, a written
representation to the Issuer and the Guarantors (which may be contained in
the letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an Affiliate of the Issuer, (B)
it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Series B Notes to be issued in the Exchange Offer and
(C) it is acquiring the Series B Notes in its ordinary course of business.
Each Holder using the Exchange Offer to participate in a distribution of
the Series B Notes will acknowledge and agree that, if the resales are of
Series B Notes obtained by such Holder in exchange for Series A Notes
acquired directly from the Issuer or an Affiliate thereof, it (1) could
not, under Commission policy as in effect on the date of this Agreement,
rely on the position of the Commission enunciated in Morgan Stanley and
------------------
Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation
--------- ----------------------------------
(available May 13, 1988), as interpreted in the Commission's letter to
Shearman & Sterling (available July 2, 1993), and similar no-action
-------------------
letters, and (2) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction and that such a secondary resale transaction must be covered by
an effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Issuer and the Guarantors shall provide a supplemental
letter to the Commission (A) stating that the Issuer and the Guarantors are
registering the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation (available May
----------------------------------
13, 1988) and Morgan Stanley and Co., Inc. (available June 5, 1991) as
----------------------------
interpreted in the Commission's letter to Shearman & Sterling (available
-------------------
July 2, 1993), (B) including a representation that neither the Issuer nor
the Guarantors has entered into any arrangement or understanding with any
Person to distribute the Series B Notes to be received in the Exchange
Offer and that, to the best of the Issuer's and the Guarantors' information
and belief, each Holder participating in the Exchange Offer is acquiring
the Series B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Series B Notes received in the Exchange Offer and (C)
any other undertaking or representation required by the Commission, if
applicable.
7
<PAGE>
(b) Shelf Registration Statement. In connection with the Shelf
----------------------------
Registration Statement, the Issuer and the Guarantors shall comply with all the
provisions of Section 6(c) below and shall use their respective best efforts to
effect such registration to permit the sale of the Transfer Restricted Notes
being sold in accordance with the intended method or methods of distribution
thereof (as indicated in the information furnished to the Issuer pursuant to
Section 4(b) hereof), and pursuant thereto the Issuer and the Guarantors will
prepare and file with the Commission a Registration Statement relating to the
registration on any appropriate form under the Securities Act, which form shall
be available for the sale of the Transfer Restricted Notes in accordance with
the intended method or methods of distribution thereof within the time periods
and otherwise in accordance with the provisions hereof.
(c) General Provisions. In connection with any Registration Statement and
------------------
any related Prospectus required by this Agreement, the Issuer and the Guarantors
shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement, as
applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain a
material misstatement or omission or (B) not to be effective and usable for
resale of Transfer Restricted Notes during the period required by this
Agreement, the Issuer and the Guarantors shall file promptly an appropriate
amendment to such Registration Statement curing such defect, and, if
Commission review is required, use their respective best efforts to cause
such amendment to be declared effective as soon as practicable;
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the applicable Registration Statement as may be
necessary to keep such Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as the case may be; cause the
Prospectus to be supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the Securities Act,
and to comply fully with Rules 424, 430A and 462, as applicable, under the
Securities Act in a timely manner; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such Registration Statement during the applicable period in accordance with
the intended method or methods of distribution by the sellers thereof set
forth in such Registration Statement or supplement to the Prospectus;
(iii) advise the selling Holders promptly and, if requested by such
Persons, confirm such advice in writing, (A) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to any applicable Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any request
by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information
relating thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the
Securities Act or of the suspension by any state securities commission of
the qualification of the Transfer Restricted Notes for offering or sale in
any jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, and (D) of the existence of any fact or the happening
of any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement thereto
or any document incorporated by reference therein untrue, or that requires
the making of any additions to or changes in the Registration Statement in
order to make the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. If at any
8
<PAGE>
time the Commission shall issue any stop order suspending the effectiveness
of the Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Notes under state
securities or Blue Sky laws, the Issuer and the Guarantors shall use their
respective best efforts to obtain the withdrawal or lifting of such order
at the earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event contemplated
by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Notes, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(v) furnish to the Purchaser and each selling Holder named in any
Registration Statement or Prospectus in connection with such sale, if any,
before filing with the Commission, copies of any Registration Statement or
any Prospectus included therein or any amendments or supplements to any
such Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the review of such Holders
in connection with such sale, if any, for a period of at least three
Business Days, and the Issuer will not file any such Registration Statement
or Prospectus or any amendment or supplement to any such Registration
Statement or Prospectus (including all such documents incorporated by
reference) to which the selling Holders of the Transfer Restricted Notes
covered by such Registration Statement in connection with such sale, if
any, shall reasonably object within three Business Days after the receipt
thereof. A selling Holder shall be deemed to have reasonably objected to
such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission or fails to comply with the applicable
requirements of the Securities Act;
(vi) make available at reasonable times for inspection by the selling
Holders participating in any disposition pursuant to such Registration
Statement and any attorney or accountant retained by such selling Holders,
all financial and other records, pertinent corporate documents of the
Issuer and the Guarantors and cause the Issuer's and the Guarantors'
officers, directors and employees to supply all information reasonably
requested by any such selling Holder, attorney or accountant in connection
with such Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness; provided,
however, that each such person shall be required to maintain in confidence
and not to disclose to any other person any information or records
reasonably designated by the Issuer or the Guarantors as being
confidential, until such time as such information becomes a matter of
public record (whether by virtue of its inclusion in such Registration
Statement or otherwise);
(vii) if requested by any selling Holders in connection with such
sale, if any, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such selling Holders may reasonably request to have included
therein, including, without limitation, information relating to the "Plan
of Distribution" of the Transfer Restricted Notes; and make all required
filings of such Prospectus supplement or post-effective amendment as soon
as practicable after the Issuer is
9
<PAGE>
notified of the matters to be included in such Prospectus supplement or
post-effective amendment;
(viii) furnish to each selling Holder who has provided in writing to
the Issuer a facsimile number or address for deliveries and notices in
connection with such sale, if any, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, excluding any exhibits;
(ix) deliver to each selling Holder who has provided in writing to
the Issuer a facsimile number or address for deliveries and notices,
without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Issuer and the Guarantors hereby
consent to the use (in accordance with law) of the Prospectus and any
amendment or supplement thereto by each of the selling Holders in
connection with the offering and the sale of the Transfer Restricted Notes
covered by the Prospectus or any amendment or supplement thereto;
(x) upon the request of any selling Holder, enter into such
agreements (including underwriting agreements) which shall be in customary
form and reasonably satisfactory to the Issuer and the Guarantors, and make
such representations and warranties to such selling Holders with respect to
the business of the Issuer and the Guarantors and the Registration
Statement and Prospectus as are customarily made by issuers in underwritten
offerings, and take all such other actions in connection therewith in order
to expedite or facilitate the disposition of the Transfer Restricted Notes
pursuant to any applicable Registration Statement contemplated by this
Agreement, all to such extent as may be reasonably requested by any Holder
of Transfer Restricted Notes in connection with an underwritten offering.
In connection with an underwritten offering or upon the written request of
Holders of a majority of the aggregate principal amount of Transfer
Restricted Notes being registered, the Issuer and the Guarantors shall:
(A) upon written request, furnish (or in the case of paragraphs (2)
and (3), use its best efforts to cause to be furnished) to each selling
Holder, upon the effectiveness of the Shelf Registration Statement, or to
each Restricted Broker-Dealer, upon Consummation of the Exchange Offer,
as the case may be:
(1) a certificate, dated such date, signed on behalf of the
Issuer and the Guarantors by (x) the President or any Vice President
and (y) a principal financial or accounting officer of the Issuer and
such Guarantors, confirming, as of the date thereof, the matters set
forth in paragraphs (a) and (b) of Section 9 of the Purchase Agreement
and such other similar matters as the selling Holders or Restricted
Broker-Dealers may reasonably request;
(2) an opinion, dated the date of Consummation of the Exchange
Offer, or the date of effectiveness of the Shelf Registration
Statement, of counsel for the Issuer and the Guarantors covering
matters similar to those set forth in paragraphs (e) and (f) of
Section 9 of the Purchase Agreement and such other matter as the
selling Holders or Restricted Broker-Dealers, as the case may be, may
reasonably request, and in any event including a statement to the
effect that although such counsel had not undertaken to investigate or
verify independently, and did not pass upon and/or assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the applicable Registration Statement, that
such counsel has participated in conferences
10
<PAGE>
with officers and other representatives of the Issuer and the
Guarantors and representatives of the independent public accountants
for the Issuer and the Guarantors at which the contents of such
Registration Statement were discussed and that such counsel advises
that, on the basis of the foregoing (relying as to materiality to the
extent such counsel deems appropriate upon the statements of officers
and other representatives of the Issuer and the Guarantors and without
independent check or verification), no facts came to such counsel's
attention that caused such counsel to believe that the applicable
Registration Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective and, in the case of
the Exchange Offer Registration Statement, as of the date of
Consummation of the Exchange Offer, contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or that the Prospectus contained in such Registration
Statement as of its date and, in the case of the opinion dated the
date of Consummation of the Exchange Offer, as of the date of
Consummation, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. Without limiting the foregoing, such
counsel may state further that such counsel assumes no responsibility
for, and has not independently verified, the accuracy, completeness or
fairness of the financial statements, consultants' reports, notes and
schedules and other financial data included in any Registration
Statement contemplated by this Agreement or the related Prospectus;
and
(3) a customary comfort letter, dated the date of Consummation of
the Exchange Offer, or as of the date of effectiveness of the Shelf
Registration Statement, from the Issuer's and the Guarantors'
independent accountants, in the customary form and covering matters of
the type customarily covered in comfort letters to underwriters in
connection with underwritten offerings, and affirming the matters set
forth in the comfort letters delivered pursuant to Sections 9(i) and
9(j) of the Purchase Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance with
clause (A) above and with any customary conditions contained in the any
agreement entered into by the Issuer and the Guarantors pursuant to this
clause (x);
(xi) prior to any public offering of Transfer Restricted Notes,
cooperate with the selling Holders and their counsel in connection with the
registration and qualification of the Transfer Restricted Notes under the
securities or Blue Sky laws of such jurisdictions as the selling Holders
may request and do any and all other acts or things necessary or advisable
to enable the disposition in such jurisdictions of the Transfer Restricted
Notes covered by the applicable Registration Statement; provided, however,
that neither the Issuer nor the Guarantors shall be required to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to the service of process in suits or
to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so subject;
(xii) in connection with any sale of Transfer Restricted Notes that
will result in such securities no longer being Transfer Restricted Notes,
cooperate with the selling Holders to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted
11
<PAGE>
Notes to be sold and not bearing any restrictive legends; and to register
such Transfer Restricted Notes in such denominations and such names as the
selling Holders may request at least two Business Days prior to such sale
of Transfer Restricted Notes;
(xiii) use their respective best efforts to cause the disposition of
the Transfer Restricted Notes covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Transfer Restricted Notes, subject to
the proviso contained in clause (xi) above;
(xiv) provide a CUSIP number for all Transfer Restricted Notes not
later than the effective date of a Registration Statement covering such
Transfer Restricted Notes and provide the Trustee under the Indenture with
printed certificates for the Transfer Restricted Notes which are in a form
eligible for deposit with The Depository Trust Company;
(xv) otherwise use their respective best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Securities Act);
(xvi) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee and
the Holders to effect such changes to the Indenture as may be required for
such Indenture to be so qualified in accordance with the terms of the TIA;
and execute and use their respective best efforts to cause the Trustee to
execute, all documents that may be required to effect such changes and all
other forms and documents required to be filed with the Commission to
enable such Indenture to be so qualified in a timely manner; and
(xvii) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
-----------------------
Transfer Restricted Note that, upon receipt of the notice referred to in Section
6(c)(iii)(C) or any notice from the Issuer of the existence of any fact of the
kind described in Section 6(c)(iii)(D) hereof (in each case, a "Suspension
----------
Notice"), such Holder will forthwith discontinue disposition of Transfer
- ------
Restricted Notes pursuant to the applicable Registration Statement until (i)
such Holder's has received copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in
writing by the Issuer that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated
by reference in the Prospectus (in each case, the "Recommencement Date"). Each
-------------------
Holder receiving a Suspension Notice hereby agrees that it will either (i)
destroy any Prospectuses, other than permanent file copies, then in such
Holder's possession which have been replaced by the Issuer with more recently
dated Prospectuses or (ii) deliver to the Issuer (at the Issuer's expense) all
copies, other than permanent file copies, then in such Holder's possession of
the Prospectus covering such Transfer Restricted Notes that was current at the
time of receipt of the Suspension Notice. The time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by a number of days equal to the number of
12
<PAGE>
days in the period from and including the date of delivery of the Suspension
Notice to the date of delivery of the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Issuer's and the Guarantors' performance
of or compliance with this Agreement will be borne by the Issuer or the
Guarantors, regardless of whether a Registration Statement becomes effective,
including without limitation: (i) all registration and filing fees and expenses;
(ii) all fees and expenses of compliance with federal securities and state Blue
Sky or securities laws; (iii) all expenses of printing (including printing
certificates for the Series B Notes to be issued in the Exchange Offer and
printing of Prospectuses), messenger and delivery services and telephone; (iv)
all fees and disbursements of counsel for the Issuer and the Guarantors; (v) all
application and filing fees in connection with listing the Series B Notes on a
national securities exchange or automated quotation system pursuant to the
requirements hereof; and (vi) all fees and disbursements of independent
certified public accountants of the Issuer and the Guarantors (including the
expenses of any special audit and comfort letters required by or incident to
such performance).
The Issuer will, in any event, bear its and the Guarantors' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Issuer or the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Issuer and the Guarantors
will reimburse (i) the Restricted Broker-Dealers holding Transfer Restricted
Notes being tendered in the Exchange Offer and/or resold pursuant to the "Plan
of Distribution" contained in the Exchange Offer Registration Statement and (ii)
the Holders of Transfer Restricted Notes being registered pursuant to the Shelf
Registration Statement, in any such case for the reasonable fees and
disbursements of not more than one counsel, who shall be Latham & Watkins,
unless another firm shall be chosen by the Holders of a majority in principal
amount of the Transfer Restricted Notes for whose benefit such Registration
Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Issuer and the Guarantors (together referred to herein as the
"Indemnifying Parties" and each individually as the "Indemnifying Party") agree,
- --------------------- ------------------
jointly and severally, to indemnify and hold harmless (i) each Holder and (ii)
each person, if any, who controls (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) any Holder (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
-----------
person") and (iii) the respective officers, directors, partners, employees,
- ------
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"Indemnified Holder") against any losses, claims, damages or liabilities, joint
- -------------------
or several, to which such Indemnified Holder may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, preliminary prospectus or Prospectus, or any amendment
or supplement thereto, provided by or on behalf of the Issuer or the Guarantors
to any Holder or any prospective purchaser of Series B Notes, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which such statements were made, not misleading,
and will reimburse the Indemnified Holder for any legal or other expenses
13
<PAGE>
reasonably incurred by the Indemnified Holder in connection with investigating
or defending any such action or claim as such expenses are incurred; provided,
however, that (A) the Issuer or the Guarantors shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or legal or
other expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any Registration
Statement, preliminary prospectus or Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with written information furnished to
the Issuer or the Guarantors by the Indemnified Holder expressly for use
therein; provided further that the foregoing indemnity agreement with respect to
any preliminary prospectus shall not inure to the benefit of the Indemnified
Holder of Transfer Restricted Notes if the such Indemnified Holder fails to
deliver a Prospectus, as then amended or supplemented, (so long as the
Prospectus and any amendment or supplement thereto was provided by the Issuer to
the Indemnified Holder in the requisite quantity and on a timely basis to permit
proper delivery) to the person asserting any losses, claims, damages,
liabilities or judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or alleged material misstatement or
omission was cured in the Prospectus, as so amended or supplemented.
(b) Each Indemnified Holder of Transfer Restricted Notes agrees, severally
and not jointly, to indemnify and hold harmless the Indemnifying Parties and
each person who controls the Indemnifying Parties (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act) and their
respective officers, directors, partners, employees, representatives and agents,
against any losses, claims, damages or liabilities to which such Indemnifying
Parties and such other persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which such statements were
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Registration Statement, preliminary prospectus or
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Indemnifying Parties by the
Indemnified Holder expressly for use therein; and will reimburse the
Indemnifying Parties and such other persons for any legal or other expenses
reasonably incurred by such Indemnifying Parties and such other persons in
connection with investigating or defending any such action or claim as such
expenses are incurred. In no event shall any Indemnified Holder be liable or
responsible for the amount in excess of the total dollar amount received by such
Indemnified Holder with respect to its sale of Transfer Restricted Notes.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection except to the extent that it has been
prejudiced in any material respect by such failure or from any liability which
it may otherwise have. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish to assume the defense thereof, with counsel
satisfactory to such indemnified party and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be
14
<PAGE>
liable to such indemnified party under such subsection for any legal expenses of
counsel or any other expenses. No indemnifying party shall, without the written
consent of the indemnified party, effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act, by
or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Indemnifying Parties, on the
one hand, and the Indemnified Holders, on the other hand, from their sale of
Transfer Restricted Notes. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Indemnifying Parties, on
the one hand, and the Indemnified Holders, on the other hand, in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Parties, on the one hand, or
the Indemnified Holders, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Indemnifying Parties and the Indemnified Holders
agree that it would not be just and equitable if contribution pursuant to this
subsection (d) were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), the Indemnified Holder
shall not be required to contribute any amount in excess of the amount by which
the total amount received by such Holder with respect to the sale of transfer
Restricted Notes pursuant to a Registration Statement exceeds the amount of any
damages which the Indemnified Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No party shall be liable for contribution with respect to any action
or claim settled without its written consent; provided, however, that such
written consent was not unreasonably withheld.
(e) The obligations of the Indemnifying Parties under this Section 8 shall
be in addition to any liability which the Indemnifying Parties may otherwise
have and shall extend, upon the same terms and conditions, to each person, if
any, who controls the Indemnified Holder within the meaning of the Securities
Act; and the obligations of the Indemnified Holder under this Section 8 shall be
in addition to any liability which the Indemnified Holder may otherwise have and
shall extend, upon the same terms and conditions, to each officer and director
of the Indemnifying Parties and to each person, if any, who controls any
Indemnifying Parties within the meaning of the Securities Act.
15
<PAGE>
SECTION 9. RULE 144A
Each of the Issuer and the Guarantors hereby agrees with each Holder, for
so long as any Transfer Restricted Notes remain outstanding and during any
period in which the Issuer or any Guarantor is not subject to Section 13 or
15(d) of the Exchange Act, to make available, upon request of any Holder of
Transfer Restricted Notes, to any Holder or beneficial owner of Transfer
Restricted Notes in connection with any sale thereof and any prospective
purchaser of such Transfer Restricted Notes designated by such Holder or
beneficial owner, the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Transfer Restricted Notes
pursuant to Rule 144A.
SECTION 10. MISCELLANEOUS
(a) Remedies. Each of the Issuer and the Guarantors acknowledge and agree
--------
that each Holder, in addition to being entitled to exercise all rights provided
herein, in the Indenture, the Purchase Agreement or granted by law, including
the recovery of Liquidated Damages, will be entitled to specific performance of
its rights under this Agreement. The Issuer and the Guarantors agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of a breach by them of the provisions of this Agreement and hereby agree
to waive the defense in any action for specific performance that a remedy at law
would be adequate.
(b) No Inconsistent Agreements. Neither the Issuer nor the Guarantors
--------------------------
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Issuer nor the Guarantors has previously entered into any agreement
granting any registration rights with respect to its securities to any Person.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Issuer's and
the Guarantors' securities under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not be
----------------------
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Issuer has obtained the written consent of
Holders of all outstanding Transfer Restricted Notes and (ii) in the case of all
other provisions hereof, the Issuer has obtained the written consent of Holders
of a majority of the outstanding principal amount of Transfer Restricted Notes
(excluding Transfer Restricted Notes held by the Issuer or its Affiliates).
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of Holders whose
securities are being tendered pursuant to the Exchange Offer, and that does not
affect directly or indirectly the rights of other Holders whose securities are
not being tendered pursuant to such Exchange Offer, may be given by the Holders
of a majority of the outstanding principal amount of Transfer Restricted Notes
subject to such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
-----------------------
beneficiaries to the agreements made hereunder between the Issuer and the
Guarantors, on the one hand, and the Purchaser, on the other hand, and shall
have the right to enforce such agreements directly to the extent they may deem
such enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
16
<PAGE>
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Issuer or the Guarantors:
Caithness Coso Funding Corp.
1114 Avenue of the Americas
New York, New York 10036-7790
Fax: (212) 921-9239
Attention: Chief Financial Officer
With a copy to:
Riordan & McKinzie
300 South Grand Avenue, 29th Floor
Los Angeles, CA 90071
Fax: (212) 229-8550
Attention: Thomas L. Harnsberger, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next Business Day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of initial filing of the Exchange Offer Registration
Statement or a Shelf Registration Statement, as the case may be, notice shall be
delivered to Donaldson, Lufkin & Jenrette Securities Corporation, on behalf of
the Purchaser (in the form attached hereto as Exhibit A) and shall be addressed
to: Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New
York, New York 10172, Attention: Syndicate Department.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Notes; provided, that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Transfer
Restricted Notes in violation of the terms hereof or of the Purchase Agreement
or the Indenture. If any transferee of any Holder shall acquire Transfer
Restricted Notes in any manner, whether by operation of law or otherwise, such
Transfer Restricted Notes shall be held subject to all of the terms of this
Agreement, and by taking and holding such Transfer Restricted Notes such Person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement, including the restrictions on resale
set forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof; provided, that this
Agreement shall not inure to the benefit of or be binding upon a successor or
assignee of a Holder unless and to the extent such successor or assignee of
Holder acquired Transfer Restricted Notes from such Holder.
17
<PAGE>
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a final
----------------
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Notes. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
CAITHNESS COSO FUNDING CORP.
By: /s/ Christopher T. McCallion
--------------------------------
Name: Christopher T. McCallion
Title: Executive Vice President
COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
2
<PAGE>
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Jared C. Felt
----------------------
Name: Jared C. Felt
Title: Vice President
3
<PAGE>
Exhibit 10.1
DEPOSIT AND DISBURSEMENT AGREEMENT
among
CAITHNESS COSO FUNDING CORP.,
COSO FINANCE PARTNERS,
COSO ENERGY DEVELOPERS,
COSO POWER DEVELOPERS,
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent,
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Trustee
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Depositary
Dated as of May 28, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I............................................................... 2
SECTION 1.1. Capitalized Terms....................................... 2
SECTION 1.2. Definitions; Construction............................... 2
ARTICLE II.............................................................. 7
SECTION 2.1. Acceptance of Appointment of Depositary................. 7
SECTION 2.2. Establishment of Funds and Sub-Funds.................... 7
SECTION 2.3. Security Interest....................................... 8
SECTION 2.4. Termination............................................. 9
ARTICLE III............................................................. 9
SECTION 3.1. Revenue Account......................................... 9
SECTION 3.2. Principal Account....................................... 12
SECTION 3.3. Interest Account........................................ 12
SECTION 3.4. Debt Service Reserve Account............................ 13
SECTION 3.5. Capital Expenditure Reserve Account..................... 14
SECTION 3.6. Operating and Maintenance Fees Account.................. 15
SECTION 3.7. Management Fees Account................................. 15
SECTION 3.8. Distribution Account.................................... 15
SECTION 3.9. Distribution Suspense Account........................... 17
SECTION 3.10. Loss Proceeds Account................................... 17
SECTION 3.11. Redemption Account...................................... 20
SECTION 3.12. Investment of Accounts.................................. 21
SECTION 3.13. Disposition of Accounts Upon Retirement of Senior Secured
Notes and Additional Senior Secured Notes............... 22
SECTION 3.14. Account Balance Statements.............................. 23
SECTION 3.15. Events of Default....................................... 23
SECTION 3.16. Accounts Maintained as UCC "Securities Accounts"........ 23
ARTICLE IV.............................................................. 24
SECTION 4.1. Depositary, Powers and Immunities....................... 24
SECTION 4.2. Reliance by Depositary.................................. 25
SECTION 4.3. Court Orders............................................ 26
SECTION 4.4. Resignation or Removal.................................. 26
ARTICLE V............................................................... 27
SECTION 5.1. Expenses................................................ 27
SECTION 5.2. Indemnification......................................... 27
SECTION 5.3. Fees.................................................... 27
ARTICLE VI.............................................................. 27
SECTION 6.1. Amendments; Etc......................................... 27
SECTION 6.2. Addresses for Notices................................... 27
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 6.3. Governing Law........................................... 29
SECTION 6.4. Headings................................................ 29
SECTION 6.5. No Third Party Beneficiaries............................ 29
SECTION 6.6. No Waiver............................................... 29
SECTION 6.7. Severability............................................ 29
SECTION 6.8. Successors and Assigns.................................. 29
SECTION 6.9. Execution in Counterparts............................... 29
SECTION 6.10. Consequential Damages................................... 30
SECTION 6.11. Limitation of Liability................................. 30
SECTION 6.12. Regarding the Collateral Agent.......................... 31
</TABLE>
ii
<PAGE>
This DEPOSIT AND DISBURSEMENT AGREEMENT (this "Depositary Agreement")
--------------------
dated as of May 28, 1999 among Caithness Coso Funding Corp., a Delaware
corporation (the "Funding Corporation"), Coso Finance Partners, a California
-------------------
general partnership ("Navy I"), Coso Energy Developers, a California general
------
partnership ("BLM"), Coso Power Developers, a California general partnership
---
("Navy II" and, collectively with Navy I and BLM, the "Guarantors"), U.S. Bank
------- ----------
Trust National Association, in its capacity as Collateral Agent (together with
its successors and permitted assigns in such capacity, the "Collateral Agent")
----------------
and in its capacity as Trustee, and U.S. Bank Trust National Association, in its
capacity as depositary and, as set forth in Section 3.16 hereof, as securities
intermediary (together with its successors and permitted assigns in such
capacity, the "Depositary") for the benefit of the holders of all senior secured
---------
notes issued pursuant to the Indenture (as defined below) (the "Senior Secured
--------------
Notes") and all other Permitted Additional Senior Lenders (as defined in the
- -----
Indenture).
RECITALS
A. The Guarantors each own geothermal power plants located in Inyo
County, California, known as Navy I, BLM and Navy II (collectively, the
"Projects").
--------
B. The Funding Corporation is a corporation established for the sole
purpose of issuing the Senior Secured Notes under the Indenture dated as of the
date hereof (the "Indenture") among the Funding Corporation, the Guarantors and
---------
U.S. Bank Trust National Association in its capacity as Trustee (the "Trustee"),
-------
and making loans from the proceeds of the Senior Secured Notes to the
Guarantors.
C. The Funding Corporation has entered into separate Credit Agreements,
each dated the date hereof (collectively, the "Credit Agreements"), with each of
-----------------
the Guarantors.
D. Pursuant to the Indenture and the Credit Agreements, the proceeds of
the Senior Secured Notes will be loaned to the Guarantors for the purposes and
in the amounts as described in the Credit Agreements.
E. The Guarantors have guaranteed to the Trustee the payment of amounts
due from the Funding Corporation under the Indenture with respect to the Senior
Secured Notes.
F. The Senior Secured Notes will be secured by the capital stock of the
Funding Corporation and entitled to the benefits of the Guarantees.
G. The Guarantees will be secured, among other things, by a senior first
priority Lien on substantially all of the assets of the Guarantors and a pledge
of the partnership interests of the Guarantors.
H. The Collateral Agent, the Funding Corporation and the Guarantors
desire to appoint U.S. Bank Trust National Association as the Depositary to hold
and administer money deposited in the various accounts established pursuant to
this Depositary Agreement and funded with, among other things, revenues received
by the Guarantors from the Projects and proceeds of insurance and condemnation.
1
<PAGE>
AGREEMENT
In consideration of the premises and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I.
Definitions
-----------
SECTION 1.1. Capitalized Terms.
-----------------
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Indenture.
SECTION 1.2. Definitions; Construction.
-------------------------
For all purposes of this Depositary Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(a) all terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all references in this Depositary Agreement to designated
"Articles," "Sections," "Exhibits" and other subdivisions are to the designated
Articles, Sections, Exhibits and other subdivisions of this Depositary
Agreement;
(c) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Depositary Agreement as a whole and not to any
particular Article, Section or other subdivision;
(d) unless otherwise expressly specified, any agreement, contract or
document defined or referred to herein shall mean such agreement, contract or
document as in effect as of the date hereof, as the same may thereafter be
amended, restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof and of the Indenture and the other Financing
Documents and including any agreement, contract or document in substitution or
replacement of any of the foregoing;
(e) unless the context clearly intends to the contrary, pronouns
having a masculine or feminine gender shall be deemed to include the other; and
(f) any reference to any Person shall include its successors and
assigns.
"Account Collateral" has the meaning specified in Section 2.3 hereof.
------------------
"Accounts" has the meaning specified in Section 2.2.
--------
"Administrative Costs" means all obligations of the Funding
--------------------
Corporation and the Guarantors, now or hereafter existing, to pay administrative
fees, costs and expenses to any trustee or agent of the holders of the Senior
Secured Notes and any Permitted Additional Senior Lender, including the
Collateral Agent, the Depositary and the Trustee (including, without limitation,
the reasonable fees and expenses of counsel, agents and experts).
C-2
<PAGE>
"Allocation Certificate" means each certificate provided by the
----------------------
Funding Corporation, one of the Guarantors, or, the Trustee, as applicable,
setting forth the allocation of Loss Proceeds, Eminent Domain Proceeds, Title
Event Proceeds, proceeds resulting from a Permitted Power Contract Buy-Out, or
cash proceeds resulting from liquidation of the Collateral (to the extent the
Obligations of such Holders of the Senior Secured Notes or other Senior
Indebtedness may be redeemed or prepaid from such amounts under the Indenture).
"CPI Adjustment" means an amount equal to (i) $2.0 million plus the
--------------
amount of all previous annual adjustments pursuant to this definition multiplied
by (ii) the percentage change from the previous year in the annual average
consumer price index as published by the Bureau of Labor Statistics of the
United States Department of Labor in the "Consumer Price Index for All Urban
Consumers, 1982-1984 = 100, All Cities, % change past year' under the column Yr.
Avg.'"; provided that for purposes of calculating the CPI Adjustment, the most
recently ended calendar year prior to the date of determination shall be used;
and provided, further, the CPI Adjustment for the twelve months ended December
30, 1999, shall be zero. If the Bureau of Labor Statistics shall no longer
publish such statistics, or if the Bureau of Labor Statistics shall no longer
maintain any statistics on the purchasing power of the consumer dollar,
comparable statistics published by a reasonable financial periodical or
recognized authority mutually agreed upon by the Issuer and the Trustee shall be
used to determine the CPI Adjustment.
"Creditors" means the Trustee, the Collateral Agent and the
---------
Depositary.
"Debt Service Coverage Ratio" means for any period, without
---------------------------
duplication, the ratio of (i) (A) the sum of all revenues (including interest
and fee income but excluding any insurance proceeds and all other similar non-
recurring receipts in an aggregate amount in excess of $2.0 million in any
twelve-month period) of the Coso Partnerships for such period, minus (B) the
aggregate amount of Operating and Maintenance Costs of the Coso Partnerships for
such period, minus (C) all Capital Expenditures during such period to (ii) the
sum of (A) all principal, premium (if any) and interest payable with respect to
Permitted Indebtedness outstanding (other than Subordinated Indebtedness) for
such period, plus (B) the aggregate amount of overdue principal, premium (if
any) and interest payments owed with respect to Permitted Indebtedness
outstanding (other than Subordinated Indebtedness) from previous periods; all as
determined on a cash basis in accordance with GAAP.
"Debt Service Reserve Account" means the Account of such name
----------------------------
established pursuant to Section 2.2.
"Debt Service Reserve Letter of Credit" one or more irrevocable,
-------------------------------------
direct pay letters of credit issued by the Debt Service Reserve LOC Provider in
favor of the Depositary where the account party is not the Funding Corporation
and/or Guarantors.
"Debt Service Reserve Letter of Credit Provider" means the commercial
----------------------------------------------
bank(s) or financial institution(s) issuing the Debt Service Reserve Letter of
Credit, which institution shall be rated not less than A by S&P and A2 by
Moody's.
"Debt Service Reserve Required Balance" means, on the Closing Date,
-------------------------------------
$50,000,000, and thereafter an amount equal to the aggregate amount of the
principal and interest due on the Senior Secured Notes on the next succeeding
semi-annual scheduled Principal Payment Date.
C-3
<PAGE>
"Distribution Account" means the Account of such name established
--------------------
pursuant to Section 2.2.
"Distribution Suspense Account" means the Account established pursuant
-----------------------------
to Section 2.2.
"Final Maturity Date" means the latest stated maturity date of any
-------------------
series of the Senior Secured Notes.
"Funding Date" means any day from the 10th through the 15th day of
------------
each month, as determined by the Funding Corporation or any Guarantor in an
officer's certificate received by the Depositary at least three (3) Business
Days prior to such Funding Date, provided that there shall only be a single
Funding Date for any month (except in the case of an immediate need to pay
Operating and Maintenance Costs referred to below), or if no earlier date is so
determined, then the 15th day of each month, or in each case if such day is not
a Business Day the next succeeding Business Day, or in the case of an immediate
need to pay Operating and Maintenance Costs, any Business Day of the month;
provided that notice of such funding shall have been provided to Depositary at
least one Business Day prior to such Funding Date.
"Indemnified Depositary Party" has the meaning specified in Section
----------------------------
5.2.
"Interest Account" means the Account of such name established pursuant
----------------
to Section 2.2.
"Interest Payment Date" means with respect to any Senior Secured Note,
---------------------
each June 15, and December 15, commencing on December 15, 1999, and concluding
on the Final Maturity Date.
"Loss Proceeds Account" means the Account of such name established
---------------------
pursuant to Section 2.2.
"Mandatory Redemption Sub Account" means the Account of such name
--------------------------------
established pursuant to Section 2.2.
"Non-Budgeted Operating and Maintenance Costs Certificate" has the
--------------------------------------------------------
meaning specified in Section 3.1.
"Operating and Maintenance Costs" means, for any period, all amounts
-------------------------------
disbursed by or on behalf of the Guarantors for operation, maintenance
(excluding, after the first Interest Payment Date, Capital Expenditures),
administration, repair or improvement of their Projects including, without
limitation, premiums on insurance policies, property and other taxes, and
payments under the relevant operating and maintenance agreements, leases,
royalty and other land use agreements, fees, expenses, and any other payments
required under the Project Documents (excluding the Operating and Maintenance
Fees and the Management Fees).
"Operators" shall mean, collectively, Coso Operating Company, a
---------
Delaware limited liability company, and FPL Energy Operating Services, Inc., a
Florida corporation, or any other entity in substitution therefor providing
operating and maintenance services for any or all of the Projects pursuant to
one or more operations and maintenance agreements entered into with any or all
of the Guarantors.
"Permitted Investments" means an Investment in any of the following:
---------------------
(i) direct obligations of the Department of the Treasury of the United
States of America;
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(ii) obligations, representing full faith and credit of the United States of
America, including any of the following federal agencies: Export-Import
Bank, Farmers Home Administration, General Services Administration, U.S.
Maritime Administration, Small Business Administration, Government
National Mortgage Association (GNMA), U.S. Department of Housing & Urban
Development (PHA's) and Federal Housing Administration;
(iii) obligations issued or fully guaranteed by any state of the United States
of America or any political subdivision of any such state or any public
instrumentality thereof and, at the time of the acquisition, having one
of the two highest ratings obtainable from either S&P or Moody's;
(iv) certificates of deposit and eurodollar time deposits, bankers'
acceptances and overnight bank deposits, in each case with any domestic
or foreign commercial bank having capital and surplus in excess of
$250.0 million;
(v) notes, bonds, collaterized mortgage obligations or other evidences of
indebtedness rated "AAA" by S&P and "Aaa" by Moody's issued by the
Federal Home Loan Bank, the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation;
(vi) commercial paper rated in any one of the two highest rating categories
by Moody's or S&P;
(vii) investment agreements with banks (foreign and domestic), broker/dealers,
and other financial institutions rated at the time of bid in any one of
the three highest rating categories by Moody's and S&P;
(viii) repurchase agreements with banks (foreign and domestic), broker/dealers,
and other financial institutions rated at the time of bid in any one of
the three highest rating categories by Moody's and S&P, provided, (A)
collateral is limited to the securities specified in clauses (i) through
(v) above, (B) the margin levels for collateral must be maintained at a
minimum of 102% including principal and interest, (C) the Trustee shall
have a first perfected security interest in the collateral, (D) the
collateral will be delivered to a third party custodian, designated by
the Funding Corporation, acting for the benefit of the Trustee and all
fees and expenses related to collateral custody will be the
responsibility of the Funding Corporation, (E) the collateral must have
been or will be acquired at the market price and marked to market weekly
and collateral level shortfalls cured within 24 hours, (F) unlimited
right of substitution of collateral is allowed provided that
substitution collateral must be permitted collateral substituted at a
current market price and substitution fees of the custodian shall be
paid by the Funding Corporation;
(ix) asset-backed securities having the highest rating obtainable for such
type of security from either S&P or Moody's;
(x) forward purchase agreements delivering securities specified in clauses
(i) and (vi) above with banks (foreign and domestic), broker/dealers,
and other financial institutions maintaining a long-term rating on the
day of bid no lower than investment grade by both S&P and Moody's (such
rating may be at either the parent or subsidiary level); and
(xi) money market funds rated "AAAm" or "AAAm-G" or better by S&P and other
financial funds investing exclusively in investments of the types
described in clauses (i) through this clause (xi) of this definition. It
is expressly understood and agreed that neither the Depositary nor the
Collateral Agent shall have any obligation or liability in determining
whether any particular
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investment is a "Permitted Investment."
"Principal Account" means the Account of such name established
-----------------
pursuant to Section 2.2.
"Principal Payment Date" means with respect to any Senior Secured
----------------------
Note, the date on which all or a portion of the principal of such Senior Secured
Note becomes due and payable as provided therein or in the Indenture, whether on
a scheduled date for payment of principal at a Redemption Date, the Final
Maturity Date, a date of declaration of acceleration, or otherwise.
"Redemption Account" has the meaning specified in Section 2.2.
------------------
"Requisition" means a Non-Budgeted Operating and Maintenance Costs
-----------
Certificate, a Restoration Requisition or a Title Event Requisition.
"Responsible Officer" means (a) the chief executive officer,
-------------------
president, chief financial officer, general counsel, principal accounting
officer, treasurer, or any vice president of Funding Corporation or any
Guarantor, as applicable, (b) with respect to knowledge of any default under the
Indenture or the Credit Agreement, the chief executive officer, president, chief
financial officer, general counsel, principal accounting officer, treasurer, or
any vice president of the Funding Corporation or any Guarantor, as applicable,
or other officer of such corporation who in the normal performance of his or her
operational duties would have knowledge of the subject matter relating to such
default or (c) when used with respect to the Depositary or the Collateral Agent,
any officer within the corporate trust office, currently located at One
California Street, Fourth Floor, San Francisco, California 94111, including any
Managing Director, Vice President, Assistant Vice President, Secretary,
Assistant Secretary or Assistant Treasurer or any other officer of the
Depositary or the Collateral Agent customarily performing functions similar to
those performed by any of the above designated officers and also, with respect
to a particular matter, any other officer to whom such matter is referred
because of such officer's knowledge and familiarity with the particular subject.
"Restoration Budget" has the meaning specified in Section 3.10.
------------------
"Restoration Progress Payment Schedule" has the meaning specified in
-------------------------------------
Section 3.10.
"Restoration Requisition" has the meaning specified in Section 3.10.
-----------------------
"Restoration Sub-Account" means the Account of such name established
-----------------------
pursuant to Section 2.2.
"Revenue Account" means the Account of such name established pursuant
---------------
to Section 2.2.
"Senior Indebtedness" means all of the Permitted Indebtedness of
-------------------
Funding Corporation other than Subordinated Indebtedness and all Permitted
Guarantor Indebtedness (other than Permitted Guarantor Indebtedness incurred as
an advance of proceeds of or guarantee of Subordinated Indebtedness).
"Title Event Requisition" has the meaning specified in Section 3.10.
-----------------------
"Title Event Sub-Account" means the Account of such name established
-----------------------
pursuant to Section 2.2.
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"Title Policy" means the policy or policies of title insurance
------------
required pursuant to the Credit Agreements.
"Trigger Event Date" has the meaning specified in Section 3.15.
------------------
"Withdrawal Certificate" shall mean a certificate signed by a
----------------------
Responsible Officer of Funding Corporation or of the management committee of any
Guarantor, or in the case of a withdrawal from the Revenue Account to pay
Operating and Maintenance Costs, or Capital Expenditures as applicable, signed
by a Responsible Officer of the Operator or the management committee of any
Guarantor.
ARTICLE II.
Appointment of Depositary; Establishment of Accounts
----------------------------------------------------
SECTION 2.1. Acceptance of Appointment of Depositary.
---------------------------------------
(a) The Depositary hereby agrees to act as such and to accept all
cash, payments, other amounts and Permitted Investments to be delivered to or
held by the Depositary pursuant to the terms of this Depositary Agreement and
the Indenture. The Depositary shall hold and safeguard the Accounts during the
term of this Depositary Agreement and shall treat the cash, instruments and
notes in the Accounts as monies, instruments and securities pledged by the
Guarantors to the Trustee for the benefit of the holders of the Senior Secured
Notes and any Permitted Additional Senior Lenders to be held in the custody of
the Depositary, as agent solely for the Trustee, in accordance with the
provisions of this Depositary Agreement. Until such time as the Senior Secured
Notes and Senior Indebtedness have been fully repaid or, provision for such
payment has been made in accordance with the provision of Section 7.04(a) of the
Indenture, in performing its functions and duties under this Depositary
Agreement, the Depositary shall act solely as agent for the and the Trustee and,
except in such capacity, does not assume and shall not be deemed to have assumed
any obligation toward or relationship of agency or trust with or for the Funding
Corporation or any of the Guarantors.
(b) Neither the Funding Corporation nor any of the Guarantors shall
have any rights against or to monies held in the Accounts, including, without
limitation, any rights to give entitlement orders with respect to monies held in
the Accounts, as third party beneficiary or otherwise, except the right to
receive or make requisitions of monies held in the Accounts, as permitted by
this Depositary Agreement and the Indenture, and to direct the investment of
monies held in the Accounts as permitted by Section 3.12.
SECTION 2.2. Establishment of Funds and Sub-Funds.
------------------------------------
The Depositary hereby establishes the following accounts (the
"Accounts") in the form of non-interest bearing securities accounts and sub-
- ---------
accounts thereof, of which the Guarantors and Funding Corporation, jointly and
severally, shall be the entitlement holder, and which shall be maintained at all
times until the termination of this Depositary Agreement:
(a) an account entitled the "Caithness Coso Revenue Account", account
#95463660 (the "Revenue Account")
(b) an account entitled the "Caithness Coso Principal Account",
account #95463672 (the "Principal Account");
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(c) an account entitled the "Caithness Coso Interest Account",
account #95463673 (the "Interest Account");
(d) an account entitled the "Caithness Coso Debt Service Reserve
Account", account #95463663 (the "Debt Service Reserve Account");
(e) an account entitled the "Caithness Coso Capital Expenditure
Reserve Account", account #95463674 (the "Capital Expenditure
Reserve Account");
(f) an account entitled the "Caithness Coso Operating and Maintenance
Fees Account", account #95463675 (the "Operating and Maintenance
Fees Account");
(g) an account entitled the "Caithness Coso Management Fees Account",
account #95463666 (the "Management Fees Account");
(h) an account entitled the "Caithness Coso Distribution Account",
account #95463667 (the "Distribution Account");
(i) an account entitled the "Caithness Coso Distribution Suspense
Account", account #95463668 (the "Distribution Suspense
Account");
(j) an account entitled the "Caithness Coso Loss Proceeds Account",
account #95463669 (the "Loss Proceeds Account"); and
(k) an account entitled the "Caithness Coso Redemption Account",
account #95463671 (the "Redemption Account").
The accounts referred to in clauses (b), (c), (h) and (i) are not
required to be separate accounts but may be maintained as sub-accounts of the
Revenue Account. For administrative purposes, the Depositary shall be permitted
to establish sub-accounts as separate non-interest bearing trust accounts.
The following two sub-accounts are hereby established and created
within the Loss Proceeds Account:
(i) Restoration Sub-Account; and
(ii) Title Event Sub-Account.
The following sub-account is hereby established and created within the
Redemption Account:
(i) Mandatory Redemption Sub Account.
Certain additional sub-accounts within certain of the Accounts may be
established and created from time to time in accordance with this Depositary
Agreement.
All amounts from time to time held in each Account shall be held (a)
in the name of the Depositary, as agent for the Collateral Agent for the benefit
of the holders of the Senior Secured Notes and the Permitted Additional Senior
Lenders, if any, and (b) in the sole custody and control of the Depositary for
the purposes and on the terms set forth in this Depositary Agreement and the
Indenture and all such amounts shall constitute a part of the Collateral and
shall not constitute payment of any Senior Indebtedness or any other obligation
of the Funding Corporation or any Guarantor until applied as hereinafter
provided.
SECTION 2.3. Security Interest.
-----------------
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As collateral security for the prompt and complete payment and
performance when due of all its obligations under the Security Documents to
which it is a party, each Guarantor and Funding Corporation hereby grants to the
Trustee for the benefit of the holders of the Senior Secured Notes and the
Permitted Additional Senior Lenders, if any, a Lien on and security interest in
and to, (i) each Account and (ii) all cash, investments and securities at any
time on deposit in any Account, including all income or gain earned thereon and
any proceeds thereof (collectively, the "Account Collateral"). The Depositary
------------------
shall be the agent of the Trustee for the purpose of receiving payments
contemplated hereunder and for the purpose of perfecting the Lien of the Trustee
for the benefit of the holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any, in and to the Accounts and all cash,
investments and securities and any proceeds thereof at any time on deposit in
the Accounts; provided that the Depositary shall not be responsible to take any
action to perfect such Lien except through the performance of its express
obligations hereunder or upon the written direction of the Trustee complying
with this Depositary Agreement. Each of the Accounts shall at all times be in
the exclusive possession of, and under the exclusive domain and control of, the
Depositary, as agent for the Trustee.
SECTION 2.4. Termination.
-----------
This Depositary Agreement shall remain in full force and effect until
the later of (i) the date on which all Senior Secured Notes and Senior
Indebtedness have been fully repaid or, in the case of the Senior Secured Notes,
provision for such payment has been made in accordance with the provisions of
Section 7.04(a) of the Indenture, (ii) the termination of the Indenture pursuant
to Article 8 thereof, or (iii) the date on which the actions contemplated by
Section 3.13(b) have been taken.
ARTICLE III.
The Funds
SECTION 3.1. Revenue Account.
---------------
(a) The following amounts shall (subject to Section 3.8 hereof) be
deposited into the Revenue Account directly, or if received by a Guarantor, as
soon as practicable upon receipt, in either case in accordance with this Section
3.1(a):
(i) all revenues or other proceeds actually received by the
Guarantors from the Projects (including, without limitation, payments under the
Power Purchase Agreements);
(ii) to the extent amounts in the Debt Service Reserve Account equal
the Debt Service Reserve Required Balance, the income, if any, from the
investment of the monies in such Account pursuant to Section 3.12; and
(iii) all amounts required to be transferred to the Revenue Account
from any other Accounts as contemplated under this Depositary Agreement.
If any of the foregoing amounts required to be deposited with the Depositary in
accordance with the terms of this Depositary Agreement are received by the
Guarantors (or any Affiliate of a Guarantor), such Guarantor shall (or shall
cause any such Affiliate to) hold such payments in trust for the Trustee and
shall promptly remit such payments to the Depositary for deposit in the Revenue
Account, in the form received, with any necessary endorsements.
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<PAGE>
(b) In the event the Depositary receives monies without adequate
instruction with respect to the proper Account in which such monies are to be
deposited, the Depositary shall deposit such monies into the Revenue Account and
segregate such monies from all other amounts on deposit in the Revenue Account
and notify the Guarantors of the receipt of such monies. Upon receipt of written
instructions from a Guarantor, the Depositary shall transfer such monies from
the Revenue Account to the Account specified by such instructions as long as
such transfer is in accordance with Section 3.1(c) this Agreement.
(c) The Funding Corporation and each Guarantor hereby irrevocably
authorize the Depositary to make withdrawals and transfers of monies on each
Funding Date (via wire transfer or by internal transfer between Accounts and/or
sub-accounts, if applicable) to the extent then available in the Revenue
Account, upon the delivery of a Withdrawal Certificate of any such Guarantor or
the Funding Corporation (or any of their duly authorized agents for such
purposes) to the Depositary three Business Days prior to the Funding Date
setting forth the amounts to be withdrawn from the Revenue Account and the
amounts to be transferred pursuant to this clause (c) pursuant to the terms of
this Depositary Agreement in the following order of priority all in accordance
with such Withdrawal Certificate:
(i) First: As and when required, to pay when due the amount
of Operating and Maintenance Costs of any Guarantor or the Funding
Corporation or otherwise in respect of any of the Projects as set forth in
a Withdrawal Certificate and certified in such Withdrawal Certificate to be
the good faith estimate of the amounts payable for Operating and
Maintenance Costs during the period commencing on the first day of the next
calendar month and ending on the last day of such month, and stating that
the proviso immediately below does not apply to such withdrawal; provided
that if the aggregate cumulative Operating and Maintenance Costs of all
Guarantors in any fiscal year, including the amounts set forth in such
Withdrawal Certificate, exceed the aggregate projected Operating and
Maintenance Costs in the applicable annual Operating Budget of the
Guarantors by more than 25%, then no amounts may be withdrawn on behalf of
the Guarantors to pay such Operating and Maintenance Costs that exceed the
Operating and Maintenance Costs in the Operating Budget by more than 25%
unless there shall be filed with the Depositary:
(A) a certificate of the Guarantors substantially in the form
attached hereto as Exhibit A (the "Non-Budgeted Operating
----------------------
and Maintenance Costs Certificate") including, without
---------------------------------
limitation, a representation that such additional non-
budgeted costs are reasonably designed to permit such
Guarantor to satisfy its obligations in respect of its
Partnership Note and maximize its revenue and net income;
and
(B) an Independent Engineer's Certificate, in substantially
the form attached as Appendix I to Exhibit A, dated not
more than three Business Days prior to such requested
Funding Date, certifying that the excess Operating and
Maintenance Costs are prudent and reasonable;
Costs may be (i) transferred directly by the Depositary to the
recipient to which such Operating and Maintenance Costs are due or (ii)
transferred by the Depositary to an account specified in the Withdrawal
Certificate which such account is under the control of any of Funding
Corporation or the Guarantors and used for the payment of such Operating
and Maintenance Costs;
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<PAGE>
(ii) Second: After making each applicable withdrawal and
transfer specified in clause (i) above, withdraw and transfer from the
Revenue Account, to the Depositary, the Trustee, any Permitted Additional
Senior Lender and the Collateral Agent, any amounts set forth in a
Withdrawal Certificate of the Funding Corporation or any Guarantor then due
and payable to each of them as Administrative Costs; provided, however,
that if funds in the Revenue Account are insufficient on any date to make
the payments specified in this clause (ii), distribution of funds shall be
made ratably to the specified recipients based on the respective amounts
owed such recipients;
(iii) Third: After making each applicable withdrawal and
transfer specified in clauses (i) and (ii) above, transfer an amount set
forth in a Withdrawal Certificate of the Funding Corporation or any
Guarantor from the Revenue Account (A) to the Interest Account an amount
which, together with the amount then in such Account, equals all of the
interest due or becoming due on the Senior Secured Notes and (without
duplication) the Partnership Notes, on the next succeeding Interest Payment
Date; (B) to the Principal Account an amount which, together with the
amount then in such Account, equals all of the principal and premium and
Liquidated Damages (if any) due or becoming due on the Senior Secured Notes
and (without duplication) the Partnership Notes, on the next succeeding
Principal Payment Date; (C) to a sub-account within the Principal Account
an amount which, together with the amounts then in such sub-account, equals
all of the principal due or becoming due on any Senior Indebtedness within
the succeeding six month period; and (D) to a sub-account within the
Interest Account an amount which, together with the amounts then in such
sub-account, equals all of the interest due or becoming due on any Senior
Indebtedness within the succeeding six month period (except to the extent
that Senior Indebtedness is otherwise available to pay such interest);
provided, however, that if monies in the Revenue Account are insufficient
on any date to make the transfers specified in this clause (iii),
distribution of monies shall be made ratably to the specified Accounts
based on the respective amounts owed such Accounts;
(iv) Fourth: After making each applicable withdrawal and
transfer specified in clauses (i) through (iii) above, transfer, if the
amount available to be drawn under the Debt Service Reserve Letter of
Credit is less than the Debt Service Reserve Required Balance, to the Debt
Service Reserve Account an amount as necessary to fund the Debt Service
Reserve Account so that the sum of the amount available to be drawn under
the Debt Service Reserve Letter of Credit plus the balance in the Debt
Service Reserve Account equals the Debt Service Reserve Required Balance;
(v) Fifth: After making each applicable withdrawal and
transfer specified in clauses (i) through (iv) above, transfer to the
Capital Expenditure Reserve Account, an amount necessary to cause the
balance thereof to be equal to the Capital Expenditure Reserve Required
Balance;
(vi) Sixth: After making each applicable withdrawal and
transfer specified in clauses (i) through (v) above, transfer to the
Operating and Maintenance Fees Account an amount necessary for the payment
of Operating and Maintenance Fees then due and owing;
(vii) Seventh: After making each applicable withdrawal and
transfer specified in clauses (i) through (vi) above, transfer to the
Management Fees Account an amount necessary for the payment of the
Management Fees then due and owing;
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(viii) Eighth: After making each applicable withdrawal and
transfer specified in clauses (i) through (vii) above, transfer any
remaining amounts to the Distribution Account; and
(ix) Ninth: After making each applicable withdrawal and
transfer specified in clauses (i) through (viii) above, transfer, any
amounts in the Distribution Account which cannot be distributed because of
the failure to satisfy certain conditions to distributions, to the
Distribution Suspense Account.
The Funding Corporation, the Guarantors, the Trustee, the Collateral
Agent and the Depositary hereby acknowledge that amounts paid by the Guarantors
and transferred to the Principal Account, the Interest Account and the
Redemption Account pursuant to the terms hereof and applied by the Depositary
for payment of principal, premium, if any, and interest owed from time to time
on the Senior Secured Notes shall reduce by the amount paid by each such
Guarantor the outstanding principal, premium, if any, and interest on the
respective Partnership Note of such Guarantor.
SECTION 3.2. Principal Account.
-----------------
(a) Except as otherwise provided in this Depositary Agreement, monies
deposited in the Principal Account on any Funding Date shall be allocated
ratably among sub-accounts of the Principal Account established for payment of
(i) the Senior Secured Notes, (ii) Liquidated Damages, if any and (iii) Senior
Indebtedness based on the principal and premium, if any, with respect to the
Senior Secured Notes and such other Senior Indebtedness when due and payable
(whether at the Principal Payment Date or otherwise).
(b) On any date that amounts for the payment of principal of and
premium, if any, and Liquidated Damages, if any, on the Senior Secured Notes and
(without duplication) any Partnership Note and any Senior Indebtedness are due
and payable and for which a Withdrawal Certificate has been delivered in
accordance with Section 3.1(c) (or if such day is not a Business Day, then on
the next succeeding Business Day), the Depositary shall withdraw the monies on
deposit in the relevant sub-account of the Principal Account, and remit such
monies to the Persons entitled thereto for the payment of such principal and
premium, if any; provided, however, that the Depositary shall segregate such
amounts from any other amounts on deposit in the Principal Account until such
time as payment is made to Persons entitled thereto.
(c) In the event that monies in the Principal Account exceed the
amount of money required by this Depositary Agreement to be deposited therein,
the Depositary shall transfer such excess monies from the Principal Account to
the Revenue Account on the Business Day following the next Funding Date.
SECTION 3.3. Interest Account.
----------------
(a) Except as otherwise provided in this Depositary Agreement, monies
deposited in the Interest Account on any Funding Date shall be allocated ratably
among sub-accounts of the Interest Account established for the payment of (i)
the Senior Secured Notes and (ii) Senior Indebtedness based on the interest
with respect to the Senior Secured Notes or such other Senior Indebtedness when
due and payable (whether at the Interest Payment Date or otherwise).
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<PAGE>
(b) On any date that amounts for the payment of interest on the Senior
Secured Notes and (without duplication) any Partnership Note and the Senior
Indebtedness are due and payable and for which a Withdrawal Certificate has been
delivered in accordance with Section 3.1(c) (or if such day is not a Business
Day, then on the next succeeding Business Day), the Depositary shall withdraw
the monies on deposit in the relevant sub-account of the Interest Account, and
remit such monies to the Persons entitled thereto for the payment of such
interest, as requisitioned pursuant to Section 3.1(c); provided, however, that
the Depositary shall segregate such amounts from any other amounts on deposit in
the Interest Account until such time as payment is made to Persons entitled
thereto.
(c) In the event that monies in the Interest Account exceed the
amount of money required by this Depositary Agreement to be deposited therein,
the Depositary shall transfer such excess monies from the Interest Account to
the Revenue Account on the Business Day following the next Funding Date.
SECTION 3.4. Debt Service Reserve Account.
----------------------------
(a) The Debt Service Reserve Account shall be initially funded as of
the date of this Depositary Agreement with proceeds from the sale of the Senior
Secured Notes in an amount equal to the Debt Service Reserve Required Balance.
At any time thereafter, Funding Corporation may replace amounts in the Debt
Service Reserve Account with a Debt Service Reserve Letter of Credit having a
stated amount equal to the amount being withdrawn from the Debt Service Reserve
Account. These deposits, in conjunction with the Debt Service Reserve Letter of
Credit, if any, will be available to the Depositary to transfer to the
applicable Account in the event the Revenue Account, the Principal Account and
the Interest Account lack sufficient funds on a date on which a payment on the
Senior Secured Notes is due and payable to meet payments of principal, premium,
if any, Liquidated Damages, if any, and interest on the Senior Secured Notes.
Depositary may make a draw under a Debt Service Reserve Letter of Credit upon
receipt of written instruction from the Guarantors.
(b) If Funding Corporation opts to replace amounts in the Debt Service
Reserve Account with a Debt Service Reserve Letter of Credit, Funding
Corporation shall provide to the Depositary an unconditional, irrevocable
direct-pay letter of credit, issued in a stated amount equal to the amount
replaced in the Debt Service Reserve Account. The Debt Service Reserve Letter
of Credit shall be for the account of the Collateral Agent, naming the
Collateral Agent, on behalf of the Trustee and the holders of the Senior Secured
Notes and any Permitted Additional Senior Lenders as the beneficiary and
containing customary terms and provisions, including a provision that (i) such
letter of credit shall automatically renew upon the expiration thereof unless,
at least sixty (60) days prior to such expiration, the Issuer thereof shall
provide the Depositary with a notice of non-renewal of such letter of credit and
(ii) there are no conditions to drawing other than that any documents required
to be delivered in connection thereunder comply on their face with the
requirements thereof.
(c) At any time that the sum of the amount available to be drawn under
the Debt Service Reserve Letter of Credit plus the amount then on deposit in the
Debt Service Reserve Account is less than the Debt Service Reserve Required
Balance, funds shall be accumulated in the Debt Service Reserve Account from
cash available from:
(i) transfers from the Revenue Account, as provided under Section
3.1(c);
(ii) net interest, if any, earned on amounts deposited in the Debt
Service Reserve Account; and
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<PAGE>
(iii) amounts then on deposit in the Operating and Maintenance
Fees Account and the Management Fees Account.
(d) In the event that the Debt Service Reserve Required Balance is
reached, (i) all interest and other investment income on amounts in the Debt
Service Reserve Account and other amounts in excess of the Debt Service Reserve
Required Balance shall be transferred, on a daily basis, to the Revenue Account
and (ii) the sum of the amount available to be drawn under the Debt Service
Reserve Letter of Credit may be reduced so long as the reduced amount available
to be drawn under the Debt Service Reserve Letter of Credit plus the amount then
on deposit in the Debt Service Reserve Account is equal to or greater than the
Debt Service Reserve Required Balance.
(e) In addition to and without limiting the foregoing, the Debt Service Reserve
Letter of Credit (i) shall have an initial expiration date of at least one (1)
year beyond the date of issuance, (ii) except as set forth in Section 3.2(b) or
Section 3.3(b), shall not obligate the Depositary to make any reimbursement or
any other payment to the issuer or otherwise with respect thereto, or provide
the issuer or any other Person with any claim against the Depositary, the
Collateral Agent, the Trustee or the holders of the Senior Secured Notes,
whether for costs of maintenance, reimbursement of amounts drawn thereunder or
otherwise and (iii) shall be issued by a financial institution whose long-term
debt is rated at least "A" or equivalent by S&P and Moody's.
SECTION 3.5. Capital Expenditure Reserve Account.
-----------------------------------
(a) The Capital Expenditure Reserve Account shall be funded from
amounts available therefor pursuant to the priority of payments specified in
Section 3.1(c) in accordance with (i) the provisions set forth in Section 3.1(c)
of this Depositary Agreement and (ii) the Operating Budget and schedules thereto
approved by the Independent Engineer prior to the end of each calendar year
(and, in good faith, so as to implement even monthly contributions) or with such
variation from such Operating Budget and schedules as the Guarantors, as
applicable, certify to the Trustee are reasonable and necessary and in
accordance with prudent industry practice. Amounts on deposit in the Capital
Expenditure Reserve Account shall be used for Capital Expenditures to be made in
accordance with prudent industry practice and as may be required pursuant to the
terms of the Indenture and this Depositary Agreement. As and when required,
amounts on deposit in the Capital Expenditure Reserve Account may be transferred
to pay when due the amount of the Capital Expenditures of any Guarantor or
otherwise in respect of any of the Projects as set forth in a Withdrawal
Certificate and certified in such Withdrawal Certificate to be in accordance
with prudent industry practice; it being understood that the amounts to be
transferred from the Capital Expenditure Reserve Account for the payment of
Capital Expenditures may be (i) transferred directly by the Depositary to the
recipient to which such amounts are due or (ii) transferred by the Depositary to
an account specified in the Withdrawal Certificate which such account is under
the control of any of the Guarantors or of Funding Corporation and used for the
payment of such Capital Expenditures.
(b) At any time that the sum of the amount on deposit in the Capital
Expenditure Reserve Account is less than the Capital Expenditure Reserve
Required Balance, funds shall be accumulated in the Capital Expenditure Reserve
account from cash available from:
(i) transfers from the Revenue Account, as provided under Section
3.1(c);
(ii) net interest, if any, earned on amounts deposited in the
Capital Expenditure Service Reserve Account; and
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(iii) amounts then on deposit in the Operating and Maintenance
Fees Account and the Management Fees Account.
(c) At any time that the sum of the amount on deposit in the Capital
Expenditure Reserve Required Balance is reached, any amounts in excess of the
Capital Expenditure Required Balance, whether such excess is due to (i) interest
income on amounts in the Capital Expenditure Reserve Account, (ii) a reduction
in the actual dollar amount required to be on deposit in the Capital Expenditure
Reserve Account in accordance with the definition of Capital Expenditure Reserve
Account Required Balance, or (iii) any other reason, then such excess shall be
transferred, on a daily basis, to the Revenue Account.
SECTION 3.6. Operating and Maintenance Fees Account.
--------------------------------------
The Operating and Maintenance Fees Account shall be funded in
accordance with the provisions set forth in Section 3.1(c) of this Depositary
Agreement. Funds in the Operating and Maintenance Fees Account shall be used
for the payment of Operating and Maintenance Fees due and owing; provided that:
(a) except as set forth in clause (b) of this Section 3.6, the
aggregate amount of all Operating and Maintenance Fees paid on account of any
twelve month period shall not exceed an amount equal to $2.0 million plus the
CPI Adjustment; and
(b) the payment of any Operating and Maintenance Fees due and owing in
excess of the amount permitted pursuant to clause (a) of this Section 3.6 shall
be subject to the prior satisfaction of the conditions set forth in Section
3.8(b) of this Depositary Agreement.
In addition, funds in the Operating and Maintenance Fees Account shall
be transferred to the Debt Service Reserve Account under the circumstances set
forth in Section 3.4 of this Depositary Agreement.
SECTION 3.7. Management Fees Account.
-----------------------
The Management Fees Account shall be funded in accordance with the
provisions set forth in Section 3.1(c) of this Depositary Agreement. Funds in
the Management Fees Account shall be used for the payment of Management Fees due
and owing subject to:
(a) the prior satisfaction of the conditions set forth under Section
3.8 of this Depositary Agreement; and
(b) compliance by each Guarantor with the covenant set forth under
Section 4.18 of the applicable Credit Agreement.
In addition, funds in the Management Fees Account shall be transferred
to the Debt Service Reserve Account under the circumstances set forth in Section
3.4 of this Depositary Agreement.
SECTION 3.8. Distribution Account.
--------------------
(a) On any Business Day that all of the conditions set forth in
Section 3.8(b) are satisfied, the Depositary shall make payment from the
Distribution Account but from no other Account to such Persons as may be
directed in writing by the Guarantors.
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(b) The Distribution Account will be funded from monies transferred
from the Revenue Account after all other then-required amounts have been
transferred as provided in Section 3.1(c). Restricted Payments may be made only
from and to the extent of monies on deposit in the Distribution Account. Such
Restricted Payments are subject to the prior satisfaction of the following
conditions:
(i) the amount then on deposit in the Principal Account shall
be equal to or greater than the aggregate payments of principal and
premium, if any, Liquidated Damages, if any, if any, due on the Senior
Secured Notes and, without duplication, the Partnership Notes on the next
succeeding Principal Payment Date and on other Senior Indebtedness, within
the succeeding six-month period;
(ii) the amount then on deposit in the Interest Account shall
be equal to or greater than the aggregate payments of interest due on the
Senior Secured Notes and, without duplication, the Partnership Notes on the
next succeeding Interest Payment Date and on other Senior Indebtedness
within the succeeding six-month period;
(iii) the amount available to be drawn under the Debt Service
Reserve Letter of Credit plus the amount on deposit in the Debt Service
Reserve Account equals or exceeds the Debt Service Reserve Required Balance
and the amount on deposit in the Capital Expenditure Reserve Account equals
or exceeds the Capital Expenditure Reserve Required Balance;
(iv) no Default or Event of Default shall have occurred and be
continuing;
(v) the Debt Service Coverage Ratio for the most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such distribution is to
be made (or in the case of any proposed distribution date prior to January
1, 2000, the Debt Service Coverage Ratio for the period commencing on the
Closing Date and ending on the last date of the most recently ended month
for which internal financial statements are available immediately preceding
the date on which such distribution is to be made) is equal to or greater
than (a) 1.25 to 1 for any annual or interim period ending prior to or as
of December 30, 2001, or (b) 1.4 to 1 for any annual or interim period
ending after December 30, 2001, in either case as certified by an
authorized officer of the Funding Corporation;
(vi) the projected Debt Service Coverage Ratio for the next
succeeding four full fiscal quarters is equal to or greater than (a) 1.25
to 1 for any annual or interim period ending prior to or as of December 30,
2001 or (b) 1.4 to 1 for any annual or interim period ending after December
30, 2001, in either case as certified by an authorized officer of the
Funding Corporation;
(vii) Funding Corporation provides to the Trustee an Officers'
Certificate at the time of each distribution stating that, based on
customary assumptions, as of such date, sufficient geothermal resources
remain to operate the Projects at contract capacity through the Final
Maturity Date; and
(viii) the Geothermal Engineer provides to the Trustee (a) a
written certificate at least annually stating that, for the period covered
by such certification, the wells then in operation are producing, in the
aggregate among the Projects, at least 105% of the steam
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necessary to generate the energy projected for the comparable period in the
Independent Engineer's Base Case Projections and (b) during the calendar
year 2006, a report on the geothermal resource available as of such date
and indicating that sufficient geothermal resource remains to enable the
Projects, in the aggregate, to produce sufficient steam to generate the
energy projected in the Independent Engineer's Base Case Projections
through the maturity date of the 2009 Notes.
The Depositary may conclusively rely on such certificate of a Responsible
Officer certifying that all conditions for disbursement from the Distribution
Account have been met.
SECTION 3.9. Distribution Suspense Account.
-----------------------------
On any Funding Date on which any of the conditions precedent to
Restricted Payments in Section 3.8(b) have not been satisfied, the Depositary
shall transfer all monies held in the Distribution Account to the Distribution
Suspension Account. On any Business Day thereafter on which the conditions to
Restricted Payments set forth in Section 3.8(b) are satisfied, upon delivery to
the Trustee, the Collateral Agent and the Depositary of a certificate of a
Responsible Officer of the Funding Corporation certifying that all such
conditions to Restricted Payments are now satisfied, the Depositary shall
withdraw and transfer all monies in the Distribution Suspense Account to the
Distribution Account and then to such Persons as may be directed in writing by
the Guarantors. The Depositary may conclusively rely on such certificate of a
Responsible Officer of the Funding Corporation certifying that all conditions
for disbursement from the Distribution Account have been met. At any time that
funds in the Revenue Account are not sufficient to pay any amounts which are due
and payable (other than by acceleration) and required to be paid with proceeds
of the Revenue Account, then funds in the Distribution Suspense Account shall be
transferred to the Revenue Account for distribution as provided therein.
SECTION 3.10. Loss Proceeds Account.
---------------------
(i) All Loss Proceeds and Eminent Domain Proceeds received by the
Guarantors shall be deposited in the Loss Proceeds Account. The Depositary
shall separately segregate such Loss Proceeds and Eminent Domain Proceeds for
distribution in the manner as set forth below:
(A) In the event that the applicable Guarantor determines that
the affected Project cannot be rebuilt, repaired or restored to permit operation
of all or a portion of such Project on a commercially reasonable basis following
an Event of Eminent Domain or Event of Loss, or that the Loss Proceeds or the
Eminent Domain Proceeds together with any other amounts available to the
Guarantors for such rebuilding, repair or restoration are not sufficient to
permit such rebuilding, repair or restoration, upon delivery to the Depositary
and Trustee of a certificate of a Responsible Officer of the Guarantors
(containing customary assumptions and qualifications and information concerning
the amount of Loss Proceeds or Eminent Domain Proceeds to be transferred to the
Redemption Account) certifying to the foregoing then the Trustee shall deliver
to the Depositary an Allocation Certificate. Upon receipt of the Allocation
Certificate, the Depositary shall withdraw, transfer or distribute the monies
representing the Loss Proceeds or the Eminent Domain Proceeds in the Loss
Proceeds Account to the Redemption Account.
(B) In the event that the applicable Guarantor determines not to
rebuild, repair or restore the affected Project following an Event of Eminent
Domain or Event of Loss, upon delivery to the Depositary and Trustee of a
certificate of a Responsible Officer of such Guarantor
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certifying that the Guarantor has determined not to rebuild, repair or restore
the affected Project and information concerning the amount of Loss Proceeds or
Eminent Domain Proceeds to be transferred to the Redemption Account, the Trustee
shall deliver to the Depositary an Allocation Certificate. If only a portion of
the affected Project is capable of being rebuilt or replaced, the Trustee shall
deliver to the Depositary an Allocation Certificate setting forth the amount of
the Loss Proceeds or the Eminent Domain Proceeds in excess of the cost of
repairing or replacing the affected Project. Upon receipt of the Allocation
Certificate, the Depositary shall withdraw, transfer or distribute the monies
representing the Loss Proceeds or the Eminent Domain Proceeds in the Loss
Proceeds Account to the Redemption Account.
(C) (1) In the event that the applicable Guarantor has determined
to rebuild, repair or restore all or a portion of the affected Project, upon
delivery to the Depositary and Trustee of a certificate of a Responsible Officer
of the relevant Guarantor certifying that all or a portion, as applicable, of
the Project will be rebuilt, repaired or restored, the Depositary shall transfer
the applicable Loss Proceeds or Eminent Domain Proceeds, as the case may be, in
the Loss Proceeds Account to the Restoration Sub-Account. Amounts held in the
Restoration Sub-Account shall be applied solely for the payment of the costs of
rebuilding, restoration or repair of the affected Project as set forth below or
as otherwise contemplated herein. If the amount deposited in the Restoration
Sub-Account with respect to any Event of Loss or Event of Eminent Domain exceeds
$5,000,000 per Event of Loss or Event of Eminent Domain, the relevant Guarantor
shall deliver to the Depositary and the Trustee (x) a restoration budget (as
amended, modified or supplemented from time to time, the "Restoration Budget")
------------------
prepared by the relevant Guarantor identifying all categories and approximate
amounts reasonably anticipated to be incurred in connection with the rebuilding,
restoration or repair, together with a statement of uses of proceeds of the
Restoration Sub-Account and any other monies necessary to complete the
rebuilding, restoration or repair and (y) a restoration progress payment
schedule (as amended, modified or supplemented from time to time, the
"Restoration Progress Payment Schedule") determined by the Guarantors for the
- --------------------------------------
projected Requisitions to be made from the Restoration Sub-Account.
(2) Before any withdrawal or transfer shall be made from the
Restoration Sub-Account, there shall be filed with the Depositary with respect
to each Funding Date:
(I) a requisition from the relevant Guarantor
substantially in the form attached hereto as Exhibit B (a "Restoration
-----------
Requisition"), dated not more than three Business Days prior to such
-----------
Funding Date as set forth therein on which such withdrawal and
transfer is requested to be made, signed by a Responsible Officer of
the relevant Guarantor;
(II) if the amount requested in any consecutive
twelve-month period with respect to any Event of Loss or Event of
Eminent Domain exceeds $5,000,000 in the aggregate for all Projects
affected by such occurrence, an Independent Engineer's Certificate in
the form attached hereto as Appendix I to Exhibit B, dated not more
than three Business Days prior to the Funding Date; and
(III) if clause (II) above does not apply, the
Restoration Requisition shall so state.
(3) On the Funding Date referred to in Section 3.10(i)(C)(2)
or as soon thereafter as practicable following receipt of the documents
described in Sections 3.10(i)(C)(2)(I) through (III) above, the Depositary shall
withdraw and transfer from the Restoration Sub-Account and
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shall pay to the relevant Guarantor or to Persons directed by it in writing the
amounts set forth in the Restoration Requisition.
(4) Upon completion of any rebuilding, restoration or repair
of all or a portion of the affected Project, there shall be filed with the
Depositary and the Trustee a certificate of a Responsible Officer of the
relevant Guarantor certifying that the completion of the rebuilding, restoration
or repair has been performed in accordance with standard industry practices and
the amount, if any, required in its opinion to be retained in the Restoration
Sub-Account for the payment of any remaining costs of rebuilding, restoration or
repair not then due and payable or the liability for payment of which is being
contested or disputed by the Guarantors and for the payment of reasonable
contingencies following completion of the rebuilding, restoration or repair.
Upon receipt of such certificate of a Responsible Officer, the Depositary shall
transfer first the amount remaining in the Restoration Sub-Account in excess of
the amounts to remain in the Restoration Sub-Account as stated in the
certificate of a Responsible Officer of the relevant Guarantor, to the
Guarantors or to Persons directed by them in writing to the extent of any
amounts which have been expended in connection with such rebuilding, restoration
or repair (as set forth in such certificate of a Responsible Officer) and not
previously reimbursed and second, segregate the remaining excess in the
Restoration Sub-Account from any other amounts therein. If such remaining excess
exceeds $5,000,000, the Depositary shall transfer all of such monies in the
Restoration Sub-Account to the Redemption Account for application pursuant to
Section 3.11. Thereafter, upon receipt of a certificate of a Responsible Officer
of the Guarantors certifying payment of all costs of rebuilding, restoration or
repair of the Project, the Depositary shall transfer any amounts remaining in
the Restoration Sub-Account to the Revenue Account.
(ii) All Title Event Proceeds received by the Guarantors shall
be deposited in the Loss Proceeds Account. The Depositary shall separately
segregate such Title Event Proceeds for distribution in the manner set forth
below:
(A) Title Event Proceeds in respect of any particular
Title Event shall be applied in an effort to remedy the Title Event and for
payment of expenses incurred in connection therewith, as set forth below.
(B) Before any withdrawal and transfer shall be made from
the Title Event Sub-Account, there shall be filed with the Depositary and the
Trustee with respect to each Funding Date a requisition from the relevant
Guarantor substantially in the form attached hereto as Exhibit C (a "Title Event
-----------
Requisition"), dated not more than three Business Days prior to such Funding
- -----------
Date as set forth therein on which such withdrawal and transfer is requested to
be made, signed by an Authorized Representative of the relevant Guarantor.
(C) On the Funding Date referred to in Section
3.10(ii)(B) or as soon thereafter as practicable following receipt of the Title
Event Requisition described in Section 3.10(ii)(B) above, the Depositary shall
withdraw and transfer from the Title Event Sub-Account and shall pay to the
Guarantors or Persons directed by them in writing the amounts set forth in such
Title Event Requisition.
(D) Upon completion of the effort to remedy the Title
Event there shall be filed with the Depositary and the Trustee a certificate of
a Responsible Officer of the relevant Guarantors certifying the result of the
effort to remedy the Title Event and the amount, if any, required in its opinion
to be retained in the Title Event Sub-Account for the payment of any remaining
expenses. Upon receipt of the documents described in the immediately preceding
sentence, the Depositary shall, first, transfer the amount remaining in the
Title Event Sub-Account in excess of the amounts to remain in the Title
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Event Sub-Account as stated in the certificate of a Responsible Officer of the
relevant Guarantor, to the relevant Guarantor or Persons directed by it in
writing to the extent of any amounts expended in connection with such effort to
remedy and not previously reimbursed and second, segregate the remainder in the
Title Event Sub-Account from any other amounts therein. The Depositary shall
transfer all of such remaining monies in the Title Event Sub-Account to the
Redemption Account for application pursuant to Section 3.11. Thereafter, upon
receipt of a certificate of a Responsible Officer of the relevant Guarantor
certifying payment of all costs of remedying the Title Event, the Depositary
shall transfer any amounts remaining in the Title Event Sub-Account to the
Revenue Account.
SECTION 3.11. Redemption Account.
------------------
(a) The following amounts shall be deposited into the Redemption
Account directly, or if received by a Guarantor, as soon as practicable upon
receipt, in either case in accordance with this Section 3.11(a), to the extent
such amounts are available for redemption of Senior Secured Notes and Senior
Indebtedness under the Indenture:
(i) certain amounts from the Loss Proceeds Account received by
the Guarantors in connection with an Event of Loss, an Event of Eminent
Domain or a Title Event, to the extent such amounts are required to be
transferred to the Redemption Account in accordance with Section 3.8;
(ii) all proceeds realized in connection with a Permitted Power
Contract Buy-Out resulting in (A) net proceeds in excess of $5,000,000 or
(B) net proceeds in excess of $10,000,000 when aggregated with all previous
Permitted Power Contract Buy-Outs; provided, however, that if each of the
Rating Agencies confirm that a Rating Downgrade will not exist if no
redemption is made, such amounts shall not be distributed to the Redemption
Account;
(iii) proceeds received in connection with a termination of the
Navy Contract, as more fully described in Section VIII(2) thereof; and
(iv) proceeds received as a result of foreclosure on the
Collateral securing the obligations of the Guarantors following an Event of
Default under the Indenture.
If any of the foregoing amounts required to be deposited with the
Depositary in the Redemption Account are received by the Guarantors (or any
Affiliate of a Guarantor) such Guarantor shall (or shall cause any such
Affiliate to) hold such payments in trust for the Trustee and shall promptly
remit such payments to the Depositary for deposit in the Redemption Account, in
the form received, with any necessary endorsements.
(b) The Depositary shall ledger the amounts referred to in Sections
3.11(a)(i) through (iv) above for distribution in the manner set forth below:
(i) Upon the receipt of those amounts from the Loss Proceeds
Account described in Section 3.11(a)(i), the Depositary shall so notify the
Collateral Agent and the Trustee, and shall separately segregate such
monies and the Trustee shall deliver to the Depositary an Allocation
Certificate. Upon receipt of the Allocation Certificate described in the
immediately preceding sentence, the Depositary shall withdraw, transfer or
distribute the amounts described in Section 3.11(a)(i) no later than one
Business Day prior to the Redemption Date established pursuant to Section
3.01 of the Indenture, (x) in the case of the Senior Secured
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Notes being redeemed, as instructed by the Allocation Certificate referred
to above, to the Mandatory Redemption Sub Account held by the Trustee, for
the pro-rata redemption of Senior Secured Notes Outstanding by the Trustee
in accordance with Section 3.01 of the Indenture, and (y) in the case of
other Senior Indebtedness then being redeemed or prepaid, as instructed by
the Allocation Certificate referred to above; provided, however, that if
funds in the Loss Proceeds Account are insufficient on any date to make the
payments specified in this clause (i), distribution of funds shall be made
ratably to the specified recipients based on the respective amounts owed
such recipients.
(ii) (A) Upon the receipt of those amounts described in
Section 3.11(a)(ii) or 3.11(a)(iii) and, within ninety (90) days, a
certificate from a Responsible Officer of the Funding Corporation
certifying that the Rating Agencies have confirmed that such Permitted
Power Contract Buy-out will not result in a Rating Downgrade, the
Depositary shall transfer such amounts to the Revenue Account.
(B) Other than as described in Section 3.11(b)(ii)(A),
upon the receipt of those amounts described in Section 3.11(a)(ii) and
3.11(a)(iii), the Depositary shall so notify the Collateral Agent and the
Trustee, and separately ledger such monies and the Trustee shall deliver to
the Depositary an Allocation Certificate. Upon receipt of the Allocation
Certificate described in the immediately preceding sentence and, in the
case of proceeds realized in connection with a Permitted Power Contract
Buy-Out, if an officer's certificate as described in Section 3.11(b)(ii)(A)
above has not been received within 90 days after receipt of the Permitted
Power Contract Buy-Out or Navy Contract termination proceeds, the
Depositary shall withdraw, transfer or distribute, on a pro-rata basis, the
amounts described in Section 3.11(a)(ii) or Section 3.11(a)(iii), as
applicable, no later than one Business Day prior to the Redemption Date
established pursuant to Section 3.01 of the Indenture, (x) in the case of
the Senior Secured Notes being redeemed, as instructed by the Allocation
Certificate referred to above, to the Mandatory Redemption Sub Account held
by the Trustee, for the pro rata redemption of Senior Secured Notes
Outstanding by the Trustee in accordance with Section 3.02 of the
Indenture, and (y) in the case of other Senior Indebtedness then being
redeemed or prepaid, as instructed by the Allocation Certificate referred
to above; provided, however, that if funds in the Loss Proceeds Account are
insufficient on any date to make the payments specified in this clause
(ii), distribution of funds shall be made ratably to the specified
recipients based on the respective amounts owed such recipients.
(iii) Upon the receipt of those amounts described in Section
3.11(a)(iv), the Depositary shall so notify the Collateral Agent and the
Trustee, and separately ledger such monies and the Trustee shall deliver to
the Depositary an Allocation Certificate which sets forth the priorities
established pursuant to Section 5.10 of the Indenture. Upon receipt of the
Allocation Certificate described in the immediately preceding sentence, the
Depositary shall withdraw, transfer or distribute the amounts described in
Section 3.11(a)(iv) hereof for the payments described in Section 5.10 of
the Indenture, (x) in the case of payments to the holders of the Senior
Secured Notes, as instructed by the Allocation Certificate referred to
above and pursuant to the provisions of Section 5.10 of the Indenture and
(y) in the case of other Senior Indebtedness then being paid, as instructed
by the Allocation Certificate referred to above.
SECTION 3.12. Investment of Accounts.
----------------------
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Monies held in any Account created by and held under this Depositary
Agreement shall be invested and reinvested in Permitted Investments at the
written direction (which may be in the form of a standing instruction) of a
Responsible Officer of the Funding Corporation or any of the Guarantors;
provided, however, that at any time when (a) a Responsible Officer of the
Depositary has received written notice that an Event of Default under the
Indenture shall have occurred and be continuing or (b) a Responsible Officer of
the Funding Corporation or the Guarantors has not timely furnished such a
written direction or, after a request by the Depositary, has not so confirmed a
standing instruction to the Depositary, the Depositary shall invest such monies
only in Permitted Investments described in clause (xi) of such definition of a
maturity of thirty days or less. Such investments shall mature in such amounts
and have maturity dates or be subject to redemption at the option of the holder
thereof on or prior to maturity as needed for the purposes of such Accounts, but
in no event shall such investments mature more than one year after the date
acquired. The Depositary shall at any time and from time to time liquidate any
or all of such investments prior to the maturity as needed in order to effect
the transfers and withdrawals contemplated by this Depositary Agreement in
accordance with a certificate of a Responsible Officer of the Funding
Corporation or the Guarantors; provided that, in the absence of timely receipt
of such certificate, the Depositary shall liquidate any or all such investments
as so needed in such manner as will minimize, to the extent reasonably
practicable, the costs, penalties and losses associated with such liquidation.
Any income or gain realized from such investments shall be deposited into the
Revenue Account. Any loss shall be charged to the applicable Account. Except
as otherwise provided in this Section 3.12, the Depositary shall have no
obligation to invest and reinvest any cash held in the Accounts in the absence
of timely and specific written investment direction from the required party.
Other than by reason of its willful misconduct or negligence, the Depositary
shall not be liable for the selection of investments or for investment losses
incurred thereon. Other than by reason of its willful misconduct or negligence,
the Depositary shall have no liability in respect of losses incurred as a result
of the liquidation of any investment prior to its stated maturity or the failure
of the required party to provide timely written investment direction. For
purposes of any income tax payable on account of any income or gain on an
investment, such income or gain shall be for the account of the Guarantors or
the Funding Corporation. The Guarantors agree that income shall be allocated
between them based upon the proportionate shares of the proceeds from the Senior
Secured Notes received by each such Partnership
SECTION 3.13. Disposition of Accounts Upon Retirement of Senior
-------------------------------------------------
Secured Notes and Additional Senior Secured Notes.
- -------------------------------------------------
(a) Upon the payment in full of the principal, premium, if any, and
interest on the Senior Secured Notes, any Partnership Note, Senior Indebtedness
or issuance of Additional Senior Secured Notes such that the Senior Secured
Notes, such Partnership Note, Senior Indebtedness or issuance of Additional
Senior Secured Notes is no longer outstanding, all amounts held in the Interest
Account, the Principal Account and the Debt Service Reserve Account allocated to
the Senior Secured Notes, such Partnership Note, Senior Indebtedness or issuance
of Additional Senior Secured Notes, as the case may be, shall upon the written
direction of the Funding Corporation or any Guarantor be transferred to the
Revenue Account.
(b) Upon termination of the Indenture and after payment in full of the
principal of, premium, if any, and interest on and all other amounts due in
respect of all the additional Senior Indebtedness, each Partnership Note, all
Senior Secured Notes Outstanding and after payment in full of all Administrative
Costs, and all other amounts required to be paid hereunder, all amounts
remaining in any Account established in Section 2.1 shall at the written
direction of the Funding Corporation be paid by the Depositary to the
Guarantors.
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SECTION 3.14. Account Balance Statements.
--------------------------
The Depositary shall, on a monthly basis and at such other times as
the Trustee or the Funding Corporation may from time to time reasonably request,
provide to the Trustee, the Guarantors, and the Funding Corporation, statements
in respect of each of the Accounts, sub-accounts and amounts segregated in any
of the Accounts, showing the Account or sub-account balance, the amount of all
receipts and net investment income received during such month and all other
deposits, withdrawals and transfers from and to any Account and sub-accounts
during such month.
SECTION 3.15. Events of Default.
-----------------
(a) On and after any date on which the Depositary receives written
notice from the Trustee pursuant to Section 5.01 of the Indenture that an Event
of Default has occurred under the Indenture (the date of receipt of such notice,
the "Trigger Event Date"), the Depositary shall thereafter accept all notices
------------------
and instructions required to be given to the Depositary pursuant to the terms of
this Depositary Agreement only from the Trustee, and not from any other Person
and the Depositary shall not withdraw, transfer, pay or otherwise distribute any
monies in any of the Accounts except pursuant to such notices and instructions
from the Trustee unless such Event of Default has been waived pursuant to
Section 5.04 of the Indenture or cured, in which event the terms of this
provision will be inapplicable to such Event of Default.
(b) On the Trigger Event Date, the Depositary shall render an
accounting of all monies in the Accounts as of the Trigger Event Date to the
Trustee.
(c) On and after the Trigger Event Date, the Depositary shall
distribute all money then held in any Account to the Trustee and the Permitted
Additional Senior Lenders, if any. The proceeds of any sale, disposition or
other realization with respect to Collateral shall be applied to the payment of
obligations owed to the parties for whose benefit the specific Collateral was
held; provided that in the event any Senior Indebtedness is outstanding on and
after the Trigger Event Date, and such monies are insufficient to pay the
obligations owed to the Trustee and the Permitted Additional Senior Lenders,
distribution of monies shall be made ratably to the Trustee and the Permitted
Additional Senior Lenders based on the respective amounts owed such recipients.
SECTION 3.16. Accounts Maintained as UCC "Securities Accounts".
------------------------------------------------
Depositary hereby agrees and confirms (in its capacity as securities
intermediary hereunder) that it has established the Accounts as set forth and
defined in this Depositary Agreement. Depositary agrees that (i) Depositary is,
and is acting with respect to each Account as, a "securities intermediary"
(within the meaning of Article 8 of the Uniform Commercial Code as adopted in
the State of New York ("UCC")); (ii) each such Account is and will be maintained
---
as a "securities account" (within the meaning of Section 8-501 of the UCC);
(iii) each of the Guarantors and Funding Corporation, jointly and severally, are
the "entitlement holder" (within the meaning of Section 8-102(a)(7) of the UCC)
in respect of the Accounts and the "financial assets" (within the meaning of
Section 8-102(a)(9) of the UCC, the "Financial Assets") credited to such
Accounts; (iv) all Financial Assets in registered form or payable to or to order
and credited to any such Account shall be registered in the name of, payable to
or to the order of, or specially endorsed to, Depositary or in blank, or
credited to another securities account maintained in the name of Depositary, and
in no case will any Financial Asset credited to any such Account be registered
in the name of, payable to or to the order of, or endorsed to, any of the
Guarantors except to the extent the foregoing have been subsequently endorsed by
any of the Guarantors to Depositary or in blank. Each item
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<PAGE>
of property (including a security, security entitlement, investment property,
instrument or obligation, share, participation, interest or other property
whatsoever) credited to any Account shall be treated as a Financial Asset. Until
this Depositary Agreement shall terminate in accordance with the terms hereof,
Trustee shall have "control" (within the meaning of Section 8-106(d)(2) of the
UCC) of each of the Guarantors' "security entitlements" (within the meaning of
Section 8-102(a)(17) of the UCC) with respect to the Financial Assets credited
to the Accounts. All property delivered to the Depositary pursuant to this
Depositary Agreement will be promptly credited to the Accounts. Depositary
agrees that it shall comply with all entitlement orders (as defined in Article 8
of the UCC) it receives from the Trustee on behalf of the Holders of the Senior
Secured Notes or any Permitted Additional Senior Lenders directing transfer or
redemption of any Financial Asset relating to any Account in accordance with
this Depositary Agreement, without further consent by any of the Guarantors or
any other person.
ARTICLE IV.
Depositary
----------
SECTION 4.1. Depositary, Powers and Immunities.
---------------------------------
Funding Corporation and the Collateral Agent, the Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Secured Lenders, if
any, agree that the Depositary shall have such powers as are expressly delegated
to the Depositary by the terms of this Depositary Agreement, together with such
other powers as are reasonably incidental thereto. The Depositary shall not have
any duties or responsibilities except those expressly set forth in this
Depositary Agreement and as provided by law and no implied duties or covenants
shall be read against the Depositary. Without limiting the generality of the
foregoing, the Depositary shall take all actions as the Trustee shall direct it
to perform in accordance with the express provisions of this Depositary
Agreement or as the Trustee may otherwise direct it to perform in accordance
with the provisions of this Depositary Agreement. Notwithstanding anything to
the contrary contained herein, the Depositary shall not be required to take any
action which is contrary to this Depositary Agreement or applicable law. Neither
the Depositary nor any of its Affiliates shall be responsible to the Collateral
Agent, the Trustee or the Holders of the Senior Secured Notes for any recitals,
statements, representations or warranties made by the Funding Corporation or the
Guarantors contained in this Depositary Agreement or any other Project Document
(as defined in the Indenture) or Financing Document or in any certificate or
other document referred to or provided for in, or received by the Trustee under,
the Indenture, this Depositary Agreement or any other Project Document or
Financing Document for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Depositary Agreement or any other Project
Document or any other document referred to or provided for herein or therein or
for any failure by the Funding Corporation or the Guarantors to perform its
obligations hereunder or thereunder. The Depositary shall not be required to
ascertain or inquire as to the performance by the Funding Corporation or the
Guarantors of any of its obligations under the Indenture, any other Financing
Document, this Depositary Agreement or any other document or agreement
contemplated hereby or thereby. The Depositary shall not be (a) required to
initiate or conduct any litigation or collection proceeding hereunder or under
any other Security Document or (b) responsible for any action taken or omitted
to be taken by it hereunder (except for its own negligence or willful
misconduct) or in connection with any other Security Document. Except as
otherwise provided under this Depositary Agreement, the Depositary shall take
action under this Depositary Agreement only as it shall be directed in writing.
Whenever in the administration of this Depositary Agreement the Depositary shall
deem it necessary or desirable that a factual matter be proved or established in
connection with the Depositary taking, suffering or omitting to take any action
hereunder, such matter (unless other evidence in respect thereof is herein
specifically prescribed) may be deemed to be
C-24
<PAGE>
conclusively proved or established by a certificate of a Responsible Officer of
the Funding Corporation or the Guarantors, or the Trustee, if appropriate. The
Depositary shall have the right at any time to seek instructions concerning the
administration of this Depositary Agreement from the Trustee, the Guarantors,
Funding Corporation or any court of competent jurisdiction. The Depositary shall
have no obligation to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder. The
Depositary shall not be liable for any error of judgment made in good faith by
an officer or officers of the Depositary, unless it shall be conclusively
determined by a court of competent jurisdiction that the Depositary was
negligent in ascertaining the pertinent facts. The Depositary may execute any of
the trusts or powers hereunder or perform any duties hereunder either directly
or by or through agents, attorneys, custodians or nominees appointed with due
care, and shall not be responsible for any willful misconduct or negligence on
the part of, or for the supervision of, any agent, attorney, custodian or
nominee so appointed. Neither the Depositary nor any of its officers, directors,
employees or agents shall be liable for any action taken or omitted under this
Depositary Agreement or in connection therewith except to the extent caused by
the Depositary's negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction, no longer subject to appeal or
review. The Depositary shall not be deemed to have knowledge of an Event of
Default unless a Responsible Officer of the Depositary shall have received
written notice thereof.
SECTION 4.2. Reliance by Depositary.
----------------------
The Depositary shall be entitled to conclusively rely upon and shall
not be bound to make any investigation into the facts or matters stated in any
certificate, certificate of a Responsible Officer of the Funding Corporation or
the Guarantors, Independent Engineer's certificate, Trustee's certificate or any
other notice or other document (including any cable, telegram, telecopy or
telex) believed by it to be genuine and to have been signed or sent by or on
behalf of the proper Person or Persons, and upon advice and statement of legal
counsel, independent accountants and other experts selected by the Depositary
and shall have no liability for its actions taken thereupon, unless due to the
Depositary's willful misconduct or negligence. Without limiting the foregoing,
the Depositary shall be required to make payments to the Holders of the Senior
Secured Notes and to Permitted Additional Senior Lenders only as set forth
herein. The Depositary shall be fully justified in failing or refusing to take
any action under this Depositary Agreement (i) if such action would, in the
reasonable opinion of the Depositary, be contrary to applicable law or the terms
of this Depositary Agreement, (ii) if such action is not specifically provided
for in this Depositary Agreement, it shall not have received any such advice or
concurrence of the Trustee as it deems appropriate or (iii) if, in connection
with the taking of any such action that would constitute an exercise of remedies
under this Depositary Agreement (whether such action is or is intended to be an
action of the Depositary or the Trustee), it shall not first be indemnified to
its satisfaction by the Holders of the Senior Secured Notes (other than the
Trustee (in its individual capacity) or the Collateral Agent (in its individual
capacity) or any other agent or trustee under any of the Financing Documents (in
their respective individual capacities)) and/or the Permitted Additional Senior
Lenders, if any, against any and all liability and expense which may be incurred
by it by reason of taking or continuing to take any such action. The Depositary
shall in all cases be fully protected in acting, or in refraining from acting,
under this Depositary Agreement in accordance with a request of the Trustee or a
Permitted Additional Senior Lender (to the extent that the Trustee or a
Permitted Additional Senior Lender is expressly authorized to direct the
Depositary to take or refrain from taking such action), and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Holders of the Senior Secured Notes and the applicable Permitted Additional
Senior Lenders.
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<PAGE>
SECTION 4.3. Court Orders.
------------
The Depositary is hereby authorized, in its exclusive discretion, to
obey and comply with all writs, orders, judgments or decrees issued by any court
or administrative agency affecting any money, documents or things held by the
Depositary. The Depositary shall not be liable to any of the parties hereto or
any of the Holders of the Senior Secured Notes and/or the Permitted Additional
Senior Lenders, if any, their successors, heirs or personal representatives by
reason of the Depositary's compliance with such writs, orders, judgments or
decrees, notwithstanding such writ, order, judgment or decree is later reversed,
modified, set aside or vacated.
SECTION 4.4. Resignation or Removal.
----------------------
Subject to the appointment and acceptance of a successor Depositary as
provided below, the Depositary may resign at any time by giving 30 days written
notice thereof to the Trustee and the Funding Corporation and the Guarantors,
provided that in the event the Depositary is also the Collateral Agent and
Trustee, it must also at the same time resign as Collateral Agent and Trustee.
The Depositary may be removed at any time with cause by the Trustee. The
Funding Corporation shall have the right to remove the Depositary upon thirty
(30) days' notice to the Trustee with or without cause, effective upon the
appointment of a successor Depositary under this Section 4.4, which is
reasonably acceptable to the Trustee. In the event that the Depositary shall
decline to take any action without first receiving adequate indemnity from the
Funding Corporation or the Guarantors, or the Trustee and/or the Permitted
Additional Senior Lenders, if any, as the case may be and, having received an
indemnity, shall continue to decline to take such action, the Trustee shall be
deemed to have sufficient cause to remove the Depositary. In the event that the
Depositary is also the Trustee, the Trustee shall have the right to remove the
Depositary with or without cause. Upon any such resignation or removal, the
Funding Corporation shall have the right to appoint a successor Depositary,
which Depositary shall be reasonably acceptable to the Funding Corporation. If
no successor Depositary shall have been appointed by the Funding Corporation and
shall have accepted such appointment within 30 days after the retiring
Depositary's giving of notice of resignation or the removal of the retiring
Depositary, then the retiring Depositary may appoint a successor Depositary,
which shall be a bank or trust company reasonably acceptable to the Funding
Corporation. Upon the acceptance of any appointment as Depositary hereunder by
the successor Depositary, (a) such successor Depositary shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Depositary, and the retiring Depositary shall be discharged from its
duties and obligations hereunder and (b) the retiring Depositary shall promptly
transfer all monies and Permitted Investments within its possession or control
to the possession or control of the successor Depositary and shall execute and
deliver such notices, instructions and assignments as may be necessary or
desirable to transfer the rights of the Depositary with respect to the monies
and Permitted Investments to the successor Depositary. After the retiring
Depositary's resignation or removal hereunder as Depositary, the provisions of
this Article IV and of Article V shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
Depositary. Any corporation into which the Depositary may be merged or
converted or with which it may be consolidated or any corporation resulting from
any merger, conversion or consolidation to which the Depositary shall be a
party, or any corporation succeeding to the business of the Depositary shall be
the successor of the Depositary hereunder without the execution or filing of any
paper with any party hereto or any further act on the part of any of the parties
hereto except where an instrument of transfer or assignment is required by law
to effect such succession, anything herein to the contrary notwithstanding.
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<PAGE>
ARTICLE V.
Expenses; Indemnification; Fees
-------------------------------
SECTION 5.1. Expenses.
--------
Subject to the terms of the agreement referenced in Section 5.3, the
Funding Corporation and the Guarantors agree to pay or reimburse all reasonable
out-of-pocket expenses of the Depositary (including reasonable fees and expenses
for legal services) in respect of, or incident to, the administration or
enforcement of any of the provisions of this Depositary Agreement or in
connection with any amendment, waiver or consent relating to this Depositary
Agreement.
SECTION 5.2. Indemnification.
---------------
The Funding Corporation agrees to indemnify the Depositary in its
capacity as such, and, in their capacity as such, its officers, directors,
shareholders, controlling persons, employees, agents and servants (each an
"Indemnified Depositary Party") from and against any and all claims, losses,
- -----------------------------
liabilities and expenses (including the reasonable fees and expenses of counsel)
growing out of or resulting from this Depositary Agreement (including, without
limitation, performance under or enforcement of this Depositary Agreement, but
excluding any such claims, losses or liabilities resulting from the Indemnified
Depositary Party's negligence or willful misconduct). This indemnity shall
survive the termination of this Depositary Agreement, and the resignation or
removal of the Depositary.
SECTION 5.3. Fees.
----
On the Closing Date, and on each anniversary of the Closing Date to
and including the Final Maturity Date, the Funding Corporation shall pay the
Depositary an annual fee in an amount mutually agreed on in a separate agreement
between the Funding Corporation and the Depositary. The payment of the
Depositary's reasonable out-of-pocket expenses (including fees and expenses of
counsel) for its administration of any provisions of this Depositary Agreement
shall be subject to the terms of such separate agreement.
ARTICLE VI.
Miscellaneous
-------------
SECTION 6.1. Amendments; Etc.
---------------
No amendment or waiver of any provision of this Depositary Agreement
nor consent to any departure by the Funding Corporation or the Guarantors
herefrom shall in any event be effective unless the same shall be in writing and
signed by the Collateral Agent, the Depositary, the Funding Corporation and the
Guarantors. Any such amendment, waiver or consent shall be effective only in
the specific instance and for the specified purpose for which given.
SECTION 6.2. Addresses for Notices.
---------------------
All notices, requests and other communications provided for hereunder
shall be in writing and, except as otherwise required by the provisions of this
Depositary Agreement, shall be sufficiently given and shall be deemed given when
delivered or mailed by registered or certified mail,
C-27
<PAGE>
postage prepaid, or sent by overnight delivery, telecopy, telegram or telex,
addressed to the parties as follows:
<TABLE>
<CAPTION>
<S> <C>
The Funding Corporation: Caithness Coso Funding Corp.
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Telephone: (212) 921-9099
Fax: (212) 921-9239
Attention: Christopher T. McCallion
The Guarantors: Coso Finance Partners
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Telephone: (212) 921-9099
Fax: (212) 921-9239
Attention: Christopher T. McCallion
Coso Energy Developers
1114 Avenue of the Americas
New York, New York 10036
Telephone: (212) 921-9099
Fax: (212) 921-9239
Attention: Christopher T. McCallion
Coso Power Developers
1114 Avenue of the Americas
New York, New York 10036
Telephone: (212) 921-9099
Fax: (212) 921-9239
Attention: Christopher T. McCallion
Collateral Agent: U.S. Bank Trust National Association
One California Street
Fourth Floor
San Francisco, California 94111
Telephone (415) 273-4580
Fax (415) 273-4590
Attention: Judy Manansala
Depositary: U.S. Bank Trust National Association
One California Street
Fourth Floor
San Francisco, California 94111
Telephone (415) 273-4580
Fax (415) 273-4590
Attention: Judy Manansala
</TABLE>
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<PAGE>
SECTION 6.3. Governing Law.
-------------
This Depositary Agreement, including all matters of construction,
validity, performance and the creation, validity, enforcement or priority of the
lien of, and security interests created by, this Depositary Agreement in or upon
the Accounts shall be governed by the laws of the State of New York, without
reference to conflicts of law (other than Section 5-1401 of the New York General
Obligations Law), except as required by mandatory provisions of law and except
to the extent that the validity or perfection of the lien and security interest
hereunder, or remedies hereunder, in respect of any particular Account are
governed by the laws of a jurisdiction other than the State of New York.
SECTION 6.4. Headings.
--------
Headings used in this Depositary Agreement are for convenience of
reference only and do not constitute part of this Depositary Agreement for any
purpose.
SECTION 6.5. No Third Party Beneficiaries.
----------------------------
The agreements of the parties hereto are solely for the benefit of the
Funding Corporation, the Guarantors, the Trustee, the Depositary, the Holders of
the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
and their respective successors and assigns and no Person (other than the
parties hereto and such Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any) shall have any rights hereunder.
SECTION 6.6. No Waiver.
---------
No failure on the part of the Depositary, the Collateral Agent, the
Trustee or any of the Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any, or any of their nominees or representatives
to exercise, and no course of dealing with respect to, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise by the Depositary, the
Collateral Agent, the Trustee, the Holders of any of the Senior Secured Notes,
the Permitted Additional Senior Lenders, if any, or any of their nominees or
representatives of any right, power or remedy operate as a waiver with respect
to any other right, power or remedy available to such parties.
SECTION 6.7. Severability.
------------
If any provision of this Depositary Agreement or the application
thereof shall be invalid or unenforceable to any extent, (a) the remainder of
this Depositary Agreement and the application of such remaining provisions shall
not be affected thereby and (b) each such remaining provision shall be enforced
to the greatest extent permitted by law.
SECTION 6.8. Successors and Assigns.
----------------------
All covenants, agreements, representations and warranties in this
Depositary Agreement by the Depositary, the Trustee, the Funding Corporation and
the Guarantors shall bind and, to the extent permitted hereby, shall inure to
the benefit of and be enforceable by their respective successors and assigns,
whether so expressed or not.
SECTION 6.9. Execution in Counterparts.
-------------------------
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<PAGE>
This Depositary Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 6.10. Consequential Damages.
---------------------
In no event (other than with respect to its own negligence or willful
misconduct) shall the Depositary be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits), even if the Depositary has been advised of the likelihood of
such loss or damage and regardless of the form of action.
SECTION 6.11. Limitation of Liability.
-----------------------
Notwithstanding anything to the contrary contained in this Depositary
Agreement and the Transaction Documents, no past, present or future officer,
director, employee, incorporator, shareholder, manager, management committee or
partner of Funding Corporation or Guarantor, nor any director, officer,
employee, incorporator, shareholder, manager, management committee, partner or
member of any partner of Funding Corporation or Guarantor (collectively, the
"Nonrecourse Parties") shall be personally liable under this Depositary
- --------------------
Agreement for the payment of any sums or for the performance of any obligation
contained in, this Depositary Agreement. Depositary agrees that its rights
shall be limited to proceeding against Funding Corporation, Guarantor and the
security provided or intended to be provided pursuant to the Security Documents
and that it shall have no right to proceed against the Nonrecourse Parties for
(a) the satisfaction of any monetary obligation of, or enforcement of any
monetary claim against, Guarantor, (b) the performance of any obligation,
covenant or agreement arising under this Depositary Agreement, or (c) any
deficiency judgment remaining after foreclosure of any property securing the
obligations hereunder; provided that (a) the foregoing provisions of this
Section 6.11 shall not constitute a waiver, release or discharge of any of the
indebtedness, or of any of the terms, covenants, conditions or provisions of
this Depositary Agreement or any Financing Document and the same shall continue
until fully paid, discharged, observed or performed; (b) the foregoing
provisions of this Section 6.11 shall not limit or restrict the right of the
Collateral Agent, the Holders of the Senior Secured Notes, any Permitted
Additional Senior Lender, or the Trustee to name the Funding Corporation,
Guarantor or any other Person as a defendant in any action or suit for a
judicial foreclosure or for the exercise of any other remedy under or with
respect to this Depositary Agreement or any other Financing Document, or for
injunction or specific performance, so long as no judgment in the nature of a
deficiency judgment shall be enforced against any Nonrecourse Party, except as
set forth in this Section 6.11; (c) the foregoing provisions of this Section
6.11 shall not in any way limit or restrict any right or remedy of Depositary,
Collateral Agent, the Holders of the Senior Secured Notes, the Permitted
Additional Senior Lenders, if any, or the Trustee (or any assignee or
beneficiary thereof or successor thereto) with respect to, and all of the
Nonrecourse Parties shall remain fully liable to the extent that it would
otherwise be liable for its own actions with respect to, any fraud, negligence
or willful misrepresentation, or misappropriation of any revenues derived from
the Project and the proceeds thereof or any other earnings, revenues, rents,
issues, profits or proceeds that are subject to the Security Documents that
should or would have been paid as provided therein or paid or delivered to the
Depositary, the Trustee, the Collateral Agent, the Holders of the Senior Secured
Notes or the Permitted Additional Senior Lenders, if any, (or any assignee or
beneficiary thereof or successor thereto) towards any payment required under
this Depositary Agreement or any other Financing Document; (d) the foregoing
provisions of this Section 6.11 shall not affect or diminish or constitute a
waiver, release or discharge of any specific written obligation, covenant, or
agreement in respect of the Project made by any of the Nonrecourse Parties or
any security granted by the Nonrecourse Parties as security for the
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<PAGE>
obligations of any Guarantor or Funding Corporation; and (e) nothing contained
herein shall limit the liability of (i) any Person who is a party to any Project
Document or has issued any certificate or statement in connection therewith with
respect to such liability as may arise by reason of the terms and conditions of
such Project Document, certificate or statement, or (ii) any Person rendering a
legal opinion, in each case under this clause (e) relating solely to such
liability of such Person as may arise under such referenced instrument,
agreement or opinion.
SECTION 6.12. Regarding the Collateral Agent.
------------------------------
The Collateral Agent shall be afforded all of the rights, powers,
protections, immunities and indemnities set forth in those certain Security
Agreements, dated as of the date hereof, between the Collateral Agent and each
of Navy I, BLM and Navy II as if the same were specifically set forth herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
C-31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Deposit and
Disbursement Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first above written.
COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
C-32
<PAGE>
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
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<PAGE>
CAITHNESS COSO FUNDING CORP.,
a Delaware corporation
By: /s/ Christopher T. McCallion
-----------------------------
Name: Christopher T. McCallion
its: Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent, Trustee and Depositary
By: /s/ Judy P. Manansala
---------------------
Name: Judy P. Manansala
its: Trust Officer
C-34
<PAGE>
Exhibit 10.2
CREDIT AGREEMENT
Between
CAITHNESS COSO FUNDING CORP.,
a Delaware corporation,
as lender,
and
COSO FINANCE PARTNERS,
a California general partnership
as borrower
dated May 28, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. DEFINITIONS.................................................................................. 1
Section 1.1. Capitalized Terms............................................................... 1
Section 1.2. Definitions..................................................................... 1
ARTICLE II. DESCRIPTION OF THE LOAN...................................................................... 4
Section 2.1. Acknowledgment of Guarantor..................................................... 4
Section 2.2. Term of This Agreement.......................................................... 5
Section 2.3. Interest........................................................................ 5
Section 2.4. Repayment....................................................................... 5
Section 2.5. Prepayment...................................................................... 5
Section 2.6. Obligations of Guarantor Hereunder Unconditional................................ 6
Section 2.7. General Terms of Payment........................................................ 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES............................................................... 6
Section 3.1. Organization, Power and Status of Guarantor..................................... 7
Section 3.2. Authorization; Enforceability; Execution and Delivery........................... 7
Section 3.3. No Conflicts; Laws and Contracts; No Default;
Representations and Warranties................................................ 7
Section 3.4. Litigation...................................................................... 8
Section 3.5. Environmental Matters........................................................... 8
Section 3.6. Employee Benefit Plans.......................................................... 8
Section 3.7. Business of Guarantor........................................................... 8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 3.8. Valid Title........................................................................ 8
Section 3.9. Utility Regulation................................................................. 9
Section 3.10. Qualifying Facility............................................................... 9
Section 3.11. Investment Company Act............................................................ 9
Section 3.12. No Defaults....................................................................... 9
Section 3.13. Governmental Approvals............................................................ 9
Section 3.14. Margin Stock...................................................................... 9
Section 3.15. Taxes............................................................................. 10
Section 3.16. Ownership of Guarantor............................................................ 10
Section 3.17. Disclosure........................................................................ 10
Section 3.18. Security Interests................................................................ 10
Section 3.19. Due Execution of Project Documents................................................ 10
ARTICLE IV. COVENANTS AND AGREEMENTS OF GUARANTOR........................................................... 11
Section 4.1. Events of Loss..................................................................... 11
Section 4.2. Reporting Requirements............................................................. 11
Section 4.3. Ownership of Guarantor............................................................. 12
Section 4.4. Sale of Assets..................................................................... 12
Section 4.5. Insurance.......................................................................... 12
Section 4.6. QF Status.......................................................................... 12
Section 4.7. Governmental Approvals; Title...................................................... 13
Section 4.8. Nature of Business................................................................. 13
Section 4.9. Compliance With Laws............................................................... 13
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 4.10. Prohibition on Fundamental Changes............................................ 13
Section 4.11. Revenue Account............................................................... 13
Section 4.12. Transactions With Affiliates.................................................. 13
Section 4.13. Restricted Payments........................................................... 14
Section 4.14. Exercise of Rights Under Project Documents.................................... 14
Section 4.15. Amendments to Contracts....................................................... 14
Section 4.16. Limitations on Indebtedness/Liens............................................. 15
Section 4.17. Operating Budget.............................................................. 15
Section 4.18. Required Geothermal Percentage................................................ 15
Section 4.19. Books and Records............................................................. 15
Section 4.20. Project Documents; Additional Project Documents............................... 15
Section 4.21. Maintenance of Existence...................................................... 16
Section 4.22. Taxes......................................................................... 16
Section 4.23. Additional Documents; Filings and Recordings.................................. 16
Section 4.24. Registered Owner.............................................................. 16
Section 4.25. USBLM/LADWP Leases............................................................ 17
ARTICLE V. DEFAULT AND REMEDIES........................................................................ 17
Section 5.1. Events of Default.............................................................. 17
Section 5.2. Consequences of Credit Agreement Event of Default.............................. 19
Section 5.3. Defense of Actions............................................................. 20
ARTICLE VI. GENERAL TERMS AND CONDITIONS................................................................ 20
Section 6.1. Notices........................................................................ 20
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 6.2. Amendments and Waivers......................................................... 21
Section 6.3. Election of Remedies........................................................... 21
Section 6.4. Severability................................................................... 22
Section 6.5. Third-Party Beneficiaries; Prior Agreements.................................... 22
Section 6.6. Guarantors in Control.......................................................... 22
Section 6.7. Number and Gender.............................................................. 22
Section 6.8. Captions....................................................................... 22
Section 6.9. Applicable Law and Jurisdiction................................................ 22
Section 6.10. Consent....................................................................... 23
Section 6.11. No Recourse................................................................... 23
Section 6.12. Counterparts.................................................................. 24
Section 6.13. Successors and Assigns........................................................ 24
Section 6.14. Maximum Interest Rate......................................................... 24
</TABLE>
iv
<PAGE>
CREDIT AGREEMENT
----------------
This CREDIT AGREEMENT dated as of May 28, 1999 (this "Agreement") is by and
---------
between CAITHNESS COSO FUNDING CORP., a Delaware corporation ("Funding
-------
Corporation"), as lender, and COSO FINANCE PARTNERS, a California general
- -----------
partnership ("Guarantor"), as borrower.
---------
W I T N E S S E T H:
-------------------
WHEREAS, Funding Corporation is a corporation established for the sole
purpose of issuing (a) $110,000,000 of 6.80% Senior Secured Notes due 2001 (the
"2001 Notes") and $303,000,000 of 9.05% of Senior Secured Notes due 2009 (the
----------
"2009 Notes" and collectively with the 2001 Notes the "Senior Secured Notes")
---------- --------------------
pursuant to the Indenture, dated as of the date hereof (the "Indenture"), among
---------
Funding Corporation, U.S. Bank Trust National Association as trustee and
collateral agent ("Trustee"), the Guarantor, Coso Energy Developers, a
-------
California general partnership ("BLM"), and Coso Power Developers, a California
---
general partnership ("Navy II," and together with Guarantor and BLM, the "Coso
-------- ----
Partnerships"), (b) any additional Senior Secured Notes issued pursuant to the
- ------------
Indenture, other than the Senior Secured Notes (the "Additional Secured Notes"),
and (c) to make loans from the proceeds of the Senior Secured Notes to
Guarantor, BLM and Navy II; and
WHEREAS, the principal and interest payments on the Senior Secured Notes
will be serviced by repayment of loans made by Funding Corporation to Guarantor,
BLM and Navy II and guaranteed by Guarantor, BLM and Navy II, subject to the
conditions set forth in the Indenture; and
WHEREAS, Funding Corporation has simultaneously with the execution and
delivery of this Agreement issued and sold the Senior Secured Notes; and
WHEREAS, Funding Corporation intends to use the proceeds from the sale of
the Senior Secured Notes to, among other things, make a loan to Guarantor in the
aggregate amount of $151,550,000.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto formally covenant, agree and
bind themselves as follows:
ARTICLE I.
DEFINITIONS
-----------
Section 1.1. Capitalized Terms. Capitalized terms used and not
-----------------
otherwise defined herein shall have the meanings ascribed thereto in the
Indenture.
Section 1.2. Definitions.
-----------
(a) "Affiliate" of any specified Person means any other Person
---------
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control," as used with respect to any Person, shall mean the possession,
-------
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by
<PAGE>
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
----------- ------------- --------------------
with" shall have correlative meanings.
- ----
(b) "Capital Stock" means:
-------------
(i) in the case of a corporation, corporate stock;
(ii) in the case of an association or business entity, any
and all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited); and
(iv) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
(c) "Code" means the Internal Revenue Code of 1986.
----
(d) "Commonly Controlled Entity" means, as applied to the
--------------------------
Guarantor, any Person who is a member of a group which is under common control
with the Guarantor, who together with Funding Corporation, is treated as a
single employer within the meaning of Section 414(b), (c), (m) or (o) of the
Code or Section 4001(b) of ERISA.
(e) "Credit Agreement Event of Default" shall have the meaning
---------------------------------
set forth in Section 5.1 of this Agreement.
(f) "Credit Parties" means each of the Coso Partnerships (as
--------------
defined in the Indenture), each of the Partners and each Affiliate of the Coso
Partnerships or the Partners that is a party to any Security Document (as
defined in the Indenture).
(g) "Debtor Relief Law" shall have the meaning set forth in
-----------------
Section 5.1(e)(2) hereof.
(h) "Default" means an event or condition that, with the giving
-------
of notice, lapse of time or failure to satisfy certain specified conditions, or
any combination thereof, would become a Credit Agreement Event of Default.
(i) "Environmental Claim" means any complaint, order, citation,
-------------------
decree, demand, judgment or written notice actually received by Funding
Corporation or any Guarantor from any Person relating to any matters of
Environmental Law affecting or relating to any activity or operations at any
time conducted by either Funding Corporation or any Guarantor, including,
without limitation:
(i) the existence of any Environmentally Regulated
Materials at any Project site in violation of any Environmental Law;
2
<PAGE>
(ii) the release or threatened release of any
Environmentally Regulated Materials generated at any Project site in
violation of any Environmental Law;
(iii) remediation of any such release at any Project site;
and
(iv) any violation of any relevant Environmental Law in
connection with any Project site.
(j) "Environmental Laws" means any and all laws, rules and
------------------
regulations (as well as obligations, duties and requirements relating thereto
under common law) relating to: (i) noise, emissions, discharges, spills,
releases or threatened releases of pollutants, contaminants, Environmentally
Regulated Materials, materials containing Environmentally Regulated Materials,
or hazardous or toxic materials or wastes into ambient air, surface water,
groundwater, watercourses, publicly or privately-owned treatment works, drains,
sewer systems, wetlands, septic systems or onto land surface or subsurface
strata; (ii) the use, treatment, storage, disposal, handling, manufacture,
processing, distribution, transportation, or shipment of Environmentally
Regulated Materials, materials containing Environmentally Regulated Materials or
hazardous and/or toxic wastes, material, products or by-products (or of
equipment or apparatus containing Environmentally Regulated Materials); (iii)
pollution or the protection of human health, the environment or natural
resources or (iv) zoning and land use.
(k) "Environmentally Regulated Materials" means (i) hazardous
-----------------------------------
materials, hazardous wastes, hazardous substances, extremely hazardous wastes,
restricted hazardous wastes, toxic substances, toxic pollutants, contaminants,
pollutants or words of similar import, as used under Environmental Laws,
including but not limited to the following: the Hazardous Materials
Transportation Act, 49 U.S.C. 1801 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. 6901 et seq., the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, 42 U.S.C. 9601 et seq., the Clean Water
Act, 33 U.S.C. 1231 et seq., the Clean Air Act, 42 U.S.C. (S) 7401 et seq., the
Toxic Substances Control Act, 15 U.S.C. 2601 et seq., the Safe Drinking Water
Act, 42 U.S.C. (S) 3808 et seq., and the Oil Pollution Act, 33 U.S.C. (S) 2701
et seq., and their State and local counterparts or equivalents; (ii) petroleum
and petroleum products including crude oil and any fractions thereof; (iii)
natural gas, synthetic gas and any mixtures thereof; (iv) radon; (v) any other
hazardous, radioactive, toxic or noxious substance, material, pollutant, or
solid, liquid or gaseous waste; and (vi) any substance that, whether by its
nature or its use, is now or hereafter subject to regulation under any
Environmental Law or with respect to which any Federal, state or local
Environmental Law or governmental agency requires environmental investigation,
monitoring or remediation.
(l) "ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
(m) "Equity Interest" means Capital Stock and all warrants,
---------------
options or other rights to acquire Capital Stock (But excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
3
<PAGE>
(n) "Final Offering Memorandum" means the confidential offering
-------------------------
memorandum of Funding Corporation dated May 21, 1999, issued with respect to the
initial issuance of the Senior Secured Notes.
(o) "Insurance Consultant" means an independent insurance
--------------------
or another insurance broker reasonably satisfactory to the Trustee.
(p) "Multiemployer Plan" means a Plan which is a multiemployer
------------------
plan as defined in Section 4001(a)(3) of ERISA.
(q) "PBGC" means the Pension Benefit Guaranty Corporation.
----
(r) "Plan" means an employee benefit or other plan established
----
or maintained by the Guarantor or any Commonly Controlled Entity.
(s) "Preliminary Offering Memorandum" means the confidential
-------------------------------
preliminary offering memorandum of Funding Corporation, dated May 5, 1999, with
respect to the initial issuance of the Senior Secured Notes.
(t) "Project" shall have the meaning set forth in Section 2.6
-------
hereof.
(u) "Project Documents" means individually and collectively, all
-----------------
material existing agreements and documents which relate to all or any portion of
one or more of the Projects.
(v) "PUHCA" means the Public Utility Holding Company Act of
-----
1935, as amended.
(w) "Qualifying Facility" means a "qualifying small power
-------------------
production facility" or a "qualifying cogeneration facility" in accordance with
the Public Utility Power Regulatory Policies Act of 1978 and the rules and
regulations of the United States Federal Energy Regulatory Commission under the
Public Utility Power Regulatory Policies Act of 1978 relating thereto.
ARTICLE II.
DESCRIPTION OF THE LOAN
-----------------------
Section 2.1. Acknowledgment of Guarantor. Guarantor hereby
---------------------------
acknowledges and agrees that:
(a) Pursuant to this Agreement, Funding Corporation does hereby
lend to Guarantor and Guarantor does hereby borrow from Funding Corporation
funds in the amount of $151,550,000 (the "Partnership Loan") to be evidenced by
----------------
a promissory note due 2001 ("Partnership Note Due 2001") substantially in the
-------------------------
form attached hereto as Exhibit A-1 and a promissory note due 2009 ("Partnership
-----------
Note Due 2009") substantially in the form attached hereto as Exhibit A-2 issued
- -------------
by Guarantor in favor of Funding Corporation (collectivley, the "Initial
4
<PAGE>
Partnership Notes");
(b) If proceeds from the issuance of any Additional Senior
Secured Notes are loaned to Guarantor, (a) the outstanding principal balance on
the Partnership Loan shall be increased by the amount of such proceeds, (b) the
Partnership Loan shall include the loan to Guarantor of such proceeds, as
evidenced by an additional promissory note issued by Guarantor (together with
the Initial Partnership Note, the "Partnership Notes"), and (c) the terms and
-----------------
provisions of this Credit Agreement relating to Senior Secured Notes shall apply
to the Additional Senior Secured Notes, where appropriate.
Section 2.2. Term of This Agreement. This Agreement shall remain in
----------------------
full force and effect from the date hereof until payment and performance in full
of all amounts due and obligations to be performed under this Agreement and the
other Financing Documents.
Section 2.3. Interest. Interest hereunder shall be paid semi-
--------
annually in arrears on each June 15 and December 15 commencing December 15,
1999, until all principal hereunder is paid in full. Interest shall be computed
on the basis of a three hundred sixty (360) day year, consisting of twelve (12)
thirty (30) day months and at a 6.80% rate per annum for the Partnership Note
Due 2001, and at a 9.05% rate per annum for the Partnership Note Due 2009.
Section 2.4. Repayment.
---------
(a) Guarantor shall repay the Partnership Note Due 2001 in
principal installments to Funding Corporation on the dates, at the times and in
the amounts set forth on Schedule 1 attached hereto (as the same may be modified
pursuant to Article 8 of the Indenture).
(b) Guarantor shall repay the Partnership Note Due 2009 in
principal installments to Funding Corporation on the dates, at the times and in
the amounts set forth on Schedule 2 attached hereto (as the same may be modified
pursuant to Article 8 of the Indenture).
Section 2.5. Prepayment.
----------
(a) Optional Prepayment. Guarantor shall have the optional
-------------------
right to prepay the Partnership Loan in such amounts and at such times as may be
appropriate to permit Funding Corporation to redeem the 2009 Notes pursuant to
the optional redemption provisions set forth in Section 3.07 of the Indenture or
defease the Senior Secured Notes pursuant to the optional defeasance provisions
set forth in Section 7.01 of the Indenture.
(b) Mandatory Prepayment. Guarantor shall be required to
--------------------
prepay principal, and to pay accrued interest on such prepaid principal, on the
Partnership Loan in such amounts and at such times as may be required to permit
Funding Corporation to redeem the Senior Secured Notes pursuant to the mandatory
redemption provisions set forth in Section 3.08 of the Indenture as they apply
specifically to Guarantor and/or its project or contracts.
Section 2.6. Obligations of Guarantor Hereunder Unconditional. The
------------------------------------------------
obligations of Guarantor to make the payments required in Sections 2.3 and 2.4
hereof shall be absolute and
5
<PAGE>
unconditional; and Guarantor shall not discontinue such payments for any cause,
including, without limiting the generality of the foregoing, any acts or
circumstances that may constitute failure of consideration, eviction or
constructive eviction from the Navy I Project (the "Project"), destruction of or
-------
damage to the Project, including commercial frustration of purpose, or change in
the tax or other laws or administrative rulings of or administrative actions by
the United States of America or the State of California or any political
subdivision of either. Guarantor may, however, at its own cost and expense and
in its own name or in the name of Funding Corporation, prosecute or defend any
action or proceeding or take any other action involving third persons which
Guarantor deems reasonably necessary in order to secure or protect its rights
with respect to the Project.
Section 2.7. General Terms of Payment.
------------------------
(a) All sums payable to Funding Corporation hereunder shall be
deemed paid to the extent the Depositary shall apply amounts held by the
Depositary in accordance with the Depositary Agreement to the payment of
principal of or interest on the Partnership Loan and the Senior Secured Notes in
accordance with the Depositary Agreement.
(b) Whenever any payment hereunder shall be due, or any
calculation shall be made, on a day which is not a Business Day, the date for
payment or calculation, as the case may be, shall be extended to the next
succeeding Business Day, and any interest on any payment shall be payable for
such extended time at the specified rate.
(c) If no due date is specified for the payment of any amount
payable by Guarantor hereunder, such amount shall be due and payable not later
than ten (10) days after receipt of written demand by Funding Corporation or by
the Trustee to Guarantor for payment thereof.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
------------------------------
Guarantor represents and warrants to Funding Corporation as follows:
Section 3.1. Organization, Power and Status of Guarantor. Guarantor
-------------------------------------------
is a general partnership, duly formed, validly existing and in good standing
under the laws of the State of California. Guarantor is duly authorized to do
business in each other jurisdiction where the nature of its activities makes
such qualification necessary. Guarantor has all requisite power and authority to
carry on its business as now being conducted and as proposed to be conducted.
Section 3.2. Authorization; Enforceability; Execution and Delivery.
-----------------------------------------------------
(a) Guarantor has all necessary power and authority to execute,
deliver and perform its obligations under this Agreement, the Initial
Partnership Notes and each other Financing Document to which it is a party.
(b) All action on the part of Guarantor that is required for the
authorization, execution, delivery and performance of this Agreement, the
Initial Partnership Notes and each other Financing Document to which Guarantor
is a party has been duly and effectively
6
<PAGE>
taken; and the execution, delivery and performance of this Agreement, the
Initial Partnership Notes and each such other Financing Document to which
Guarantor is a party does not require the approval or consent of any holder or
trustee of any Indebtedness or other material obligations of Guarantor which has
not been obtained.
(c) This Agreement, the Initial Partnership Notes and each other
Financing Document to which Guarantor is a party have been duly authorized,
executed and delivered by Guarantor. Each of this Agreement, the Initial
Partnership Notes and each other Financing Document to which Guarantor is a
party constitutes a legal, valid and binding obligation of Guarantor enforceable
against Guarantor in accordance with the terms hereof and thereof, except as the
enforceability thereof may be limited by bankruptcy, insolvency, or similar laws
affecting creditors' rights generally, and subject to general principles of
equity.
Section 3.3. No Conflicts; Laws and Contracts; No Default;
---------------------------------------------
Representations and Warranties.
- ------------------------------
(a) Neither the execution, delivery and performance of this
Agreement, the Initial Partnership Notes or any other Financing Document to
which Guarantor is a party, nor the consummation of any of the transactions
contemplated hereby or thereby (i) contravenes any provision of law, rule or
regulation applicable to Guarantor or any of the Collateral, except any
contravention which, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, (ii) conflicts or is
inconsistent with or constitutes a default under the amended and restated
partnership agreement of Guarantor, or of any other terms of any Project
Document, Financing Document or any other agreement or instrument to which
Guarantor may be subject except any such conflict, inconsistency, default or
violation which, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect or (iii) results in the creation
or imposition of (or the obligation to create or impose) any Liens (other than
Permitted Liens) on the Collateral.
(b) Guarantor is in compliance with any and all laws, rules or
regulations applicable to it, except any such noncompliance which, individually
or in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect.
Section 3.4. Litigation. Except as disclosed in the Preliminary
----------
Offering Memorandum or the Final Offering Memorandum there are no claims,
actions, suits, investigations or proceedings at law or in equity (including any
Environmental Claims) or by or before any arbitrator or Governmental Authority
now pending against Guarantor or, to the best knowledge of Guarantor after due
inquiry, threatened against Guarantor or any property or other assets or rights
of Guarantor that could reasonably be expected to result in a Material Adverse
Effect.
Section 3.5. Environmental Matters. To the best knowledge of
---------------------
Guarantor after due inquiry, the Project is in compliance in all material
respects with all existing applicable Environmental Laws and there are no facts,
circumstances or conditions under any existing Environmental Law which could,
individually or in the aggregate with all other circumstances or conditions,
reasonably be expected to result in a Material Adverse Effect.
7
<PAGE>
Section 3.6. Employee Benefit Plans. Each Plan (including without
----------------------
limitation each Plan of a Commonly Controlled Entity) as to which Guarantor may
have any liability complies with all applicable requirements of law and
regulations, and (i) no "reportable event" (as defined in Section 4043 of ERISA
(other than an event not subject to the notice requirements of the PBGC)) has
occurred with respect to any such Plan, (ii) there has been no withdrawal from
any Multiemployer Plan or steps taken to do so that have resulted or could
reasonably be expected to result in material liability for Guarantor, (iii) no
Plan has been terminated or has commenced to be terminated which could
reasonably be expected to result in material liability for Guarantor, (iv) no
contribution failure has occurred with respect to any Plan sufficient to give
rise to a lien under Section 302(f) of ERISA or Section 412 of the Code or the
posting of any security under Section 307 of ERISA or Section 401(a)(29) of the
Code and (v) no condition exists or event or transaction has occurred with
respect to any Plan that, in each case, could reasonably be expected to result
in a Material Adverse Effect.
Section 3.7. Business of Guarantor. Except as otherwise permitted in
---------------------
this Agreement and the other Financing Documents, Guarantor is not engaged in
any business other than the development, acquisition, construction, operation
and financing of the Project and transactions related thereto.
Section 3.8. Valid Title. Guarantor has good and valid title to all
-----------
of its properties, rights and assets purported to be owned by Guarantor and a
valid leasehold interest or contractual right to possession or use with respect
to assets leased or used by Guarantor, subject only to Permitted Liens.
Guarantor will, so long as any obligations shall be outstanding, warrant and
defend its title to its properties and assets against any claims and demands
which may affect to a material extent its title to its properties and assets.
Section 3.9. Utility Regulation. Guarantor is not subject to
------------------
regulation by any Governmental Authority under PUHCA as a "public utility
company" or an "affiliate," or "subsidiary company" of a "registered holding
company" or a company subject to registration under PUHCA.
Section 3.10. Qualifying Facility. The Project is a Qualifying
-------------------
Facility.
Section 3.11. Investment Company Act. Guarantor is not, and following
----------------------
the execution of the Partnership Note, will not be, an "investment company" or,
to its knowledge, an entity "controlled" by an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended.
Section 3.12. No Defaults. Guarantor is not in default under any
-----------
Project Document, Financing Document or other material project contract which
could reasonably be expected to result in a Material Adverse Effect. To the best
of Guarantor's knowledge, no material default exists by any other party to the
Project Documents, Financing Documents or other material project contracts.
8
<PAGE>
Section 3.13. Governmental Approvals. All Governmental Approvals
----------------------
which are required to be obtained by, in the name of or on behalf of Guarantor
or, to the knowledge of Guarantor, any other party to any Financing Document, in
connection with (a) the issuance of the Initial Partnership Notes and (b) the
execution, delivery and performance by Guarantor and any other party to any
Financing Document of the Financing Documents, have been duly obtained or made,
are validly issued and are in full force and effect.
Section 3.14. Margin Stock. Guarantor is not engaged, directly or
------------
indirectly, principally, or as one of its important activities, in the business
of extending, or arranging for the extension of, credit for the purposes of
purchasing or carrying any margin stock, within the meaning of Regulation T, U
or X of the Board of Governors of the Federal Reserve System. No part of the
proceeds of any loan made under this Agreement will be used for "purchasing" or
"carrying" any "margin stock" as so defined, or for extending credit to others
for the purpose of purchasing or carrying margin stock, or for any purpose which
would violate, or cause a violation of, any such regulation.
Section 3.15. Taxes. Guarantor has filed all federal and state tax
-----
returns, to date, required to be filed by applicable laws and has paid all
federal and state taxes due under such tax returns which if not filed or paid
could reasonably be expected to have a Material Adverse Effect.
Section 3.16. Ownership of Guarantor. As of the date of this
----------------------
Agreement, ESCA, LLC, a Delaware limited liability company and New CLOC Company,
LLC, a Delaware limited liability company are the sole general partners of the
Guarantor.
Section 3.17. Disclosure. The Preliminary Offering Memorandum and the
----------
Final Offering Memorandum as of each such document's date did not, and any
supplement or amendment to them will not, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations or warranties contained in this Section 3.17 shall not apply to
statements in or omissions from the Preliminary Offering Memorandum, the Final
Offering Memorandum or any supplement or amendment thereto based upon and in
conformity with information relating to the Initial Purchaser furnished to
Funding Corporation.
Section 3.18. Security Interests. The security interests to be
------------------
transferred to and/or to be created in favor of Trustee under the Security
Documents will be valid and perfected first priority security interests in and
liens on the collateral described therein, subject only to Permitted Liens.
Section 3.19. Due Execution of Project Documents. Except as otherwise
----------------------------------
described in the Final Offering Memorandum, each Project Document in effect on
the date hereof has been duly authorized, executed and delivered by Guarantor,
has not been amended or otherwise modified except in accordance with the
Indenture, and is in full force and effect and is binding upon and enforceable
against all parties thereto in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors
9
<PAGE>
generally, and to the exercise of judicial discretion in accordance with general
principles of equity other than for such Project Documents that, if not in full
force and effect or binding on all parties thereto, would not reasonably be
expected to have a Material Adverse Effect. There exists no default under any
such Project Document by Guarantor, or to the best of Guarantor's knowledge, by
the other parties thereto, in each case which default could reasonably be
expected to have a Material Adverse Effect.
ARTICLE IV.
COVENANTS AND AGREEMENTS OF GUARANTOR
-------------------------------------
Guarantor hereby covenants and agrees that from the date of this
Agreement, Guarantor shall faithfully observe and fulfill, and Guarantor shall
cause to be fulfilled and observed, each and all of the following covenants
until all amounts due under the Senior Secured Notes and the Indenture shall
have been repaid.
Section 4.1. Events of Loss. If any Event of Loss or Event of
--------------
Eminent Domain occurs and the cost of repairing, restoring, replacing or
rebuilding (collectively, "Reconstructing") is $5.0 million or less, and if, in
--------------
the reasonable judgment of the managing partner of the Guarantor, to Reconstruct
would be prudent and consistent with the Guarantor's obligations to maintain
such Project, then the Guarantor shall, at its own expense and whether or not
such damage, destruction or loss is covered by an insurance policy, with
reasonable promptness, Reconstruct the same. If there are Loss Proceeds or
Eminent Domain Proceeds (from insurance or otherwise) available as a result of
such damage, destruction or loss in the amount of $5.0 million or less, then
said Loss Proceeds or Eminent Domain Proceeds shall be available to the
Guarantor for application pursuant to Section 3.10 of the Depositary Agreement.
If an Event of Loss or an Event of Eminent Domain occurs and the Loss
Proceeds or Eminent Domain Proceeds are greater than $5.0 million but less than
the total amount outstanding under the Partnership Note (the "Partnership Note
----------------
Balance") the Guarantor shall have the option to Reconstruct the Project, or any
- -------
part thereof, upon the satisfaction of certain conditions outlined in Section
3.10 of the Depositary Agreement. If the Guarantor fails to exercise such
option, the Guarantor shall apply the Loss Proceeds or Eminent Domain Proceeds
to prepay amounts outstanding under the Partnership Note as described in Section
2.5(b) of this Agreement.
If an Event of Loss or an Event of Eminent Domain occurs and the Loss
Proceeds or Eminent Domain Proceeds are equal to or exceed the Partnership Note
Balance, then the Guarantor shall apply those Loss Proceeds or Eminent Domain
Proceeds to prepay amounts outstanding under the Partnership Note, as described
in Section 2.5(b) of this Agreement unless the Guarantor obtains a determination
form the Rating Agencies that the credit rating of the senior secured notes that
had been in effect immediately before the Event of Loss or Event of Eminent
Domain will not be adversely affected by applying those Loss Proceeds or Eminent
Domain Proceeds to Reconstruction of the Project.
Section 4.2. Reporting Requirements. Guarantor shall provide to
----------------------
Funding Corporation (a) all quarterly and annual financial information that
would be required to be
10
<PAGE>
contained in a filing with the SEC on Forms 10-Q and 10-K if Guarantor were
required to file such forms, including a "Management's Discussion and Analysis
of Financial Conditions and Results of Operation" and, with respect to the
annual information only, a report thereon by the Guarantor's independent
certified public accountants, (b) all current reports that would be required to
be filed with the SEC on Form 8-K if Guarantor was required to file such
reports, within the time periods specified in the SEC's rules and regulations,
(c) all other information in respect of Guarantor requested by Funding
Corporation to enable Funding Corporation to meet its obligations under the
Indenture, (d) copies of material notices, and (e) written notice of any Default
or Credit Agreement Event of Default under this Agreement or any event or
condition that could reasonably be expected to result in a Material Adverse
Effect. To the extent that the information provided pursuant to this Section 4.2
includes financial statements of the Guarantor, the Guarantor shall join with
BLM and Navy II to provide Issuer with combined financial statements.
Section 4.3. Ownership of Guarantor. Guarantor shall not permit ESCA
----------------------
or New CLOC (each a "Partner") to sell, transfer or convey any partnership
-------
interest held by such Partner in Guarantor unless (a) such sale, transfer or
conveyance would not result in any change in the Project's status as a
Qualifying Facility and (2) the Person to whom such partnership interests are
sold, transferred or conveyed enters into a pledge agreement providing for the
perfected, first priority pledge to the Collateral Agent for the benefit of the
Trustee and the Holders of the Senior Secured Notes of all such partnership
interests.
Section 4.4. Sale of Assets. Except as contemplated by the
--------------
Transaction Documents, Guarantor shall not sell, lease (as lessor) or transfer
(as transferor) any property or assets material to the operation of the Project
except for fair value in the ordinary course of business to the extent that such
property is no longer useful or necessary in connection with the operation of
the Project.
Section 4.5. Insurance. Guarantor shall maintain or cause to be
---------
maintained insurance as is generally carried by companies engaged in similar
businesses and owning similar properties in the same general areas and financed
in a similar manner. Guarantor shall maintain business interruption insurance,
casualty insurance, including flood and earthquake coverage, and primary and
excess liability insurance, as well as customary worker's compensation and
automobile insurance. Prior to reducing or canceling such coverages (or
permitting such coverages to be reduced or canceled) Guarantor shall notify the
Insurance Consultant of the proposed reduction or cancellation. Guarantor shall
not reduce or cancel such insurance coverages (or permit any such coverages to
be reduced or canceled) if the Insurance Consultant determines that (i) such
reduction or cancellation would not be reasonable under the circumstances and
(ii) the insurance coverages sought to be reduced or canceled are available on
commercially reasonable terms or that another level of coverage greater than
that proposed by Guarantor is available on commercially reasonable terms (in
which case such coverage may be reduced to the higher of such available levels).
Section 4.6. QF Status. Guarantor shall operate and maintain the
---------
Project as a Qualifying Facility unless the failure to so operate and maintain
such Project as a Qualifying Facility would not cause or result in (a) a breach
of the power purchase agreements that Guarantor
11
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is a party to or (b) an adverse effect on the revenues to be received under such
power purchase agreements.
Section 4.7. Governmental Approvals; Title. Guarantor shall at all
-----------------------------
times (a) obtain and maintain in full force and effect all material Governmental
Approvals and other consents and approvals required at any time in connection
with its business and (b) preserve and maintain good and valid title to its
properties and assets (subject to no liens other than Permitted Liens), except
in each case where the failure to do so in clause (a) or (b) could not
reasonably be expected to have a Material Adverse Effect.
Section 4.8. Nature of Business. Guarantor shall not engage in any
------------------
business other than its existing business.
Section 4.9. Compliance With Laws. Guarantor shall comply with all
--------------------
applicable laws, except where non-compliance could not reasonably be expected to
have a Material Adverse Effect.
Section 4.10. Prohibition on Fundamental Changes. Guarantor shall not
----------------------------------
enter into any transaction of merger or consolidation, change its form of
organization or its business, liquidate or dissolve itself (or suffer any
liquidation or dissolution); provided, however, that Guarantor shall be able to
-------- -------
merge with or into BLM or Navy II so long as no Default or Credit Agreement
Event of Default exists or shall occur as a result thereof and if, in the event
that Guarantor is not the surviving entity, (i) the surviving entity shall,
simultaneously with such merger, assume all the obligations of Guarantor under
this Agreement and under the other Financing Documents to which Guarantor was a
party, (ii) Funding Corporation shall have received appropriate amendments to
this Agreement and the other Financing Documents to which Guarantor was a party
and all financing statements necessary to preserve its valid, perfected, first
priority security interest in the Collateral, each in form and substance
reasonably satisfactory to Funding Corporation, (iii) after giving effect to
such merger, the merger shall not result in a Material Adverse Effect and (iv)
after giving effect to such merger, no Default or Credit Agreement Event of
Default shall have occurred or be continuing. Guarantor shall not purchase or
otherwise acquire all or substantially all of the assets of any other Person,
except for the purchase or acquisition by Guarantor of the partnership interests
or assets related to the BLM or Navy II Projects.
Section 4.11. Revenue Account. Guarantor shall take all actions as
---------------
may be necessary to cause all revenues received by Guarantor from the Project to
be deposited in the Revenue Account in accordance with Section 3.1. of the
Depositary Agreement.
Section 4.12. Transactions With Affiliates. Except as provided in or
----------------------------
with respect to the Project Documents as in effect on the Closing Date, the
Guarantor shall not make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract, agreement
understanding, loan, advance or guarantee with or for the benefit of, any
Affiliate (each, an "Affiliate Transaction"), unless (a) such Affiliate
---------------------
Transaction is on terms that are no less favorable to the Guarantor than those
that would have been obtained in a comparable transaction by
12
<PAGE>
the Guarantor with an unrelated Person; and (b) the Guarantor delivers to the
Trustee (i) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the general partner of the Guarantor set forth in an
Officer's Certificate certifying that such Affiliate Transaction complies with
this covenant and that such Affiliate Transaction has been approved by all of
the partners of the Guarantor; and (ii) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $5.0 million, an opinion as to the fairness to the
Holders of such Affiliate Transaction from a financial point of view issued by
an investment banking firm of national standing. Notwithstanding the above, the
following shall be deemed not to be Affiliate Transactions: (w) transactions
----------------------
between or among one or more of the Guarantor, BLM, Navy II or Funding Corp.;
(x) payment of any Operating and Maintenance Fees or Management Fees, provided
that such payment is made in accordance with the provisions of Sections 3.1(c)
and 3.8(b) of the Depositary Agreement; and (z) Restricted Payments permitted to
be made pursuant to the terms of the Depository Agreement.
Section 4.13. Restricted Payments. Guarantor shall not make any
-------------------
Restricted Payments except as permitted under the Depositary Agreement.
Section 4.14. Exercise of Rights Under Project Documents. Guarantor
------------------------------------------
shall not exercise, or fail to exercise, its rights under any of the Project
Documents in a manner which could reasonably be expected to result in a Material
Adverse Effect.
Section 4.15. Amendments to Contracts. Guarantor shall not terminate,
-----------------------
amend, replace or modify or permit to be terminated, amended, replaced or
modified (other than immaterial amendments or modifications as certified by
Guarantor) any of the Project Documents to which it is a party unless (a)
Guarantor certifies that such termination, amendment, replacement or
modification could not reasonably be expected to have a Material Adverse Effect
and (b) in the case of any amendment, termination or modification of a Power
Purchase Agreement which affects the revenues derived by Guarantor by more than
Five Million Dollars ($5,000,000) or Ten Million Dollars ($10,000,000) when
aggregated with all previous amendments or modifications by Guarantor hereunder
or by the other Guarantors, Guarantor provides a letter from each of the Rating
Agencies confirming that such amendment, termination or modification will not
result in a Rating Downgrade after giving effect to any mandatory redemption of
Senior Secured Notes required to be made in connection with any such amendment,
modification or termination pursuant to a Permitted Power Contract Buy-Out.
Section 4.16. Limitations on Indebtedness/Liens. Guarantor shall not
---------------------------------
create or incur or suffer to exist any Indebtedness except Permitted Guarantor
Indebtedness. Guarantor shall not grant, create, incur or suffer to exist any
Liens upon any of its properties, except for Permitted Liens.
Section 4.17. Operating Budget. If, during any fiscal year, Guarantor
----------------
(i) exceeds its Operating Budget by more than 25% or (ii) expends 75% or less of
its Operating Budget, then in either case Guarantor shall cause the Independent
Engineer to certify that the expenditures were
13
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reasonably designed to permit the Guarantor to operate and maintain a facility
of that type and to maximize its revenues and net income.
Section 4.18. Required Geothermal Percentage. Guarantor shall use its
------------------------------
best efforts to maintain, in cooperation with the other Coso Partnerships, the
minimum geothermal resource required to produce, in the aggregate among all of
the Projects, at least 105% of the steam necessary to generate the energy
projected in the Independent Engineer's Base Case Projections.
Guarantor shall cause the Geothermal Engineer to deliver, not more
than 30 days after October 31 of each year, a certificate setting forth the
Actual Geothermal Percentage for the Projects measured as of October 31 of such
year. If as of October 31 in any year the Geothermal Engineer shall determine
that the Actual Geothermal Percentage for the Projects is less than 105%, then:
(i) the Guarantor shall develop a plan of corrective action to achieve an Actual
Geothermal Percentage of at least 105%, which plan shall be approved by the
Geothermal Engineer, and the Guarantor shall diligently implement such approved
plan; and (ii) no payment of Management Fees or any Restricted Payment shall be
made until such time as the Geothermal Engineer shall determine that the Actual
Geothermal Percentage for the Projects is at least equal to 105%. Guarantor
shall cause the Geothermal Engineer to deliver, during the calendar year 2006, a
report on the geothermal resource available as of such date and whether
sufficient geothermal resource remains to enable the Projects in the aggregate
to produce sufficient steam to generate the energy projected in the Independent
Engineer's Base Case Projections through the maturity date of the 2009 Notes.
Section 4.19. Books and Records. Guarantor shall maintain its books
-----------------
and records and give Funding Corporation, the Trustee and the Independent
Engineer inspection rights at reasonable times and upon reasonable prior notice.
Section 4.20. Project Documents; Additional Project Documents.
-----------------------------------------------
Guarantor shall perform and observe its covenants and obligations under all of
the Project Documents in all material respects, except where the failure to do
so could not reasonably be expected to result in a Material Adverse Effect.
Guarantor shall not enter into any Additional Project Documents if entering into
such document would result in a Material Adverse Effect; provided that the
Guarantor shall be permitted to enter into agreements for the purchase by the
Guarantor of electricity so long as (a) such agreements with respect to the
Guarantor do not provide for payments in excess of $10.0 million per year by the
Guarantor and (b) prior to entering into any such agreement the Guarantor
delivers an officer's certificate to the Trustee certifying that the proposed
agreement is on arms-length terms.
Section 4.21. Maintenance of Existence. Guarantor shall at all times
------------------------
preserve and maintain in full force and effect (a) its existence as a general
partnership in good standing under the laws of the State of California unless it
changes its form of organization in accordance with Section 4.10 in which such
event it shall maintain its existence in such new form; (b) its qualification to
do business in each jurisdiction in which the character of the properties owned
or leased by it or in which the transaction of its business as conducted or
proposed to be conducted makes such qualification necessary, and (c) all of its
powers, rights, privileges and franchises which are
14
<PAGE>
necessary for the ownership and operation of its business except where the
failure to maintain any of the foregoing in clause (c) could not reasonably be
expected to have a Material Adverse Effect.
Section 4.22. Taxes. Guarantor shall pay and discharge all taxes,
-----
assessments and governmental charges upon it, its income, its properties and its
assets prior to the date on which penalties are attached thereto, unless and to
the extent only that (a) such taxes, assessments and governmental charges shall
be contested in good faith and by appropriate proceedings, and (b) adequate
reserves, Notes or other security are established with respect thereto.
Section 4.23. Additional Documents; Filings and Recordings. Guarantor
--------------------------------------------
shall execute and deliver, as requested by Trustee, such other documents as
shall reasonably be necessary or advisable in order to effect or protect the
rights and remedies of Trustee granted or provided for by the Financing
Documents to which Guarantor is a party and to consummate the transactions
contemplated therein. Guarantor shall, at its own expense, take all reasonable
actions (a) that are requested by Trustee or (b) that an Authorized Officer of
Guarantor has actual knowledge are necessary as a legal matter to establish,
maintain and perfect the first priority security interests of Trustee, subject
to Permitted Liens. Without limiting the generality of the foregoing, Guarantor
shall execute or cause to be executed and shall file or cause to be filed such
financing statements, continuation statements, and fixture filings and such
mortgages, or deeds of trust in all places necessary or advisable (in the
opinion of counsel for Trustee) to establish, maintain and perfect such security
interests, subject to Permitted Liens.
Section 4.24. Registered Owner. Guarantor shall not register or
----------------
permit any partner to register any other secured party as a "registered owner"
(as defined in Section 8-301 of the New York UCC) of any partnership interest in
Guarantor.
Section 4.25. USBLM/LADWP Leases. Guarantor shall use its best
------------------
efforts and diligence to cause an undivided one third interest in each of the
USBLM/LADWP Leases to be assigned to it (both by approval of such assignment by
the USBLM and by proper recordation of an appropriate Assignment and Assumption
Agreement in Inyo County, California) within ninety (90) days after the Closing
Date. Further, Guarantor shall use its best efforts and diligence to, within one
hundred and eighty (180) days after the Closing Date, cause Coso Operating
Company LLC, a Delaware limited liability company ("COC") and Coso Land Company,
---
a California general partnership ("CLC") to perform all of their respective
---
obligations under that certain Acquisition Agreement of even date herewith
among COC and the Guarantor, BLM and Navy II.
ARTICLE V.
DEFAULT AND REMEDIES
--------------------
Section 5.1. Events of Default. Each of the following events and
-----------------
occurrences shall constitute a Credit Agreement Event of Default under this
Agreement:
(a) the failure by any Guarantor to pay or cause to be paid any
principal of, premium, if any, or interest, fees or any other obligations on any
Partnership Note for 10 or more
15
<PAGE>
days after the same becomes due and payable, whether by scheduled maturity or
required prepayment or by acceleration or otherwise;
(b) any representation or warranty made by Guarantor under this
Agreement shall prove to have been untrue or misleading in any material respect
as of the time made, confirmed or furnished and the fact, event or circumstance
that gave rise to such inaccuracy could reasonably be expected to result in a
Material Adverse Effect and such fact, event or circumstance shall continue to
be uncured for 30 or more days from the date a Responsible Officer of Guarantor
receives notice thereof from the Trustee; provided that if Guarantor commences
efforts to cure such fact, event or circumstance within such 30-day period,
Guarantor may continue to effect such cure and such misrepresentation shall not
be deemed a Default or a Credit Agreement Event of Default for an additional 60
days so long as Guarantor is diligently pursuing such cure;
(c) the failure by Guarantor to perform or observe any covenant
contained in Sections 4.4, 4.5, 4.8, 4.10, 4.13, 4.15, 4.16 or 4.21 hereof and
such failure shall continue uncured for 30 or more days after a Responsible
Officer of Guarantor receives notice thereof from the Trustee;
(d) the failure by any of the Credit Parties (including, without
limitation, the other Partnerships) to perform or observe any of the other
covenants under this Agreement or in the other Financing Documents any Credit
Party is party to (other than such failures described in clause (a) or (c) above
or (m) below) and such failure shall continue uncured for 30 or more days after
a Responsible Officer of such Credit Party receives notice thereof from the
Trustee; provided that if such Credit Party commences efforts to cure such
default within such 30-day period, such Credit Party may continue to effect such
cure of the default and such default shall not be deemed a Credit Agreement
Event of Default for an additional 90 days so long as such Credit Party is
diligently pursuing such cure;
(e) Guarantor:
(i) admits in writing its inability, or is generally
unable, to pay its debts as the debts become due or makes a general
assignment for the benefit of creditors; or
(ii) commences any case, proceeding or other action
seeking reorganization, arrangement, adjustment, liquidation, dissolution
or composition of it or its debts under any applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, adjustment,
insolvency, reorganization or similar laws affecting the rights or remedies
of creditors generally, as in effect from time to time (collectively,
"Debtor Relief Law"); or
-----------------
(iii) in any involuntary case, proceeding or other action
commenced against it which seeks to have an order for relief (injunctive or
otherwise) entered against it, as debtor, or seeks reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or
its debts under any Debtor Relief Law, (A) fails to obtain
16
<PAGE>
a dismissal of such case, proceeding or other action within ninety (90)
days of its commencement, or (B) converts the case from one chapter of the
Bankruptcy Reform Act of 1978, as amended, to another chapter, or (C) is
the subject of an order for relief; or
(iv) has a trustee, receiver, custodian or other official
appointed for or take possession of all or any part of its property or has
any court take jurisdiction of any of its property, which action remains
undismissed for a period of ninety (90) days;
(f) the entry of one or more final and non-appealable judgment
or judgments for the payment of money in excess of $2,500,000 (exclusive of
judgment amounts fully covered by insurance or indemnity) against any of the
Coso Partnerships, which remain unpaid or unstayed for a period of 90 or more
consecutive days after the entry thereof;
(g) any event of default under any Permitted Guarantor
Indebtedness (other than Subordinated Indebtedness) that results in Permitted
Guarantor Indebtedness in excess of $2,500,000 becoming due and payable prior to
its stated maturity;
(h) Guarantor or any other Guarantor (as defined in the
Indenture) fails to perform any of its respective payment obligations under its
Guarantee for 15 or more days after the same becomes due and payable;
(i) any Governmental Approval required for the operation of the
Project by Guarantor is revoked, terminated, withdrawn or ceases to be in full
force and effect if such revocation, termination, withdrawal or cessation could
reasonably be expected to have a Material Adverse Effect and such revocation,
termination, withdrawal or cessation is not cured within 60 days following the
occurrence thereof;
(j) any Project Document ceases to be valid and binding and in
full force and effect prior to its stated maturity date other than as a result
of an amendment, termination or Permitted Power Contract Buy-Out permitted under
this Agreement or any third party thereto fails to perform its material
obligations thereunder or makes any material misrepresentation thereunder and
such event results in a Material Adverse Effect; provided that no such event
shall be a Credit Agreement Event of Default if within 180 days from the
occurrence of any such event, (i) the third party resumes performance or cures
such misrepresentation or (ii) Guarantor enters into an Additional Project
Document in replacement thereof, as permitted under this Agreement;
(k) the failure of Guarantor or any other party to perform or
observe any of its covenants or obligations contained in any of the Project
Documents to which Guarantor is a party if such failure shall result in the
termination of such Project Document or otherwise result in a Material Adverse
Effect; provided, however, that such event shall not be a Credit Agreement Event
of Default if within 180 days from the occurrence of any such event, the failure
is cured or Guarantor enters into an Additional Project Document in replacement
thereof as permitted under this Agreement;
(l) any of the Security Documents ceases to be effective or any
Lien granted therein ceases to be a valid and perfected Lien in favor of the
Collateral Agent on the
17
<PAGE>
Collateral described therein with the priority purported to be created thereby;
provided, however, that the applicable Credit Party shall have 10 days after a
Responsible Officer of such Credit Party obtains knowledge thereof to cure any
such cessation or to furnish to the Trustee, the Collateral Agent or the
Depositary all documents or instruments required to cure any such cessation;
(m) in the case of a determination by the Geothermal Engineer
that the Actual Geothermal Percentage is less than 105% (as set forth in the
annual certificate required pursuant to the covenant set forth in Section 4.18
of this Agreement), any (i) failure by Guarantor (a) to prepare a plan approved
by the Geothermal Engineer within 90 days of such certification to achieve an
Actual Geothermal Percentage of at least 105%, (b) to diligently implement such
plan and (c) to achieve an Actual Geothermal Percentage of at least 105% within
a reasonable period of time thereafter as determined in the sole discretion of
the Geothermal Engineer, or (ii) determination by the Geothermal Engineer or
Guarantor that achieving an Actual Geothermal Percentage of at least 105% is not
reasonably feasible; or
(n) an Event of Default (as defined in the Indenture) occurs
under Sections 5.01 (c), (d), (e), (f), (g) or (h) of the Indenture.
Section 5.2. Consequences of Credit Agreement Event of Default. If
-------------------------------------------------
one or more Credit Agreement Events of Default under this Agreement have
occurred and are continuing, then:
(a) in the case of a Credit Agreement Event of Default under
Section 5.1(e) above, the entire outstanding principal amount of the
Partnership Note, all interest accrued and unpaid thereon, and all premium
and other amounts payable under the Partnership Note and this Agreement, if
any, shall automatically become due and payable without presentment,
demand, protest or notice of any kind; or
(b) in the case of a Default or a Credit Agreement Event of
Default described in:
(i) clause (a) and (h) of Section 5.1 of this Agreement,
upon the direction of the Holders of no less than 25% in aggregate
principal amount of the Outstanding Notes, Funding Corporation shall
declare the outstanding principal amount of the Partnership Note and all
interest accrued and unpaid thereon, and all premium and other amounts
payable under this Agreement, if any, to be due and payable; or
(ii) clauses (b), (c), (d), (f), (g), (i), (j), (k), (l),
(m) and (n) of Section 5.1, upon the direction of the Required Holders,
Funding Corporation shall declare the outstanding principal amount of the
Partnership Note to be accelerated and due and payable and all interest
accrued and unpaid thereon, and all premium and other amounts payable under
this Agreement, if any, to be due and payable.
Section 5.3. Defense of Actions. Upon the occurrence of a Credit
------------------
Agreement Event of Default, Funding Corporation may (but shall not be obligated
to) commence, appear in or defend any action or proceeding purporting to affect
the Partnership Loan or the respective rights and obligations of Funding
Corporation and any other person pursuant to this Agreement, any other
18
<PAGE>
Financing Document to which Guarantor is a party or any Security Document to
which Guarantor is a party. Funding Corporation may (but shall not be obligated
to) pay all necessary expenses, including reasonable attorneys' fees and
expenses, incurred in connection with such proceedings or actions, which
expenses Guarantor hereby agrees to repay to Funding Corporation promptly upon
demand. Guarantor acknowledges and agrees that Funding Corporation has assigned
its interest in the Promissory Note to Collateral Agent and upon the occurrence
of a Default or a Credit Agreement Event of Default, Collateral Agent may (but
shall not be obligated to) take any and all actions which Funding Corporation
may take under this Agreement.
ARTICLE VI.
GENERAL TERMS AND CONDITIONS
----------------------------
Section 6.1. Notices. All notices, requests, complaints, demands,
-------
communications or other papers shall be sufficiently given and shall be deemed
given when delivered or mailed by registered or certified mail, postage prepaid,
or sent by telegram or telex, addressed to the parties as follows:
If to Guarantor: Coso Finance Partners
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas
New York, New York 10036
If to Funding Corporation: Caithness Coso Funding Corporation
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas
New York, New York 10036
If to Moody's: Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: Corporate Utilities Department
If to S & P: Standard & Poor's Corporation
25 Broadway
New York, New York 10004
Attention: Corporate Finance Department
Electric Utilities Group
The above parties may, by notice given hereunder, designate any
further or different addresses to which subsequent notices, certificates or
other communications shall be sent.
19
<PAGE>
Section 6.2. Amendments and Waivers. This Agreement may only be
----------------------
amended by a document signed by Funding Corporation and Guarantor. No waiver of
any provision of this Agreement nor consent by Funding Corporation to any
departure by Guarantor therefrom shall in any event be effective unless the same
shall be in writing and signed by Funding Corporation. Any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of Funding Corporation to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof (except as provided above) nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. This Agreement shall be binding upon
Guarantor, its successors and any permitted assigns.
Section 6.3. Election of Remedies. The remedies herein provided are
--------------------
cumulative and not exclusive of any remedies provided by law. Funding
Corporation shall have all of the rights and remedies granted to Funding
Corporation or Trustee in the Financing Documents and available at law or in
equity, and these same rights and remedies may be pursued separately,
successively or concurrently against Guarantor, at the sole discretion of
Funding Corporation.
Section 6.4. Severability. Any provision of this Agreement which is
------------
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 6.5. Third-Party Beneficiaries; Prior Agreements. It is
-------------------------------------------
intended that the Trustee, the Collateral Agent and the Depositary be, and the
Trustee, the Collateral Agent and the Depositary are hereby made, third-party
beneficiaries of this Agreement. This Agreement is for the sole benefit of
Funding Corporation, the Trustee, the Collateral Agent, the Depositary, the
Holders and Guarantor and is not for the benefit of any other third party.
Notwithstanding the two preceding sentences, no Holder shall have any right to
pursue any remedy hereunder except through the Trustee as permitted under
Section 5.05 of the Indenture. This Agreement supersedes all prior agreements
among the parties with respect to the matters addressed herein.
Section 6.6. Guarantors in Control. In no event shall Funding
---------------------
Corporation's, the Trustee's, the Collateral Agent's or the Depositary's rights
and interests under this Agreement and the other Financing Documents be
construed to give Funding Corporation, the Trustee, the Collateral Agent or the
Depositary or be deemed to indicate that Funding Corporation, the Trustee, the
Collateral Agent or the Depositary has control of the business, management or
properties of Guarantor or power over the daily management functions and
operating decisions made by Guarantor.
Section 6.7. Number and Gender. Whenever used herein, the singular
-----------------
number shall include the plural and the plural the singular, and the use of any
gender shall be applicable to all genders.
20
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Section 6.8. Captions. The captions, headings, table of contents and
--------
arrangements used in this Agreement are for convenience only and do not and
shall not be deemed to affect, limit, amplify or modify the terms and provisions
hereof.
Section 6.9. Applicable Law and Jurisdiction. This Agreement,
-------------------------------
including all matters of construction, validity and performance shall be
governed by and construed and interpreted in accordance with the laws of the
State of New York, without reference to principles of conflicts of law (other
than Section 5-1401 of the New York General Obligations Law), except as required
by mandatory provisions of law.
Section 6.10. Consent. Whenever the consent or approval of Funding
-------
Corporation or Guarantor is required herein, such consent or approval shall not
be unreasonably withheld or delayed.
Section 6.11. No Recourse. Funding Corporation agrees that no
-----------
officer, director, employee, shareholder, partner or holder of Capital Stock of
Guarantor, nor any director, officer, employee, incorporator, shareholder,
partner or member of any partner of Guarantor or any Affiliate of any such party
(collectively, the "Nonrecourse Parties") shall be personally liable
-------------------
under this Agreement for the payment of any sums now or hereafter owing
Funding Corporation under the terms of, or for the performance of any obligation
contained in, this Agreement. Funding Corporation agrees that its rights shall
be limited to proceeding against Guarantor and the security provided or intended
to be provided pursuant to the Security Documents and that it shall have no
right to proceed against the Nonrecourse Parties for (a) the satisfaction of any
monetary obligation of, or enforcement of any monetary claim against, Guarantor,
(b) the performance of any obligation, covenant or agreement arising under this
Agreement, or (c) any deficiency judgment remaining after foreclosure of any
property securing the obligations hereunder; provided that (v) the foregoing
provisions of this Section 6.11 shall not constitute a waiver, release or
discharge of any of the Indebtedness, or of any of the terms, covenants,
conditions or provisions of this agreement or any Financing Document and the
same shall continue until fully paid, discharged, observed or performed; (w) the
foregoing provisions of this Section 6.11 shall not limit or restrict the right
of the Collateral Agent, the Holders of the Senior Secured Notes, the Depositary
or the Trustee to name Guarantor or any other Person as a defendant in any
action or suit for a judicial foreclosure or for the exercise of any other
remedy under or with respect to this Agreement or any other Financing Document,
or for injunction or specific performance, so long as no judgment in the nature
of a deficiency judgment shall be enforced against any Nonrecourse Party, except
as set forth in this Section 6.11; (x) the foregoing provisions of this Section
6.11 shall not in any way limit or restrict any right or remedy of Collateral
Agent, the Holders of the Senior Secured Notes, the Depositary or the Trustee
(or any assignee or beneficiary thereof or successor thereto) with respect to,
and all of the Nonrecourse Parties shall remain fully liable to the extent that
it would otherwise be liable for its own actions with respect to, any fraud,
negligence or willful misrepresentation, or misappropriation of any revenues
derived from the Project and the proceeds thereof or any other earnings,
revenues, rents, issues, profits or proceeds that are subject to the Security
Documents that should or would have been paid as provided therein or paid or
delivered to the Depositary, the Trustee, the Collateral Agent or the Holders of
the Senior Secured Notes (or any assignee or beneficiary thereof or successor
thereto) towards any payment required under this Agreement or any
21
<PAGE>
other Financing Document; (y) the foregoing provisions of this Section 6.11
shall not affect or diminish or constitute a waiver, release or discharge of any
specific written obligation, covenant, or agreement in respect of the Project
made by any of the Nonrecourse Parties or any security granted by the
Nonrecourse Parties as security for the obligations of Guarantor or Funding
Corporation; and (z) nothing contained herein shall limit the liability of (i)
any Person who is a party to any Project Document or has issued any certificate
or statement in connection therewith with respect to such liability as may arise
by reason of the terms and conditions of such Project Document, certificate or
statement, or (ii) any Person rendering a legal opinion, in each case under this
clause (z) relating solely to such liability of such Person as may arise under
such referenced instrument, agreement or opinion.
Section 6.12. Counterparts. This Agreement may be signed in any
------------
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
Section 6.13. Successors and Assigns. All the covenants, promises and
----------------------
agreements in this Agreement contained by or on behalf of Guarantor, or by or on
behalf of Funding Corporation, shall bind and inure to the benefit of their
respective successors and assigns, whether so expressed or not.
Section 6.14. Maximum Interest Rate. Notwithstanding any provision to
---------------------
the contrary contained herein or in the Partnership Note, at no time shall
Guarantor be obligated or required to pay interest on the principal balance due
hereunder or thereunder at a rate which could be in excess of the maximum
interest rate permitted by law to be contracted or agreed to be paid. If by the
terms hereof or of the Partnership Note, Guarantor is at any time required or
obligated to pay interest in excess of such maximum rate, then the rate of
interest applicable hereunder shall be deemed to be immediately reduced to such
maximum rate and the interest payable shall be computed at such maximum rate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
COSO FINANCE PARTNERS, a California
general partnership
By: New CLOC Company, LLC, a Delaware
limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
-----------------------------
Christopher T. McCallion
Executive Vice President
CAITHNESS COSO FUNDING CORP., a
Delaware corporation
By: /s/ Christopher T. McCallion
------------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
SCHEDULE 1
----------
PRINCIPAL PAYMENT SCHEDULE FOR PROMISSORY NOTE DUE 2001
-------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of Principal
Scheduled Payment Date Amount Payable
<S> <C>
December 15, 1999 47.8773%
June 15, 2000 11.0736%
December 15, 2000 16.4427%
June 15, 2001 10.1900%
December 15, 2001 14.4164%
</TABLE>
<PAGE>
SCHEDULE 2
----------
PRINCIPAL PAYMENT SCHEDULE FOR PROMISSORY NOTE DUE 2009
-------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of Principal
Scheduled Payment Date Amount Payable
<S> <C>
June 15, 2002 2.8743%
December 15, 2002 4.3109%
June 15, 2003 3.6564%
December 15, 2003 5.4584%
June 15, 2004 4.1363%
December 15, 2004 6.2043%
June 15, 2005 4.6838%
December 15, 2005 7.0257%
June 15, 2006 5.0541%
December 15, 2006 7.5815%
June 15, 2007 6.2601%
December 15, 2007 9.3898%
June 15, 2008 6.4927%
December 15, 2008 9.7650%
June 15, 2009 6.8231%
December 15, 2009 10.2835%
</TABLE>
<PAGE>
Exhibit 10.3
PROMISSORY NOTE
(Due 2001)
$ 29,000,000.00 May 28, 1999
For value received, the undersigned, COSO FINANCE PARTNERS,
a California general partnership (the "Guarantor"), by this promissory note
---------
promises to pay to the order of Caithness Coso Funding Corp., a Delaware
corporation ("Funding Corporation"), at the office of Funding Corporation,
-------------------
located at 1114 Avenue ofthe Americas, New York, New York 10036, in lawful
currency of the United States of America and in immediately available funds, the
principal amount of $29,000,000.00, or if less, the aggregate unpaid and
outstanding principal amount of this Promissory Note advanced by Funding
Corporation to the Guarantorpursuant to that certain Credit Agreement
(the "Guarantor Credit Agreement"), dated as of May 28, 1999, by and among the
--------------------------
Guarantor and Funding Corporation, and as the same may be amended from time to
time, and all other amounts owed by the Guarantor to Funding Corporation
hereunder.
This is a Promissory Note entered into pursuant to the Guarantor
Credit Agreement and is entitled to the benefits thereof and is subject to all
terms, provisions and conditions thereof. Capitalized terms used and not defined
herein shall have the meanings set forth in that certain Indenture, dated as of
May 28, 1999 (the "Indenture"), by and between Funding Corporation, the
---------
Guarantor, Coso Energy Developers, a California general partnership, Coso Power
Developers, a California general partnership, and U.S. Bank Trust National
Association, as trustee.
Reference is hereby made to the Guarantor Credit Agreement, the
Indenture and the Security Documents for the provisions, among others, with
respect to the rights, duties and obligations of the Guarantor and the rights of
the holder of this Promissory Note.
The principal amount hereof is payable in accordance with the
Guarantor Credit Agreement, and such principal amount may be prepaid solely in
accordance with the Guarantor Credit Agreement.
The Guarantor further agrees to pay, in lawful currency of the United
States of America and in immediately available funds, interest from the date
hereof on the unpaid and outstanding principal amount hereof until such unpaid
and outstanding principal amount shall become due and payable (whether at stated
maturity, by acceleration or otherwise) at the rates of interest and at the
times set forth in the Guarantor Credit Agreement, and the Guarantor agrees to
pay other fees and costs as stated in the Guarantor Credit Agreement.
<PAGE>
Upon the occurrence of any one or more Credit Agreement Events of
Default (as defined in Section 5.1 of the Guarantor Credit Agreement), all
amounts then remaining unpaid under this Promissory Note may become or be
declared to be immediately due and payable as provided in the Guarantor Credit
Agreement, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor, or notices or demands of any kind, all of
which are expressly waived by the Guarantor.
The obligations hereunder are subject to the limitations set forth in
Section 6.11 of the Guarantor Credit Agreement, the provisions of which are
hereby incorporated by reference.
This Promissory Note shall be construed and interpreted in accordance
with and governed by the laws of the State of New York without regard to the
conflicts of laws rules thereof other than Section 5-1401 of the New York
General Obligations Law.
COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
2
<PAGE>
Exhibit 10.4
PROMISSORY NOTE
(Due 2009)
$122,550,000.00 May 28, 1999
For value received, the undersigned, COSO FINANCE PARTNERS, a
California general partnership (the "Guarantor"), by this promissory note
---------
promises to pay to the order of Caithness Coso Funding Corp., a Delaware
corporation ("Funding Corporation"), at the office of Funding Corporation,
-------------------
located at 1114 Avenue of the Americas, New York, New York 10036, in lawful
currency of the United States of America and in immediately available funds, the
principal amount of $122,550,000.00, or if less, the aggregate unpaid and
outstanding principal amount of this Promissory Note advanced by Funding
Corporation to the Guarantor pursuant to that certain Credit Agreement (the
"Guarantor Credit Agreement"), dated as of May 28, 1999, by and among the
--------------------------
Guarantor and Funding Corporation, and as the same may be amended from time to
time, and all other amounts owed by the Guarantor to Funding Corporation
hereunder.
This is the Promissory Note entered into pursuant to the Guarantor
Credit Agreement and is entitled to the benefits thereof and is subject to all
terms, provisions and conditions thereof. Capitalized terms used and not
defined herein shall have the meanings set forth in that certain Indenture,
dated as of May 28, 1999 (the "Indenture"), by and between Funding Corporation,
---------
the Guarantor, Coso Energy Developers, a California general partnership, Coso
Power Developers, a California general partnership, and U.S. Bank Trust National
Association, as trustee.
Reference is hereby made to the Guarantor Credit Agreement, the
Indenture and the Security Documents for the provisions, among others, with
respect to the rights, duties and obligations of the Guarantor and the rights of
the holder of this Promissory Note.
The principal amount hereof is payable in accordance with the
Guarantor Credit Agreement, and such principal amount may be prepaid solely in
accordance with the Guarantor Credit Agreement.
The Guarantor further agrees to pay, in lawful currency of the United
States of America and in immediately available funds, interest from the date
hereof on the unpaid and outstanding principal amount hereof until such unpaid
and outstanding principal amount shall become due and payable (whether at stated
maturity, by acceleration or otherwise) at the rates of interest and at the
times set forth in the Guarantor Credit Agreement, and the Guarantor agrees to
pay other fees and costs as stated in the Guarantor Credit Agreement.
Upon the occurrence of any one or more Credit Agreement Events of
Default (as
<PAGE>
defined in Section 5.1 of the Guarantor Credit Agreement), all amounts then
remaining unpaid under this Promissory Note may become or be declared to be
immediately due and payable as provided in the Guarantor Credit Agreement,
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor, or notices or demands of any kind, all of which are
expressly waived by the Guarantor.
The obligations hereunder are subject to the limitations set forth in
Section 6.11 of the Guarantor Credit Agreement, the provisions of which are
hereby incorporated by reference.
This Promissory Note shall be construed and interpreted in accordance
with and governed by the laws of the State of New York without regard to the
conflicts of laws rules thereof other than Section 5-1401 of the New York
General Obligations Law.
COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
2
<PAGE>
Exhibit 10.5
CREDIT AGREEMENT
Between
CAITHNESS COSO FUNDING CORP.,
a Delaware corporation,
as lender,
and
COSO ENERGY DEVELOPERS,
a California general partnership,
as borrower
dated May 28, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. DEFINITIONS................................................................................. 1
Section 1.1. Capitalized Terms............................................................. 1
Section 1.2. Definitions................................................................... 1
ARTICLE II. DESCRIPTION OF THE LOAN.................................................................... 4
Section 2.1. Acknowledgment of Guarantor................................................... 4
Section 2.2. Term of This Agreement........................................................ 5
Section 2.3. Interest...................................................................... 5
Section 2.4. Repayment..................................................................... 5
Section 2.5. Prepayment.................................................................... 5
Section 2.6. Obligations of Guarantor Hereunder Unconditional.............................. 6
Section 2.7. General Terms of Payment...................................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES............................................................ 6
Section 3.1. Organization, Power and Status of Guarantor................................... 6
Section 3.2. Authorization; Enforceability; Execution and Delivery......................... 6
Section 3.3. No Conflicts; Laws and Contracts; No Default; Representations and Warranties.. 7
Section 3.4. Litigation.................................................................... 7
Section 3.5. Environmental Matters......................................................... 8
Section 3.6. Employee Benefit Plans........................................................ 8
Section 3.7. Business of Guarantor......................................................... 8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 3.8. Valid Title................................................................... 8
Section 3.9. Utility Regulation............................................................ 8
Section 3.10. Qualifying Facility.......................................................... 8
Section 3.11. Investment Company Act....................................................... 8
Section 3.12. No Defaults.................................................................. 9
Section 3.13. Governmental Approvals....................................................... 9
Section 3.14. Margin Stock................................................................. 9
Section 3.15. Taxes........................................................................ 9
Section 3.16. Ownership of Guarantor....................................................... 9
Section 3.17. Disclosure................................................................... 9
Section 3.18. Security Interests........................................................... 9
Section 3.19. Due Execution of Project Documents........................................... 10
ARTICLE IV. COVENANTS AND AGREEMENTS OF GUARANTOR...................................................... 10
Section 4.1. Events of Loss................................................................ 10
Section 4.2. Reporting Requirements........................................................ 11
Section 4.3. Ownership of Guarantor........................................................ 11
Section 4.4. Sale of Assets................................................................ 11
Section 4.5. Insurance..................................................................... 11
Section 4.6. QF Status..................................................................... 12
Section 4.7. Governmental Approvals; Title................................................. 12
Section 4.8. Nature of Business............................................................ 12
Section 4.9. Compliance With Laws.......................................................... 12
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 4.10. Prohibition on Fundamental Changes........................................... 12
Section 4.11. Revenue Account.............................................................. 13
Section 4.12. Transactions With Affiliates................................................. 13
Section 4.13. Restricted Payments.......................................................... 13
Section 4.14. Exercise of Rights Under Project Documents................................... 13
Section 4.15. Amendments to Contracts...................................................... 13
Section 4.16. Limitations on Indebtedness/Liens............................................ 14
Section 4.17. Operating Budget............................................................. 14
Section 4.18. Required Geothermal Percentage............................................... 14
Section 4.19. Books and Records............................................................ 14
Section 4.20. Project Documents; Additional Project Documents.............................. 14
Section 4.21. Maintenance of Existence..................................................... 15
Section 4.22. Taxes........................................................................ 15
Section 4.23. Additional Documents; Filings and Recordings................................. 15
Section 4.24. Registered Owner............................................................. 15
Section 4.25. USBLM/LADWP Leases........................................................... 15
ARTICLE V. DEFAULT AND REMEDIES........................................................................ 16
Section 5.1. Events of Default............................................................. 16
Section 5.2. Consequences of Credit Agreement Event of Default............................. 18
Section 5.3. Defense of Actions............................................................ 19
ARTICLE VI. GENERAL TERMS AND CONDITIONS............................................................... 19
Section 6.1. Notices....................................................................... 19
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 6.2. Amendments and Waivers........................................................ 20
Section 6.3. Election of Remedies.......................................................... 20
Section 6.4. Severability.................................................................. 20
Section 6.5. Third-Party Beneficiaries; Prior Agreements................................... 20
Section 6.6. Guarantors in Control......................................................... 21
Section 6.7. Number and Gender............................................................. 21
Section 6.8. Captions...................................................................... 21
Section 6.9. Applicable Law and Jurisdiction............................................... 21
Section 6.10. Consent...................................................................... 21
Section 6.11. No Recourse.................................................................. 21
Section 6.12. Counterparts................................................................. 22
Section 6.13. Successors and Assigns....................................................... 22
Section 6.14. Maximum Interest Rate........................................................ 22
</TABLE>
iv
<PAGE>
CREDIT AGREEMENT
----------------
This CREDIT AGREEMENT dated as of May 28, 1999 (this "Agreement") is by and
---------
between CAITHNESS COSO FUNDING CORP., a Delaware corporation ("Funding
-------
Corporation"), as lender, and COSO ENERGY DEVELOPERS, a California general
- -----------
partnership ("Guarantor"), as borrower.
---------
W I T N E S S E T H:
--------------------
WHEREAS, Funding Corporation is a corporation established for the sole
purpose of issuing (a) $110,000,000 of 6.80% Senior Secured Notes due 2001 (the
"2001 Notes") and $303,000,000 of 9.05% of Senior Secured Notes due 2009 (the
----------
"2009 Notes" and collectively with the 2001 Notes the "Senior Secured Notes")
- ----------- --------------------
pursuant to the Indenture, dated as of the date hereof (the "Indenture"), among
---------
Funding Corporation, U.S. Bank Trust National Association as trustee and
collateral agent ("Trustee"), the Guarantor, Coso Finance Partners, a California
-------
general partnership ("Navy I"), and Coso Power Developers, a California general
------
partnership ("Navy II," and together with Guarantor and Navy I, the "Coso
-------- ----
Partnerships"), (b) any additional Senior Secured Notes issued pursuant to the
- ------------
Indenture, other than the Senior Secured Notes (the "Additional Secured Notes"),
and (c) to make loans from the proceeds of the Senior Secured Notes to
Guarantor, Navy I and Navy II; and
WHEREAS, the principal and interest payments on the Senior Secured Notes
will be serviced by repayment of loans made by Funding Corporation to Guarantor,
Navy I and Navy II and guaranteed by Guarantor, Navy I and Navy II, subject to
the conditions set forth in the Indenture; and
WHEREAS, Funding Corporation has simultaneously with the execution and
delivery of this Agreement issued and sold the Senior Secured Notes; and
WHEREAS, Funding Corporation intends to use the proceeds from the sale of
the Senior Secured Notes to, among other things, make a loan to Guarantor in the
aggregate amount of $107,900,000.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto formally covenant, agree and
bind themselves as follows:
ARTICLE I.
DEFINITIONS
-----------
Section 1.1. Capitalized Terms. Capitalized terms used and not
-----------------
otherwise defined herein shall have the meanings ascribed thereto in the
Indenture.
Section 1.2. Definitions.
-----------
(a) "Affiliate" of any specified Person means any other Person
---------
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control," as used with respect to any Person, shall mean the possession,
- --------
directly or indirectly, of the power to direct or cause the direction of the
<PAGE>
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that beneficial ownership of 10%
or more of the Voting Stock of a Person shall be deemed to be control. For
purposes of this definition, the terms "controlling," "controlled by" and "under
----------- ------------- -----
common control with" shall have correlative meanings.
- -------------------
(b) "Capital Stock" means:
-------------
(i) in the case of a corporation, corporate stock;
(ii) in the case of an association or business entity, any
and all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited); and
(iv) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
(c) "Code" means the Internal Revenue Code of 1986.
----
(d) "Commonly Controlled Entity" means, as applied to the
--------------------------
Guarantor, any Person who is a member of a group which is under common control
with the Guarantor, who together with Funding Corporation, is treated as a
single employer within the meaning of Section 414(b), (c), (m) or (o) of the
Code or Section 4001(b) of ERISA.
(e) "Credit Agreement Event of Default" shall have the meaning
---------------------------------
set forth in Section 5.1 of this Agreement.
(f) "Credit Parties" means each of the Coso Partnerships (as
--------------
defined in the Indenture), each of the Partners and each Affiliate of the Coso
Partnerships or the Partners that is a party to any Security Document (as
defined in the Indenture).
(g) "Debtor Relief Law" shall have the meaning set forth in
-----------------
Section 5.1(e)(2) hereof.
(h) "Default" means an event or condition that, with the giving
-------
of notice, lapse of time or failure to satisfy certain specified conditions, or
any combination thereof, would become a Credit Agreement Event of Default.
(i) "Environmental Claim" means any complaint, order, citation,
-------------------
decree, demand, judgment or written notice actually received by Funding
Corporation or any Guarantor from any Person relating to any matters of
Environmental Law affecting or relating to any activity or operations at any
time conducted by either Funding Corporation or any Guarantor, including,
without limitation:
2
<PAGE>
(i) the existence of any Environmentally Regulated Materials at
any Project site in violation of any Environmental Law;
(ii) the release or threatened release of any Environmentally
Regulated Materials generated at any Project site in violation of any
Environmental Law;
(iii) remediation of any such release at any Project site; and
(iv) any violation of any relevant Environmental Law in
connection with any Project site.
(j) "Environmental Laws" means any and all laws, rules and
------------------
regulations (as well as obligations, duties and requirements relating thereto
under common law) relating to: (i) noise, emissions, discharges, spills,
releases or threatened releases of pollutants, contaminants, Environmentally
Regulated Materials, materials containing Environmentally Regulated Materials,
or hazardous or toxic materials or wastes into ambient air, surface water,
groundwater, watercourses, publicly or privately-owned treatment works, drains,
sewer systems, wetlands, septic systems or onto land surface or subsurface
strata; (ii) the use, treatment, storage, disposal, handling, manufacture,
processing, distribution, transportation, or shipment of Environmentally
Regulated Materials, materials containing Environmentally Regulated Materials or
hazardous and/or toxic wastes, material, products or by-products (or of
equipment or apparatus containing Environmentally Regulated Materials); (iii)
pollution or the protection of human health, the environment or natural
resources or (iv) zoning and land use.
(k) "Environmentally Regulated Materials" means (i) hazardous
-----------------------------------
materials, hazardous wastes, hazardous substances, extremely hazardous wastes,
restricted hazardous wastes, toxic substances, toxic pollutants, contaminants,
pollutants or words of similar import, as used under Environmental Laws,
including but not limited to the following: the Hazardous Materials
Transportation Act, 49 U.S.C. 1801 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. 6901 et seq., the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, 42 U.S.C. 9601 et seq., the Clean Water
Act, 33 U.S.C. 1231 et seq., the Clean Air Act, 42 U.S.C. (S) 7401 et seq., the
Toxic Substances Control Act, 15 U.S.C. 2601 et seq., the Safe Drinking Water
Act, 42 U.S.C. (S) 3808 et seq., and the Oil Pollution Act, 33 U.S.C. (S) 2701
et seq., and their State and local counterparts or equivalents; (ii) petroleum
and petroleum products including crude oil and any fractions thereof; (iii)
natural gas, synthetic gas and any mixtures thereof; (iv) radon; (v) any other
hazardous, radioactive, toxic or noxious substance, material, pollutant, or
solid, liquid or gaseous waste; and (vi) any substance that, whether by its
nature or its use, is now or hereafter subject to regulation under any
Environmental Law or with respect to which any Federal, state or local
Environmental Law or governmental agency requires environmental investigation,
monitoring or remediation.
(l) "ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
(m) "Equity Interest" means Capital Stock and all warrants,
---------------
options or
3
<PAGE>
other rights to acquire Capital Stock (But excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
(n) "Final Offering Memorandum" means the confidential offering
-------------------------
memorandum of Funding Corporation dated May 21, 1999, issued with respect to the
initial issuance of the Senior Secured Notes.
(o) "Insurance Consultant" means an independent insurance
--------------------
consultant or another insurance broker reasonably satisfactory to the Trustee.
(p) "Multiemployer Plan" means a Plan which is a multiemployer
------------------
plan as defined in Section 4001(a)(3) of ERISA.
(q) "PBGC" means the Pension Benefit Guaranty Corporation.
----
(r) "Plan" means an employee benefit or other plan established or
----
maintained by the Guarantor or any Commonly Controlled Entity.
(s) "Preliminary Offering Memorandum" means the confidential
-------------------------------
preliminary offering memorandum of Funding Corporation, dated May 5, 1999, with
respect to the initial issuance of the Senior Secured Notes.
(t) "Project" shall have the meaning set forth in Section 2.6
-------
hereof.
(u) "Project Documents" means individually and collectively, all
-----------------
material existing agreements and documents which relate to all or any portion of
one or more of the Projects.
(v) "PUHCA" means the Public Utility Holding Company Act of 1935,
-----
as amended.
(w) "Qualifying Facility" means a "qualifying small power
-------------------
production facility" or a "qualifying cogeneration facility" in accordance with
the Public Utility Power Regulatory Policies Act of 1978 and the rules and
regulations of the United States Federal Energy Regulatory Commission under the
Public Utility Power Regulatory Policies Act of 1978 relating thereto.
ARTICLE II.
DESCRIPTION OF THE LOAN
-----------------------
Section 2.1. Acknowledgment of Guarantor. Guarantor hereby acknowledges
---------------------------
and agrees that:
(a) Pursuant to this Agreement, Funding Corporation does hereby
lend to Guarantor and Guarantor does hereby borrow from Funding Corporation
funds in the amount of $107,900,000 (the "Partnership Loan") to be evidenced by
----------------
a promissory note due 2001
4
<PAGE>
("Partnership Note Due 2001") substantially in the form attached hereto as
-------------------------
Exhibit A-1 and a promissory note due 2009 ("Partnership Note Due 2009")
-------------------------
substantially in the form attached hereto as Exhibit A-2 issued by Guarantor in
favor of Funding Corporation (collectively, the "Initial Partnership Notes");
(b) If proceeds from the issuance of any Additional Senior
Secured Notes are loaned to Guarantor, (a) the outstanding principal balance on
the Partnership Loan shall be increased by the amount of such proceeds, (b) the
Partnership Loan shall include the loan to Guarantor of such proceeds, as
evidenced by an additional promissory note issued by Guarantor (together with
the Initial Partnership Note, the "Partnership Notes"), and (c) the terms and
-----------------
provisions of this Credit Agreement relating to Senior Secured Notes shall apply
to the Additional Senior Secured Notes, where appropriate.
Section 2.2. Term of This Agreement. This Agreement shall remain in
----------------------
full force and effect from the date hereof until payment and performance in full
of all amounts due and obligations to be performed under this Agreement and the
other Financing Documents.
Section 2.3. Interest. Interest hereunder shall be paid semi-annually
--------
in arrears on each June 15 and December 15 commencing December 15, 1999, until
all principal hereunder is paid in full. Interest shall be computed on the basis
of a three hundred sixty (360) day year, consisting of twelve (12) thirty (30)
day months and at a 6.80% rate per annum for the Partnership Note Due 2001, and
at a 9.05% rate per annum for the Partnership Note Due 2009.
Section 2.4. Repayment.
---------
(a) Guarantor shall repay the Partnership Note Due 2001 in
principal installments to Funding Corporation on the dates, at the times and in
the amounts set forth on Schedule 1 attached hereto (as the same may be modified
pursuant to Article 8 of the Indenture).
(b) Guarantor shall repay the Partnership Note Due 2009 in
principal installments to Funding Corporation on the dates, at the times and in
the amounts set forth on Schedule 2 attached hereto (as the same may be modified
pursuant to Article 8 of the Indenture).
Section 2.5. Prepayment.
----------
(a) Optional Prepayment. Guarantor shall have the optional
-------------------
right to prepay the Partnership Loan in such amounts and at such times as may be
appropriate to permit Funding Corporation to redeem the 2009 Notes pursuant to
the optional redemption provisions set forth in Section 3.07 of the Indenture or
defease the Senior Secured Notes pursuant to the optional defeasance provisions
set forth in Section 7.01 of the Indenture.
(b) Mandatory Prepayment. Guarantor shall be required to prepay
--------------------
principal, and to pay accrued interest on such prepaid principal, on the
Partnership Loan in such amounts and at such times as may be required to permit
Funding Corporation to redeem the Senior Secured Notes pursuant to the mandatory
redemption provisions set forth in Section 3.08 of the
5
<PAGE>
Indenture as they apply specifically to Guarantor and/or its project or
contracts.
Section 2.6. Obligations of Guarantor Hereunder Unconditional. The
------------------------------------------------
obligations of Guarantor to make the payments required in Sections 2.3 and 2.4
hereof shall be absolute and unconditional; and Guarantor shall not discontinue
such payments for any cause, including, without limiting the generality of the
foregoing, any acts or circumstances that may constitute failure of
consideration, eviction or constructive eviction from the BLM Project (the
"Project"), destruction of or damage to the Project, including commercial
-------
frustration of purpose, or change in the tax or other laws or administrative
rulings of or administrative actions by the United States of America or the
State of California or any political subdivision of either. Guarantor may,
however, at its own cost and expense and in its own name or in the name of
Funding Corporation, prosecute or defend any action or proceeding or take any
other action involving third persons which Guarantor deems reasonably necessary
in order to secure or protect its rights with respect to the Project.
Section 2.7. General Terms of Payment.
------------------------
(a) All sums payable to Funding Corporation hereunder shall
be deemed paid to the extent the Depositary shall apply amounts held by the
Depositary in accordance with the Depositary Agreement to the payment of
principal of or interest on the Partnership Loan and the Senior Secured Notes in
accordance with the Depositary Agreement.
(b) Whenever any payment hereunder shall be due, or any
calculation shall be made, on a day which is not a Business Day, the date for
payment or calculation, as the case may be, shall be extended to the next
succeeding Business Day, and any interest on any payment shall be payable for
such extended time at the specified rate.
(c) If no due date is specified for the payment of any
amount payable by Guarantor hereunder, such amount shall be due and payable not
later than ten (10) days after receipt of written demand by Funding Corporation
or by the Trustee to Guarantor for payment thereof.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
------------------------------
Guarantor represents and warrants to Funding Corporation as follows:
Section 3.1. Organization, Power and Status of Guarantor. Guarantor
-------------------------------------------
is a general partnership, duly formed, validly existing and in good standing
under the laws of the State of California. Guarantor is duly authorized to do
business in each other jurisdiction where the nature of its activities makes
such qualification necessary. Guarantor has all requisite power and authority to
carry on its business as now being conducted and as proposed to be conducted.
Section 3.2. Authorization; Enforceability; Execution and Delivery.
-----------------------------------------------------
6
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(a) Guarantor has all necessary power and authority to execute,
deliver and perform its obligations under this Agreement, the Initial
Partnership Notes and each other Financing Document to which it is a party.
(b) All action on the part of Guarantor that is required for the
authorization, execution, delivery and performance of this Agreement, the
Initial Partnership Notes and each other Financing Document to which Guarantor
is a party has been duly and effectively taken; and the execution, delivery and
performance of this Agreement, the Initial Partnership Notes and each such other
Financing Document to which Guarantor is a party does not require the approval
or consent of any holder or trustee of any Indebtedness or other material
obligations of Guarantor which has not been obtained.
(c) This Agreement, the Initial Partnership Notes and each other
Financing Document to which Guarantor is a party have been duly authorized,
executed and delivered by Guarantor. Each of this Agreement, the Initial
Partnership Notes and each other Financing Document to which Guarantor is a
party constitutes a legal, valid and binding obligation of Guarantor enforceable
against Guarantor in accordance with the terms hereof and thereof, except as the
enforceability thereof may be limited by bankruptcy, insolvency, or similar laws
affecting creditors' rights generally, and subject to general principles of
equity.
Section 3.3. No Conflicts; Laws and Contracts; No Default; Representations
-------------------------------------------------------------
and Warranties.
- --------------
(a) Neither the execution, delivery and performance of this Agreement,
the Initial Partnership Notes or any other Financing Document to which Guarantor
is a party, nor the consummation of any of the transactions contemplated hereby
or thereby (i) contravenes any provision of law, rule or regulation applicable
to Guarantor or any of the Collateral, except any contravention which,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, (ii) conflicts or is inconsistent with or constitutes
a default under the amended and restated partnership agreement of Guarantor, or
of any other terms of any Project Document, Financing Document or any other
agreement or instrument to which Guarantor may be subject except any such
conflict, inconsistency, default or violation which, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect or (iii) results in the creation or imposition of (or the obligation to
create or impose) any Liens (other than Permitted Liens) on the Collateral.
(b) Guarantor is in compliance with any and all laws, rules or
regulations applicable to it, except any such noncompliance which, individually
or in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect.
Section 3.4. Litigation. Except as disclosed in the Preliminary Offering
----------
Memorandum or the Final Offering Memorandum there are no claims, actions, suits,
investigations or proceedings at law or in equity (including any Environmental
Claims) or by or before any arbitrator or Governmental Authority now pending
against Guarantor or, to the best knowledge of
7
<PAGE>
Guarantor after due inquiry, threatened against Guarantor or any property or
other assets or rights of Guarantor that could reasonably be expected to result
in a Material Adverse Effect.
Section 3.5. Environmental Matters. To the best knowledge of
---------------------
Guarantor after due inquiry, the Project is in compliance in all material
respects with all existing applicable Environmental Laws and there are no facts,
circumstances or conditions under any existing Environmental Law which could,
individually or in the aggregate with all other circumstances or conditions,
reasonably be expected to result in a Material Adverse Effect.
Section 3.6. Employee Benefit Plans. Each Plan (including without
----------------------
limitation each Plan of a Commonly Controlled Entity) as to which Guarantor may
have any liability complies with all applicable requirements of law and
regulations, and (i) no "reportable event" (as defined in Section 4043 of ERISA
(other than an event not subject to the notice requirements of the PBGC)) has
occurred with respect to any such Plan, (ii) there has been no withdrawal from
any Multiemployer Plan or steps taken to do so that have resulted or could
reasonably be expected to result in material liability for Guarantor, (iii) no
Plan has been terminated or has commenced to be terminated which could
reasonably be expected to result in material liability for Guarantor, (iv) no
contribution failure has occurred with respect to any Plan sufficient to give
rise to a lien under Section 302(f) of ERISA or Section 412 of the Code or the
posting of any security under Section 307 of ERISA or Section 401(a)(29) of the
Code and (v) no condition exists or event or transaction has occurred with
respect to any Plan that, in each case, could reasonably be expected to result
in a Material Adverse Effect.
Section 3.7. Business of Guarantor. Except as otherwise permitted in
---------------------
this Agreement and the other Financing Documents, Guarantor is not engaged in
any business other than the development, acquisition, construction, operation
and financing of the Project and transactions related thereto.
Section 3.8. Valid Title. Guarantor has good and valid title to all
-----------
of its properties, rights and assets purported to be owned by Guarantor and a
valid leasehold interest or contractual right to possession or use with respect
to assets leased or used by Guarantor, subject only to Permitted Liens.
Guarantor will, so long as any obligations shall be outstanding, warrant and
defend its title to its properties and assets against any claims and demands
which may affect to a material extent its title to its properties and assets.
Section 3.9. Utility Regulation. Guarantor is not subject to
------------------
regulation by any Governmental Authority under PUHCA as a "public utility
company" or an "affiliate," or "subsidiary company" of a "registered holding
company" or a company subject to registration under PUHCA.
Section 3.10. Qualifying Facility. The Project is a Qualifying
-------------------
Facility.
Section 3.11. Investment Company Act. Guarantor is not, and following
----------------------
the execution of the Partnership Note, will not be, an "investment company" or,
to its knowledge, an
8
<PAGE>
entity "controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
Section 3.12. No Defaults. Guarantor is not in default under any
-----------
Project Document, Financing Document or other material project contract which
could reasonably be expected to result in a Material Adverse Effect. To the best
of Guarantor's knowledge, no material default exists by any other party to the
Project Documents, Financing Documents or other material project contracts.
Section 3.13. Governmental Approvals. All Governmental Approvals
----------------------
which are required to be obtained by, in the name of or on behalf of Guarantor
or, to the knowledge of Guarantor, any other party to any Financing Document, in
connection with (a) the issuance of the Initial Partnership Notes and (b) the
execution, delivery and performance by Guarantor and any other party to any
Financing Document of the Financing Documents, have been duly obtained or made,
are validly issued and are in full force and effect.
Section 3.14. Margin Stock. Guarantor is not engaged, directly or
------------
indirectly, principally, or as one of its important activities, in the business
of extending, or arranging for the extension of, credit for the purposes of
purchasing or carrying any margin stock, within the meaning of Regulation T, U
or X of the Board of Governors of the Federal Reserve System. No part of the
proceeds of any loan made under this Agreement will be used for "purchasing" or
"carrying" any "margin stock" as so defined, or for extending credit to others
for the purpose of purchasing or carrying margin stock, or for any purpose which
would violate, or cause a violation of, any such regulation.
Section 3.15. Taxes. Guarantor has filed all federal and state tax
-----
returns, to date, required to be filed by applicable laws and has paid all
federal and state taxes due under such tax returns which if not filed or paid
could reasonably be expected to have a Material Adverse Effect.
Section 3.16. Ownership of Guarantor. As of the date of this
----------------------
Agreement, Caithness Coso Holdings, LLC, a Delaware limited liability company
and New CHIP Company, LLC, a Delaware limited liability company are the sole
general partners of the Guarantor.
Section 3.17. Disclosure. The Preliminary Offering Memorandum and the
----------
Final Offering Memorandum as of each such document's date did not, and any
supplement or amendment to them will not, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations or warranties contained in this Section 3.17 shall not apply to
statements in or omissions from the Preliminary Offering Memorandum, the Final
Offering Memorandum or any supplement or amendment thereto based upon and in
conformity with information relating to the Initial Purchaser furnished to
Funding Corporation.
Section 3.18. Security Interests. The security interests to be
------------------
transferred to and/or to be created in favor of Trustee under the Security
Documents will be valid and perfected first
9
<PAGE>
priority security interests in and liens on the collateral described therein,
subject only to Permitted Liens.
Section 3.19. Due Execution of Project Documents. Except as otherwise
----------------------------------
described in the Final Offering Memorandum, each Project Document in effect on
the date hereof has been duly authorized, executed and delivered by Guarantor,
has not been amended or otherwise modified except in accordance with the
Indenture, and is in full force and effect and is binding upon and enforceable
against all parties thereto in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally, and to the exercise of judicial discretion in
accordance with general principles of equity other than for such Project
Documents that, if not in full force and effect or binding on all parties
thereto, would not reasonably be expected to have a Material Adverse Effect.
There exists no default under any such Project Document by Guarantor, or to the
best of Guarantor's knowledge, by the other parties thereto, in each case which
default could reasonably be expected to have a Material Adverse Effect.
ARTICLE IV.
COVENANTS AND AGREEMENTS OF GUARANTOR
-------------------------------------
Guarantor hereby covenants and agrees that from the date of this
Agreement, Guarantor shall faithfully observe and fulfill, and Guarantor shall
cause to be fulfilled and observed, each and all of the following covenants
until all amounts due under the Senior Secured Notes and the Indenture shall
have been repaid.
Section 4.1. Events of Loss. If any Event of Loss or Event of Eminent
--------------
Domain occurs and the cost of repairing, restoring, replacing or rebuilding
(collectively, "Reconstructing") is $5.0 million or less, and if, in the
--------------
reasonable judgment of the managing partner of the Guarantor, to Reconstruct
would be prudent and consistent with the Guarantor's obligations to maintain
such Project, then the Guarantor shall, at its own expense and whether or not
such damage, destruction or loss is covered by an insurance policy, with
reasonable promptness, Reconstruct the same. If there are Loss Proceeds or
Eminent Domain Proceeds (from insurance or otherwise) available as a result of
such damage, destruction or loss in the amount of $5.0 million or less, then
said Loss Proceeds or Eminent Domain Proceeds shall be available to the
Guarantor for application pursuant to Section 3.10 of the Depositary Agreement.
If an Event of Loss or an Event of Eminent Domain occurs and the Loss
Proceeds or Eminent Domain Proceeds are greater than $5.0 million but less than
the total amount outstanding under the Partnership Note (the "Partnership Note
----------------
Balance") the Guarantor shall have the option to Reconstruct the Project, or any
- -------
part thereof, upon the satisfaction of certain conditions outlined in Section
3.10 of the Depositary Agreement. If the Guarantor fails to exercise such
option, the Guarantor shall apply the Loss Proceeds or Eminent Domain Proceeds
to prepay amounts outstanding under the Partnership Note as described in Section
2.5(b) of this Agreement.
If an Event of Loss or an Event of Eminent Domain occurs and the Loss
Proceeds or Eminent Domain Proceeds are equal to or exceed the Partnership Note
Balance, then the Guarantor
10
<PAGE>
shall apply those Loss Proceeds or Eminent Domain Proceeds to prepay amounts
outstanding under the Partnership Note, as described in Section 2.5(b) of this
Agreement unless the Guarantor obtains a determination form the Rating Agencies
that the credit rating of the senior secured notes that had been in effect
immediately before the Event of Loss or Event of Eminent Domain will not be
adversely affected by applying those Loss Proceeds or Eminent Domain Proceeds to
Reconstruction of the Project.
Section 4.2. Reporting Requirements. Guarantor shall provide to
----------------------
Funding Corporation (a) all quarterly and annual financial information that
would be required to be contained in a filing with the SEC on Forms 10-Q and 10-
K if Guarantor were required to file such forms, including a "Management's
Discussion and Analysis of Financial Conditions and Results of Operation" and,
with respect to the annual information only, a report thereon by the Guarantor's
independent certified public accountants, (b) all current reports that would be
required to be filed with the SEC on Form 8-K if Guarantor was required to file
such reports, within the time periods specified in the SEC's rules and
regulations, (c) all other information in respect of Guarantor requested by
Funding Corporation to enable Funding Corporation to meet its obligations under
the Indenture, (d) copies of material notices, and (e) written notice of any
Default or Credit Agreement Event of Default under this Agreement or any event
or condition that could reasonably be expected to result in a Material Adverse
Effect. To the extent that the information provided pursuant to this Section 4.2
includes financial statements of the Guarantor, the Guarantor shall join with
Navy I and Navy II to provide Issuer with combined financial statements.
Section 4.3. Ownership of Guarantor. Guarantor shall not permit
----------------------
Caithness Coso Holdings, LLC or New CHIP Company, LLC (each a "Partner") to
-------
sell, transfer or convey any partnership interest held by such Partner in
Guarantor unless (a) such sale, transfer or conveyance would not result in any
change in the Project's status as a Qualifying Facility and (2) the Person to
whom such partnership interests are sold, transferred or conveyed enters into a
pledge agreement providing for the perfected, first priority pledge to the
Collateral Agent for the benefit of the Trustee and the Holders of the Senior
Secured Notes of all such partnership interests.
Section 4.4. Sale of Assets. Except as contemplated by the
--------------
Transaction Documents, Guarantor shall not sell, lease (as lessor) or transfer
(as transferor) any property or assets material to the operation of the Project
except for fair value in the ordinary course of business to the extent that such
property is no longer useful or necessary in connection with the operation of
the Project.
Section 4.5. Insurance. Guarantor shall maintain or cause to be
---------
maintained insurance as is generally carried by companies engaged in similar
businesses and owning similar properties in the same general areas and financed
in a similar manner. Guarantor shall maintain business interruption insurance,
casualty insurance, including flood and earthquake coverage, and primary and
excess liability insurance, as well as customary worker's compensation and
automobile insurance. Prior to reducing or canceling such coverages (or
permitting such coverages to be reduced or canceled) Guarantor shall notify the
Insurance Consultant of the proposed reduction or cancellation. Guarantor shall
not reduce or cancel such insurance coverages (or permit any such
11
<PAGE>
coverages to be reduced or canceled) if the Insurance Consultant determines that
(i) such reduction or cancellation would not be reasonable under the
circumstances and (ii) the insurance coverages sought to be reduced or canceled
are available on commercially reasonable terms or that another level of coverage
greater than that proposed by Guarantor is available on commercially reasonable
terms (in which case such coverage may be reduced to the higher of such
available levels).
Section 4.6. QF Status. Guarantor shall operate and maintain the
---------
Project as a Qualifying Facility unless the failure to so operate and maintain
such Project as a Qualifying Facility would not cause or result in (a) a breach
of the power purchase agreements that Guarantor is a party to or (b) an adverse
effect on the revenues to be received under such power purchase agreements.
Section 4.7. Governmental Approvals; Title. Guarantor shall at all
-----------------------------
times (a) obtain and maintain in full force and effect all material Governmental
Approvals and other consents and approvals required at any time in connection
with its business and (b) preserve and maintain good and valid title to its
properties and assets (subject to no liens other than Permitted Liens), except
in each case where the failure to do so in clause (a) or (b) could not
reasonably be expected to have a Material Adverse Effect.
Section 4.8. Nature of Business. Guarantor shall not engage in any
------------------
business other than its existing business.
Section 4.9. Compliance With Laws. Guarantor shall comply with all
--------------------
applicable laws, except where non-compliance could not reasonably be expected to
have a Material Adverse Effect.
Section 4.10. Prohibition on Fundamental Changes. Guarantor shall
----------------------------------
not enter into any transaction of merger or consolidation, change its form of
organization or its business, liquidate or dissolve itself (or suffer any
liquidation or dissolution); provided, however, that Guarantor shall be able to
-------- -------
merge with or into Navy I or Navy II so long as no Default or Credit Agreement
Event of Default exists or shall occur as a result thereof and if, in the event
that Guarantor is not the surviving entity, (i) the surviving entity shall,
simultaneously with such merger, assume all the obligations of Guarantor under
this Agreement and under the other Financing Documents to which Guarantor was a
party, (ii) Funding Corporation shall have received appropriate amendments to
this Agreement and the other Financing Documents to which Guarantor was a party
and all financing statements necessary to preserve its valid, perfected, first
priority security interest in the Collateral, each in form and substance
reasonably satisfactory to Funding Corporation, (iii) after giving effect to
such merger, the merger shall not result in a Material Adverse Effect and (iv)
after giving effect to such merger, no Default or Credit Agreement Event of
Default shall have occurred or be continuing. Guarantor shall not purchase or
otherwise acquire all or substantially all of the assets of any other Person,
except for the purchase or acquisition by Guarantor of the partnership interests
or assets related to the Navy I or Navy II Projects.
12
<PAGE>
Section 4.11. Revenue Account. Guarantor shall take all actions as
---------------
may be necessary to cause all revenues received by Guarantor from the Project to
be deposited in the Revenue Account in accordance with Section 3.1. of the
Depositary Agreement.
Section 4.12. Transactions With Affiliates. Except as provided in
----------------------------
or with respect to the Project Documents as in effect on the Closing Date, the
Guarantor shall not make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract, agreement
understanding, loan, advance or guarantee with or for the benefit of, any
Affiliate (each, an "Affiliate Transaction"), unless (a) such Affiliate
---------------------
Transaction is on terms that are no less favorable to the Guarantor than those
that would have been obtained in a comparable transaction by the Guarantor with
an unrelated Person; and (b) the Guarantor delivers to the Trustee (i) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a resolution of the
general partner of the Guarantor set forth in an Officer's Certificate
certifying that such Affiliate Transaction complies with this covenant and that
such Affiliate Transaction has been approved by all of the partners of the
Guarantor; and (ii) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an investment banking firm
of national standing. Notwithstanding the above, the following shall be deemed
not to be Affiliate Transactions: (w) transactions between or among one or more
-----------------------
of the Guarantor, Navy I, Navy II or Funding Corp.; (x) payment of any Operating
and Maintenance Fees or Management Fees, provided that such payment is made in
accordance with the provisions of Sections 3.1(c) and 3.8(b) of the Depositary
Agreement; and (z) Restricted Payments permitted to be made pursuant to the
terms of the Depository Agreement.
Section 4.13. Restricted Payments. Guarantor shall not make any
-------------------
Restricted Payments except as permitted under the Depositary Agreement.
Section 4.14. Exercise of Rights Under Project Documents. Guarantor
------------------------------------------
shall not exercise, or fail to exercise, its rights under any of the Project
Documents in a manner which could reasonably be expected to result in a Material
Adverse Effect.
Section 4.15. Amendments to Contracts. Guarantor shall not terminate
-----------------------
amend, replace or modify or permit to be terminated, amended, replaced or
modified (other than immaterial amendments or modifications as certified by
Guarantor) any of the Project Documents to which it is a party unless (a)
Guarantor certifies that such termination, amendment, replacement or
modification could not reasonably be expected to have a Material Adverse Effect
and (b) in the case of any amendment, termination or modification of a Power
Purchase Agreement which affects the revenues derived by Guarantor by more than
Five Million Dollars ($5,000,000) or Ten Million Dollars ($10,000,000) when
aggregated with all previous amendments or modifications by Guarantor hereunder
or by the other Guarantors, Guarantor provides a letter from each of the Rating
Agencies confirming that such amendment, termination or modification will not
result in a Rating Downgrade after giving effect to any mandatory redemption of
Senior Secured Notes
13
<PAGE>
required to be made in connection with any such amendment, modification or
termination pursuant to a Permitted Power Contract Buy-Out.
Section 4.16. Limitations on Indebtedness/Liens. Guarantor shall not
---------------------------------
create or incur or suffer to exist any Indebtedness except Permitted Guarantor
Indebtedness. Guarantor shall not grant, create, incur or suffer to exist any
Liens upon any of its properties, except for Permitted Liens.
Section 4.17. Operating Budget. If, during any fiscal year, Guarantor
----------------
(i) exceeds its Operating Budget by more than 25% or (ii) expends 75% or less of
its Operating Budget, then in either case Guarantor shall cause the Independent
Engineer to certify that the expenditures were reasonably designed to permit the
Guarantor to operate and maintain a facility of that type and to maximize its
revenues and net income.
Section 4.18. Required Geothermal Percentage. Guarantor shall use its
------------------------------
best efforts to maintain, in cooperation with the other Coso Partnerships, the
minimum geothermal resource required to produce, in the aggregate among all of
the Projects, at least 105% of the steam necessary to generate the energy
projected in the Independent Engineer's Base Case Projections.
Guarantor shall cause the Geothermal Engineer to deliver, not more
than 30 days after October 31 of each year, a certificate setting forth the
Actual Geothermal Percentage for the Projects measured as of October 31 of such
year. If as of October 31 in any year the Geothermal Engineer shall determine
that the Actual Geothermal Percentage for the Projects is less than 105%, then:
(i) the Guarantor shall develop a plan of corrective action to achieve an Actual
Geothermal Percentage of at least 105%, which plan shall be approved by the
Geothermal Engineer, and the Guarantor shall diligently implement such approved
plan; and (ii) no payment of Management Fees or any Restricted Payment shall be
made until such time as the Geothermal Engineer shall determine that the Actual
Geothermal Percentage for the Projects is at least equal to 105%. Guarantor
shall cause the Geothermal Engineer to deliver, during the calendar year 2006, a
report on the geothermal resource available as of such date and whether
sufficient geothermal resource remains to enable the Projects in the aggregate
to produce sufficient steam to generate the energy projected in the Independent
Engineer's Base Case Projections through the maturity date of the 2009 Notes.
Section 4.19. Books and Records. Guarantor shall maintain its books
-----------------
and records and give Funding Corporation, the Trustee and the Independent
Engineer inspection rights at reasonable times and upon reasonable prior notice.
Section 4.20. Project Documents; Additional Project Documents.
-----------------------------------------------
Guarantor shall perform and observe its covenants and obligations under all of
the Project Documents in all material respects, except where the failure to do
so could not reasonably be expected to result in a Material Adverse Effect.
Guarantor shall not enter into any Additional Project Documents if entering into
such document would result in a Material Adverse Effect; provided that the
Guarantor shall be permitted to enter into agreements for the purchase by the
Guarantor of electricity so long as (a) such agreements with respect to the
Guarantor do not provide for payments
14
<PAGE>
in excess of $10.0 million per year by the Guarantor and (b) prior to entering
into any such agreement the Guarantor delivers an officer's certificate to the
Trustee certifying that the proposed agreement is on arms-length terms.
Section 4.21. Maintenance of Existence. Guarantor shall at all times
------------------------
preserve and maintain in full force and effect (a) its existence as a general
partnership in good standing under the laws of the State of California unless it
changes its form of organization in accordance with Section 4.10 in which such
event it shall maintain its existence in such new form; (b) its qualification to
do business in each jurisdiction in which the character of the properties owned
or leased by it or in which the transaction of its business as conducted or
proposed to be conducted makes such qualification necessary, and (c) all of its
powers, rights, privileges and franchises which are necessary for the ownership
and operation of its business except where the failure to maintain any of the
foregoing in clause (c) could not reasonably be expected to have a Material
Adverse Effect.
Section 4.22. Taxes. Guarantor shall pay and discharge all taxes,
-----
assessments and governmental charges upon it, its income, its properties and its
assets prior to the date on which penalties are attached thereto, unless and to
the extent only that (a) such taxes, assessments and governmental charges shall
be contested in good faith and by appropriate proceedings, and (b) adequate
reserves, Notes or other security are established with respect thereto.
Section 4.23. Additional Documents; Filings and Recordings.
--------------------------------------------
Guarantor shall execute and deliver, as requested by Trustee, such other
documents as shall reasonably be necessary or advisable in order to effect or
protect the rights and remedies of Trustee granted or provided for by the
Financing Documents to which Guarantor is a party and to consummate the
transactions contemplated therein. Guarantor shall, at its own expense, take all
reasonable actions (a) that are requested by Trustee or (b) that an Authorized
Officer of Guarantor has actual knowledge are necessary as a legal matter to
establish, maintain and perfect the first priority security interests of
Trustee, subject to Permitted Liens. Without limiting the generality of the
foregoing, Guarantor shall execute or cause to be executed and shall file or
cause to be filed such financing statements, continuation statements, and
fixture filings and such mortgages, or deeds of trust in all places necessary or
advisable (in the opinion of counsel for Trustee) to establish, maintain and
perfect such security interests, subject to Permitted Liens.
Section 4.24. Registered Owner. Guarantor shall not register or
----------------
permit any partner to register any other secured party as a "registered owner"
(as defined in Section 8-301 of the New York UCC) of any partnership interest in
Guarantor.
Section 4.25. USBLM/LADWP Leases. Guarantor shall use its best
------------------
efforts and diligence to cause an undivided one third interest in each of the
USBLM/LADWP Leases to be assigned to it (both by approval of such assignment by
the USBLM and by proper recordation of an appropriate Assignment and Assumption
Agreement in Inyo County, California) within ninety (90) days after the Closing
Date. Further, Guarantor shall use its best efforts and diligence to, within one
hundred and eighty (180) days after the Closing Date, cause Coso Operating
Company LLC, a Delaware limited liability company ("COC") and Coso Land Company,
---
a California general
15
<PAGE>
partnership ("CLC") to perform all of their respective obligations under that
---
certain Acquisition Agreement of even date herewith among COC and the Guarantor,
Navy I and Navy II.
ARTICLE V.
DEFAULT AND REMEDIES
--------------------
Section 5.1. Events of Default. Each of the following events and
-----------------
occurrences shall constitute a Credit Agreement Event of Default under this
Agreement:
(a) the failure by any Guarantor to pay or cause to be paid any
principal of, premium, if any, or interest, fees or any other obligations on any
Partnership Note for 10 or more days after the same becomes due and payable,
whether by scheduled maturity or required prepayment or by acceleration or
otherwise;
(b) any representation or warranty made by Guarantor under this
Agreement shall prove to have been untrue or misleading in any material respect
as of the time made, confirmed or furnished and the fact, event or circumstance
that gave rise to such inaccuracy could reasonably be expected to result in a
Material Adverse Effect and such fact, event or circumstance shall continue to
be uncured for 30 or more days from the date a Responsible Officer of Guarantor
receives notice thereof from the Trustee; provided that if Guarantor commences
efforts to cure such fact, event or circumstance within such 30-day period,
Guarantor may continue to effect such cure and such misrepresentation shall not
be deemed a Default or a Credit Agreement Event of Default for an additional 60
days so long as Guarantor is diligently pursuing such cure;
(c) the failure by Guarantor to perform or observe any covenant
contained in Sections 4.4, 4.5, 4.8, 4.10, 4.13, 4.15, 4.16 or 4.21 hereof and
such failure shall continue uncured for 30 or more days after a Responsible
Officer of Guarantor receives notice thereof from the Trustee;
(d) the failure by any of the Credit Parties (including, without
limitation, the other Partnerships) to perform or observe any of the other
covenants under this Agreement or in the other Financing Documents any Credit
Party is party to (other than such failures described in clause (a) or (c) above
or (m) below) and such failure shall continue uncured for 30 or more days after
a Responsible Officer of such Credit Party receives notice thereof from the
Trustee; provided that if such Credit Party commences efforts to cure such
default within such 30-day period, such Credit Party may continue to effect such
cure of the default and such default shall not be deemed a Credit Agreement
Event of Default for an additional 90 days so long as such Credit Party is
diligently pursuing such cure;
(e) Guarantor:
(i) admits in writing its inability, or is generally unable,
to pay its debts as the debts become due or makes a general assignment for
the benefit of creditors; or
16
<PAGE>
(ii) commences any case, proceeding or other action seeking
reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, adjustment,
insolvency, reorganization or similar laws affecting the rights or remedies
of creditors generally, as in effect from time to time (collectively,
"Debtor Relief Law"); or
------------------
(iii) in any involuntary case, proceeding or other action
commenced against it which seeks to have an order for relief (injunctive or
otherwise) entered against it, as debtor, or seeks reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or
its debts under any Debtor Relief Law, (A) fails to obtain a dismissal of
such case, proceeding or other action within ninety (90) days of its
commencement, or (B) converts the case from one chapter of the Bankruptcy
Reform Act of 1978, as amended, to another chapter, or (C) is the subject
of an order for relief; or
(iv) has a trustee, receiver, custodian or other official
appointed for or take possession of all or any part of its property or has
any court take jurisdiction of any of its property, which action remains
undismissed for a period of ninety (90) days;
(f) the entry of one or more final and non-appealable judgment or
judgments for the payment of money in excess of $2,500,000 (exclusive of
judgment amounts fully covered by insurance or indemnity) against any of the
Coso Partnerships, which remain unpaid or unstayed for a period of 90 or more
consecutive days after the entry thereof;
(g) any event of default under any Permitted Guarantor Indebtedness
(other than Subordinated Indebtedness) that results in Permitted Guarantor
Indebtedness in excess of $2,500,000 becoming due and payable prior to its
stated maturity;
(h) Guarantor or any other Guarantor (as defined in the Indenture)
fails to perform any of its respective payment obligations under its Guarantee
for 15 or more days after the same becomes due and payable;
(i) any Governmental Approval required for the operation of the
Project by Guarantor is revoked, terminated, withdrawn or ceases to be in full
force and effect if such revocation, termination, withdrawal or cessation could
reasonably be expected to have a Material Adverse Effect and such revocation,
termination, withdrawal or cessation is not cured within 60 days following the
occurrence thereof;
(j) any Project Document ceases to be valid and binding and in full
force and effect prior to its stated maturity date other than as a result of an
amendment, termination or Permitted Power Contract Buy-Out permitted under this
Agreement or any third party thereto fails to perform its material obligations
thereunder or makes any material misrepresentation thereunder and such event
results in a Material Adverse Effect; provided that no such event shall be a
Credit Agreement Event of Default if within 180 days from the occurrence of any
such event, (i)
17
<PAGE>
the third party resumes performance or cures such misrepresentation or (ii)
Guarantor enters into an Additional Project Document in replacement thereof, as
permitted under this Agreement;
(k) the failure of Guarantor or any other party to perform or observe
any of its covenants or obligations contained in any of the Project Documents to
which Guarantor is a party if such failure shall result in the termination of
such Project Document or otherwise result in a Material Adverse Effect;
provided, however, that such event shall not be a Credit Agreement Event of
Default if within 180 days from the occurrence of any such event, the failure is
cured or Guarantor enters into an Additional Project Document in replacement
thereof as permitted under this Agreement;
(l) any of the Security Documents ceases to be effective or any Lien
granted therein ceases to be a valid and perfected Lien in favor of the
Collateral Agent on the Collateral described therein with the priority purported
to be created thereby; provided, however, that the applicable Credit Party shall
have 10 days after a Responsible Officer of such Credit Party obtains knowledge
thereof to cure any such cessation or to furnish to the Trustee, the Collateral
Agent or the Depositary all documents or instruments required to cure any such
cessation;
(m) in the case of a determination by the Geothermal Engineer that the
Actual Geothermal Percentage is less than 105% (as set forth in the annual
certificate required pursuant to the covenant set forth in Section 4.18 of this
Agreement), any (i) failure by Guarantor (a) to prepare a plan approved by the
Geothermal Engineer within 90 days of such certification to achieve an Actual
Geothermal Percentage of at least 105%, (b) to diligently implement such plan
and (c) to achieve an Actual Geothermal Percentage of at least 105% within a
reasonable period of time thereafter as determined in the sole discretion of the
Geothermal Engineer, or (ii) determination by the Geothermal Engineer or
Guarantor that achieving an Actual Geothermal Percentage of at least 105% is not
reasonably feasible; or
(n) an Event of Default (as defined in the Indenture) occurs under
Sections 5.01 (c), (d), (e), (f), (g) or (h) of the Indenture.
Section 5.2. Consequences of Credit Agreement Event of Default. If one or
-------------------------------------------------
more Credit Agreement Events of Default under this Agreement have occurred and
are continuing, then:
(a) in the case of a Credit Agreement Event of Default under Section
5.1(e) above, the entire outstanding principal amount of the Partnership
Note, all interest accrued and unpaid thereon, and all premium and other
amounts payable under the Partnership Note and this Agreement, if any,
shall automatically become due and payable without presentment, demand,
protest or notice of any kind; or
(b) in the case of a Default or a Credit Agreement Event of Default
described in:
(i) clause (a) and (h) of Section 5.1 of this Agreement, upon the
direction of the Holders of no less than 25% in aggregate principal amount
of the
18
<PAGE>
Outstanding Notes, Funding Corporation shall declare the outstanding
principal amount of the Partnership Note and all interest accrued and
unpaid thereon, and all premium and other amounts payable under this
Agreement, if any, to be due and payable; or
(ii) clauses (b), (c), (d), (f), (g), (i), (j), (k), (l), (m) and
(n) of Section 5.1, upon the direction of the Required Holders, Funding
Corporation shall declare the outstanding principal amount of the
Partnership Note to be accelerated and due and payable and all interest
accrued and unpaid thereon, and all premium and other amounts payable under
this Agreement, if any, to be due and payable.
Section 5.3. Defense of Actions. Upon the occurrence of a Credit
------------------
Agreement Event of Default, Funding Corporation may (but shall not be obligated
to) commence, appear in or defend any action or proceeding purporting to affect
the Partnership Loan or the respective rights and obligations of Funding
Corporation and any other person pursuant to this Agreement, any other Financing
Document to which Guarantor is a party or any Security Document to which
Guarantor is a party. Funding Corporation may (but shall not be obligated to)
pay all necessary expenses, including reasonable attorneys' fees and expenses,
incurred in connection with such proceedings or actions, which expenses
Guarantor hereby agrees to repay to Funding Corporation promptly upon demand.
Guarantor acknowledges and agrees that Funding Corporation has assigned its
interest in the Promissory Note to Collateral Agent and upon the occurrence of a
Default or a Credit Agreement Event of Default, Collateral Agent may (but shall
not be obligated to) take any and all actions which Funding Corporation may take
under this Agreement.
ARTICLE VI.
GENERAL TERMS AND CONDITIONS
----------------------------
Section 6.1. Notices. All notices, requests, complaints, demands,
-------
communications or other papers shall be sufficiently given and shall be deemed
given when delivered or mailed by registered or certified mail, postage prepaid,
or sent by telegram or telex, addressed to the parties as follows:
If to Guarantor: Coso Energy Developers
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas
New York, New York 10036
If to Funding Corporation: Caithness Coso Funding Corporation
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas
New York, New York 10036
If to Moody's: Moody's Investors Service
19
<PAGE>
99 Church Street
New York, New York 10007
Attention: Corporate Utilities Department
If to S & P: Standard & Poor's Corporation
25 Broadway
New York, New York 10004
Attention: Corporate Finance Department
Electric Utilities Group
The above parties may, by notice given hereunder, designate any
further or different addresses to which subsequent notices, certificates or
other communications shall be sent.
Section 6.2. Amendments and Waivers. This Agreement may only be
----------------------
amended by a document signed by Funding Corporation and Guarantor. No waiver of
any provision of this Agreement nor consent by Funding Corporation to any
departure by Guarantor therefrom shall in any event be effective unless the same
shall be in writing and signed by Funding Corporation. Any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of Funding Corporation to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof (except as provided above) nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. This Agreement shall be binding upon
Guarantor, its successors and any permitted assigns.
Section 6.3. Election of Remedies. The remedies herein provided are
--------------------
cumulative and not exclusive of any remedies provided by law. Funding
Corporation shall have all of the rights and remedies granted to Funding
Corporation or Trustee in the Financing Documents and available at law or in
equity, and these same rights and remedies may be pursued separately,
successively or concurrently against Guarantor, at the sole discretion of
Funding Corporation.
Section 6.4. Severability. Any provision of this Agreement which is
------------
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 6.5. Third-Party Beneficiaries; Prior Agreements. It is
-------------------------------------------
intended that the Trustee, the Collateral Agent and the Depositary be, and the
Trustee, the Collateral Agent and the Depositary are hereby made, third-party
beneficiaries of this Agreement. This Agreement is for the sole benefit of
Funding Corporation, the Trustee, the Collateral Agent, the Depositary, the
Holders and Guarantor and is not for the benefit of any other third party.
Notwithstanding the two preceding sentences, no Holder shall have any right to
pursue any remedy hereunder except through
20
<PAGE>
the Trustee as permitted under Section 5.05 of the Indenture. This Agreement
supersedes all prior agreements among the parties with respect to the matters
addressed herein.
Section 6.6. Guarantors in Control. In no event shall Funding
---------------------
Corporation's, the Trustee's, the Collateral Agent's or the Depositary's rights
and interests under this Agreement and the other Financing Documents be
construed to give Funding Corporation, the Trustee, the Collateral Agent or the
Depositary or be deemed to indicate that Funding Corporation, the Trustee, the
Collateral Agent or the Depositary has control of the business, management or
properties of Guarantor or power over the daily management functions and
operating decisions made by Guarantor.
Section 6.7. Number and Gender. Whenever used herein, the singular
-----------------
number shall include the plural and the plural the singular, and the use of any
gender shall be applicable to all genders.
Section 6.8. Captions. The captions, headings, table of contents and
--------
arrangements used in this Agreement are for convenience only and do not and
shall not be deemed to affect, limit, amplify or modify the terms and provisions
hereof.
Section 6.9. Applicable Law and Jurisdiction. This Agreement,
-------------------------------
including all matters of construction, validity and performance shall be
governed by and construed and interpreted in accordance with the laws of the
State of New York, without reference to principles of conflicts of law (other
than Section 5-1401 of the New York General Obligations Law), except as required
by mandatory provisions of law.
Section 6.10. Consent. Whenever the consent or approval of Funding
-------
Corporation or Guarantor is required herein, such consent or approval shall not
be unreasonably withheld or delayed.
Section 6.11. No Recourse. Funding Corporation agrees that no officer
-----------
director, employee, shareholder, partner or holder of Capital Stock of
Guarantor, nor any director, officer, employee, incorporator, shareholder,
partner or member of any partner of Guarantor or any Affiliate of any such party
(collectively, the "Nonrecourse Parties") shall be personally liable under this
-------------------
Agreement for the payment of any sums now or hereafter owing Funding Corporation
under the terms of, or for the performance of any obligation contained in, this
Agreement. Funding Corporation agrees that its rights shall be limited to
proceeding against Guarantor and the security provided or intended to be
provided pursuant to the Security Documents and that it shall have no right to
proceed against the Nonrecourse Parties for (a) the satisfaction of any monetary
obligation of, or enforcement of any monetary claim against, Guarantor, (b) the
performance of any obligation, covenant or agreement arising under this
Agreement, or (c) any deficiency judgment remaining after foreclosure of any
property securing the obligations hereunder; provided that (v) the foregoing
provisions of this Section 6.11 shall not constitute a waiver, release or
discharge of any of the Indebtedness, or of any of the terms, covenants,
conditions or provisions of this agreement or any Financing Document and the
same shall continue until fully paid, discharged, observed or performed; (w) the
foregoing provisions of this Section 6.11 shall not limit or restrict the right
of
21
<PAGE>
the Collateral Agent, the Holders of the Senior Secured Notes, the Depositary or
the Trustee to name Guarantor or any other Person as a defendant in any action
or suit for a judicial foreclosure or for the exercise of any other remedy under
or with respect to this Agreement or any other Financing Document, or for
injunction or specific performance, so long as no judgment in the nature of a
deficiency judgment shall be enforced against any Nonrecourse Party, except as
set forth in this Section 6.11; (x) the foregoing provisions of this Section
6.11 shall not in any way limit or restrict any right or remedy of Collateral
Agent, the Holders of the Senior Secured Notes, the Depositary or the Trustee
(or any assignee or beneficiary thereof or successor thereto) with respect to,
and all of the Nonrecourse Parties shall remain fully liable to the extent that
it would otherwise be liable for its own actions with respect to, any fraud,
negligence or willful misrepresentation, or misappropriation of any revenues
derived from the Project and the proceeds thereof or any other earnings,
revenues, rents, issues, profits or proceeds that are subject to the Security
Documents that should or would have been paid as provided therein or paid or
delivered to the Depositary, the Trustee, the Collateral Agent or the Holders of
the Senior Secured Notes (or any assignee or beneficiary thereof or successor
thereto) towards any payment required under this Agreement or any other
Financing Document; (y) the foregoing provisions of this Section 6.11 shall not
affect or diminish or constitute a waiver, release or discharge of any specific
written obligation, covenant, or agreement in respect of the Project made by any
of the Nonrecourse Parties or any security granted by the Nonrecourse Parties as
security for the obligations of Guarantor or Funding Corporation; and (z)
nothing contained herein shall limit the liability of (i) any Person who is a
party to any Project Document or has issued any certificate or statement in
connection therewith with respect to such liability as may arise by reason of
the terms and conditions of such Project Document, certificate or statement, or
(ii) any Person rendering a legal opinion, in each case under this clause (z)
relating solely to such liability of such Person as may arise under such
referenced instrument, agreement or opinion.
Section 6.12. Counterparts. This Agreement may be signed in any
------------
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
Section 6.13. Successors and Assigns. All the covenants, promises and
----------------------
agreements in this Agreement contained by or on behalf of Guarantor, or by or on
behalf of Funding Corporation, shall bind and inure to the benefit of their
respective successors and assigns, whether so expressed or not.
Section 6.14. Maximum Interest Rate. Notwithstanding any provision to
---------------------
the contrary contained herein or in the Partnership Note, at no time shall
Guarantor be obligated or required to pay interest on the principal balance due
hereunder or thereunder at a rate which could be in excess of the maximum
interest rate permitted by law to be contracted or agreed to be paid. If by the
terms hereof or of the Partnership Note, Guarantor is at any time required or
obligated to pay interest in excess of such maximum rate, then the rate of
interest applicable hereunde-r shall be deemed to be immediately reduced to such
maximum rate and the interest payable shall be computed at such maximum rate.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
COSO ENERGY DEVELOPERS, a California
general partnership
By: New CHIP Company, LLC, a Delaware
limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
CAITHNESS COSO FUNDING CORP., a
Delaware corporation
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
SCHEDULE 1
----------
PRINCIPAL PAYMENT SCHEDULE FOR PROMISSORY NOTE DUE 2001
-------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of Principal
Scheduled Payment Date Amount Payable
<S> <C>
December 15, 1999 47.8773%
June 15, 2000 11.0736%
December 15, 2000 16.4427%
June 15, 2001 10.1900%
December 15, 2001 14.4164%
</TABLE>
<PAGE>
SCHEDULE 2
----------
PRINCIPAL PAYMENT SCHEDULE FOR PROMISSORY NOTE DUE 2009
-------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of Principal
Scheduled Payment Date Amount Payable
<S> <C>
June 15, 2002 2.8743%
December 15, 2002 4.3109%
June 15, 2003 3.6564%
December 15, 2003 5.4584%
June 15, 2004 4.1363%
December 15, 2004 6.2043%
June 15, 2005 4.6838%
December 15, 2005 7.0257%
June 15, 2006 5.0541%
December 15, 2006 7.5815%
June 15, 2007 6.2601%
December 15, 2007 9.3898%
June 15, 2008 6.4927%
December 15, 2008 9.7650%
June 15, 2009 6.8231%
December 15, 2009 10.2835%
</TABLE>
<PAGE>
Exhibit 10.6
PROMISSORY NOTE
(Due 2001)
$ 11,650,000.00 May 28, 1999
For value received, the undersigned, COSO ENERGY DEVELOPERS, a California
general partnership (the "Guarantor"), by this promissory note promises to pay
---------
to the order of Caithness Coso Funding Corp., a Delaware corporation ("Funding
-------
Corporation"), at the office of Funding Corporation, located at 1114 Avenue of
- -----------
the Americas, New York, New York 10036, in lawful currency of the United States
of America and in immediately available funds, the principal amount of
$11,650,000.00, or if less, the aggregate unpaid and outstanding principal
amount of this Promissory Note advanced by Funding Corporation to the Guarantor
pursuant to that certain Credit Agreement (the "Guarantor Credit Agreement"),
--------------------------
dated as of May 28, 1999, by and among the Guarantor and Funding Corporation,
and as the same may be amended from time to time, and all other amounts owed by
the Guarantor to Funding Corporation hereunder.
This is a Promissory Note entered into pursuant to the Guarantor Credit
Agreement and is entitled to the benefits thereof and is subject to all terms,
provisions and conditions thereof. Capitalized terms used and not defined
herein shall have the meanings set forth in that certain Indenture, dated as of
May 28, 1999 (the "Indenture"), by and between Funding Corporation, the
---------
Guarantor, Coso Finance Partners, a California general partnership, Coso Power
Developers, a California general partnership, and U.S. Bank Trust National
Association, as trustee.
Reference is hereby made to the Guarantor Credit Agreement, the Indenture
and the Security Documents for the provisions, among others, with respect to the
rights, duties and obligations of the Guarantor and the rights of the holder of
this Promissory Note.
The principal amount hereof is payable in accordance with the Guarantor
Credit Agreement, and such principal amount may be prepaid solely in accordance
with the Guarantor Credit Agreement.
The Guarantor further agrees to pay, in lawful currency of the United
States of America and in immediately available funds, interest from the date
hereof on the unpaid and outstanding principal amount hereof until such unpaid
and outstanding principal amount shall become due and payable (whether at stated
maturity, by acceleration or otherwise) at the rates of interest and at the
times set forth in the Guarantor Credit Agreement, and the Guarantor agrees to
pay other fees and costs as stated in the Guarantor Credit Agreement.
<PAGE>
Upon the occurrence of any one or more Credit Agreement Events of Default
(as defined in Section 5.1 of the Guarantor Credit Agreement), all amounts then
remaining unpaid under this Promissory Note may become or be declared to be
immediately due and payable as provided in the Guarantor Credit Agreement,
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor, or notices or demands of any kind, all of which are
expressly waived by the Guarantor.
The obligations hereunder are subject to the limitations set forth in
Section 6.11 of the Guarantor Credit Agreement, the provisions of which are
hereby incorporated by reference.
This Promissory Note shall be construed and interpreted in accordance with
and governed by the laws of the State of New York without regard to the
conflicts of laws rules thereof other than Section 5-1401 of the New York
General Obligations Law.
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
2
<PAGE>
Exhibit 10.7
PROMISSORY NOTE
(Due 2009)
$96,250,000.00 May 28, 1999
For value received, the undersigned, COSO ENERGY DEVELOPERS, a California
general partnership (the "Guarantor"), by this promissory note promises to pay
---------
to the order of Caithness Coso Funding Corp., a Delaware corporation ("Funding
-------
Corporation"), at the office of Funding Corporation, located at 1114 Avenue of
- -----------
the Americas, New York, New York 10036, in lawful currency of the United States
of America and in immediately available funds, the principal amount of
$96,250,000.00, or if less, the aggregate unpaid and outstanding principal
amount of this Promissory Note advanced by Funding Corporation to the Guarantor
pursuant to that certain Credit Agreement (the "Guarantor Credit Agreement"),
--------------------------
dated as of May 28, 1999, by and among the Guarantor and Funding Corporation,
and as the same may be amended from time to time, and all other amounts owed by
the Guarantor to Funding Corporation hereunder.
This is the Promissory Note entered into pursuant to the Guarantor Credit
Agreement and is entitled to the benefits thereof and is subject to all terms,
provisions and conditions thereof. Capitalized terms used and not defined
herein shall have the meanings set forth in that certain Indenture, dated as of
May 28, 1999 (the "Indenture"), by and between Funding Corporation, the
---------
Guarantor, Coso Finance Partners, a California general partnership, Coso Power
Developers, a California general partnership, and U.S. Bank Trust National
Association, as trustee.
Reference is hereby made to the Guarantor Credit Agreement, the Indenture and
the Security Documents for the provisions, among others, with respect to the
rights, duties and obligations of the Guarantor and the rights of the holder of
this Promissory Note.
The principal amount hereof is payable in accordance with the Guarantor Credit
Agreement, and such principal amount may be prepaid solely in accordance with
the Guarantor Credit Agreement.
The Guarantor further agrees to pay, in lawful currency of the United States
of America and in immediately available funds, interest from the date hereof on
the unpaid and outstanding principal amount hereof until such unpaid and
outstanding principal amount shall become due and payable (whether at stated
maturity, by acceleration or otherwise) at the rates of interest and at the
times set forth in the Guarantor Credit Agreement, and the Guarantor agrees to
<PAGE>
pay other fees and costs as stated in the Guarantor Credit Agreement.
Upon the occurrence of any one or more Credit Agreement Events of Default
(as defined in Section 5.1 of the Guarantor Credit Agreement), all amounts then
remaining unpaid under this Promissory Note may become or be declared to be
immediately due and payable as provided in the Guarantor Credit Agreement,
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor, or notices or demands of any kind, all of which are
expressly waived by the Guarantor.
The obligations hereunder are subject to the limitations set forth in
Section 6.11 of the Guarantor Credit Agreement, the provisions of which are
hereby incorporated by reference.
This Promissory Note shall be construed and interpreted in accordance with
and governed by the laws of the State of New York without regard to the
conflicts of laws rules thereof other than Section 5-1401 of the New York
General Obligations Law.
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
2
<PAGE>
Exhibit 10.8
CREDIT AGREEMENT
Between
CAITHNESS COSO FUNDING CORP.,
a Delaware corporation,
as lender,
and
COSO POWER DEVELOPERS,
a California general partnership,
as borrower
dated May 28, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. DEFINITIONS................................................................................ 1
Section 1.1. Capitalized Terms.............................................................. 1
Section 1.2. Definitions.................................................................... 1
ARTICLE II. DESCRIPTION OF THE LOAN................................................................... 4
Section 2.1. Acknowledgment of Guarantor.................................................... 4
Section 2.2. Term of This Agreement......................................................... 5
Section 2.3. Interest....................................................................... 5
Section 2.4. Repayment...................................................................... 5
Section 2.5. Prepayment..................................................................... 5
Section 2.6. Obligations of Guarantor Hereunder Unconditional............................... 6
Section 2.7. General Terms of Payment....................................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES........................................................... 6
Section 3.1. Organization, Power and Status of Guarantor.................................... 7
Section 3.2. Authorization; Enforceability; Execution and Delivery.......................... 7
Section 3.3. No Conflicts; Laws and Contracts; No Default; Representations and Warranties... 7
Section 3.4. Litigation..................................................................... 8
Section 3.5. Environmental Matters.......................................................... 8
Section 3.6. Employee Benefit Plans......................................................... 8
Section 3.7. Business of Guarantor.......................................................... 8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 3.8. Valid Title................................................................... 8
Section 3.9. Utility Regulation............................................................ 9
Section 3.10. Qualifying Facility........................................................... 9
Section 3.11. Investment Company Act........................................................ 9
Section 3.12. No Defaults................................................................... 9
Section 3.13. Governmental Approvals........................................................ 9
Section 3.14. Margin Stock.................................................................. 9
Section 3.15. Taxes......................................................................... 10
Section 3.16. Ownership of Guarantor........................................................ 10
Section 3.17. Disclosure.................................................................... 10
Section 3.18. Security Interests............................................................ 10
Section 3.19. Due Execution of Project Documents............................................ 10
ARTICLE IV. COVENANTS AND AGREEMENTS OF GUARANTOR..................................................... 11
Section 4.1. Events of Loss................................................................ 11
Section 4.2. Reporting Requirements........................................................ 11
Section 4.3. Ownership of Guarantor........................................................ 12
Section 4.4. Sale of Assets................................................................ 12
Section 4.5. Insurance..................................................................... 12
Section 4.6. QF Status..................................................................... 12
Section 4.7. Governmental Approvals; Title................................................. 13
Section 4.8. Nature of Business............................................................ 13
Section 4.9. Compliance With Laws.......................................................... 13
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 4.10. Prohibition on Fundamental Changes............................................ 13
Section 4.11. Revenue Account............................................................... 13
Section 4.12. Transactions With Affiliates.................................................. 14
Section 4.13. Restricted Payments........................................................... 14
Section 4.14. Exercise of Rights Under Project Documents.................................... 14
Section 4.15. Amendments to Contracts....................................................... 14
Section 4.16. Limitations on Indebtedness/Liens............................................. 15
Section 4.17. Operating Budget.............................................................. 15
Section 4.18. Required Geothermal Percentage................................................ 15
Section 4.19. Books and Records............................................................. 15
Section 4.20. Project Documents; Additional Project Documents............................... 15
Section 4.21. Maintenance of Existence...................................................... 16
Section 4.22. Taxes......................................................................... 16
Section 4.23. Additional Documents; Filings and Recordings.................................. 16
Section 4.24. Registered Owner.............................................................. 16
Section 4.25. USBLM/LADWP Leases............................................................ 17
ARTICLE V. DEFAULT AND REMEDIES....................................................................... 17
Section 5.1. Events of Default............................................................. 17
Section 5.2. Consequences of Credit Agreement Event of Default............................. 19
Section 5.3. Defense of Actions............................................................ 20
ARTICLE VI. GENERAL TERMS AND CONDITIONS.............................................................. 20
Section 6.1. Notices....................................................................... 20
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 6.2. Amendments and Waivers........................................................ 21
Section 6.3. Election of Remedies.......................................................... 21
Section 6.4. Severability.................................................................. 22
Section 6.5. Third-Party Beneficiaries; Prior Agreements................................... 22
Section 6.6. Guarantors in Control......................................................... 22
Section 6.7. Number and Gender............................................................. 22
Section 6.8. Captions...................................................................... 22
Section 6.9. Applicable Law and Jurisdiction............................................... 22
Section 6.10. Consent....................................................................... 23
Section 6.11. No Recourse................................................................... 23
Section 6.12. Counterparts.................................................................. 24
Section 6.13. Successors and Assigns........................................................ 24
Section 6.14. Maximum Interest Rate......................................................... 24
</TABLE>
iv
<PAGE>
CREDIT AGREEMENT
----------------
This CREDIT AGREEMENT dated as of May 28, 1999 (this "Agreement") is by and
---------
between CAITHNESS COSO FUNDING CORP., a Delaware corporation ("Funding
-------
Corporation"), as lender, and COSO POWER DEVELOPERS, a California general
- -----------
partnership ("Guarantor"), as borrower.
---------
W I T N E S S E T H:
--------------------
WHEREAS, Funding Corporation is a corporation established for the sole purpose
of issuing (a) $110,000,000 of 6.80% Senior Secured Notes due 2001 (the "2001
----
Notes") and $303,000,000 of 9.05% of Senior Secured Notes due 2009 (the "2009
- ----- ----
Notes" and collectively with the 2001 Notes the "Senior Secured Notes") pursuant
- ----- --------------------
to the Indenture, dated as of the date hereof (the "Indenture"), among Funding
---------
Corporation, U.S. Bank Trust National Association as trustee and collateral
agent ("Trustee"), the Guarantor, Coso Finance Partners, a California general
-------
partnership ("Navy I"), and Coso Energy Developers, a California general
------
partnership ("BLM," and together with Guarantor and Navy I, the "Coso
- ----
Partnerships"), (b) any additional Senior Secured Notes issued pursuant to the
- ------------
Indenture, other than the Senior Secured Notes (the "Additional Secured Notes"),
and (c) to make loans from the proceeds of the Senior Secured Notes to
Guarantor, Navy I and BLM; and
WHEREAS, the principal and interest payments on the Senior Secured Notes
will be serviced by repayment of loans made by Funding Corporation to Guarantor,
Navy I and BLM and guaranteed by Guarantor, Navy I and BLM, subject to the
conditions set forth in the Indenture; and
WHEREAS, Funding Corporation has simultaneously with the execution and
delivery of this Agreement issued and sold the Senior Secured Notes; and
WHEREAS, Funding Corporation intends to use the proceeds from the sale of
the Senior Secured Notes to, among other things, make a loan to Guarantor in the
aggregate amount of $153,550,000.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto formally covenant, agree and
bind themselves as follows:
ARTICLE I.
DEFINITIONS
-----------
Section 1.1. Capitalized Terms. Capitalized terms used and not
-----------------
otherwise defined herein shall have the meanings ascribed thereto in the
Indenture.
Section 1.2. Definitions.
-----------
(a) "Affiliate" of any specified Person means any other
---------
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For purposes of this
definition, "control," as used with respect to any Person, shall mean the
--------
possession, directly or indirectly, of the power to direct or cause the
direction of the
<PAGE>
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that beneficial ownership of 10%
or more of the Voting Stock of a Person shall be deemed to be control. For
purposes of this definition, the terms "controlling," "controlled by" and
----------- -------------
"under common control with" shall have correlative meanings.
-------------------------
(b) "Capital Stock" means:
-------------
(i) in the case of a corporation, corporate stock;
(ii) in the case of an association or business entity,
any and all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock;
(iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited); and
(iv) any other interest or participation that confers on
a Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
(c) "Code" means the Internal Revenue Code of 1986.
----
(d) "Commonly Controlled Entity" means, as applied to the
--------------------------
Guarantor, any Person who is a member of a group which is under common control
with the Guarantor, who together with Funding Corporation, is treated as a
single employer within the meaning of Section 414(b), (c), (m) or (o) of the
Code or Section 4001(b) of ERISA.
(e) "Credit Agreement Event of Default" shall have the meaning
---------------------------------
set forth in Section 5.1 of this Agreement.
(f) "Credit Parties" means each of the Coso Partnerships (as
--------------
defined in the Indenture), each of the Partners and each Affiliate of the Coso
Partnerships or the Partners that is a party to any Security Document (as
defined in the Indenture).
(g) "Debtor Relief Law" shall have the meaning set forth in
-----------------
Section 5.1(e)(2) hereof.
(h) "Default" means an event or condition that, with the
-------
giving of notice, lapse of time or failure to satisfy certain specified
conditions, or any combination thereof, would become a Credit Agreement Event of
Default.
(i) "Environmental Claim" means any complaint, order, citation,
-------------------
decree, demand, judgment or written notice actually received by Funding
Corporation or any Guarantor from any Person relating to any matters of
Environmental Law affecting or relating to any activity or operations at any
time conducted by either Funding Corporation or any Guarantor, including,
without limitation:
2
<PAGE>
(i) the existence of any Environmentally Regulated Materials at
any Project site in violation of any Environmental Law;
(ii) the release or threatened release of any Environmentally
Regulated Materials generated at any Project site in violation of any
Environmental Law;
(iii) remediation of any such release at any Project site; and
(iv) any violation of any relevant Environmental Law in
connection with any Project site.
(j) "Environmental Laws" means any and all laws, rules and
------------------
regulations (as well as obligations, duties and requirements relating thereto
under common law) relating to: (i) noise, emissions, discharges, spills,
releases or threatened releases of pollutants, contaminants, Environmentally
Regulated Materials, materials containing Environmentally Regulated Materials,
or hazardous or toxic materials or wastes into ambient air, surface water,
groundwater, watercourses, publicly or privately-owned treatment works, drains,
sewer systems, wetlands, septic systems or onto land surface or subsurface
strata; (ii) the use, treatment, storage, disposal, handling, manufacture,
processing, distribution, transportation, or shipment of Environmentally
Regulated Materials, materials containing Environmentally Regulated Materials or
hazardous and/or toxic wastes, material, products or by-products (or of
equipment or apparatus containing Environmentally Regulated Materials); (iii)
pollution or the protection of human health, the environment or natural
resources or (iv) zoning and land use.
(k) "Environmentally Regulated Materials" means (i) hazardous
-----------------------------------
materials, hazardous wastes, hazardous substances, extremely hazardous wastes,
restricted hazardous wastes, toxic substances, toxic pollutants, contaminants,
pollutants or words of similar import, as used under Environmental Laws,
including but not limited to the following: the Hazardous Materials
Transportation Act, 49 U.S.C. 1801 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. 6901 et seq., the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, 42 U.S.C. 9601 et seq., the Clean Water
Act, 33 U.S.C. 1231 et seq., the Clean Air Act, 42 U.S.C. (S) 7401 et seq., the
Toxic Substances Control Act, 15 U.S.C. 2601 et seq., the Safe Drinking Water
Act, 42 U.S.C. (S) 3808 et seq., and the Oil Pollution Act, 33 U.S.C. (S) 2701
et seq., and their State and local counterparts or equivalents; (ii) petroleum
and petroleum products including crude oil and any fractions thereof; (iii)
natural gas, synthetic gas and any mixtures thereof; (iv) radon; (v) any other
hazardous, radioactive, toxic or noxious substance, material, pollutant, or
solid, liquid or gaseous waste; and (vi) any substance that, whether by its
nature or its use, is now or hereafter subject to regulation under any
Environmental Law or with respect to which any Federal, state or local
Environmental Law or governmental agency requires environmental investigation,
monitoring or remediation.
(l) "ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
(m) "Equity Interest" means Capital Stock and all warrants,
---------------
options or
3
<PAGE>
other rights to acquire Capital Stock (But excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
(n) "Final Offering Memorandum" means the confidential offering
-------------------------
memorandum of Funding Corporation dated May 21, 1999, issued with respect to the
initial issuance of the Senior Secured Notes.
(o) "Insurance Consultant" means an independent insurance
--------------------
consultant or another insurance broker reasonably satisfactory to the Trustee.
(p) "Multiemployer Plan" means a Plan which is a multiemployer
------------------
plan as defined in Section 4001(a)(3) of ERISA.
(q) "PBGC" means the Pension Benefit Guaranty Corporation.
----
(r) "Plan" means an employee benefit or other plan established
----
or maintained by the Guarantor or any Commonly Controlled Entity.
(s) "Preliminary Offering Memorandum" means the confidential
-------------------------------
preliminary offering memorandum of Funding Corporation, dated May 5, 1999, with
respect to the initial issuance of the Senior Secured Notes.
(t) "Project" shall have the meaning set forth in Section 2.6
-------
hereof.
(u) "Project Documents" means individually and collectively, all
-----------------
material existing agreements and documents which relate to all or any portion of
one or more of the Projects.
(v) "PUHCA" means the Public Utility Holding Company Act of
-----
1935, as amended.
(w) "Qualifying Facility" means a "qualifying small power
-------------------
production facility" or a "qualifying cogeneration facility" in accordance with
the Public Utility Power Regulatory Policies Act of 1978 and the rules and
regulations of the United States Federal Energy Regulatory Commission under the
Public Utility Power Regulatory Policies Act of 1978 relating thereto.
ARTICLE II.
DESCRIPTION OF THE LOAN
-----------------------
Section 2.1. Acknowledgment of Guarantor. Guarantor hereby
---------------------------
acknowledges and agrees that:
(a) Pursuant to this Agreement, Funding Corporation does
hereby lend to Guarantor and Guarantor does hereby borrow from Funding
Corporation funds in the amount of $153,550,000 (the "Partnership Loan") to be
----------------
evidenced by a promissory note due 2001
4
<PAGE>
("Partnership Note Due 2001") substantially in the form attached hereto as
-------------------------
Exhibit A-1 and a promissory note due 2009 ("Partnership Note Due 2009")
-------------------------
substantially in the form attached hereto as Exhibit A-2 issued by Guarantor in
favor of Funding Corporation (collectively, the "Initial Partnership Notes");
(b) If proceeds from the issuance of any Additional Senior
Secured Notes are loaned to Guarantor, (a) the outstanding principal balance on
the Partnership Loan shall be increased by the amount of such proceeds, (b) the
Partnership Loan shall include the loan to Guarantor of such proceeds, as
evidenced by an additional promissory note issued by Guarantor (together with
the Initial Partnership Note, the "Partnership Notes"), and (c) the terms and
-----------------
provisions of this Credit Agreement relating to Senior Secured Notes shall apply
to the Additional Senior Secured Notes, where appropriate.
Section 2.2. Term of This Agreement. This Agreement shall remain in
----------------------
full force and effect from the date hereof until payment and performance in full
of all amounts due and obligations to be performed under this Agreement and the
other Financing Documents.
Section 2.3. Interest. Interest hereunder shall be paid semi-annually
--------
in arrears on each June 15 and December 15 commencing December 15, 1999, until
all principal hereunder is paid in full. Interest shall be computed on the basis
of a three hundred sixty (360) day year, consisting of twelve (12) thirty (30)
day months and at a 6.80% rate per annum for the Partnership Note Due 2001, and
at a 9.05% rate per annum for the Partnership Note Due 2009.
Section 2.4. Repayment.
---------
(a) Guarantor shall repay the Partnership Note Due 2001 in
principal installments to Funding Corporation on the dates, at the times and in
the amounts set forth on Schedule 1 attached hereto (as the same may be modified
pursuant to Article 8 of the Indenture).
(b) Guarantor shall repay the Partnership Note Due 2009 in
principal installments to Funding Corporation on the dates, at the times and in
the amounts set forth on Schedule 2 attached hereto (as the same may be modified
pursuant to Article 8 of the Indenture).
Section 2.5. Prepayment.
----------
(a) Optional Prepayment. Guarantor shall have the optional
-------------------
right to prepay the Partnership Loan in such amounts and at such times as may be
appropriate to permit Funding Corporation to redeem the 2009 Notes pursuant to
the optional redemption provisions set forth in Section 3.07 of the Indenture or
defease the Senior Secured Notes pursuant to the optional defeasance provisions
set forth in Section 7.01 of the Indenture.
(b) Mandatory Prepayment. Guarantor shall be required to
--------------------
prepay principal, and to pay accrued interest on such prepaid principal, on the
Partnership Loan in such amounts and at such times as may be required to permit
Funding Corporation to redeem the Senior Secured Notes pursuant to the mandatory
redemption provisions set forth in Section 3.08 of the Indenture as they apply
specifically to Guarantor and/or its project or contracts.
5
<PAGE>
Section 2.6. Obligations of Guarantor Hereunder Unconditional.The
------------------------------------------------
obligations of Guarantor to make the payments required in Sections 2.3 and 2.4
hereof shall be absolute and unconditional; and Guarantor shall not discontinue
such payments for any cause, including, without limiting the generality of the
foregoing, any acts or circumstances that may constitute failure of
consideration, eviction or constructive eviction from the Navy II Project (the
"Project"), destruction of or damage to the Project, including commercial
-------
frustration of purpose, or change in the tax or other laws or administrative
rulings of or administrative actions by the United States of America or the
State of California or any political subdivision of either. Guarantor may,
however, at its own cost and expense and in its own name or in the name of
Funding Corporation, prosecute or defend any action or proceeding or take any
other action involving third persons which Guarantor deems reasonably necessary
in order to secure or protect its rights with respect to the Project.
Section 2.7. General Terms of Payment.
------------------------
(a) All sums payable to Funding Corporation hereunder shall
be deemed paid to the extent the Depositary shall apply amounts held by the
Depositary in accordance with the Depositary Agreement to the payment of
principal of or interest on the Partnership Loan and the Senior Secured Notes in
accordance with the Depositary Agreement.
(b) Whenever any payment hereunder shall be due, or any
calculation shall be made, on a day which is not a Business Day, the date for
payment or calculation, as the case may be, shall be extended to the next
succeeding Business Day, and any interest on any payment shall be payable for
such extended time at the specified rate.
(c) If no due date is specified for the payment of any
amount payable by Guarantor hereunder, such amount shall be due and payable not
later than ten (10) days after receipt of written demand by Funding Corporation
or by the Trustee to Guarantor for payment thereof.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
------------------------------
Guarantor represents and warrants to Funding Corporation as follows:
Section 3.1. Organization, Power and Status of Guarantor.Guarantor is
-------------------------------------------
a general partnership, duly formed, validly existing and in good standing under
the laws of the State of California. Guarantor is duly authorized to do business
in each other jurisdiction where the nature of its activities makes such
qualification necessary. Guarantor has all requisite power and authority to
carry on its business as now being conducted and as proposed to be conducted.
Section 3.2. Authorization; Enforceability; Execution and Delivery.
-----------------------------------------------------
(a) Guarantor has all necessary power and authority to
execute, deliver and perform its obligations under this Agreement, the Initial
Partnership Notes and each other Financing Document to which it is a party.
6
<PAGE>
(b) All action on the part of Guarantor that is required for
the authorization, execution, delivery and performance of this Agreement, the
Initial Partnership Notes and each other Financing Document to which Guarantor
is a party has been duly and effectively taken; and the execution, delivery and
performance of this Agreement, the Initial Partnership Notes and each such other
Financing Document to which Guarantor is a party does not require the approval
or consent of any holder or trustee of any Indebtedness or other material
obligations of Guarantor which has not been obtained.
(c) This Agreement, the Initial Partnership Notes and each
other Financing Document to which Guarantor is a party have been duly
authorized, executed and delivered by Guarantor. Each of this Agreement, the
Initial Partnership Notes and each other Financing Document to which Guarantor
is a party constitutes a legal, valid and binding obligation of Guarantor
enforceable against Guarantor in accordance with the terms hereof and thereof,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
or similar laws affecting creditors' rights generally, and subject to general
principles of equity.
Section 3.3. No Conflicts; Laws and Contracts; No Default;
---------------------------------------------
Representations and Warranties.
- ------------------------------
(a) Neither the execution, delivery and performance of this
Agreement, the Initial Partnership Notes or any other Financing Document to
which Guarantor is a party, nor the consummation of any of the transactions
contemplated hereby or thereby (i) contravenes any provision of law, rule or
regulation applicable to Guarantor or any of the Collateral, except any
contravention which, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, (ii) conflicts or is
inconsistent with or constitutes a default under the amended and restated
partnership agreement of Guarantor, or of any other terms of any Project
Document, Financing Document or any other agreement or instrument to which
Guarantor may be subject except any such conflict, inconsistency, default or
violation which, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect or (iii) results in the creation
or imposition of (or the obligation to create or impose) any Liens (other than
Permitted Liens) on the Collateral.
(b) Guarantor is in compliance with any and all laws, rules
or regulations applicable to it, except any such noncompliance which,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.
Section 3.4. Litigation. Except as disclosed in the Preliminary
----------
Offering Memorandum or the Final Offering Memorandum there are no claims,
actions, suits, investigations or proceedings at law or in equity (including any
Environmental Claims) or by or before any arbitrator or Governmental Authority
now pending against Guarantor or, to the best knowledge of Guarantor after due
inquiry, threatened against Guarantor or any property or other assets or rights
of Guarantor that could reasonably be expected to result in a Material Adverse
Effect.
Section 3.5. Environmental Matters. To the best knowledge of
---------------------
Guarantor after due inquiry, the Project is in compliance in all material
respects with all existing applicable
7
<PAGE>
Environmental Laws and there are no facts, circumstances or conditions under any
existing Environmental Law which could, individually or in the aggregate with
all other circumstances or conditions, reasonably be expected to result in a
Material Adverse Effect.
Section 3.6. Employee Benefit Plans. Each Plan (including without
----------------------
limitation each Plan of a Commonly Controlled Entity) as to which Guarantor may
have any liability complies with all applicable requirements of law and
regulations, and (i) no "reportable event" (as defined in Section 4043 of ERISA
(other than an event not subject to the notice requirements of the PBGC)) has
occurred with respect to any such Plan, (ii) there has been no withdrawal from
any Multiemployer Plan or steps taken to do so that have resulted or could
reasonably be expected to result in material liability for Guarantor, (iii) no
Plan has been terminated or has commenced to be terminated which could
reasonably be expected to result in material liability for Guarantor, (iv) no
contribution failure has occurred with respect to any Plan sufficient to give
rise to a lien under Section 302(f) of ERISA or Section 412 of the Code or the
posting of any security under Section 307 of ERISA or Section 401(a)(29) of the
Code and (v) no condition exists or event or transaction has occurred with
respect to any Plan that, in each case, could reasonably be expected to result
in a Material Adverse Effect.
Section 3.7. Business of Guarantor. Except as otherwise permitted in
---------------------
this Agreement and the other Financing Documents, Guarantor is not engaged in
any business other than the development, acquisition, construction, operation
and financing of the Project and transactions related thereto.
Section 3.8. Valid Title. Guarantor has good and valid title to all
-----------
of its properties, rights and assets purported to be owned by Guarantor and a
valid leasehold interest or contractual right to possession or use with respect
to assets leased or used by Guarantor, subject only to Permitted Liens.
Guarantor will, so long as any obligations shall be outstanding, warrant and
defend its title to its properties and assets against any claims and demands
which may affect to a material extent its title to its properties and assets.
Section 3.9. Utility Regulation. Guarantor is not subject to
------------------
regulation by any Governmental Authority under PUHCA as a "public utility
company" or an "affiliate," or "subsidiary company" of a "registered holding
company" or a company subject to registration under PUHCA.
Section 3.10. Qualifying Facility. The Project is a Qualifying
-------------------
Facility.
Section 3.11. Investment Company Act. Guarantor is not, and following
----------------------
the execution of the Partnership Note, will not be, an "investment company" or,
to its knowledge, an entity "controlled" by an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended.
Section 3.12. No Defaults. Guarantor is not in default under any
------------
Project Document, Financing Document or other material project contract which
could reasonably be expected to result in a Material Adverse Effect. To the best
of Guarantor's knowledge, no material
8
<PAGE>
default exists by any other party to the Project Documents, Financing Documents
or other material project contracts.
Section 3.13. Governmental Approvals. All Governmental Approvals
----------------------
which are required to be obtained by, in the name of or on behalf of Guarantor
or,to the knowledge of Guarantor, any other party to any Financing Document, in
connection with (a) the issuance of the Initial Partnership Notes and (b) the
execution, delivery and performance by Guarantor and any other party to any
Financing Document of the Financing Documents, have been duly obtained or made,
are validly issued and are in full force and effect.
Section 3.14. Margin Stock. Guarantor is not engaged, directly or
------------
indirectly, principally, or as one of its important activities, in the business
of extending, or arranging for the extension of, credit for the purposes of
purchasing or carrying any margin stock, within the meaning of Regulation T, U
or X of the Board of Governors of the Federal Reserve System. No part of the
proceeds of any loan made under this Agreement will be used for "purchasing" or
"carrying" any "margin stock" as so defined, or for extending credit to others
for the purpose of purchasing or carrying margin stock, or for any purpose which
would violate, or cause a violation of, any such regulation.
Section 3.15. Taxes. Guarantor has filed all federal and state tax
-----
returns, to date, required to be filed by applicable laws and has paid all
federal and state taxes due under such tax returns which if not filed or paid
could reasonably be expected to have a Material Adverse Effect.
Section 3.16. Ownership of Guarantor. As of the date of this
----------------------
Agreement, Caithness Navy II Group, LLC, a Delaware limited liability company
and New CTC Company, LLC, a Delaware limited liability company are the sole
general partners of the Guarantor.
Section 3.17. Disclosure. The Preliminary Offering Memorandum and the
----------
Final Offering Memorandum as of each such document's date did not, and any
supplement or amendment to them will not, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations or warranties contained in this Section 3.17 shall not apply to
statements in or omissions from the Preliminary Offering Memorandum, the Final
Offering Memorandum or any supplement or amendment thereto based upon and in
conformity with information relating to the Initial Purchaser furnished to
Funding Corporation.
Section 3.18. Security Interests. The security interests to be
------------------
transferred to and/or to be created in favor of Trustee under the Security
Documents will be valid and perfected first priority security interests in and
liens on the collateral described therein, subject only to Permitted Liens.
Section 3.19. Due Execution of Project Documents. Except as otherwise
----------------------------------
described in the Final Offering Memorandum, each Project Document in effect on
the date hereof has been duly authorized, executed and delivered by Guarantor,
has not been amended or otherwise
9
<PAGE>
modified except in accordance with the Indenture, and is in full force and
effect and is binding upon and enforceable against all parties thereto in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of creditors
generally, and to the exercise of judicial discretion in accordance with general
principles of equity other than for such Project Documents that, if not in full
force and effect or binding on all parties thereto, would not reasonably be
expected to have a Material Adverse Effect. There exists no default under any
such Project Document by Guarantor, or to the best of Guarantor's knowledge, by
the other parties thereto, in each case which default could reasonably be
expected to have a Material Adverse Effect.
ARTICLE IV.
COVENANTS AND AGREEMENTS OF GUARANTOR
-------------------------------------
Guarantor hereby covenants and agrees that from the date of this
Agreement, Guarantor shall faithfully observe and fulfill, and Guarantor shall
cause to be fulfilled and observed, each and all of the following covenants
until all amounts due under the Senior Secured Notes and the Indenture shall
have been repaid.
Section 4.1. Events of Loss. If any Event of Loss or Event of Eminent
--------------
is $5.0 million or less, and if, Domain occurs and the cost of repairing,
restoring, replacing or rebuilding (collectively, "Reconstructing") in the
reasonable judgment of the managing partner of the Guarantor, to Reconstruct
would be prudent and consistent with the Guarantor's obligations to maintain
such Project, then the Guarantor shall, at its own expense and whether or not
such damage, destruction or loss is covered by an insurance policy, with
reasonable promptness, Reconstruct the same. If there are Loss Proceeds or
Eminent Domain Proceeds (from insurance or otherwise) available as a result of
such damage, destruction or loss in the amount of $5.0 million or less, then
said Loss Proceeds or Eminent Domain Proceeds shall be available to the
Guarantor for application pursuant to Section 3.10 of the Depositary Agreement.
If an Event of Loss or an Event of Eminent Domain occurs and the Loss
Proceeds or Eminent Domain Proceeds are greater than $5.0 million but less than
the total amount outstanding under the Partnership Note (the "Partnership Note
----------------
Balance") the Guarantor shall have the option to Reconstruct the Project, or any
- -------
part thereof, upon the satisfaction of certain conditions outlined in Section
3.10 of the Depositary Agreement. If the Guarantor fails to exercise such
option, the Guarantor shall apply the Loss Proceeds or Eminent Domain Proceeds
to prepay amounts outstanding under the Partnership Note as described in Section
2.5(b) of this Agreement.
If an Event of Loss or an Event of Eminent Domain occurs and the Loss
Proceeds or Eminent Domain Proceeds are equal to or exceed the Partnership Note
Balance, then the Guarantor shall apply those Loss Proceeds or Eminent Domain
Proceeds to prepay amounts outstanding under the Partnership Note, as described
in Section 2.5(b) of this Agreement unless the Guarantor obtains a determination
form the Rating Agencies that the credit rating of the senior secured notes that
had been in effect immediately before the Event of Loss or Event of Eminent
Domain will not be adversely affected by applying those Loss Proceeds or Eminent
Domain Proceeds to Reconstruction of the Project.
10
<PAGE>
Section 4.2. Reporting Requirements. Guarantor shall provide to
----------------------
Funding Corporation (a) all quarterly and annual financial information that
would be required to be contained in a filing with the SEC on Forms 10-Q and 10-
K if Guarantor were required to file such forms, including a "Management's
Discussion and Analysis of Financial Conditions and Results of Operation" and,
with respect to the annual information only, a report thereon by the Guarantor's
independent certified public accountants, (b) all current reports that would be
required to be filed with the SEC on Form 8-K if Guarantor was required to file
such reports, within the time periods specified in the SEC's rules and
regulations, (c) all other information in respect of Guarantor requested by
Funding Corporation to enable Funding Corporation to meet its obligations under
the Indenture, (d) copies of material notices, and (e) written notice of any
Default or Credit Agreement Event of Default under this Agreement or any event
or condition that could reasonably be expected to result in a Material Adverse
Effect. To the extent that the information provided pursuant to this Section 4.2
includes financial statements of the Guarantor, the Guarantor shall join with
Navy I and BLM to provide Issuer with combined financial statements.
Section 4.3. Ownership of Guarantor. Guarantor shall not permit
----------------------
Caithness Navy II Group, LLC or New CTC Company, LLC (each a "Partner") to sell,
-------
transfer or convey any partnership interest held by such Partner in Guarantor
unless (a) such sale, transfer or conveyance would not result in any change in
the Project's status as a Qualifying Facility and (2) the Person to whom such
partnership interests are sold, transferred or conveyed enters into a pledge
agreement providing for the perfected, first priority pledge to the Collateral
Agent for the benefit of the Trustee and the Holders of the Senior Secured Notes
of all such partnership interests.
Section 4.4. Sale of Assets. Except as contemplated by the
--------------
Transaction Documents, Guarantor shall not sell, lease (as lessor) or transfer
(as transferor) any property or assets material to the operation of the Project
except for fair value in the ordinary course of business to the extent that such
property is no longer useful or necessary in connection with the operation of
the Project.
Section 4.5. Insurance. Guarantor shall maintain or cause to be
---------
maintained insurance as is generally carried by companies engaged in similar
businesses and owning similar properties in the same general areas and financed
in a similar manner. Guarantor shall maintain business interruption insurance,
casualty insurance, including flood and earthquake coverage, and primary and
excess liability insurance, as well as customary worker's compensation and
automobile insurance. Prior to reducing or canceling such coverages (or
permitting such coverages to be reduced or canceled) Guarantor shall notify the
Insurance Consultant of the proposed reduction or cancellation. Guarantor shall
not reduce or cancel such insurance coverages (or permit any such coverages to
be reduced or canceled) if the Insurance Consultant determines that (i) such
reduction or cancellation would not be reasonable under the circumstances and
(ii) the insurance coverages sought to be reduced or canceled are available on
commercially reasonable terms or that another level of coverage greater than
that proposed by Guarantor is available on commercially reasonable terms (in
which case such coverage may be reduced to the higher of such available levels).
11
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Section 4.6. QF Status. Guarantor shall operate and maintain the
---------
Project as a Qualifying Facility unless the failure to so operate and maintain
such Project as a Qualifying Facility would not cause or result in (a) a breach
of the power purchase agreements that Guarantor is a party to or (b) an adverse
effect on the revenues to be received under such power purchase agreements.
Section 4.7. Governmental Approvals; Title. Guarantor shall at all
-----------------------------
times (a) obtain and maintain in full force and effect all material Governmental
Approvals and other consents and approvals required at any time in connection
with its business and (b) preserve and maintain good and valid title to its
properties and assets (subject to no liens other than Permitted Liens), except
in each case where the failure to do so in clause (a) or (b) could not
reasonably be expected to have a Material Adverse Effect.
Section 4.8. Nature of Business. Guarantor shall not engage in any
------------------
business other than its existing business.
Section 4.9. Compliance With Laws. Guarantor shall comply with all
--------------------
applicable laws, except where non-compliance could not reasonably be expected to
have a Material Adverse Effect.
Section 4.10. Prohibition on Fundamental Changes. Guarantor shall not
----------------------------------
enter into any transaction of merger or consolidation, change its form of
organization or its business, liquidate or dissolve itself (or suffer any
liquidation or dissolution); provided, however, that Guarantor shall be able to
-------- -------
merge with or into Navy I or BLM so long as no Default or Credit Agreement Event
of Default exists or shall occur as a result thereof and if, in the event that
Guarantor is not the surviving entity, (i) the surviving entity shall,
simultaneously with such merger, assume all the obligations of Guarantor under
this Agreement and under the other Financing Documents to which Guarantor was a
party, (ii) Funding Corporation shall have received appropriate amendments to
this Agreement and the other Financing Documents to which Guarantor was a party
and all financing statements necessary to preserve its valid, perfected, first
priority security interest in the Collateral, each in form and substance
reasonably satisfactory to Funding Corporation, (iii) after giving effect to
such merger, the merger shall not result in a Material Adverse Effect and (iv)
after giving effect to such merger, no Default or Credit Agreement Event of
Default shall have occurred or be continuing. Guarantor shall not purchase or
otherwise acquire all or substantially all of the assets of any other Person,
except for the purchase or acquisition by Guarantor of the partnership interests
or assets related to the Navy I or BLM Projects.
Section 4.11. Revenue Account. Guarantor shall take all actions as may
---------------
be necessary to cause all revenues received by Guarantor from the Project to be
deposited in the Revenue Account in accordance with Section 3.1. of the
Depositary Agreement.
Section 4.12. Transactions With Affiliate. Except as provided in or
---------------------------
with respect to the Project Documents as in effect on the Closing Date, the
Guarantor shall not make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
12
<PAGE>
agreement understanding, loan, advance or guarantee with or for the benefit of,
any Affiliate (each, an "Affiliate Transaction"), unless (a) such Affiliate
---------------------
Transaction is on terms that are no less favorable to the Guarantor than those
that would have been obtained in a comparable transaction by the Guarantor with
an unrelated Person; and (b) the Guarantor delivers to the Trustee (i) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a resolution of the
general partner of the Guarantor set forth in an Officer's Certificate
certifying that such Affiliate Transaction complies with this covenant and that
such Affiliate Transaction has been approved by all of the partners of the
Guarantor; and (ii) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an investment banking firm
of national standing. Notwithstanding the above, the following shall be deemed
not to be Affiliate Transactions: (w) transactions between or among one or more
----------------------
of the Guarantor, Navy I, BLM or Funding Corp.; (x) payment of any Operating and
Maintenance Fees or Management Fees, provided that such payment is made in
accordance with the provisions of Sections 3.1(c) and 3.8(b) of the Depositary
Agreement; and (z) Restricted Payments permitted to be made pursuant to the
terms of the Depository Agreement.
Section 4.13. Restricted Payments. Guarantor shall not make any
-------------------
Restricted Payments except as permitted under the Depositary Agreement.
Section 4.14. Exercise of Rights Under Project Documents. Guarantor
------------------------------------------
shall not exercise, or fail to exercise, its rights under any of the Project
Documents in a manner which could reasonably be expected to result in a Material
Adverse Effect.
Section 4.15. Amendments to Contracts.Guarantor shall not terminate,
---------------------------------
amend, replace or modify or permit to be terminated, amended, replaced or
modified (other than immaterial amendments or modifications as certified by
Guarantor) any of the Project Documents to which it is a party unless (a)
Guarantor certifies that such termination, amendment, replacement or
modification could not reasonably be expected to have a Material Adverse Effect
and (b) in the case of any amendment, termination or modification of a Power
Purchase Agreement which affects the revenues derived by Guarantor by more than
Five Million Dollars ($5,000,000) or Ten Million Dollars ($10,000,000) when
aggregated with all previous amendments or modifications by Guarantor hereunder
or by the other Guarantors, Guarantor provides a letter from each of the Rating
Agencies confirming that such amendment, termination or modification will not
result in a Rating Downgrade after giving effect to any mandatory redemption of
Senior Secured Notes required to be made in connection with any such amendment,
modification or termination pursuant to a Permitted Power Contract Buy-Out.
Section 4.16. Limitations on Indebtedness/Liens. Guarantor shall not
---------------------------------
create or incur or suffer to exist any Indebtedness except Permitted Guarantor
Indebtedness. Guarantor shall not grant, create, incur or suffer to exist any
Liens upon any of its properties, except for Permitted Liens.
13
<PAGE>
Section 4.17. Operating Budget. If, during any fiscal year, Guarantor
----------------
(i) exceeds its Operating Budget by more than 25% or (ii) expends 75% or less of
its Operating Budget, then in either case Guarantor shall cause the Independent
Engineer to certify that the expenditures were reasonably designed to permit the
Guarantor to operate and maintain a facility of that type and to maximize its
revenues and net income.
Section 4.18. Required Geothermal Percentage. Guarantor shall use
------------------------------
its best efforts to maintain, in cooperation with the other Coso Partnerships,
the minimum geothermal resource required to produce, in the aggregate among all
of the Projects, at least 105% of the steam necessary to generate the energy
projected in the Independent Engineer's Base Case Projections.
Guarantor shall cause the Geothermal Engineer to deliver, not more
than 30 days after October 31 of each year, a certificate setting forth the
Actual Geothermal Percentage for the Projects measured as of October 31 of such
year. If as of October 31 in any year the Geothermal Engineer shall determine
that the Actual Geothermal Percentage for the Projects is less than 105%, then:
(i) the Guarantor shall develop a plan of corrective action to achieve an Actual
Geothermal Percentage of at least 105%, which plan shall be approved by the
Geothermal Engineer, and the Guarantor shall diligently implement such approved
plan; and (ii) no payment of Management Fees or any Restricted Payment shall be
made until such time as the Geothermal Engineer shall determine that the Actual
Geothermal Percentage for the Projects is at least equal to 105%. Guarantor
shall cause the Geothermal Engineer to deliver, during the calendar year 2006, a
report on the geothermal resource available as of such date and whether
sufficient geothermal resource remains to enable the Projects in the aggregate
to produce sufficient steam to generate the energy projected in the Independent
Engineer's Base Case Projections through the maturity date of the 2009 Notes.
Section 4.19. Books and Records. Guarantor shall maintain its books
-----------------
and records and give Funding Corporation, the Trustee and the Independent
Engineer inspection rights at reasonable times and upon reasonable prior notice.
Section 4.20. Project Documents; Additional Project Documents.
-----------------------------------------------
Guarantor shall perform and observe its covenants and obligations under all of
the Project Documents in all material respects, except where the failure to do
so could not reasonably be expected to result in a Material Adverse Effect.
Guarantor shall not enter into any Additional Project Documents if entering into
such document would result in a Material Adverse Effect; provided that the
Guarantor shall be permitted to enter into agreements for the purchase by the
Guarantor of electricity so long as (a) such agreements with respect to the
Guarantor do not provide for payments in excess of $10.0 million per year by the
Guarantor and (b) prior to entering into any such agreement the Guarantor
delivers an officer's certificate to the Trustee certifying that the proposed
agreement is on arms-length terms.
Section 4.21. Maintenance of Existence. Guarantor shall at all times
------------------------
preserve and maintain in full force and effect (a) its existence as a general
partnership in good standing under the laws of the State of California unless it
changes its form of organization in accordance with Section 4.10 in which such
event it shall maintain its existence in such new form; (b) its qualification to
do
14
<PAGE>
business in each jurisdiction in which the character of the properties owned or
leased by it or in which the transaction of its business as conducted or
proposed to be conducted makes such qualification necessary, and (c) all of its
powers, rights, privileges and franchises which are necessary for the ownership
and operation of its business except where the failure to maintain any of the
foregoing in clause (c) could not reasonably be expected to have a Material
Adverse Effect.
Section 4.22. Taxes. Guarantor shall pay and discharge all taxes,
-----
assessments and governmental charges upon it, its income, its properties and its
assets prior to the date on which penalties are attached thereto, unless and to
the extent only that (a) such taxes, assessments and governmental charges shall
be contested in good faith and by appropriate proceedings, and (b) adequate
reserves, Notes or other security are established with respect thereto.
Section 4.23. Additional Documents; Filings and Recordings. Guarantor
--------------------------------------------
shall execute and deliver, as requested by Trustee, such other documents as
shall reasonably be necessary or advisable in order to effect or protect the
rights and remedies of Trustee granted or provided for by the Financing
Documents to which Guarantor is a party and to consummate the transactions
contemplated therein. Guarantor shall, at its own expense, take all reasonable
actions (a) that are requested by Trustee or (b) that an Authorized Officer of
Guarantor has actual knowledge are necessary as a legal matter to establish,
maintain and perfect the first priority security interests of Trustee, subject
to Permitted Liens. Without limiting the generality of the foregoing, Guarantor
shall execute or cause to be executed and shall file or cause to be filed such
financing statements, continuation statements, and fixture filings and such
mortgages, or deeds of trust in all places necessary or advisable (in the
opinion of counsel for Trustee) to establish, maintain and perfect such security
interests, subject to Permitted Liens.
Section 4.24. Registered Owner. Guarantor shall not register or
----------------
permit any partner to register any other secured party as a "registered owner"
(as defined in Section 8-301 of the New York UCC) of any partnership interest in
Guarantor.
Section 4.25. USBLM/LADWP Leases. Guarantor shall use its best
------------------
efforts and diligence to cause an undivided one third interest in each of the
USBLM/LADWP Leases to be assigned to it (both by approval of such assignment by
the USBLM and by proper recordation of an appropriate Assignment and Assumption
Agreement in Inyo County, California) within ninety (90) days after the Closing
Date. Further, Guarantor shall use its best efforts and diligence to, within one
hundred and eighty (180) days after the Closing Date, cause Coso Operating
Company LLC, a Delaware limited liability company ("COC") and Coso Land Company,
---
a California general partnership ("CLC") to perform all of their respective
---
obligations under that certain Acquisition Agreement of even date herewith among
COC and the Guarantor, Navy I and BLM.
ARTICLE V.
DEFAULT AND REMEDIES
--------------------
Section 5.1. Events of Default. Each of the following events and
-----------------
occurrences shall constitute a Credit Agreement Event of Default under this
Agreement:
15
<PAGE>
(a) the failure by any Guarantor to pay or cause to be paid
any principal of, premium, if any, or interest, fees or any other obligations on
any Partnership Note for 10 or more days after the same becomes due and payable,
whether by scheduled maturity or required prepayment or by acceleration or
otherwise ;
(b) any representation or warranty made by Guarantor under
this Agreement shall prove to have been untrue or misleading in any material
respect as of the time made, confirmed or furnished and the fact, event or
circumstance that gave rise to such inaccuracy could reasonably be expected to
result in a Material Adverse Effect and such fact, event or circumstance shall
continue to be uncured for 30 or more days from the date a Responsible Officer
of Guarantor receives notice thereof from the Trustee; provided that if
Guarantor commences efforts to cure such fact, event or circumstance within such
30-day period, Guarantor may continue to effect such cure and such
misrepresentation shall not be deemed a Default or a Credit Agreement Event of
Default for an additional 60 days so long as Guarantor is diligently pursuing
such cure;
(c) the failure by Guarantor to perform or observe any
covenant contained in Sections 4.4, 4.5, 4.8, 4.10, 4.13, 4.15, 4.16 or 4.21
hereof and such failure shall continue uncured for 30 or more days after a
Responsible Officer of Guarantor receives notice thereof from the Trustee;
(d) the failure by any of the Credit Parties (including,
without limitation, the other Partnerships) to perform or observe any of the
other covenants under this Agreement or in the other Financing Documents any
Credit Party is party to (other than such failures described in clause (a) or
(c) above or (m) below) and such failure shall continue uncured for 30 or more
days after a Responsible Officer of such Credit Party receives notice thereof
from the Trustee; provided that if such Credit Party commences efforts to cure
such default within such 30-day period, such Credit Party may continue to effect
such cure of the default and such default shall not be deemed a Credit Agreement
Event of Default for an additional 90 days so long as such Credit Party is
diligently pursuing such cure;
(e) Guarantor:
(i) admits in writing its inability, or is generally
unable, to pay its debts as the debts become due or makes a general
assignment for the benefit of creditors; or
(ii) commences any case, proceeding or other action
seeking reorganization, arrangement, adjustment, liquidation, dissolution
or composition of it or its debts under any applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, adjustment,
insolvency, reorganization or similar laws affecting the rights or remedies
of creditors generally, as in effect from time to time (collectively,
"Debtor Relief Law"); or
-----------------
(iii) in any involuntary case, proceeding or other
action commenced against it which seeks to have an order for relief
(injunctive or otherwise)
16
<PAGE>
entered against it, as debtor, or seeks reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts
under any Debtor Relief Law, (A) fails to obtain a dismissal of such case,
proceeding or other action within ninety (90) days of its commencement, or
(B) converts the case from one chapter of the Bankruptcy Reform Act of
1978, as amended, to another chapter, or (C) is the subject of an order for
relief; or
(iv) has a trustee, receiver, custodian or other
official appointed for or take possession of all or any part of its
property or has any court take jurisdiction of any of its property, which
action remains undismissed for a period of ninety (90) days;
(f) the entry of one or more final and non-appealable
judgment or judgments for the payment of money in excess of $2,500,000
(exclusive of judgment amounts fully covered by insurance or indemnity) against
any of the Coso Partnerships, which remain unpaid or unstayed for a period of 90
or more consecutive days after the entry thereof;
(g) any event of default under any Permitted Guarantor
Indebtedness (other than Subordinated Indebtedness) that results in Permitted
Guarantor Indebtedness in excess of $2,500,000 becoming due and payable prior to
its stated maturity;
(h) Guarantor or any other Guarantor (as defined in the
Indenture) fails to perform any of its respective payment obligations under its
Guarantee for 15 or more days after the same becomes due and payable;
(i) any Governmental Approval required for the operation of
the Project by Guarantor is revoked, terminated, withdrawn or ceases to be in
full force and effect if such revocation, termination, withdrawal or cessation
could reasonably be expected to have a Material Adverse Effect and such
revocation, termination, withdrawal or cessation is not cured within 60 days
following the occurrence thereof;
(j) any Project Document ceases to be valid and binding and
in full force and effect prior to its stated maturity date other than as a
result of an amendment, termination or Permitted Power Contract Buy-Out
permitted under this Agreement or any third party thereto fails to perform its
material obligations thereunder or makes any material misrepresentation
thereunder and such event results in a Material Adverse Effect; provided that no
such event shall be a Credit Agreement Event of Default if within 180 days from
the occurrence of any such event, (i) the third party resumes performance or
cures such misrepresentation or (ii) Guarantor enters into an Additional Project
Document in replacement thereof, as permitted under this Agreement;
(k) the failure of Guarantor or any other party to perform
or observe any of its covenants or obligations contained in any of the Project
Documents to which Guarantor is a party if such failure shall result in the
termination of such Project Document or otherwise result in a Material Adverse
Effect; provided, however, that such event shall not be a Credit Agreement Event
of Default if within 180 days from the occurrence of any such event, the failure
is cured or Guarantor enters into an Additional Project Document in replacement
thereof as permitted under this Agreement;
17
<PAGE>
(l) any of the Security Documents ceases to be effective or
any Lien granted therein ceases to be a valid and perfected Lien in favor of the
Collateral Agent on the Collateral described therein with the priority purported
to be created thereby; provided, however, that the applicable Credit Party shall
have 10 days after a Responsible Officer of such Credit Party obtains knowledge
thereof to cure any such cessation or to furnish to the Trustee, the Collateral
Agent or the Depositary all documents or instruments required to cure any such
cessation;
(m) in the case of a determination by the Geothermal
Engineer that the Actual Geothermal Percentage is less than 105% (as set forth
in the annual certificate required pursuant to the covenant set forth in Section
4.18 of this Agreement), any (i) failure by Guarantor (a) to prepare a plan
approved by the Geothermal Engineer within 90 days of such certification to
achieve an Actual Geothermal Percentage of at least 105%, (b) to diligently
implement such plan and (c) to achieve an Actual Geothermal Percentage of at
least 105% within a reasonable period of time thereafter as determined in the
sole discretion of the Geothermal Engineer, or (ii) determination by the
Geothermal Engineer or Guarantor that achieving an Actual Geothermal Percentage
of at least 105% is not reasonably feasible; or
(n) an Event of Default (as defined in the Indenture) occurs
under Sections 5.01 (c), (d), (e), (f), (g) or (h) of the Indenture.
Section 5.2. Consequences of Credit Agreement Event of Default. If
-------------------------------------------------
one or more Credit Agreement Events of Default under this Agreement have
occurred and are continuing, then:
(a) in the case of a Credit Agreement Event of Default under
Section 5.1(e) above, the entire outstanding principal amount of the
Partnership Note, all interest accrued and unpaid thereon, and all premium
and other amounts payable under the Partnership Note and this Agreement, if
any, shall automatically become due and payable without presentment,
demand, protest or notice of any kind; or
(b) in the case of a Default or a Credit Agreement Event of
Default described in:
(i) clause (a) and (h) of Section 5.1 of this
Agreement, upon the direction of the Holders of no less than 25% in
aggregate principal amount of the Outstanding Notes, Funding Corporation
shall declare the outstanding principal amount of the Partnership Note and
all interest accrued and unpaid thereon, and all premium and other amounts
payable under this Agreement, if any, to be due and payable; or
(ii) clauses (b), (c), (d), (f), (g), (i), (j), (k),
(l), (m) and (n) of Section 5.1, upon the direction of the Required
Holders, Funding Corporation shall declare the outstanding principal amount
of the Partnership Note to be accelerated and due and payable and all
interest accrued and unpaid thereon, and all premium and other amounts
payable under this Agreement, if any, to be due and payable.
Section 5.3. Defense of Actions. Upon the occurrence of a Credit
------------------
Agreement Event of Default, Funding Corporation may (but shall not be obligated
to) commence, appear in or
18
<PAGE>
defend any action or proceeding purporting to affect the Partnership Loan or the
respective rights and obligations of Funding Corporation and any other person
pursuant to this Agreement, any other Financing Document to which Guarantor is a
party or any Security Document to which Guarantor is a party. Funding
Corporation may (but shall not be obligated to) pay all necessary expenses,
including reasonable attorneys' fees and expenses, incurred in connection with
such proceedings or actions, which expenses Guarantor hereby agrees to repay to
Funding Corporation promptly upon demand. Guarantor acknowledges and agrees that
Funding Corporation has assigned its interest in the Promissory Note to
Collateral Agent and upon the occurrence of a Default or a Credit Agreement
Event of Default, Collateral Agent may (but shall not be obligated to) take any
and all actions which Funding Corporation may take under this Agreement.
ARTICLE VI.
GENERAL TERMS AND CONDITIONS
----------------------------
Section 6.1. Notices. All notices, requests, complaints, demands,
-------
communications or other papers shall be sufficiently given and shall be deemed
given when delivered or mailed by registered or certified mail, postage prepaid,
or sent by telegram or telex, addressed to the parties as follows:
If to Guarantor: Coso Power Developers
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas
New York, New York 10036
If to Funding Corporation: Caithness Coso Funding Corporation
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas
New York, New York 10036
If to Moody's: Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: Corporate Utilities Department
If to S & P: Standard & Poor's Corporation
25 Broadway
New York, New York 10004
Attention: Corporate Finance Department
Electric Utilities Group
19
<PAGE>
The above parties may, by notice given hereunder, designate any
further or different addresses to which subsequent notices, certificates or
other communications shall be sent.
Section 6.2. Amendments and Waivers. This Agreement may only be
----------------------
amended by a document signed by Funding Corporation and Guarantor. No waiver of
any provision of this Agreement nor consent by Funding Corporation to any
departure by Guarantor therefrom shall in any event be effective unless the same
shall be in writing and signed by Funding Corporation. Any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of Funding Corporation to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof (except as provided above) nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. This Agreement shall be binding upon
Guarantor, its successors and any permitted assigns.
Section 6.3. Election of Remedies. The remedies herein provided are
--------------------
cumulative and not exclusive of any remedies provided by law. Funding
Corporation shall have all of the rights and remedies granted to Funding
Corporation or Trustee in the Financing Documents and available at law or in
equity, and these same rights and remedies may be pursued separately,
successively or concurrently against Guarantor, at the sole discretion of
Funding Corporation.
Section 6.4. Severability. Any provision of this Agreement which is
------------
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 6.5. Third-Party Beneficiaries; Prior Agreements. It is
-------------------------------------------
intended that the Trustee, the Collateral Agent and the Depositary be, and the
Trustee, the Collateral Agent and the Depositary are hereby made, third-party
beneficiaries of this Agreement. This Agreement is for the sole benefit of
Funding Corporation, the Trustee, the Collateral Agent, the Depositary, the
Holders and Guarantor and is not for the benefit of any other third party.
Notwithstanding the two preceding sentences, no Holder shall have any right to
pursue any remedy hereunder except through the Trustee as permitted under
Section 5.05 of the Indenture. This Agreement supersedes all prior agreements
among the parties with respect to the matters addressed herein.
Section 6.6. Guarantors in Control. In no event shall Funding
---------------------
Corporation's, the Trustee's, the Collateral Agent's or the Depositary's rights
and interests under this Agreement and the other Financing Documents be
construed to give Funding Corporation, the Trustee, the Collateral Agent or the
Depositary or be deemed to indicate that Funding Corporation, the Trustee, the
Collateral Agent or the Depositary has control of the business, management or
properties of Guarantor or power over the daily management functions and
operating decisions made by Guarantor.
20
<PAGE>
Section 6.7. Number and Gender. Whenever used herein, the singular
-----------------
number shall include the plural and the plural the singular, and the use of any
gender shall be applicable to all genders.
Section 6.8. Captions. The captions, headings, table of contents
--------
and arrangements used in this Agreement are for convenience only and do not and
shall not be deemed to affect, limit, amplify or modify the terms and provisions
hereof.
Section 6.9. Applicable Law and Jurisdiction. This Agreement,
-------------------------------
including all matters of construction, validity and performance shall be
governed by and construed and interpreted in accordance with the laws of the
State of New York, without reference to principles of conflicts of law (other
than Section 5-1401 of the New York General Obligations Law), except as required
by mandatory provisions of law.
Section 6.10. Consent. Whenever the consent or approval of Funding
-------
Corporation or Guarantor is required herein, such consent or approval shall not
be unreasonably withheld or delayed.
Section 6.11. No Recourse. Funding Corporation agrees that no
-----------
officer, director, employee, shareholder, partner or holder of Capital Stock of
Guarantor, nor any director, officer, employee, incorporator, shareholder,
partner or member of any partner of Guarantor or any Affiliate of any such party
(collectively, the "Nonrecourse Parties") shall be personally liable under this
-------------------
Agreement for the payment of any sums now or hereafter owing Funding Corporation
under the terms of, or for the performance of any obligation contained in, this
Agreement. Funding Corporation agrees that its rights shall be limited to
proceeding against Guarantor and the security provided or intended to be
provided pursuant to the Security Documents and that it shall have no right to
proceed against the Nonrecourse Parties for (a) the satisfaction of any monetary
obligation of, or enforcement of any monetary claim against, Guarantor, (b) the
performance of any obligation, covenant or agreement arising under this
Agreement, or (c) any deficiency judgment remaining after foreclosure of any
property securing the obligations hereunder; provided that (v) the foregoing
provisions of this Section 6.11 shall not constitute a waiver, release or
discharge of any of the Indebtedness, or of any of the terms, covenants,
conditions or provisions of this agreement or any Financing Document and the
same shall continue until fully paid, discharged, observed or performed; (w) the
foregoing provisions of this Section 6.11 shall not limit or restrict the right
of the Collateral Agent, the Holders of the Senior Secured Notes, the Depositary
or the Trustee to name Guarantor or any other Person as a defendant in any
action or suit for a judicial foreclosure or for the exercise of any other
remedy under or with respect to this Agreement or any other Financing Document,
or for injunction or specific performance, so long as no judgment in the nature
of a deficiency judgment shall be enforced against any Nonrecourse Party, except
as set forth in this Section 6.11; (x) the foregoing provisions of this Section
6.11 shall not in any way limit or restrict any right or remedy of Collateral
Agent, the Holders of the Senior Secured Notes, the Depositary or the Trustee
(or any assignee or beneficiary thereof or successor thereto) with respect to,
and all of the Nonrecourse Parties shall remain fully liable to the extent that
it would otherwise be liable for its own actions with respect to, any fraud,
negligence or willful misrepresentation, or misappropriation of any revenues
derived from the Project and the proceeds thereof or any other
21
<PAGE>
earnings, revenues, rents, issues, profits or proceeds that are subject to the
Security Documents that should or would have been paid as provided therein or
paid or delivered to the Depositary, the Trustee, the Collateral Agent or the
Holders of the Senior Secured Notes (or any assignee or beneficiary thereof or
successor thereto) towards any payment required under this Agreement or any
other Financing Document; (y) the foregoing provisions of this Section 6.11
shall not affect or diminish or constitute a waiver, release or discharge of any
specific written obligation, covenant, or agreement in respect of the Project
made by any of the Nonrecourse Parties or any security granted by the
Nonrecourse Parties as security for the obligations of Guarantor or Funding
Corporation; and (z) nothing contained herein shall limit the liability of (i)
any Person who is a party to any Project Document or has issued any certificate
or statement in connection therewith with respect to such liability as may arise
by reason of the terms and conditions of such Project Document, certificate or
statement, or (ii) any Person rendering a legal opinion, in each case under this
clause (z) relating solely to such liability of such Person as may arise under
such referenced instrument, agreement or opinion.
Section 6.12. Counterparts. This Agreement may be signed in any
------------
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
Section 6.13. Successors and Assigns. All the covenants, promises
----------------------
and agreements in this Agreement contained by or on behalf of Guarantor, or by
or on behalf of Funding Corporation, shall bind and inure to the benefit of
their respective successors and assigns, whether so expressed or not.
Section 6.14. Maximum Interest Rate. Notwithstanding any provision
---------------------
to the contrary contained herein or in the Partnership Note, at no time shall
Guarantor be obligated or required to pay interest on the principal balance due
hereunder or thereunder at a rate which could be in excess of the maximum
interest rate permitted by law to be contracted or agreed to be paid. If by the
terms hereof or of the Partnership Note, Guarantor is at any time required or
obligated to pay interest in excess of such maximum rate, then the rate of
interest applicable hereunder shall be deemed to be immediately reduced to such
maximum rate and the interest payable shall be computed at such maximum rate.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
COSO POWER DEVELOPERS, a California
general partnership
By: New CTC Company, LLC, a Delaware
limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
CAITHNESS COSO FUNDING CORP., a
Delaware corporation
By: /s/ Christopher T. McCallion
-----------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
SCHEDULE 1
----------
PRINCIPAL PAYMENT SCHEDULE FOR PROMISSORY NOTE DUE 2001
-------------------------------------------------------
Percentage of Principal
Scheduled Payment Date Amount Payable
December 15, 1999 47.8773%
June 15, 2000 11.0736%
December 15, 2000 16.4427%
June 15, 2001 10.1900%
December 15, 2001 14.4164%
<PAGE>
SCHEDULE 2
----------
PRINCIPAL PAYMENT SCHEDULE FOR PROMISSORY NOTE DUE 2009
-------------------------------------------------------
Percentage of Principal
Scheduled Payment Date Amount Payable
June 15, 2002 2.8743%
June 15, 2003 3.6564%
December 15, 2003 5.4584%
June 15, 2004 4.1363%
December 15, 2004 6.2043%
June 15, 2005 4.6838%
December 15, 2005 7.0257%
June 15, 2006 5.0541%
December 15, 2006 7.5815%
June 15, 2007 6.2601%
December 15, 2007 9.3898%
June 15, 2008 6.4927%
December 15, 2008 9.7650%
June 15, 2009 6.8231%
December 15, 2009 10.2835%
<PAGE>
Exhibit 10.9
PROMISSORY NOTE
(Due 2001)
$ 69,350,000.00 May 28, 1999
For value received, the undersigned, COSO POWER DEVELOPERS, a California
general partnership (the "Guarantor"), by this promissory note promises to pay
---------
to the order of Caithness Coso Funding Corp., a Delaware corporation ("Funding
-------
Corporation"), at the office of Funding Corporation, located at 1114 Avenue of
- -----------
the Americas, New York, New York 10036, in lawful currency of the United States
of America and in immediately available funds, the principal amount of
$69,350,000.00, or if less, the aggregate unpaid and outstanding principal
amount of this Promissory Note advanced by Funding Corporation to the Guarantor
pursuant to that certain Credit Agreement (the "Guarantor Credit Agreement"),
--------------------------
dated as of May 28, 1999, by and among the Guarantor and Funding Corporation,
and as the same may be amended from time to time, and all other amounts owed by
the Guarantor to Funding Corporation hereunder.
This is a Promissory Note entered into pursuant to the Guarantor Credit
Agreement and is entitled to the benefits thereof and is subject to all terms,
provisions and conditions thereof. Capitalized terms used and not defined
herein shall have the meanings set forth in that certain Indenture, dated as of
May 28, 1999 (the "Indenture"), by and between Funding Corporation, the
---------
Guarantor, Coso Finance Partners, a California general partnership, Coso Energy
Developers, a California general partnership, and U.S. Bank Trust National
Association, as trustee.
Reference is hereby made to the Guarantor Credit Agreement, the Indenture
and the Security Documents for the provisions, among others, with respect to the
rights, duties and obligations of the Guarantor and the rights of the holder of
this Promissory Note.
The principal amount hereof is payable in accordance with the Guarantor
Credit Agreement, and such principal amount may be prepaid solely in accordance
with the Guarantor Credit Agreement.
The Guarantor further agrees to pay, in lawful currency of the United
States of America and in immediately available funds, interest from the date
hereof on the unpaid and outstanding principal amount hereof until such unpaid
and outstanding principal amount shall become due and payable (whether at stated
maturity, by acceleration or otherwise) at the rates of interest and at the
times set forth in the Guarantor Credit Agreement, and the Guarantor agrees to
pay other fees and costs as stated in the Guarantor Credit Agreement.
<PAGE>
Upon the occurrence of any one or more Credit Agreement Events of Default
(as defined in Section 5.1 of the Guarantor Credit Agreement), all amounts then
remaining unpaid under this Promissory Note may become or be declared to be
immediately due and payable as provided in the Guarantor Credit Agreement,
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor, or notices or demands of any kind, all of which are
expressly waived by the Guarantor.
The obligations hereunder are subject to the limitations set forth in
Section 6.11 of the Guarantor Credit Agreement, the provisions of which are
hereby incorporated by reference.
This Promissory Note shall be construed and interpreted in accordance with
and governed by the laws of the State of New York without regard to the
conflicts of laws rules thereof other than Section 5-1401 of the New York
General Obligations Law.
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
2
<PAGE>
Exhibit 10.10
PROMISSORY NOTE
(Due 2009)
$84,200,000.00 May 28, 1999
For value received, the undersigned, COSO POWER DEVELOPERS, a California
general partnership (the "Guarantor"), by this promissory note promises to pay
---------
to the order of Caithness Coso Funding Corp., a Delaware corporation ("Funding
-------
Corporation"), at the office of Funding Corporation, located at 1114 Avenue of
- -----------
the Americas, New York, New York 10036, in lawful currency of the United States
of America and in immediately available funds, the principal amount of
$84,200,000.00, or if less, the aggregate unpaid and outstanding principal
amount of this Promissory Note advanced by Funding Corporation to the Guarantor
pursuant to that certain Credit Agreement (the "Guarantor Credit Agreement"),
--------------------------
dated as of May 28, 1999, by and among the Guarantor and Funding Corporation,
and as the same may be amended from time to time, and all other amounts owed by
the Guarantor to Funding Corporation hereunder.
This is the Promissory Note entered into pursuant to the Guarantor Credit
Agreement and is entitled to the benefits thereof and is subject to all terms,
provisions and conditions thereof. Capitalized terms used and not defined
herein shall have the meanings set forth in that certain Indenture, dated as of
May 28, 1999 (the "Indenture"), by and between Funding Corporation, the
---------
Guarantor, Coso Finance Partners, a California general partnership, Coso Energy
Developers, a California general partnership, and U.S. Bank Trust National
Association, as trustee.
Reference is hereby made to the Guarantor Credit Agreement, the Indenture
and the Security Documents for the provisions, among others, with respect to the
rights, duties and obligations of the Guarantor and the rights of the holder of
this Promissory Note.
The principal amount hereof is payable in accordance with the Guarantor
Credit Agreement, and such principal amount may be prepaid solely in accordance
with the Guarantor Credit Agreement.
The Guarantor further agrees to pay, in lawful currency of the United
States of America and in immediately available funds, interest from the date
hereof on the unpaid and outstanding principal amount hereof until such unpaid
and outstanding principal amount shall become due and payable (whether at stated
maturity, by acceleration or otherwise) at the rates of interest and at the
times set forth in the Guarantor Credit Agreement, and the Guarantor agrees to
pay other fees and costs as stated in the Guarantor Credit Agreement.
<PAGE>
Upon the occurrence of any one or more Credit Agreement Events of Default
(as defined in Section 5.1 of the Guarantor Credit Agreement), all amounts then
remaining unpaid under this Promissory Note may become or be declared to be
immediately due and payable as provided in the Guarantor Credit Agreement,
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor, or notices or demands of any kind, all of which are
expressly waived by the Guarantor.
The obligations hereunder are subject to the limitations set forth in
Section 6.11 of the Guarantor Credit Agreement, the provisions of which are
hereby incorporated by reference.
This Promissory Note shall be construed and interpreted in accordance with
and governed by the laws of the State of New York without regard to the
conflicts of laws rules thereof other than Section 5-1401 of the New York
General Obligations Law.
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
2
<PAGE>
Exhibit 10.11
================================================================================
Caithness Coso Funding Corp.
as Issuer
and
Coso Finance Partners
Coso Energy Developers
Coso Power Developers
as Guarantors
$ 110,000,000 6.80% Senior Secured Notes due 2001
$ 303,000,000 9.05% Senior Secured Notes due 2009
Purchase Agreement
May 21, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
================================================================================
<PAGE>
May 21, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 Park Avenue
New York, New York 10172
Dear Sirs:
Caithness Coso Funding Corp., a special purpose Delaware corporation
(the "Issuer"), proposes to issue and sell to Donaldson, Lufkin & Jenrette
------
Securities Corporation (the "Initial Purchaser") $110,000,000 in principal
-----------------
amount of its 6.80% Senior Secured Notes due 2001 (the "2001 Series A Notes")
-------------------
and $303,000,000 in principal amount of its 9.05% Senior Secured Notes due 2009
(the "2009 Series A Notes" and together with the 2001 Series A Notes, the
-------------------
"Series A Notes"), subject to the terms and conditions set forth herein. The
--------------
Series A Notes and the Series B Notes (as defined below) issuable in exchange
therefor are collectively referred to herein as the "Notes." The Notes will be
-----
guaranteed by the unconditional, joint and several guarantees (the "Guarantees")
----------
of Coso Finance Partners, a California general partnership (the "Navy I
------
Partnership"), Coso Energy Developers, a California general partnership (the
- -----------
"BLM Partnership"), and Coso Power Developers, a California general partnership
---------------
(the "Navy II Partnership," and together with Navy I Partnership and BLM
-------------------
Partnership, the "Guarantors"). The Notes are to be issued pursuant to the
----------
provisions of an indenture (the "Indenture"), to be dated as of the Closing Date
---------
(as defined below), among the Issuer, the Guarantors and U.S. Bank Trust
National Association, as trustee (the "Trustee").
-------
The proceeds to be received by the Issuer from the sale of the Series
A Notes will be loaned by the Issuer to each of the Navy I Partnership, as the
owner of the Navy I geothermal power plant and related facilities ("Navy I"),
------
the BLM Partnership, as the owner of the BLM geothermal power plant and related
facilities ("BLM"), and the Navy II Partnership, as the owner of Navy II
---
geothermal power plant and related facilities ("Navy II," and together with Navy
-------
I and BLM, the "Projects") pursuant to a separate credit agreement between the
--------
Issuer and each such Guarantor (the "Credit Agreements"). Each of the
-----------------
Guarantors will execute a promissory note (a "Partnership Note" and, together,
----------------
the "Partnership Notes") evidencing its obligations to the Issuer to repay the
-----------------
loan made to it under its Credit Agreement. All distributions of cash flows of
the Guarantors and the Issuer will be governed by the Credit Agreements and by a
Deposit and Disbursement Agreement among the Issuer, the Guarantors and U.S.
Bank Trust National Association, as collateral agent and as depositary (the
"Depositary Agreement"), which will provide for the deposit of funds into
--------------------
various accounts designated for specific purposes thereunder (the "Accounts").
--------
The Notes will be secured by (i) a perfected, first priority pledge of
the Partnership Notes by the Issuer pursuant to a pledge agreement (the
"Partnership Note Pledge Agreement"); (ii) a perfected, first priority lien on
---------------------------------
the funds deposited in the Accounts under the Depositary Agreement; (iii) a
perfected, first priority pledge of all the outstanding capital stock of the
Issuer by the Guarantors pursuant to a stock pledge agreement (the "Stock Pledge
------------
Agreement"); (iv) a perfected, first priority pledge of all the partnership
- ---------
interests of Coso Land Company, a California general partnership ("CLC"), by the
---
direct owners of CLC pursuant to a pledge agreement (the "CLC Pledge Agreement")
--------------------
and (v) a perfected, first priority pledge of all the partnership interests of
China Lake Joint Venture, a California general partnership ("CLJV"), by the
----
direct owners of CLJV pursuant to a pledge agreement (the "CLJV Pledge
-----------
Agreement"
- ---------
1
<PAGE>
and, together with the CLC Pledge Agreement, the "Additional Pledge
-----------------
Agreements"). The Guarantees, in turn, will be secured by a perfected, first
- ----------
priority lien on substantially all the assets of the Guarantors and a perfected,
first priority pledge of all of the ownership interests of the Guarantors by the
direct owners of the Guarantors pursuant to their respective pledge agreements
(the "Partnership Interest Pledge Agreements"). The entities that will pledge
--------------------------------------
their respective ownership interests in the Guarantors, CLC and CLJV are listed
on Schedule A hereto (as in existence on the date hereof and on the Closing
Date, each a "Pledgor" and collectively, the "Pledgors"), and the Partnership
------- --------
Note Pledge Agreement, the Stock Pledge Agreement, the Partnership Interest
Pledge Agreements, the Additional Pledge Agreements and any deed of trust,
mortgage, security agreement or other instrument evidencing the security
interests to be granted in favor of the Trustee for the benefit of the holders
of the Notes are collectively referred to herein as the "Security Documents."
------------------
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Indenture.
1. Offering Memorandum. The Series A Notes and the Guarantees will
-------------------
be offered and sold to the Initial Purchaser pursuant to one or more exemptions
from the registration requirements under the Securities Act of 1933, as amended
(the "Act"). The Issuer and the Guarantors have prepared a preliminary offering
---
memorandum, dated May 5, 1999 (the "Preliminary Offering Memorandum"), and a
-------------------------------
final offering memorandum, dated May 21, 1999 (the "Offering Memorandum"),
-------------------
relating to the Series A Notes and the Guarantees thereof.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Series A Notes (and all
securities issued in exchange therefor (other than the Series B Notes), in
substitution thereof or upon conversion thereof) shall bear the following
legend:
"THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION
5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND THE NOTE EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF
THE ISSUER THAT: (A) SUCH NOTE MAY BE OFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (1) (A) INSIDE THE UNITED STATES TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144(A),
(B) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (C) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT, OR (D) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL IF THE ISSUER SO REQUESTS), (2) TO
THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES
2
<PAGE>
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTE
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A)
ABOVE."
2. Agreements to Sell and Purchase. On the basis of the
-------------------------------
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Issuer agrees to issue
and sell to the Initial Purchaser, and the Initial Purchaser agrees to purchase
from the Issuer, $110,000,000 in principal amount of the 2001 Series A Notes and
$303,000,000 in principal amount of the 2009 Series A Notes at a purchase price
equal to 100% of the principal amount thereof (the "Purchase Price"). Upon the
--------------
purchase of the Series A Notes by the Initial Purchaser, the Guarantors shall
pay the Initial Purchaser a fee in an amount equal to 2.0% of the Purchase
Price.
3. Terms of Offering. The Initial Purchaser has advised the Issuer
-----------------
that the Initial Purchaser will make offers (the "Exempt Resales") of the Series
--------------
A Notes purchased hereunder on the terms set forth in the Offering Memorandum,
as amended or supplemented, solely to (i) persons whom the Initial Purchaser
reasonably believes to be "qualified institutional buyers" as defined in Rule
144A under the Act ("QIBs") and (ii) to persons permitted to purchase the Series
----
A Notes in offshore transactions in reliance upon Regulation S under the Act
(each, a "Regulation S Purchaser") (such persons specified in clauses (i) and
----------------------
(ii) being referred to herein as the "Eligible Purchasers"). The Initial
-------------------
Purchaser will offer the Series A Notes to Eligible Purchasers initially at a
price equal to 100% of the principal amount thereof. Such price may be changed
at any time without notice.
Holders (including subsequent transferees) of the Series A Notes will
have the registration rights set forth in the registration rights agreement (the
"Registration Rights Agreement"), to be dated as of the Closing Date, in
-----------------------------
substantially the form of Exhibit A hereto, for so long as such Series A Notes
constitute "Transfer Restricted Notes" (as defined in the Registration Rights
-------------------------
Agreement). Pursuant to the Registration Rights Agreement, the Issuer and the
Guarantors will agree to file with the Securities and Exchange Commission (the
"Commission") under the circumstances set forth therein (i) a registration
----------
statement under the Act (the "Exchange Offer Registration Statement") relating
-------------------------------------
to the Issuer's 6.80% Senior Secured Notes due 2001 (the "2001 Series B Notes")
-------------------
and 9.05% Senior Secured Notes due 2009 (the "2009 Series B Notes" and, together
-------------------
with the 2001 Series B Notes, the "Series B Notes"), to be offered in exchange
--------------
for the Series A Notes (such offer to exchange being referred to as the
"Exchange Offer") and the Guarantees thereof and (ii) under certain
--------------
circumstances, a shelf registration statement pursuant to Rule 415 under the Act
(the "Shelf Registration Statement" and, together with the Exchange Offer
----------------------------
Registration Statement, the "Registration Statements") relating to the resale by
-----------------------
certain holders of the Series A Notes and to use its best efforts to cause such
Registration Statements, as the case may be, to be declared and remain effective
and usable for the periods specified in the Registration Rights Agreement and to
consummate the Exchange Offer.
This Agreement, the Indenture, the Notes, the Guarantees, the Credit
Agreements, the Partnership Notes, the Depositary Agreement, the Partnership
Note Pledge Agreement, the Stock Pledge Agreement, the Additional Pledge
Agreements, the Partnership Interest Pledge Agreements and any other Security
Document are hereinafter sometimes referred to collectively as the "Operative
---------
Documents."
- ---------
3
<PAGE>
4. Delivery and Payment.
--------------------
(a) Delivery of, and payment of the Purchase Price for, the
Series A Notes shall be made at the offices of Latham & Watkins, New York, New
York, or such other location as may be mutually acceptable. Such delivery and
payment shall be made at 9:00 a.m. New York City time, on May 28, 1999 or at
such other time on the same date or such other date as shall be agreed upon by
the Initial Purchaser and the Issuer in writing. The time and date of such
delivery and the payment for the Series A Notes are herein called the "Closing
-------
Date."
- ----
(b) One or more of the 2001 Series A Notes and one or more of
the 2009 Series A Notes, each in definitive global form, registered in the name
of Cede & Co., as nominee of The Depository Trust Company ("DTC"), and having an
---
aggregate principal amount corresponding to the aggregate principal amount of
the 2001 Series A Notes or the 2009 Series A Notes, as the case may be
(collectively, the "Global Notes"), shall be delivered by the Issuer to the
------------
Initial Purchaser (or as the Initial Purchaser directs) in each case with any
transfer taxes thereon duly paid by the Issuer against payment by the Initial
Purchaser of the Purchase Price thereof by wire transfer in same day funds to
the order of the Issuer. The Global Notes shall be made available to the Initial
Purchaser for inspection not later than 9:30 a.m., New York City time, on the
business day immediately preceding the Closing Date.
5. Agreements of the Issuer and the Guarantors. Each of the Issuer
-------------------------------------------
and the Guarantors hereby, jointly and severally, agrees with the Initial
Purchaser as follows:
(a) To advise the Initial Purchaser promptly and, if requested
by the Initial Purchaser, confirm such advice in writing, of (i) the issuance by
any state securities commission, after the Issuer or any Guarantor receives
notice of such issuance, of any stop order suspending the qualification or
exemption from qualification of any Series A Notes and Guarantees thereof for
offering or sale in any jurisdiction designated by the Initial Purchaser
pursuant to Section 5(e) hereof, or the initiation of any proceeding by any
state securities commission or any other federal or state regulatory authority
for such purpose and (ii) the happening of any event during the period referred
to in Section 5(c) below that makes any statement of a material fact made in the
Preliminary Offering Memorandum or the Offering Memorandum untrue or that
requires any additions to or changes in the Preliminary Offering Memorandum or
the Offering Memorandum in order to make the statements therein, in the light of
the circumstances in which they were made, not misleading. The Issuer and the
Guarantors shall use all commercially reasonable efforts to prevent the issuance
of any stop order or order suspending the qualification or exemption of any
Series A Notes and Guarantees thereof under any state securities or Blue Sky
laws and, if at any time any state securities commission or other federal or
state regulatory authority shall issue an order suspending the qualification or
exemption of any Series A Notes and the Guarantees thereof under any state
securities or Blue Sky laws, the Issuer shall use all commercially reasonable
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time.
(b) To furnish the Initial Purchaser and those persons
identified by the Initial Purchaser to the Issuer as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
or supplements thereto, as the Initial Purchaser may reasonably request for the
time period specified in Section 5(c). Subject to the Initial Purchaser's
compliance with its representations and warranties and agreements set forth in
Section 7 hereof, the Issuer and the Guarantors consent to the use of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
and supplements thereto required pursuant hereto, by the Initial Purchaser in
connection with Exempt Resales.
4
<PAGE>
(c) During such period as in the opinion of counsel for the Initial
Purchaser an Offering Memorandum is required by law to be delivered in
connection with Exempt Resales by the Initial Purchaser, but in no event later
than 180 days after the date hereof, (i) not to make any amendment or supplement
to the Offering Memorandum of which the Initial Purchaser shall not previously
have been advised or to which the Initial Purchaser shall reasonably object in
writing promptly after being so advised and (ii) to prepare promptly, upon the
Initial Purchaser's reasonable request, any amendment or supplement to the
Offering Memorandum which may be reasonably necessary or advisable in connection
with such Exempt Resales.
(d) If, during the period referred to in Section 5(c) above, any
event shall occur or condition shall exist as a result of which, in the opinion
of counsel to the Issuer and the Guarantors or to the Initial Purchaser, it
becomes necessary to amend or supplement the Offering Memorandum in order to
make the statements therein, in the light of the circumstances when such
Offering Memorandum is delivered to an Eligible Purchaser, not misleading, or
if, in the opinion of counsel to the Issuer and the Guarantors or to the Initial
Purchaser, it is necessary to amend or supplement the Offering Memorandum to
comply with any applicable law, forthwith to prepare an appropriate amendment or
supplement to such Offering Memorandum so that the statements therein, as so
amended or supplemented, will not, in the light of the circumstances when it is
so delivered, be misleading, or so that such Offering Memorandum will comply
with applicable law, and to furnish to the Initial Purchaser and such other
persons as the Initial Purchaser may designate such number of copies thereof as
the Initial Purchaser may reasonably request.
(e) Prior to the sale of all Series A Notes pursuant to Exempt
Resales as contemplated hereby, to cooperate with the Initial Purchaser and
counsel to the Initial Purchaser in connection with the registration or
qualification of the Series A Notes for offer and sale to the Initial Purchaser
and pursuant to Exempt Resales under the securities or Blue Sky laws of such
jurisdictions as the Initial Purchaser may request and to continue such
registration or qualification in effect so long as required for Exempt Resales
and to file such consents to service of process or other documents as may be
necessary in order to effect such registration or qualification; provided,
however, that neither the Issuer nor any Guarantor shall be required in
connection therewith to qualify as a foreign corporation, limited liability
company or partnership in any jurisdiction in which it is not now so qualified
or to take any action that would subject it to general consent to service of
process or taxation other than as to matters and transactions relating to the
Preliminary Offering Memorandum, the Offering Memorandum or Exempt Resales, in
any jurisdiction in which it is not now so subject.
(f) To furnish to the registered holders of the Series A Notes and to
any beneficial owner of the Series A Notes who so requests in writing (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Issuer
and the Guarantors were required to file such Forms (all prepared and presented
in accordance with generally accepted accounting principles), including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Issuer and the Guarantors and, with respect to the annual information only,
a report thereon by the certified independent accountants of the Issuer and the
Guarantors and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Issuer and the Guarantors were required to
file such reports, in each case, within the time periods specified in the
Commission's rules and regulations or, if such request is made after such time
period, as soon as practicable after the request is received. In addition, the
Issuer and the Guarantors shall, for so long as any Series A Notes remain
outstanding, furnish to holders of the Series A Notes, any beneficial owner of
the Notes and to securities analysts and prospective investors, upon their
written request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Act.
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<PAGE>
(g) So long as any Series A Notes or Series B Notes are outstanding,
to furnish to the Initial Purchaser as soon as available copies of all reports
or other communications furnished by the Issuer or any of the Guarantors to its
debt security holders or furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the Issuer or
any of the Guarantors is listed and such other publicly available information
concerning the Issuer and/or its subsidiaries as the Initial Purchaser may
reasonably request.
(h) So long as any Series A Notes remain outstanding and during any
period in which the Issuer and the Guarantors are not subject to Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
------------
to furnish, upon written request, to any holder of Series A Notes in connection
with any sale thereof and any prospective purchaser of such Series A Notes from
such holder, the information ("Rule 144A Information") required by Rule
---------------------
144A(d)(4) under the Act.
(i) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid the
following expenses incident to the performance of the obligations of the Issuer
and the Guarantors under this Agreement, including: (i) the fees, disbursements
and expenses of counsel to the Issuer and the Guarantors and accountants of the
Issuer and the Guarantors in connection with the sale and delivery of the Series
A Notes to the Initial Purchaser and pursuant to Exempt Resales, and all other
fees and expenses in connection with the preparation, printing, filing and
distribution of the Preliminary Offering Memorandum, the Offering Memorandum and
all amendments and supplements to any of the foregoing (including financial
statements), including the mailing and delivering of copies thereof to the
Initial Purchaser and persons designated by it in the quantities specified
herein, (ii) all costs and expenses related to the transfer and delivery of the
Series A Notes to the Initial Purchaser and pursuant to Exempt Resales,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement, the other Operative Documents and any
other agreements or documents in connection with the offering, purchase, sale or
delivery of the Series A Notes, (iv) all expenses in connection with the
registration or qualification of the Series A Notes and the Guarantees for offer
and sale under the securities or Blue Sky laws of the several states and all
costs of printing or producing any preliminary and supplemental Blue Sky
memoranda in connection therewith (including the filing fees and reasonable fees
and disbursements of counsel for the Initial Purchaser solely in connection with
such registration or qualification and memoranda relating thereto), (v) the cost
of printing certificates representing the Series A Notes and the Guarantees,
(vi) the reasonable fees and expenses of the Trustee and the Trustee's counsel
in connection with the Operative Documents, (vii) the costs and charges of any
transfer agent, registrar and/or depositary (including DTC), (viii) any fees
charged by rating agencies for the rating of the Notes, (ix) fees in connection
with the filing of UCC-1 financing statements, and (x) all other costs and
expenses incident to the performance of the obligations of the Issuer and
Guarantors hereunder for which provision is not otherwise made in this Section
5(i).
(j) To cooperate with the Initial Purchaser to effect the inclusion
of the Series A Notes in the National Association of Securities Dealers, Inc.
("NASD") Private Offerings, Resales and Trading through Automated Linkages
----
("PORTAL") system and to maintain the listing of the Series A Notes on PORTAL
for so long as the Series A Notes are outstanding.
(k) To obtain the approval of DTC for "book-entry" transfer of the
Notes, and to comply with all of its agreements set forth in the representation
letters of the Issuer and the Guarantors to DTC relating to the approval of the
Notes by DTC for "book-entry" transfer.
(l) Except as disclosed in or contemplated by the Offering
Memorandum, during the period beginning on the date hereof and continuing to and
including the Closing Date, not to
6
<PAGE>
offer, sell, contract to sell or otherwise transfer or dispose of any debt
securities of the Issuer or any Guarantor or any warrants, rights or options to
purchase or otherwise acquire debt securities of the Issuer or any Guarantor
substantially similar to the Notes and the Guarantees (other than (i) the Notes
and the Guarantees and (ii) commercial paper issued in the ordinary course of
business), without the prior written consent of the Initial Purchaser.
(m) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Act) that would be
integrated with the sale of the Series A Notes to the Initial Purchaser or
pursuant to Exempt Resales in a manner that would require the registration of
any such sale of the Series A Notes under the Act.
(n) To cause the Exchange Offer to be made on the appropriate form to
permit the Series B Notes and the Guarantees thereof registered pursuant to the
Act to be offered in exchange for the Series A Notes and the Guarantees thereof
and to comply in all material respects with all applicable federal and state
securities laws in connection with the Exchange Offer.
(o) Not to voluntarily claim, and to actively resist any attempts to
claim, the benefit of any usury laws against the holders of any Notes and the
Guarantees.
(p) To use its commercially reasonable efforts to do and perform all
things required or necessary to be done and performed under this Agreement by it
prior to the Closing Date and to satisfy all conditions precedent to the
delivery of the Notes and the Guarantees.
(q) So long as the Notes are outstanding, not to take or omit to take
any action, and not to permit any person to take or omit to take any action
(other than the exercise by others of remedies available under the Operative
Documents), which action or omission could result in: (i) any of the Projects
ceasing to be a "qualifying facility" (as defined pursuant to the Public Utility
Regulatory Policies Act of 1978, as amended ("PURPA"), and the regulations
-----
promulgated thereunder), (ii) any of the Guarantors, the Issuer, the Initial
Purchaser or any holders of Notes, solely as the result of the participation by
the parties separately or as a group in the transactions contemplated by the
Operative Documents and the ownership, use or operation of the Projects by the
Guarantors, being subject to regulation by any Governmental Authority as a
"public utility," an "electric utility," an "electric utility holding company,"
a "public utility holding company," a "holding company" or an "electrical
corporation" or a subsidiary or affiliate of any of the foregoing under any law
(including, without limitation, rules and regulations of the California State
Energy Resources Conservation and Development Commission, the Federal Power Act
of 1920, as amended, and the Public Utility Holding Company Act of 1935
("PUHCA"), other than such regulation contemplated under Section 9(a)(2) of
-----
PUHCA and under 18 C.F.R. (S)292.601(c), each as amended).
(r) To use the net proceeds received by it from the sale of the
Series A Notes to the Initial Purchaser pursuant to this Agreement in the manner
specified in the Offering Memorandum under the caption "Use of Proceeds."
6. Representations, Warranties and Agreements of the Issuer and the
----------------------------------------------------------------
Guarantors. As of the date hereof, each of the Issuer and the Guarantors,
- ----------
jointly and severally, represents and warrants to, and agrees with, the Initial
Purchaser that:
(a) The Preliminary Offering Memorandum, as of its date, did not, and
the Offering Memorandum, at the date hereof, does not, and any supplement or
amendment to them will not, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein
7
<PAGE>
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties contained in this paragraph (a) shall not apply to (i) pricing terms
and other financial terms intentionally left blank in the Preliminary Offering
Memorandum and (ii) statements in or omissions from the Preliminary Offering
Memorandum or the Offering Memorandum (or any supplement or amendment thereto)
based upon information relating to the Initial Purchaser furnished to the Issuer
in writing by the Initial Purchaser expressly for use therein. No stop order
preventing the use of the Preliminary Offering Memorandum or the Offering
Memorandum, or any amendment or supplement thereto, or any order asserting that
any of the transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.
(b) The Issuer has been duly incorporated, is validly existing as a
corporation in good standing under the laws of Delaware and has the corporate
power and authority to carry on its business as described in the Preliminary
Offering Memorandum and the Offering Memorandum and to own, lease and operate
its properties, and is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Issuer, the Guarantors and the Pledgors, taken as a
whole (a "Material Adverse Effect").
-----------------------
(c) Each of the Guarantors is a general partnership duly formed under
the laws of the State of California and has the partnership power and authority
to carry on its business as described in the Preliminary Offering Memorandum and
the Offering Memorandum and to own, lease and operate its properties.
(d) Except as set forth on Schedule A hereto, each of the Pledgors
has been duly organized and is validly existing as a limited liability company
or a limited partnership, as applicable, existing in good standing under the
laws of the jurisdiction of its organization, and has the limited liability
company or limited partnership power and authority, as the case may be, to carry
on its business as described in the Preliminary Offering Memorandum and the
Offering Memorandum and to own, lease and operate its properties, and each is
duly qualified and is in good standing as a foreign limited liability company or
limited partnership, as the case may be, authorized to do business in each
jurisdiction in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect. As of the Closing Date, each
of ESCA Limited Partnership, Caithness Navy II Group, L.P. and Caithness Coso
Holdings, L.P. will have been duly reorganized and will be validly existing as a
limited liability company existing in good standing under the laws of the State
of Delaware, and will have the limited liability company power and authority to
carry on the business conducted by it prior to such reorganization and to own,
lease and operate its properties, and each will be duly qualified and will be in
good standing as a foreign limited liability company authorized to do business
in each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure to be
so qualified would not have a Material Adverse Effect. The limited liability
companies created as a result of the reorganization of ESCA Limited Partnership,
Caithness Navy II Group, L.P. and Caithness Coso Holdings, L.P. are referred to
herein as the "New Pledgors."
------------
(e) Each of the Issuer, the Guarantors and the Pledgors has, and as
of the Closing Date each of the New Pledgors will have, all corporate,
partnership, limited liability company or limited partnership power and
authority, as the case may be, necessary to execute and deliver each of the
Operative Documents to which it is a party and to perform its obligations
thereunder.
8
<PAGE>
(f) All outstanding shares of capital stock of the Issuer have been
duly authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights. Except as otherwise set forth in or
contemplated by the Offering Memorandum, all of the issued and outstanding
shares of capital stock of the Issuer are owned directly by the Guarantors, free
and clear of any security interest, claim, lien, encumbrance or adverse interest
of any nature (each a "Lien"). All of the partnership interests of each of Navy
----
I Partnership, BLM Partnership and Navy II Partnership represent valid
partnership interests in such partnership. As of the date hereof, all of the
general partnership interests in Navy I Partnership are owned by ESCA Limited
Partnership, a California limited partnership (which as of the Closing Date will
be reorganized into a Delaware limited liability company), and New CLOC Company,
LLC, a Delaware limited liability company. As of the date hereof, all of the
general partnership interests in Navy II Partnership are owned by Caithness Navy
II Group, L.P., a Delaware limited partnership (which as of the Closing Date
will be reorganized into a Delaware limited liability company), and New CTC
Company, LLC, a Delaware limited liability company. As of the date hereof, all
of the general partnership interests in BLM Partnership are owned by Caithness
Coso Holdings, L.P., a California general partnership (which as of the Closing
Date will be reorganized into a Delaware limited liability company), and New
CHIP Company, LLC, a Delaware limited liability company. All of the partnership
interests of CLC are owned by Caithness Acquisition Company, LLC, a Delaware
limited liability company, and Caithness Geothermal 1980 Ltd., L.P., a Delaware
limited partnership. All of the partnership interests of CLJV are owned by
Caithness Acquisition Company, LLC, a Delaware limited liability company, and
Caithness Geothermal 1980 Ltd., L.P., a Delaware limited partnership.
(g) The Issuer and the Guarantors have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them, respectively, which is material to the business of the
Issuer and the Guarantors, including the Collateral, in each case, free and
clear of any Liens and defects, except for Permitted Liens as described in the
Offering Memorandum, or such as do not materially affect the value of such
property and do not interfere materially with the use made and proposed to be
made of such property by the Issuer and the Guarantors; and any real property
and buildings held under lease by the Issuer and the Guarantors are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere materially with the use made and proposed to be
made of such property and buildings by the Issuer and the Guarantors, in each
case except as described in the Offering Memorandum.
(h) This Agreement has been duly authorized, executed and delivered
by the Issuer and each of the Guarantors.
(i) The Indenture has been duly authorized by the Issuer and each of
the Guarantors and, on the Closing Date, will have been validly executed and
delivered by the Issuer and each of the Guarantors. When the Indenture has been
duly executed and delivered by the Issuer and each of the Guarantors (assuming
the due authorization, execution and delivery by the Trustee), the Indenture
will be a valid and binding agreement of the Issuer and each Guarantor,
enforceable against the Issuer and each Guarantor, as the case may be, in
accordance with its terms, except as enforceability thereof may be limited by
(i) bankruptcy, insolvency, reorganization, moratorium or similar laws
(including fraudulent transfer laws) affecting creditors' rights generally and
(ii) general principles of equity and the discretion of the court before which
any proceeding therefor may be brought (regardless of whether such enforcement
is considered in a proceeding at law or in equity).
(j) The Series A Notes have been duly authorized for issuance and
sale by the Issuer to the Initial Purchaser and, on the Closing Date, will have
been validly executed and delivered by the Issuer. When the Series A Notes have
been issued, executed and authenticated in accordance with the
9
<PAGE>
provisions of the Indenture and delivered to and paid for by the Initial
Purchaser in accordance with the terms of this Agreement, the Series A Notes
will be entitled to the benefits of the Indenture and will be valid and binding
obligations of the Issuer, enforceable in accordance with their terms, except as
enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws (including fraudulent transfer laws)
affecting creditors' rights generally and (ii) general principles of equity and
the discretion of the court before which any proceeding therefor may be brought
(regardless of whether such enforcement is considered in a proceeding at law or
in equity). Series A Notes will, when executed and delivered, conform in all
material respects to the description thereof contained in the Offering
Memorandum.
(k) The Guarantees to be endorsed on the Series A Notes have been
duly authorized by the Guarantors, respectively, and, on the Closing Date, will
have been duly executed and delivered by the Guarantors. When the Guarantees to
be endorsed on the Series A Notes have been executed and delivered in accordance
with the Indenture, the Guarantees to be endorsed on the Series A Notes will be
the valid and binding obligations of the Guarantors, respectively, enforceable
against the Guarantors, respectively, in accordance with their terms, except as
enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws (including fraudulent transfer laws)
affecting creditors' rights generally and (ii) general principles of equity and
the discretion of the court before which any proceeding therefor may be brought
(regardless of whether such enforcement is considered in a proceeding at law or
in equity). On the Closing Date, the Guarantees to be endorsed on the Series A
Notes will conform in all material respects to the description thereof contained
in the Offering Memorandum.
(l) On the Closing Date, the Series B Notes will have been duly
authorized by the Issuer. When the Series B Notes are issued, executed and
authenticated in accordance with the terms of the Exchange Offer and the
Indenture, the Series B Notes will be the valid and binding obligations of the
Issuer, enforceable against the Issuer in accordance with their terms, except as
enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws (including fraudulent transfer laws)
affecting creditors' rights generally and (ii) general principles of equity and
the discretion of the court before which any proceeding therefor may be brought
(regardless of whether such enforcement is considered in a proceeding at law or
in equity). When the Series B Notes are issued, authenticated and delivered, the
Series B Notes will conform in all material respects to the description thereof
contained in the Offering Memorandum.
(m) On the Closing Date, the Guarantees to be endorsed on the Series
B Notes by the Guarantors, respectively, will have been duly authorized by the
Guarantors. When the Guarantees to be endorsed on the Series B Notes are
executed and delivered in accordance with the terms of the Indenture, the
Guarantees to be endorsed on the Series B Notes will be the valid and binding
obligations of the Guarantors, respectively, enforceable against the Guarantors,
respectively, in accordance with their terms, except as enforceability thereof
may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or
similar laws (including fraudulent transfer laws) affecting creditors' rights
generally and (ii) general principles of equity and discretion of the court
before which any proceeding therefor may be brought (regardless of whether such
enforcement is considered in a proceeding at law or in equity). When the Series
B Notes are issued, authenticated and delivered, the Guarantees to be endorsed
thereon will conform in all material respects to the description thereof
contained in the Offering Memorandum.
(n) The Depositary Agreement has been duly authorized by the Issuer
and each of the Guarantors and, on the Closing Date, will have been validly
executed and delivered by the Issuer and each of the Guarantors. When the
Depositary Agreement has been duly executed and delivered by the
10
<PAGE>
Issuer and each of the Guarantors (assuming the due authorization, execution and
delivery by the other parties thereto (other than the Issuer and the
Guarantors), the Depositary Agreement will constitute a valid and binding
agreement of the Issuer and each of the Guarantors, enforceable against the
Issuer and each of the Guarantors in accordance with its terms, except as
enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws (including fraudulent transfer laws)
affecting creditors' rights generally and (ii) general principles of equity and
the discretion of the court before which any proceeding therefor may be brought
(regardless of whether such enforcement is considered in a proceeding at law or
in equity). On the Closing Date, the Depositary Agreement will conform in all
material respects to the description thereof in the Offering Memorandum.
(o) Each of the Credit Agreements has been duly authorized by the
Issuer, as lender, and by the Guarantor named as the borrower therein,
respectively, and, on the Closing Date, will have been validly executed and
delivered by the Issuer and each of the Guarantors. When each of the Credit
Agreements has been duly executed and delivered by the Issuer, as lender, and
the Guarantor named as the borrower therein, such Credit Agreement will
constitute the valid and binding agreement of the Issuer and such Guarantor,
enforceable against the Issuer and such Guarantor in accordance with its terms,
except as enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws (including fraudulent transfer laws)
affecting creditors' rights generally and (ii) general principles of equity and
the discretion of the court before which any proceeding therefor may be brought
(regardless of whether such enforcement is considered in a proceeding at law or
in equity). On the Closing Date, each of the Credit Agreements will conform in
all material respects to the description thereof in the Offering Memorandum.
(p) Each of the Partnership Notes has been duly authorized by the
Guarantor issuing such Partnership Note and, on the Closing Date, will have been
validly executed and delivered by such Guarantor. When each of the Partnership
Notes has been issued, executed and delivered by the Guarantor issuing such
Partnership Note in accordance with the provisions of the respective Credit
Agreement, such Partnership Note will be the valid and binding obligation of
such Guarantor, enforceable against such Guarantor in accordance with its terms,
except as enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws (including fraudulent transfer laws)
affecting creditors' rights generally and (ii) general principles of equity and
the discretion of the court before which any proceeding therefor may be brought
(regardless of whether such enforcement is considered in a proceeding at law or
in equity). On the Closing Date, each of the Partnership Notes will conform in
all material respects to the description thereof in the Offering Memorandum.
(q) Each of the Project Documents (as defined in the Offering
Memorandum) to which the Issuer or any Guarantor is a party has been duly
authorized by the Issuer and each of the Guarantors, as the case may be, and,
assuming due authorization, execution and delivery by the other persons party
thereto, except as described in the Offering Memorandum, constitutes the valid
and binding agreement of the Issuer or such Guarantor, as the case may be,
enforceable against the Issuer or such Guarantor, as the case may be, in
accordance with its terms, except as enforceability thereof may be limited by
(i) bankruptcy, insolvency, reorganization, moratorium or similar laws
(including fraudulent transfer laws) affecting creditors' rights generally and
(ii) general principles of equity and the discretion of the court before which
any proceeding therefor may be brought (regardless of whether such enforcement
is considered in a proceeding at law or in equity). On the Closing Date, each
Project Document described in the Offering Memorandum will conform in all
material respects to the description thereof in the Offering Memorandum.
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<PAGE>
(r) The execution and delivery of each of the Security Documents to
which the Issuer, any of the Guarantors and any of the Pledgors is a party, or
will be a party on the Closing Date, will be effective to create in favor of the
Collateral Agent for the benefit of the Secured Parties and, in certain
circumstances, the Issuer, as security for the payment and performance of the
obligations secured thereby, a valid and enforceable security interest in the
Collateral covered or purported to be covered thereby upon the recordation of
the Deeds of Trust and the filing of the UCC-1 financing statements (the
"Financing Statements"), respectively, with the priority purported to be created
--------------------
thereby to the extent that such liens and security interests can be perfected by
filing. Each of the Deeds of Trust is or will be in appropriate form for
recording as a mortgage of real estate and for filing as a financing statement
to protect, preserve and perfect the liens and security interests on real
property created or to be created by the Deeds of Trust. The Financing
Statements on the Closing Date will be in appropriate form for filing (including
the description of the Collateral set forth therein) in each office and in each
jurisdiction where required to perfect the lien and security interest in
personal property described above.
(s) The Registration Rights Agreement has been duly authorized by the
Issuer and the Guarantors and, when duly executed and delivered by the Issuer
and the Guarantors (assuming the due execution and delivery by the Initial
Purchaser), will constitute a valid and binding agreement of the Issuer and each
of the Guarantors, enforceable against the Issuer and each of the Guarantors in
accordance with its terms, except as enforceability thereof may be limited by
(i) bankruptcy, insolvency, or reorganization, moratorium or similar laws
(including fraudulent transfer laws) affecting creditors' rights generally and
(ii) general principles of equity and the discretion of the court before which
any proceeding therefor may be brought (regardless of whether such enforcement
is considered in a proceeding at law or in equity).
(t) Neither the Issuer nor any of the Guarantors is in violation of
its respective charter, by-laws or partnership agreement or in default in the
performance of any material obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or other agreement
or instrument that is material to the Issuer or to any of the Guarantors, taken
as a whole, to which the Issuer or any of the Guarantors is a party or by which
the Issuer or any of the Guarantors or their respective property is bound, and
which violation or default might result, singly or in the aggregate, in a
Material Adverse Effect.
(u) The execution, delivery and performance of this Agreement and the
other Operative Documents by each of the Issuer, the Guarantors and the
Pledgors, compliance by each of the Issuer, the Guarantors and the Pledgors with
all provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (i) assuming that the Notes are sold in
the manner described in this Agreement, require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states or which have been obtained), and, with
respect to the Registration Rights Agreement, the Act and the Trust Indenture
Act), (ii) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter, by-laws or partnership agreement
of the Issuer, the Guarantors or the Pledgors, as the case may be, or any
indenture, loan agreement, mortgage, lease or other agreement or instrument to
which the Issuer, any of the Guarantors or any of the Pledgors is a party or by
which the Issuer, any of the Guarantors or any of the Pledgors or their
respective property is bound, (iii) violate or conflict with any applicable law
or any rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over the Issuer, any of the
Guarantors or any of the Pledgors or their respective property, (iv) other than
pursuant to the Operative Documents, result in the imposition or creation of (or
the obligation to create or impose) a Lien under, any agreement or instrument to
which the Issuer, any of the Guarantors or any of the Pledgors is a party or by
which the Issuer, any of the
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<PAGE>
Guarantors or any of the Pledgors or their respective property is bound, or (v)
result in the termination, suspension or revocation of any Authorization (as
defined below) of the Issuer, any of the Guarantors or any of the Pledgors or
result in any other impairment of the rights of the holder of any such
Authorization, except, with respect to clauses (ii), (iii) and (v), for
violations, conflicts, breaches, defaults, Liens, terminations, suspensions,
revocations or impairments which would not reasonably be expected to have a
Material Adverse Effect.
(v) Except as is disclosed in the Offering Memorandum, there are no
legal or governmental proceedings pending or, to the best knowledge of the
Issuer and the Guarantors, threatened to which the Issuer or any of the
Guarantors is or could be a party or to which any of their respective property
is or could be subject, which might result, singly or in the aggregate, in a
Material Adverse Effect.
(w) Except as is disclosed in the Offering Memorandum, neither the
Issuer nor any of the Guarantors has violated any federal, state or local law or
regulation, including such laws or regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), or any provisions of
------------------
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
-----
except for such violations which, singly or in the aggregate, would not have a
Material Adverse Effect.
(x) Except as is disclosed in the Offering Memorandum, there are no
costs or liabilities associated with Environmental Laws (including, without
limitation, any capital or operating expenditures required for clean-up, closure
of properties or compliance with Environmental Laws or any Authorization, any
related constraints on operating activities and any potential liabilities to
third parties) for which the Issuer or any of the Guarantors are liable and
which would, singly or in the aggregate, have a Material Adverse Effect.
(y) Each of the Issuer and the Guarantors has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
"Authorization") of, and has made all filings with and notices to, all
-------------
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business in the manner described in the
Preliminary Offering Memorandum and the Offering Memorandum, except where the
failure to have any such Authorization or to make any such filing or notice
would not, singly or in the aggregate, have a Material Adverse Effect. Except as
disclosed in the Preliminary Offering Memorandum and the Offering Memorandum,
each such Authorization is valid and in full force and effect and each of the
Issuer and its the Guarantors is in compliance with all the applicable terms and
conditions thereof and with the rules and regulations of the authorities and
governing bodies having jurisdiction with respect thereto; and no event has
occurred (including, without limitation, the receipt of any notice from any
authority or governing body) which allows or, after notice or lapse of time or
both, would allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or both, would result
in any other impairment of the rights of the holder of any such Authorization;
and such Authorizations contain no restrictions that are materially burdensome
to the Issuer or any of the Guarantors; except where such failure to be valid
and in full force and effect or to be in compliance, the occurrence of any such
event or the presence of any such restriction would not, singly or in the
aggregate, have a Material Adverse Effect.
(z) The accountants, KPMG LLP and PricewaterhouseCoopers LLP, that
have certified the financial statements and supporting schedules included in the
Preliminary Offering Memorandum and the Offering Memorandum are each independent
certified public accountants with respect to the Issuer and the Guarantors under
Rule 101 of the American Institute of Certified Public
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Accountant's Code of Professional Conduct and its interpretations and rulings.
The historical financial statements, together with related schedules and notes,
set forth in the Preliminary Offering Memorandum and the Offering Memorandum
comply as to form in all material respects with the requirements applicable to
registration statements on Form S-1 under the Act.
(aa) The historical financial statements, together with related
schedules and notes, forming part of the Offering Memorandum (and any amendment
or supplement thereto), present fairly the financial position, results of
operations and cash flows of the Issuer and of the Guarantors on the basis
stated in the Offering Memorandum at the respective dates or for the respective
periods to which they apply; such statements and related schedules and notes
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data set forth
in the Offering Memorandum (and any amendment or supplement thereto) are, in all
material respects, accurately presented and prepared on a basis consistent with
such financial statements and the books and records of the Issuer and the
Guarantors.
(bb) The pro forma financial statements included in the Preliminary
Offering Memorandum and the Offering Memorandum have been prepared on a basis
consistent with the historical financial statements of the Issuer and the
Guarantors and give effect to assumptions used in the preparation thereof on a
reasonable basis and in good faith (as of the date of the Offering Memorandum)
and present fairly the historical and proposed transactions contemplated by the
Preliminary Offering Memorandum and the Offering Memorandum; and such pro forma
financial statements comply as to form in all material respects with the
requirements applicable to pro forma financial statements included in
registration statements on Form S-1 under the Act. The other pro forma financial
and statistical information and data included in the Offering Memorandum are, in
all material respects, accurately presented and prepared on a basis consistent
with the pro forma financial statements.
(cc) Neither the Issuer nor any Guarantor is, after giving effect to
the offering and sale of the Series A Notes and the application of the proceeds
therefrom as described in the Offering Memorandum, or will be, an "investment
company," or an entity "controlled" by an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended.
(dd) Neither the Issuer nor any of the Guarantors nor any agent
thereof acting on the behalf of them has taken, and none of them will take, any
action that might cause this Agreement or the issuance or sale of the Series A
Notes to violate Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part
221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the
Federal Reserve System.
(ee) No "nationally recognized statistical rating organization" as
such term is defined for purposes of Rule 436(g)(2) under the Act (i) has
imposed (or has informed the Issuer or any Guarantor that it is considering
imposing) any condition (financial or otherwise) on the Issuer's or any
Guarantor's retaining any rating assigned as of the date hereof to the Issuer or
any Guarantor or to any securities of the Issuer or any Guarantor other than the
conditions requiring (A) the election of an independent director to the Board of
Directors of the Issuer and the designation of an independent manager to each of
New CLOC Company, LLC, New CHIP Company, LLC and New CTC Company, LLC and (B)
the delivery of final documentation for the transactions contemplated by this
agreement to the ratings agencies or (ii) has indicated to the Issuer or any
Guarantor that it is considering (a) the downgrading, suspension, or withdrawal
of, or any review for a possible change that does not indicate the direction of
the
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possible change in, any rating so assigned or (b) any change in the outlook for
any rating of the Issuer, any Guarantor or any securities of the Issuer or any
Guarantor.
(ff) Since the respective dates as of which information is given in
the Offering Memorandum and other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement), (i) there has not occurred any material adverse change or any
development involving a prospective material adverse change in the condition,
financial or otherwise, or the earnings, business, management or operations of
the Issuer and the Guarantors, taken as a whole, (ii) there has not been any
material adverse change or any development involving a prospective material
adverse change in the capital stock or in the long-term debt of the Issuer or
any of the Guarantors and (iii) neither the Issuer nor any of the Guarantors has
incurred any material liability or obligation, direct or contingent.
(gg) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, contains all the information specified in, and
meeting the requirements of, Rule 144A(d)(4) under the Act. The Notes and the
Guarantees thereof meet the eligibility requirements of Rule 144A(d)(3) under
the Act.
(hh) The Issuer and each of the Guarantors own, possess, or have the
right to use, or can acquire on reasonable terms, all patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks and trade names ("intellectual
------------
property") currently employed by them in connection with the business now
- --------
operated by them except where the failure to own or possess or otherwise be able
to acquire such intellectual property would not, singly or in the aggregate,
have a Material Adverse Effect; and neither the Issuer nor any of the Guarantors
has received any notice of infringement of or conflict with asserted rights of
others with respect to any of such intellectual property which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect.
(ii) The Issuer and each of the Guarantors are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged; and
neither the Issuer nor any of the Guarantors (i) has received notice from any
insurer or agent of such insurer that substantial capital improvements or other
material expenditures will have to be made in order to continue such insurance
or (ii) has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers at a cost that would not have a Material Adverse
Effect.
(jj) There is no (i) significant unfair labor practice complaint,
grievance or arbitration proceeding pending or, to the best knowledge of the
Issuer or any of the Guarantors, threatened against the Issuer or any of the
Guarantors before the National Labor Relations Board or any state or local labor
relations board, (ii) strike, labor dispute, slowdown or stoppage pending or, to
the best knowledge of the Issuer or any of the Guarantors, threatened against
the Issuer or any of the Guarantors or (iii) to the best knowledge of the Issuer
or any of the Guarantors, union representation question existing with respect to
the employees of the Issuer or any of the Guarantors, except in the case of
clauses (i), (ii) and (iii) for such actions which, singly or in the aggregate,
would not have a Material Adverse Effect. To the best knowledge of the Issuer
and the Guarantors, no collective bargaining organizing activities are taking
place with respect to the Issuer or any of the Guarantors.
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(kk) Each of the Issuer and the Guarantors maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability in accordance with
industry practice; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded assets are
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(ll) All material tax returns required to be filed by the Issuer and
each of the Guarantors in any jurisdiction prior to the date hereof have been
filed, other than those filings being contested in good faith, and all material
taxes, including withholding taxes, penalties and interest, assessments, fees
and other charges due pursuant to such returns or pursuant to any assessment
received by the Issuer or any of the Guarantors have been paid, other than those
being contested in good faith and for which adequate reserves have been
provided.
(mm) The factual information provided by the Issuer and Guarantors to
Sandwell Engineering Inc. (the "Independent Engineer"), Henwood Energy Services,
--------------------
Inc. (the "Energy Markets Consultant") and GeothermEx, Inc. (the "Geothermal
------------------------- ----------
Consultant") in connection with the preparation of their reports appearing in
- ----------
Exhibits A, B and C, respectively, to the Offering Memorandum (which factual
information is referenced in those reports), was provided in good faith;
provided that the foregoing does not imply or express any representation or
warranty by the Issuer and the Guarantors as to the accuracy of the information,
projections or conclusions contained in such reports and does not constitute any
obligation to update such reports.
(nn) When the Series A Notes and the Guarantees endorsed thereon are
issued and delivered pursuant to this Agreement, neither the Series A Notes nor
such Guarantees will be of the same class (within the meaning of Rule 144A under
the Act) as any security of the Issuer or the Guarantors that is listed on a
national securities exchange registered under Section 6 of the Exchange Act or
that is quoted in a United States automated inter-dealer quotation system.
(oo) No form of general solicitation or general advertising (as
defined in Regulation D under the Act) was used by the Issuer, the Guarantors or
any of their respective representatives (other than the Initial Purchaser, as to
whom the Issuer and the Guarantors make no representation) in connection with
the offer and sale of the Series A Notes contemplated hereby, including, but not
limited to, articles, notices or other communications published in any
newspaper, magazine, or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising; provided, however, that the Issuer and the
Guarantors make no representation or warranty regarding any general solicitation
or advertising that may have been undertaken by any rating agencies. No
securities of the same class as the Series A Notes and/or the Guarantees have
been issued and sold by the Issuer within the six-month period immediately prior
to the date hereof.
(pp) None of the Issuer, the Guarantors nor any of their respective
affiliates or any person acting on its or their behalf (other than the Initial
Purchaser, as to whom the Issuer and the Guarantors make no representation) has
engaged or will engage in any directed selling efforts within the meaning of
Regulation S under the Act ("Regulation S") with respect to the Series A Notes
------------
or the Guarantees endorsed thereon.
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<PAGE>
(qq) The sale of the Series A Notes pursuant to Regulation S is not
part of a plan or scheme to evade the registration provisions of the Act.
(rr) No registration under the Act of the Series A Notes or the
Guarantees is required for the sale of the Series A Notes and the Guarantees to
the Initial Purchaser as contemplated hereby or for the Exempt Resales assuming
the accuracy of the Initial Purchaser's representations and warranties and
agreements set forth in Section 7 hereof.
(ss) Each certificate signed by any officer of the Issuer or any
Guarantor and delivered to the Initial Purchaser or counsel for the Initial
Purchaser on the Closing Date in connection with the issuance and sale of the
Series A Notes shall be deemed to be a representation and warranty by the Issuer
or such Guarantor to the Initial Purchaser as to the matters covered thereby.
(tt) The proceeds from the offering of the Notes will not be used to
purchase or carry any instrument or security other than the Partnership Notes.
(uu) Each of the Projects is a small power "qualifying facility" as
such term is defined pursuant to the Public Utility Regulatory Policies Act of
1978, as amended, and the regulations promulgated thereunder. None of the
Guarantors, the Issuer, the Initial Purchaser or any Holders will, solely as the
result of the participation by the parties separately or as a group in the
transactions contemplated by the Operative Documents and the ownership, use or
operation of the Projects by the Guarantors, be subject to regulation by any
Governmental Authority as a "public utility," an "electric utility," an
"electric utility holding company," a "public utility holding company," a
"holding company" or an "electrical corporation" or a subsidiary or affiliate of
any of the foregoing under any Law (including, without limitation, rules and
regulations of the California State Energy Resources Conservation and
Development Commission, the Public Utility Holding Company Act of 1935, the
Federal Power Act of 1920 and the Public Utility Regulatory Policies Act of
1978, each as amended) other than such regulation contemplated under Section
9(a)(2) of PUHCA and under 18 C.F.R. (S)292.601(c).
(vv) None of the Issuer, the Guarantors or any of their respective
affiliates does business with the government of Cuba or with any person or
affiliate located in Cuba within the meaning of Section 517.075, Florida
Statutes.
(ww) Prior to the date hereof, none of the Issuer, the Guarantors or
any of their affiliates has taken any action which is designed to or which has
constituted or which might have been expected to cause or result in
stabilization or manipulation of the price of any security of the Issuer in
connection with the offering of the Series A Notes.
The Issuer and the Guarantors acknowledge that the Initial Purchaser and,
for purposes of the opinions to be delivered to the Initial Purchaser pursuant
to Section 9 hereof, counsel to the Issuer and the Guarantors and counsel to the
Initial Purchaser will rely upon the accuracy and truth of the foregoing
representations and hereby consents to such reliance.
7. Initial Purchaser's Representations, Warranties and Agreements. The
--------------------------------------------------------------
Initial Purchaser represents and warrants to, and agrees with, the Issuer and
the Guarantors:
(a) The Initial Purchaser is a QIB with such knowledge and experience
in financial and business matters as is necessary in order to evaluate the
merits and risks of an investment in the Series A Notes.
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<PAGE>
(b) The Initial Purchaser (A) is not acquiring the Series A Notes
with a view to any distribution thereof or with any present intention of
offering or selling any of the Series A Notes in a transaction that would
violate the Act or the securities laws of any state of the United States or any
other applicable jurisdiction and (B) will be reoffering and reselling the
Series A Notes only to (x) QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A, and (y) in offshore
transactions in reliance upon Regulation S under the Act.
(c) The Initial Purchaser agrees that no form of general solicitation
or general advertising (within the meaning of Regulation D under the Act) has
been or will be used by such Initial Purchaser or any of its representatives in
connection with the offer and sale of the Series A Notes pursuant hereto,
including, but not limited to, articles, notices or other communications
published in any newspaper, magazine or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees have been invited
by any general solicitation or general advertising.
(d) The Initial Purchaser agrees that, in connection with Exempt
Resales, such Initial Purchaser will solicit offers to buy the Series A Notes
only from, and will offer to sell the Series A Notes only to, Eligible
Purchasers. The Initial Purchaser further agrees that it will offer to sell the
Series A Notes only to, and will solicit offers to buy the Series A Notes only
from (A) Eligible Purchasers that the Initial Purchaser reasonably believes are
QIBs, and (B) Regulation S Purchasers, in each case, that agree that (x) the
Series A Notes purchased by them may be resold, pledged or otherwise transferred
within the time period referred to under Rule 144(k) (taking into account the
provisions of Rule 144(d) under the Act, if applicable) under the Act, as in
effect on the date of the transfer of such Series A Notes, only (I) to the
Issuer or any of the Guarantors, (II) to a person whom the seller reasonably
believes is a QIB purchasing for its own account or for the account of a QIB in
a transaction meeting the requirements of Rule 144A under the Act, (III) in an
offshore transaction (as defined in Rule 902 under the Act) meeting the
requirements of Rule 904 of the Act, (IV) in a transaction meeting the
requirements of Rule 144 under the Act, (V) to an institutional "accredited
investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under
the Act) that, prior to such transfer, furnishes the trustee with a signed
letter containing certain representations and agreements relating to the
transfer of the Series A Notes (the form of which can be obtained from the
trustee) and , if such transfer is in respect of an aggregate principal amount
of Series A Notes less than $250,000, an opinion of counsel acceptable to the
Issuer that such transfer is in compliance with the Act, (VI) in accordance with
another exemption from the registration requirements of the Act (and based upon
an opinion of counsel acceptable to the Issuer) or (VII) pursuant to an
effective registration statement and, in each case, in accordance with the
applicable securities laws of any state of the United States or any other
applicable jurisdiction and (y) they will deliver to each Person to whom such
Series A Notes or an interest therein is transferred a notice substantially to
the effect of the foregoing.
(e) The Initial Purchaser and its affiliates or any person acting on
its or their behalf have not engaged or will not engage in any directed selling
efforts within the meaning of Regulation S with respect to the Series A Notes or
the Guarantees thereof.
(f) The Series A Notes offered and sold by the Initial Purchaser
pursuant hereto in reliance on Regulation S have been and will be offered and
sold only in offshore transactions.
(g) The sale of the Series A Notes offered and sold by the Initial
Purchaser pursuant hereto in reliance on Regulation S is not part of a plan or
scheme to evade the registration provisions of the Act.
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<PAGE>
(h) The Initial Purchaser agrees that it has not offered or
sold, and will not offer or sell, the Series A Notes in the United States or to,
or for the benefit or account of, a U.S. Person (other than a distributor), in
each case, as defined in Rule 902 under the Act (i) as part of its distribution
at any time and (ii) otherwise until 40 days after the later of the commencement
of the offering of the Series A Notes pursuant hereto and the Closing Date,
other than in accordance with Regulation S of the Act or another exemption from
the registration requirements of the Act. The Initial Purchaser agrees that,
during such 40-day restricted period, it will not cause any advertisement with
respect to the Series A Notes (including any "tombstone" advertisement) to be
published in any newspaper or periodical or posted in any public place and will
not issue any circular relating to the Series A Notes, except such
advertisements as permitted by and include the statements required by Regulation
S.
(i) The Initial Purchaser agrees that, at or prior to
confirmation of a sale of Series A Notes by it to any distributor, dealer or
person receiving a selling concession, fee or other remuneration during the 40-
day restricted period referred to in Rule 903(c)(3) under the Act, it will send
to such distributor, dealer or person receiving a selling concession, fee or
other remuneration notice stating that such distributor, dealer or person
receiving a selling concession, fee or other remuneration is subject to certain
restrictions during such 40-day restricted period.
(j) The Initial Purchaser agrees that the Series A Notes offered
and sold in reliance on Regulation S will be represented upon issuance by a
global security that may not be exchanged for definitive securities until the
expiration of the 40-day restricted period referred to in Rule 903(c)(3) of the
Act and only upon certification of beneficial ownership of such Series A Notes
by non-U.S. persons or U.S. persons who purchased such Series A Notes in
transactions that were exempt from the registration requirements of the Act.
(k) The Initial Purchaser (i) has not offered or sold, and will
not offer or sell, in the United Kingdom, by means of any document, any Series A
Notes other than to persons whose ordinary business it is to buy or sell shares
or debentures, whether as principal or as agent (except in circumstances which
do not constitute an offer to the public within the meaning of the Companies Act
1989 of Great Britain); (ii) has complied and will comply with all applicable
provisions of the Financial Services Act 12986 of the United Kingdom with
respect to anything done by it in relation to the Series A Notes in, from or
otherwise involving the United Kingdom; and (iii) has only issued or passed on
and will only issue or pass on in the United Kingdom any document received by it
in connection with the issue of the Series A Notes to a person who is of a kind
described in Article 9(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom the document may
otherwise lawfully be issued or passed on.
The Initial Purchaser acknowledges that the Issuer and the
Guarantors and, for purposes of the opinions to be delivered to the Initial
Purchaser pursuant to Section 9 hereof, counsel to the Issuer and the Guarantors
and counsel to the Initial Purchaser will rely upon the accuracy and truth of
the foregoing representations and the Initial Purchaser hereby consents to such
reliance.
8. Indemnification.
---------------
(a) The Issuer and each Guarantor agree, jointly and severally,
to indemnify and hold harmless the Initial Purchaser, its directors, its
officers and each person, if any, who controls such Initial Purchaser within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any
19
<PAGE>
action, that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Offering Memorandum (or any amendment or
supplement thereto), the Preliminary Offering Memorandum or any Rule 144A
Information provided by the Issuer or any Guarantor to any holder or prospective
purchaser of Series A Notes pursuant to Section 5(h) or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to the Initial Purchaser furnished in writing to the Issuer
by the Initial Purchaser, including, but not limited to, the information
furnished by or on behalf of the Initial Purchaser in the section entitled "Plan
of Distribution"; provided, however, that the foregoing indemnity agreement with
respect to any Preliminary Offering Memorandum shall not inure to the benefit of
the Initial Purchaser if the Initial Purchaser fails to deliver a Final Offering
Memorandum, as then amended or supplemented, (so long as the Final Offering
Memorandum and any amendment or supplement thereto was provided by the Issuer to
the Initial Purchaser in the requisite quantity and on a timely basis to permit
proper delivery on or prior to the Closing Date) to the person asserting any
losses, claims, damages, liabilities or judgments caused by any untrue statement
or alleged untrue statement of a material fact contained in any Preliminary
Offering Memorandum, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, if such material misstatement or omission or
alleged material misstatement or omission was cured in the Final Offering
Memorandum, as so amended or supplemented.
(b) The Initial Purchaser agrees to indemnify and hold harmless the
Issuer and the Guarantors, and their respective directors, officers, members,
partners, and each person, if any, who controls (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) the Issuer or the Guarantors,
to the same extent as the foregoing indemnity from the Issuer and the Guarantors
to the Initial Purchaser but only with reference to information relating to the
Initial Purchaser furnished in writing to the Issuer by the Initial Purchaser
expressly for use in any Preliminary Offering Memorandum or the Offering
Memorandum, including the information furnished by the Initial Purchaser in the
section entitled "Plan of Distribution."
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
-----------------
against whom such indemnity may be sought (the "indemnifying party") in writing
------------------
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), the Initial Purchaser shall not be required to
assume the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Initial Purchaser). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense
20
<PAGE>
of such action on behalf of the indemnified party). In any such case, the
indemnifying party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by
Donaldson, Lufkin & Jenrette Securities Corporation, in the case of the parties
indemnified pursuant to Section 8(a), and by the Issuer, in the case of parties
indemnified pursuant to Section 8(b). The indemnifying party shall indemnify and
hold harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty business days after the
indemnifying party shall have received a request from the indemnified party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the indemnifying party) and, prior to the
date of such settlement, the indemnifying party shall have failed to comply with
such reimbursement request and the indemnifying party shall not have objected in
writing to such settlement prior to the indemnified party entering into such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any pending or threatened action in respect
of which the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 8
is unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Issuer and the Guarantors, on the one hand, and the Initial Purchaser, on the
other hand, from the offering of the Series A Notes or (ii) if the allocation
provided by clause 8(d)(i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause 8(d)(i) above but also the relative fault of the Issuer and the
Guarantors, on the one hand, and the Initial Purchaser, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Issuer and the
Guarantors, on the one hand and the Initial Purchaser, on the other hand, shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Series A Notes (after underwriting discounts and commissions,
but before deducting expenses) received by the Issuer, and the total discounts
and commissions received by the Initial Purchaser bear to the total price to
investors of the Series A Notes, in each case as set forth in the table on the
cover page of the Offering Memorandum. The relative fault of the Issuer and the
Guarantors, on the one hand, and the Initial Purchaser, on the other hand, shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuer or the Guarantors,
on the one hand, or the Initial Purchaser, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Issuer, the Guarantors and the Initial Purchaser agree that it
would not be just and equitable if contribution pursuant to this Section 8(d)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
21
<PAGE>
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses incurred
by such indemnified party in connection with investigating or defending any
matter, including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, the Initial Purchaser shall not be required to contribute any amount
in excess of the amount by which the total discounts and commissions received by
the Initial Purchaser exceeds the amount of any damages which the Initial
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
9. Conditions of Initial Purchaser's Obligations. The obligations of the
---------------------------------------------
Initial Purchaser to purchase the Series A Notes under this Agreement are
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Issuer and the
Guarantors contained in this Agreement shall be true and correct on the Closing
Date with the same force and effect as if made on and as of the Closing Date.
(b) On or after the date hereof, (i) there shall not have occurred
any downgrading, suspension or withdrawal of, nor shall any notice have been
given of any potential or intended downgrading, suspension or withdrawal of, or
of any review (or of any potential or intended review) for a possible change
that does not indicate the direction of the possible change in, any rating of
the Issuer or any Guarantor or any securities of the Issuer or any Guarantor
(including, without limitation, the placing of any of the foregoing ratings on
credit watch with negative or developing implications or under review with an
uncertain direction) by any "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act, (ii) there shall not have occurred any adverse change, nor shall any
written notice have been given of any potential or intended adverse change, in
the outlook for any rating of the Issuer or any Guarantor or any securities of
the Issuer or any Guarantor by any such rating organization and (iii) no such
rating organization shall have given notice that it has assigned (or is
considering assigning) a lower rating to the Series A Notes than that on which
the Series A Notes were marketed.
(c) Since the respective dates as of which information is given in
the Offering Memorandum other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement), (i) there shall not have occurred any change or any development
involving a prospective change in the condition, financial or otherwise, or the
earnings, business, management or operations of the Issuer and the Guarantors,
taken as a whole, (ii) there shall not have been any adverse change or any
development involving a prospective adverse change in the capital stock or in
the long-term debt of the Issuer or any of the Guarantors and (iii) neither the
Issuer nor any of the Guarantors shall have incurred any liability or
obligation, direct or contingent, the effect of which, in any such case
described in clause 9(c)(i), 9(c)(ii) or 9(c)(iii), in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Series A Notes on the terms and in the manner contemplated in the Offering
Memorandum.
22
<PAGE>
(d) You shall have received on the Closing Date a certificate dated
the Closing Date, signed by two authorized officers of the Issuer and each of
the Guarantors, confirming the matters set forth in Sections 6(ff), 9(a) and
9(b) and stating that each of the Issuer and the Guarantors has complied in all
material respects with all the agreements and satisfied all of the conditions
herein contained and required to be complied with or satisfied on or prior to
the Closing Date.
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Initial Purchaser), dated the Closing
Date, from Riordan & McKinzie, a Professional Corporation, special California
counsel for the Issuer and the Guarantors, as to certain of the matters set
forth on Exhibit B attached hereto, subject to customary assumptions,
qualifications and limitations. Such opinion shall be rendered to you at the
request of the Issuer and the Guarantors and shall so state therein. In
rendering such opinion, Riordan & McKinzie shall have received and may rely upon
one or more opinions of local counsel reasonably acceptable to the Initial
Purchaser, as they may reasonably request to pass upon such matters.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Initial Purchaser), dated as of the
Closing Date, from Reed Smith Shaw & McClay LLP, special New York counsel for
the Issuer, the Guarantors and the Pledgors, as to the matters set forth on
Exhibit B attached hereto that are not covered in the opinion rendered pursuant
to paragraph 9(e) hereof, subject to customary assumptions, qualifications and
limitations. Such opinion shall be rendered to you at the request of the Issuer
and the Guarantors and shall so state therein. In rendering such opinion, Reed
Smith Shaw & McClay LLP shall have received and may rely upon one or more
opinions of local counsel reasonably acceptable to the Initial Purchaser, as
they may reasonably request to pass upon such matters.
(g) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Initial Purchaser), dated as of the
Closing Date, from Orrick Herrington & Sutcliffe LLP, special regulatory counsel
for the Issuer and the Guarantors, as to the matters set forth on Exhibit C
attached hereto, subject to customary assumptions, qualifications and
limitations. Such opinion shall be rendered to you at the request of the Issuer
and the Guarantors and shall so state therein. In rendering such opinion, Orrick
Herrington & Sutcliffe LLP shall have received and may rely upon one or more
opinions of local counsel reasonably acceptable to the Initial Purchaser, as
they may reasonably request to pass upon such matters.
(h) The Initial Purchaser shall have received on the Closing Date an
opinion, dated the Closing Date, of Latham & Watkins, counsel for the Initial
Purchaser, in form and substance reasonably satisfactory to the Initial
Purchaser.
(i) The Initial Purchaser shall have received, at the time this
Agreement is executed and at the Closing Date, letters dated the date hereof or
the Closing Date, as the case may be, in form and substance satisfactory to the
Initial Purchaser from KPMG LLP, independent public accountants, containing the
information and statements of the type ordinarily included in accountants'
"comfort letters" to the Initial Purchaser with respect to the financial
statements and certain financial information contained in the Offering
Memorandum.
(j) The Initial Purchaser shall have received, at the time this
Agreement is executed and at the Closing Date, letters dated the date hereof or
the Closing Datof the e, as the case may be, in form and substance satisfactory
to the Initial Purchaser from PricewaterhouseCoopers LLP, independent public
accountants, containing the information and statements of the type ordinarily
included in
23
<PAGE>
accountants' "comfort letters" to the Initial Purchaser with respect to the
financial statements and certain financial information contained in the Offering
Memorandum.
(k) The Series A Notes shall have been approved by the NASD for
trading and duly listed in PORTAL.
(l) The Initial Purchaser shall have received a counterpart,
conformed as executed, of the Indenture and the Depositary Agreement, each of
which shall have been entered into by the Issuer, the Guarantors and the
Trustee.
(m) The Initial Purchaser shall have received a counterpart,
conformed as executed, of the Credit Agreements and Security Documents, each in
form and substance reasonably satisfactory to the Initial Purchaser and each of
which shall have been entered into by the Issuer, the Guarantors and the
Pledgors, to the extent each is a named party thereto; and the representations,
warranties and agreements of the Issuer, the Guarantors and the Pledgors
contained in the Credit Agreements and the Security Documents, to the extent
each is a named party thereto, shall be true and correct as of the Closing Date.
(n) The Initial Purchasers shall have received a counterpart,
conformed as executed, of the Registration Rights Agreement which shall have
been executed by the Issuer and the Guarantors.
(o) Each of ESCA Limited Partnership, Caithness Navy II Group, L.P.
and Caithness Coso Holdings, L.P. shall have been reorganized as a Delaware
limited liability company and each of the New Pledgors shall have acquired,
assumed or succeeded to all right, title and interest in all of the assets of
its respective predecessor.
(p) Coso Funding Corp. shall have consummated its offer to purchase
for cash any and all of its 8.53% Senior Secured Notes due December 31, 1999 and
its 8.87% Senior Secured Notes due December 31, 2001, made pursuant to an Offer
to Purchase Statement dated April 16, 1999 (as the same has been and may be
amended or extended).
(q) The Issuer and the Guarantors shall have furnished the Initial
Purchaser with such assurance and evidence as the Initial Purchaser may require
to confirm that, as of the Closing Date, all debt owed by the Issuer and the
Guarantors (other than Permitted Indebtedness) will be repaid in full and all
liens and collateral securing such debt shall be released.
(r) On or prior to the Closing Date, the Issuer or the Guarantors
shall have delivered to the Initial Purchaser evidence satisfactory to the
Initial Purchaser and their counsel that title insurance commitments in an
aggregate amount of $200.0 million for policies insuring the Deeds of Trust
executed by the Guarantors have been obtained, each of which title insurance
commitments shall be reasonably satisfactory in form and substance to the
Initial Purchaser and its counsel.
(s) On or prior to the Closing Date, the Deeds of Trust shall have
been delivered to Chicago Title Insurance Company (the "Title Company") for due
-------------
recordation as a mortgage of real estate, and any required filings with respect
to personal property and fixtures subject to the liens of the Deed of Trust
shall have been delivered to the Title Company for filing, in each place in
which such recording or filing is required to protect, preserve and perfect the
liens of the Deed of Trust as a valid and enforceable lien on the real estate
and as a valid and enforceable security interest in the personal property
24
<PAGE>
and fixtures covered or purported to be covered by the Deed of Trust, with the
priority purported to be created thereby, in each case subject only to Permitted
Liens, and except for such recordation or filing no further action shall be
required to create, preserve or perfect such liens and security interests. On or
prior to the Closing Date, the Financing Statements shall have been delivered
for filing, recordation and/or registration in each office and in each
jurisdiction where required to create and perfect a valid and enforceable
security interest in the Collateral covered or purported to be covered by the
Security Documents, with the priority purported to be created thereby. All taxes
and recording and filing fees required to be paid with respect to the execution,
recording or filing of the Deeds of Trust and the Financing Statements shall
have been paid or provided for on or prior to the Closing Date. All Collateral
shall be subject to no Liens other than Permitted Liens.
(t) On or prior to the Closing Date, each of the Project Documents,
in the forms previously delivered to the Initial Purchaser or its counsel and as
they exist as executed versions as of the date of this Agreement or in such
forms as shall be satisfactory in form and substance to the Initial Purchaser
and its counsel, shall have been executed and delivered, shall remain in full
force and effect, no default shall have occurred thereunder, all conditions
precedent thereunder shall be satisfied and there shall not have occurred any
event of force majeure thereunder on the Closing Date.
(u) The Independent Engineer shall have consented to the references
to it in the Offering Memorandum and the use of the Independent Engineer's
Report (as defined in the Offering Memorandum) prepared by the Independent
Engineer and contained in Exhibit A to the Offering Memorandum; and since the
date of the Independent Engineer's Report, no event affecting the Independent
Engineer's Report or the matters referred to therein shall have occurred (A)
which shall make untrue or incorrect in any material respect, as of the Closing
Date, any information or statement contained in the Independent Engineer's
Report or in the Offering Memorandum relating to matters referred to in the
Independent Engineer's Report, or (B) which shall not be reflected in the
Offering Memorandum but should be reflected therein in order to make the
statements and information contained in the Independent Engineer's Report, or in
the Offering Memorandum relating to matters in the Independent Engineer's
Report, in light of the circumstances under which they were made, not
misleading, as evidenced by a certificate satisfactory to the Initial Purchaser,
of an authorized officer of the Independent Engineer, dated as of the Closing
Date.
(v) The Energy Markets Consultant shall have consented to the
references to it in the Offering Memorandum and the use of the Energy Markets
Consultant's Report (as defined in the Offering Memorandum) prepared by the
Energy Markets Consultant and contained in Exhibit B to the Offering Memorandum;
and since the date of the Energy Markets Consultant's Report, no event affecting
the Energy Markets Consultant's Report or the matters referred to therein shall
have occurred (A) which shall make untrue or incorrect in any material respect,
as of the Closing Date, any information or statement contained in Energy Markets
Consultant's Report or in the Offering Memorandum relating to matters referred
to in the Energy Markets Consultant's Report, or (B) which shall not be
reflected in the Offering Memorandum but should be reflected therein in order to
make the statements and information contained in the Energy Markets Consultant's
Report, or in the Offering Memorandum relating to matters in the Energy Markets
Consultant's Report, in light of the circumstances under which they were made,
not misleading, as evidenced by a certificate satisfactory to the Initial
Purchaser, of an authorized officer of the Energy Markets Consultant, dated as
of the Closing Date.
(w) The Geothermal Consultant shall have consented to the references
to it in the Offering Memorandum and the use of the Geothermal Consultant's
Report (as defined in the Offering Memorandum) prepared by the Geothermal
Consultant and contained in Exhibit C to the Offering
25
<PAGE>
Memorandum; and since the date of the Geothermal Consultant's Report, no event
affecting the Geothermal Consultant's Report or the matters referred to therein
shall have occurred (A) which shall make untrue or incorrect in any material
respect, as of the Closing Date, any information or statement contained in
Geothermal Consultant's Report or in the Offering Memorandum relating to matters
referred to in the Geothermal Consultant's Report, or (B) which shall not be
reflected in the Offering Memorandum but should be reflected therein in order to
make the statements and information contained in the Geothermal Consultant's
Report, or in the Offering Memorandum relating to matters in the Geothermal
Consultant's Report, in light of the circumstances under which they were made,
not misleading, as evidenced by a certificate satisfactory to the Initial
Purchaser, of an authorized officer of the Geothermal Consultant, dated as of
the Closing Date.
(x) Neither the Issuer nor the Guarantors shall have failed at or
prior to the Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with by the Issuer or the
Guarantors, as the case may be, at or prior to the Closing Date.
10. Effectiveness of Agreement and Termination. This Agreement shall
------------------------------------------
become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by the Initial Purchaser by written notice to the Issuer if any of the
following has occurred: (i) any outbreak or escalation of hostilities or other
national or international calamity or crisis or change in economic conditions or
in the financial markets of the United States or elsewhere that, in the Initial
Purchaser's judgment, is material and adverse and, in the Initial Purchaser's
judgment, makes it impracticable to market the Series A Notes on the terms and
in the manner contemplated in the Offering Memorandum, (ii) the suspension or
material limitation of trading in securities on the New York Stock Exchange, the
American Stock Exchange, the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange, the Chicago Board of Trade, or the NASDAQ National Market
or limitation on prices for securities or other instruments on any such exchange
or the NASDAQ National Market, (iii) the suspension of trading of any securities
of the Issuer or any Guarantor on any exchange or in the over-the-counter
market, (iv) the enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects,
or will materially and adversely affect, the business, prospects, financial
condition or results of operations of the Issuer and its subsidiaries, taken as
a whole, (v) the declaration of a banking moratorium by either federal or New
York State authorities or (vi) the taking of any action by any federal, state or
local government or agency in respect of its monetary or fiscal affairs which in
your opinion has a material adverse effect on the financial markets in the
United States and would, in the Initial Purchaser's judgment, make it
impracticable to market the Series A Notes on the terms and in the manner
contemplated.
11. Miscellaneous. Notices given pursuant to any provision of this
-------------
Agreement shall be addressed as follows: (i) if to the Issuer or any Guarantor,
to Caithness Coso Funding Corp., 1114 Avenue of the Americas, 41st Floor, New
York, New York 10036-7790 and (ii) if to the Initial Purchaser, Donaldson,
Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York
10172, Attention: Syndicate Department, or in any case to such other address as
the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Issuer, the Guarantors and the Initial
Purchaser set forth in or made pursuant to this Agreement shall remain operative
and in full force and effect, and will survive delivery of and payment for
26
<PAGE>
the Series A Notes, regardless of (i) any investigation, or statement as to the
results thereof, made by or on behalf of the Initial Purchaser, the officers or
directors of the Initial Purchaser, any person controlling the Initial
Purchaser, the Issuer, any Guarantor, the officers or directors of the Issuer or
any Guarantor, or any person controlling the Issuer or any Guarantor, (ii)
acceptance of the Series A Notes and payment for them hereunder and (iii)
termination of this Agreement.
If this Agreement shall be terminated by the Initial Purchaser because
of the failure or refusal on the part of the Issuer and the Guarantors to comply
with the terms or to fulfill any of the conditions of this Agreement (other than
as a result of any termination of this Agreement pursuant to Section 10), the
Issuer and each Guarantor, jointly and severally, agree to reimburse the Initial
Purchaser for all out-of-pocket expenses (including the fees and disbursements
of counsel to the Initial Purchaser) incurred by it. Notwithstanding any
termination of this Agreement, the Issuer shall be liable for all expenses which
it has agreed to pay pursuant to Section 5(i) hereof. The Issuer and each
Guarantor also agree, jointly and severally, to reimburse the Initial Purchaser
and its officers, directors and each person, if any, who controls such Initial
Purchaser within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act for any and all fees and expenses (including without limitation the
reasonable fees and expenses of counsel) reasonably incurred by them in
connection with enforcing their rights under this Agreement (including without
limitation its rights under Section 8).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Issuer, the Guarantors,
the Initial Purchaser, the Initial Purchaser's directors and officers, any
controlling persons referred to herein, the directors and managers of the Issuer
and the Guarantors, as the case may be, and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include a purchaser of any of the Series
A Notes from the Initial Purchaser merely because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement
among the Issuer, the Guarantors and the Initial Purchaser.
27
<PAGE>
Very truly yours,
CAITHNESS COSO FUNDING CORP.
By: /s/ Christopher T. McCallion
-----------------------------
Christopher T. McCallion
Executive Vice President & Chief Financial Officer
COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
-----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA Limited Partnership,
a California limited partnership,
its General Partner
By: Caithness Geothermal 1980 Ltd., L.P.
a Delaware limited partnership,
its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
-----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
-----------------------------
Christopher T. McCallion
Executive Vice President
28
<PAGE>
By: ESI Geothermal, Inc.,
a Florida corporation,
its General Partner
By: /s/ John A. Keener
---------------------
Name: John A. Keener
Title: Vice President
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
-----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, L.P.,
a California limited partnership,
its General Partner
By: Caithness CEA Geothermal, L.P.,
a Delaware limited partnership,
its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
-----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness BLM Group, L.P.,
a New Jersey limited partnership,
its General Partner
By: Caithness Geothermal 1980 Ltd., L.P.,
a Delaware limited partnership,
its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
-----------------------------
Christopher T. McCallion
29
<PAGE>
Executive Vice President
By: Caithness Geothermal 1980 Ltd., Special Group I, L.P.,
a Delaware limited partnership,
its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
------------------------------
Christopher T. McCallion
Executive Vice President
By: West Coast Geothermal Ltd., L.P.,
a Delaware limited partnership
its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
------------------------------
Christopher T. McCallion
Executive Vice President
By: Pacific Geothermal Ltd., L.P.,
a Delaware limited partnership,
its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
------------------------------
Christopher T. McCallion
Executive Vice President
By: Mt. Whitney Geothermal Limited Partnership,
a Delaware limited partnership,
its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its General Partner
30
<PAGE>
By: /s/ Christopher T. McCallion
------------------------------
Christopher T. McCallion
Executive Vice President
By: Mt. Whitney Geothermal-II Limited
Partnership,
a Delaware limited partnership,
its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
------------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
------------------------------
Christopher T. McCallion
Executive Vice President
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
------------------------------
Christopher T. McCallion
Executive Vice President
31
<PAGE>
SCHEDULE A
Pledgors
Navy I Partners
- ---------------
. ESCA Limited Partnership, a California limited partnership (to be
reorganized on or prior to the Closing Date as a limited liability company
under the laws of the State of Delaware)
. New CLOC Company, LLC, a Delaware limited liability company
Navy II Partners
- ----------------
. Caithness Navy II Group L.P., a Delaware limited partnership (to be
reorganized on or prior to the Closing Date as a limited liability company
under the laws of the State of Delaware)
. New CTC Company, LLC, a Delaware limited liability company
BLM Partners
- ------------
. Caithness Coso Holdings, L.P., a California limited partnership (to be
reorganized on or prior to the Closing Date as a limited liability company
under the laws of the State of Delaware)
. New CHIP Company, LLC, a Delaware limited liability company
CLC Partners
- ------------
. Caithness Acquisition Company, LLC, a Delaware limited liability company
. Caithness Geothermal 1980 Ltd., L.P., a Delaware limited partnership
CLJV Partners
- -------------
. Caithness Acquisition Company, LLC, a Delaware limited liability company
. Caithness Geothermal 1980 Ltd., L.P., a Delaware limited partnership
32
<PAGE>
Exhibit 10.12
SECURITY AGREEMENT
Dated as
of May 28, 1999
Between
CAITHNESS COSO FUNDING CORP.,
a Delaware corporation
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PREFACE............................................................... 1
1. DEFINITIONS...................................................... 1
2. ASSIGNMENT, PLEDGE AND GRANT OF SECURITY INTEREST................ 2
3. OBLIGATIONS SECURED.............................................. 4
4. EVENTS OF DEFAULT................................................ 4
5. REMEDIES......................................................... 4
6. REMEDIES CUMULATIVE; DELAY NOT WAIVER............................ 6
7. COVENANTS........................................................ 6
8. REPRESENTATIONS AND WARRANTIES................................... 7
9. NOTICES.......................................................... 7
10. FURTHER ASSURANCES............................................... 8
11. PLACE OF PERFECTION; RECORDS..................................... 8
12. CONTINUING ASSIGNMENT AND SECURITY INTEREST; TRANSFER OF LOANS... 9
13. RELEASE OF COLLATERAL............................................ 9
14. ATTORNEYS' FEES.................................................. 9
15. SEVERABILITY..................................................... 10
16. TIME............................................................. 10
17. AGREEMENT FOR SECURITY PURPOSES.................................. 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
18. LIABILITY........................................................ 10
19. GOVERNING LAW.................................................... 10
20. ATTORNEY-IN-FACT................................................. 10
21. REINSTATEMENT.................................................... 11
22. WAIVER OF JURY TRIAL............................................. 11
23. AMENDMENT........................................................ 11
</TABLE>
ii
<PAGE>
SECURITY AGREEMENT
------------------
This Security Agreement ("Agreement"), dated as of May 28, 1999, is
---------
entered into by and between CAITHNESS COSO FUNDING CORP., a Delaware corporation
("Grantor"), and U.S. BANK TRUST NATIONAL ASSOCIATION, in its capacity as
-------
collateral agent ("Collateral Agent"), for the benefit of U.S. BANK TRUST
NATIONAL ASSOCIATION, in its capacity as trustee ("Trustee") for the holders of
-------
all senior secured notes issued pursuant to that certain Indenture dated as of
May 28, 1999 (the "Indenture") among Grantor, Trustee, COSO FINANCE PARTNERS, a
---------
California general partnership ("Navy I"), COSO ENERGY DEVELOPERS, a California
------
general partnership ("BLM") and COSO POWER DEVELOPERS, a California general
---
partnership ("Navy II" and together with Navy I and BLM the "Partnerships")
------- ------------
(such notes, the "Senior Secured Notes", and the holders thereof, the "Holders
-------------------- -------
of the Senior Secured Notes"), and all other Permitted Additional Senior Lenders
- ---------------------------
(as defined in the Indenture).
PREFACE
-------
A. Grantor has, simultaneously with the execution and delivery of this
Agreement, issued $110,000,000 of Senior Secured Notes due 2001, and
$303,000,000 of Senior Secured Notes due 2009, the proceeds of which will be
used to make loans to the Partnerships.
B. Grantor desires now to grant Collateral Agent, for the benefit of
Trustee, the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, a security interest in the Collateral (as defined below)
as security for the payment and performance of Grantor's obligations under the
Indenture.
AGREEMENT
---------
In consideration of the premises herein, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with the Collateral Agent as follows:
1. Definitions. (a) Unless otherwise defined, all terms used herein
-----------
which are defined in the Indenture shall have their respective meanings therein
defined and the Rules of Interpretation included in the Indenture shall apply
hereto. All terms defined in the UCC shall have the respective meanings given to
those terms in the UCC; (b) "UCC" shall mean the Uniform Commercial Code as the
same may, from time to time, be in effect in the State of New York; provided,
however, in the event that, by reason of mandatory provisions of law, any or all
of the attachment, perfection or priority of the security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.
2. Assignment, Pledge and Grant of Security Interest.
-------------------------------------------------
<PAGE>
(a) To secure the timely payment and performance of the Obligations
(as that term is defined in Section 3), Grantor does hereby assign, grant and
pledge to, and subject to a security interest in favor of, the Collateral Agent,
on behalf of the Trustee, the Holders of the Senior Secured Notes, and the
Permitted Additional Senior Lenders, if any, all the estate, right, title and
interest of Grantor, whether now owned or hereafter acquired, in, to and under:
(i) the following agreements and documents, as amended,
supplemented, substituted, renewed or replaced from time to time (individually,
an "Assigned Agreement," collectively, the "Assigned Agreements") and all of
------------------ -------------------
Grantor's rights thereunder:
(A) Credit Agreement, dated as of May 28, 1999, by and
between Grantor and Navy I; and
(B) Credit Agreement, dated as of May 28, 1999, by and
between Grantor and BLM; and
(C) Credit Agreement, dated as of May 28, 1999, by and
between Grantor and Navy II.
(ii) all rents, profits, income, royalties and revenues
derived in any other manner by Grantor;
(iii) all other personal property and fixtures of Grantor,
whether now owned or existing or hereafter acquired or arising, or in which
Grantor may have an interest, and wheresoever located, whether or not of a type
which may be subject to a security interest under the UCC, including all
furnishings, furniture, equipment, motor vehicles, supplies, goods and property
covered by any warehouse receipts or bills of lading or other such documents,
spare parts, maps, plans, specifications, architectural, engineering,
construction or shop drawings, manuals or similar documents, copyrights,
trademarks and trade names, and any replacements, renewals or substitutions for
any of the foregoing or additional tangible or intangible personal property
hereafter acquired by Grantor;
(iv) all goods, money, instruments, investment securities,
accounts, contract rights, documents, deposit accounts, bank accounts, chattel
paper, general intangibles, equipment and inventory;
(v) the Revenue Account, the Principal Account, the Interest
Account, the Debt Service Reserve Account, the Capital Expenditure Reserve
Account, the Operating and Maintenance Fees Account, the Management Fees
Account, the Distribution Account, the Distribution Suspense Account, the
Redemption Account and the Loss Proceeds Account, (as such terms are defined in
the Depositary Agreement dated as of the date hereof) including any subaccounts
within such accounts, and all other accounts and sub-accounts established
pursuant to the Depositary Agreement; and
2
<PAGE>
(vi) the proceeds of all of the foregoing (all of the collateral
described in clauses (i) through (vi) being herein collectively referred to as
the "Collateral"), including without limitation (1) all rights of Grantor to
----------
receive moneys due and to become due under or pursuant to the Collateral, (2)
all rights of Grantor to receive return of any premiums for or proceeds of any
insurance, indemnity, warranty or guaranty with respect to the Collateral or to
receive condemnation proceeds, (3) all claims of Grantor for damages arising out
of or for breach of or default under the Assigned Agreements or any other
Collateral, and (4) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed, whether voluntarily or
involuntarily.
(b) Grantor has heretofore delivered or concurrently with the
delivery hereof is delivering to the Collateral Agent, a copy of an executed
counterpart of each of the Assigned Agreements.
(c) Anything herein contained to the contrary notwithstanding, Grantor
shall remain liable under each of the Assigned Agreements, to perform all of the
obligations undertaken by it thereunder, all in accordance with and pursuant to
the terms and provisions thereof, and the Collateral Agent shall have no
obligation or liability under any of such Assigned Agreements by reason of or
arising out of this Agreement (during the period of Grantor's right of use and
possession thereof as provided herein), nor shall the Collateral Agent be
required or obligated in any manner to perform or fulfill any obligations of
Grantor thereunder or to make any payment, or to make any inquiry as to the
nature or sufficiency of any payment received by it, or present or file any
claim, or take any action to collect or enforce the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
(d) Subject to the terms of the Indenture, upon the occurrence and
during the continuance of an Event of Default, Grantor does hereby constitute
the Collateral Agent, acting for and on behalf of Trustee, the Holders of the
Senior Secured Notes, and the Permitted Additional Senior Lenders, if any, and
each successor or assign thereof, the true and lawful attorney of Grantor,
irrevocably, with full power coupled with an interest (in the name of Grantor or
otherwise) to ask, require, demand, receive, compound and give acquittance for
any and all moneys and claims for moneys due and to become due under or arising
out of the Assigned Agreements or any of the other Collateral, including without
limitation any insurance policies with respect to the Project, to elect remedies
thereunder, to endorse any checks or other instruments or orders in connection
therewith and to file any claims or take any action or institute any proceedings
in connection therewith which the Collateral Agent may deem to be necessary or
advisable; provided, however, that the Collateral Agent shall give Grantor
notice of any action taken by it as such attorney-in-fact promptly after taking
any such action.
(e) If any default by Grantor under any of the Assigned Agreements
shall occur, the Collateral Agent shall, at its option, be permitted (but shall
not be obligated) to remedy any such default by giving written notice of such
intent to Grantor and to the parties to each Assigned Agreement in default. The
Collateral Agent shall have a reasonable opportunity, but not fewer than sixty
(60) days (or such other period as the Collateral Agent and the Persons other
than
3
<PAGE>
Grantor who are parties to the Assigned Agreement may agree) after giving
such notice, in which to cure such default and upon the commencement thereof
will proceed diligently to cure such default. Any curing by the Collateral Agent
of Grantor's default under any of the Assigned Agreements shall not be construed
as an assumption by the Collateral Agent of any obligations, covenants or
agreements of Grantor under such Assigned Agreements, and the Collateral Agent
shall not incur any liability to Grantor or any other Person as a result of any
actions undertaken by the Collateral Agent in curing or attempting to cure any
such default. This Agreement shall not be deemed to release or to affect in any
way the obligations of Grantor under the Assigned Agreements.
3. Obligations Secured. This Agreement and all of the Collateral secure
-------------------
the payment and performance of Grantor's (a) obligations under the Indenture,
including, but not limited to, the payment of all amounts owed to Trustee for
the benefit of the Holders of the Senior Secured Notes and (b) obligations
owing, if any, to the Permitted Additional Senior Lenders, of every kind and
description (whether or not evidenced by any note or instrument and whether or
not for the payment of money), direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, pursuant to the terms of
the Indenture, or any other instrument evidencing Permitted Indebtedness (other
than Permitted Indebtedness described in clause (4) of the definition of
Permitted Indebtedness), including, but not limited to, the payment of all
amounts owed to the Collateral Agent of every kind and description (whether or
not evidenced by any note or instrument and whether or not for the payment of
money), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, pursuant to the terms of the Indenture, the
Financing Documents or this Agreement, including all interest, fees, charges,
expenses, attorney's fees and accountant's fees (all such obligations being
herein called the "Obligations").
-----------
4. Events of Default. The occurrence and continuance of an Event of
-----------------
Default under the Indenture (as such term is defined in the Indenture), whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body, shall constitute an Event of Default
hereunder.
5. Remedies.
--------
(a) Subject to the terms of the Indenture and the notice and other
requirements of applicable law, if any Event of Default has occurred and is
continuing, the Collateral Agent may (i) exercise the rights of acceleration set
forth in Section 5.2 of the Indenture, (ii) proceed to protect and enforce the
rights vested in it by this Agreement, including, but not limited to, the right
to cause all revenues hereby pledged as security and all other moneys pledged
hereunder to be paid directly to it, and to enforce its rights hereunder to such
payments and all other rights hereunder by such appropriate judicial proceedings
as it shall deem most effective to protect and enforce any of such rights,
either at law or in equity or otherwise, whether for specific enforcement of any
covenant or agreement contained in any of the Assigned Agreements, or in aid of
the exercise of any power therein or herein granted, or for any foreclosure
hereunder and sale under a judgment or decree in any judicial proceeding, or to
enforce any other legal or
4
<PAGE>
equitable right vested in it by this Agreement or by law; (iii) cause any action
at law or suit in equity or other proceeding to be instituted and prosecuted to
collect or enforce any Obligations or rights included in the Collateral, or to
foreclose or enforce any other agreement or other instrument by or under or
pursuant to which such Obligations are issued or secured, either in Grantor's
name or in Collateral Agent's name as Collateral Agent may deem necessary,
subject in each case to the provisions and requirements thereof; (iv) sell or
otherwise dispose of any or all of the Collateral or cause the Collateral to be
sold or otherwise disposed of in one or more sales or transactions, at such
prices as the Collateral Agent may deem commercially reasonable, and for cash or
on credit or for future delivery, without assumption of any credit risk, at any
broker's board or at public or private sale, without demand of performance or
notice of intention to sell or of time or place of sale (except such notice as
is required by applicable statute and cannot be waived or is contemplated herein
or by the other Financing Documents), it being agreed that the Collateral Agent
may be a purchaser on behalf of Trustee, the Holders of the Senior Secured
Notes, the Permitted Additional Senior Lenders, if any, or on its own behalf at
any such sale and that the Collateral Agent or anyone else who may be the
purchaser of any or all of the Collateral so sold shall thereafter hold the same
absolutely, free from any claim or right of whatsoever kind, including any
equity of redemption, of Grantor, any such demand, notice or right and equity
being hereby expressly waived and released to the extent permitted by law; (v)
incur reasonable expenses, including reasonable attorneys' fees, consultants'
fees, and other costs appropriate to the exercise of any right or power under
this Agreement; (vi) perform any obligation of Grantor hereunder or under any
other Financing Document, Project Document or Additional Project Document, and
make payments, purchase, contest or compromise any encumbrance, charge, or lien,
and pay taxes and expenses, without, however, any obligation so to do; (vii)
take possession of the Collateral and render it usable, and repair and renovate
the same, without, however, any obligation so to do, and enter upon the site
where the Project is located or any other location where the same may be located
for that purpose, control, manage, operate, rent and lease the Collateral,
either separately or in conjunction with the Project, collect all rents and
income from the Collateral and apply the same to reimburse the Holders of the
Senior Secured Notes or the Permitted Additional Senior Lenders, if any, for any
cost or expenses incurred hereunder or under any of the Financing Documents and
to the payment or performance of the Obligations, and apply the balance to
whomsoever is legally entitled thereto; (viii) secure the appointment of a
receiver of the Project or any part thereof and/or the Collateral or any part
thereof (to the extent and in the manner provided by applicable law); or (viii)
exercise any other or additional rights or remedies granted to a secured party
under the UCC. If, pursuant to applicable law, prior notice of any such action
is required to be given to Grantor, Grantor hereby acknowledges that the minimum
time required by such applicable law, or if no minimum is specified, ten (10)
Business Days, shall be deemed a reasonable notice period. Notwithstanding
anything herein to the contrary, any purchase price obtained by the Collateral
Agent in a foreclosure sale instituted and prosecuted in accordance with the
terms hereof shall be deemed binding and conclusive on the parties hereto and
the Trustee, the Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any.
(b) All costs and expenses (including, but without being limited to,
reasonable attorneys' fees and expenses) incurred by the Collateral Agent in
connection with any such suit or proceeding, or in connection with the
performance by the Collateral Agent of any of Grantor's agreements contained
herein or in any exercise of Collateral Agent's rights or remedies hereunder,
including any of the Assigned Agreements pursuant to the terms of this
Agreement,
5
<PAGE>
together with interest thereon (to the extent permitted by law) computed at a
rate per annum equal to the "Prime Rate" of Bankers Trust Company, as such rate
is announced from time to time, plus one percent (1%), said rate to change when
and as the said Prime Rate changes, from the date on which such costs or
expenses are incurred to the date of payment thereof, shall constitute
additional indebtedness secured by this Agreement and shall be paid by Grantor
to the Trustee on demand.
6. Remedies Cumulative; Delay Not Waiver.
-------------------------------------
(a) No right, power or remedy herein conferred upon or reserved to the
Collateral Agent is intended to be exclusive of any other right, power or
remedy, and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Resort to any or all security now or hereafter held by the
Collateral Agent, may be taken concurrently or successively and in one or
several consolidated or independent judicial actions or lawfully taken
nonjudicial proceedings, or both.
(b) No delay or omission of the Collateral Agent to exercise any right
or power accruing upon the occurrence and during the continuance of any Event of
Default as aforesaid shall impair any such right or power or shall be construed
to be a waiver of any such Event of Default or an acquiescence therein; and
every power and remedy given by this Agreement may be exercised from time to
time, and as often as shall be deemed expedient, by the Collateral Agent.
(c) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority specified in Section 5.10 of the Indenture. If all
Obligations and any other amounts due under this Agreement have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Grantor, if it is lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
7. Covenants. Grantor covenants as follows:
---------
(a) Grantor will duly and punctually pay all amounts payable to the
Collateral Agent, the Trustee, the Holders of the Senior Secured Notes and the
Permitted Additional Senior Lenders, in accordance with, and subject to, the
terms of the Indenture and such other instruments evidencing other Senior
Indebtedness, if any.
(b) Any action or proceeding to enforce this Agreement or any Assigned
Agreement may be taken by the Collateral Agent either in Grantor's name or in
the Collateral Agent's name, as the Collateral Agent may deem necessary.
(c) Grantor will not make any other assignment (other than to
Collateral Agent) of its rights under the Assigned Agreements.
6
<PAGE>
8. Representations and Warranties. Grantor represents and warrants as
------------------------------
follows:
(a) No effective financing statement or other instrument similar in
effect covering all or any part of Grantor's interest in the Collateral is on
file in any recording office, except such as may have been filed pursuant to
this Agreement and the other Financing Documents or pursuant to the documents
evidencing Permitted Liens.
(b) Grantor has not assigned any of its rights under the Assigned
Agreements except as specifically provided in this Agreement or as set forth in
the Indenture.
9. Notices. Unless otherwise specifically herein provided, all notices
-------
required or permitted under the terms and provisions hereof shall be in writing
and any such notice shall become effective if given in accordance with Section
10.02 of the Indenture.
10. Further Assurances. (a) Grantor agrees that from time to time, at the
------------------
expense of Grantor, Grantor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
required, or that the Collateral Agent may reasonably request, in order to
perfect and protect the assignment and security interest granted or intended to
be granted hereby or to enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, Grantor will: (i) if any Collateral shall be
evidenced by a promissory note or other instrument, deliver and pledge to the
Collateral Agent, for the benefit of Trustee, the Holders of Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, such note or
instrument duly endorsed (without recourse) and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
enable the Collateral Agent to enforce the provisions of this Agreement and the
security interests described herein; and (ii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments,
endorsement or notices, as may be necessary or required, or as the Collateral
Agent may reasonably request, in order to perfect and preserve the assignments
and security interests granted or purported to be granted hereby; it being
understood and agreed that the Collateral Agent shall have no obligation in
respect of the filing of such statements or in the perfection or preservation of
any such security interests.
(b) Grantor hereby authorizes the Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor where permitted by
law; provided that no such financing statement may be filed by Collateral Agent
in the State of Florida that would constitute a security agreement under the UCC
as in effect in such state. Copies of any such statement or amendment thereto
shall promptly be delivered to Grantor
(c) Grantor shall pay all filing, registration and recording fees or
refiling, re-registration and re-recording fees, and all expenses incident to
the execution and acknowledgment of this Agreement, any instruments of further
assurance, and (except as otherwise provided in the Indenture) all federal,
state, county and municipal stamp taxes and
7
<PAGE>
other taxes, duties, imports, assessments and charges arising out of or in
connection with the execution and delivery of this Agreement, any agreement
supplemental hereto and any instruments of further assurance.
11. Place of Perfection; Records. The location of Grantor's chief
----------------------------
executive office is 1114 Avenue of the Americas, New York, New York, 10036-7790,
and the location of Grantor's place of business is Inyo County, California.
Grantor shall give the Collateral Agent at least forty-five (45) days prior
written notice before it changes the location of its chief executive office and
shall at the expense of Grantor execute and deliver such instruments and
documents as required to maintain a prior perfected security interest and as
requested by the Collateral Agent. Grantor will hold and preserve such records
and will permit representatives of the Collateral Agent upon reasonable notice
during normal business hours to inspect and make abstracts from such records.
12. Continuing Assignment and Security Interest; Transfer. This Agreement
-----------------------------------------------------
shall create a continuing assignment of and security interest in the Collateral
and shall (i) remain in full force and effect until payment in full of the
Obligations, (ii) be binding upon Grantor, its successors and assigns and (iii)
inure, together with the rights and remedies of the Collateral Agent, to the
benefit of the Trustee, the Holders of the Senior Secured Notes, the Permitted
Additional Senior Lenders, if any, and their respective successors, transferees
and assigns. Without limiting the generality of the foregoing clause (iii), but
subject to Section 2.06 of the Indenture, the Holders of the Senior Secured
Notes may assign or otherwise transfer their Senior Secured Notes to any other
Person, and such other Person shall thereupon become vested with all or an
appropriate part of the benefits in respect thereof granted to the Holders of
the Senior Secured Notes herein or otherwise. The release of the security
interest in any or all of the Collateral, the taking or acceptance of additional
security, or the resort by Collateral Agent to any security it may have in any
order it may deem appropriate, shall not affect the liability of any person on
the indebtedness secured hereby. Upon the payment in full of the Obligations,
the security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination, the Collateral
Agent shall, at Grantor's expense, execute and deliver to Grantor such documents
as Grantor shall reasonably request to evidence such termination. If this
Agreement shall be terminated or revoked by operation of law, Grantor will
indemnify and save Collateral Agent, Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, harmless from any
loss which may be suffered or incurred by Collateral Agent, Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
in acting hereunder prior to the receipt by Collateral Agent, its successors,
transferees, or assigns of written notice of such termination or revocation.
13. Release of Collateral.
---------------------
(a) Subject to paragraphs (b) and (c) of this Section 13, Collateral
may be released from the security interest created by this Agreement at any time
or from time to time upon the request of the Grantor pursuant to a certificate
of a Responsible Officer of the Grantor certifying that all terms for release
and conditions precedent under Section 4.4 of the Credit Agreement have been met
and that such Collateral is being, or has been, sold, leased or
8
<PAGE>
transferred, and specifying the identity of the Collateral to be released. Upon
receipt of such certificate, a Responsible Officer of the Collateral Agent shall
execute, deliver or acknowledge any necessary or proper instruments of
termination, satisfaction or release to evidence the release of any Collateral
permitted to be released pursuant to this Agreement.
(b) No Collateral shall be released from the security interest created
hereunder unless there shall have been delivered to the Collateral Agent the
certificate required by this Section 13.
(c) The Collateral Agent may release Collateral from the security
interest created hereunder upon the sale or disposition of Collateral pursuant
to the Collateral Agent's powers, rights and duties with respect to remedies
provided herein.
14. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
15. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
16. Time. Time is of the essence of this Agreement.
----
17. Agreement for Security Purposes. This Agreement is for security
-------------------------------
purposes only. Accordingly, the Collateral Agent shall not, pursuant to this
Agreement, enforce Grantor's rights with respect to the Collateral, including
the exercise of any rights granted under the Consents, until such time as an
Event of Default shall have occurred and is continuing at the time such
enforcement is sought, and after any required notice of such enforcement has
been given, and until such time, subject to the terms of the Indenture and the
other Financing Documents, Grantor reserves the right to exercise all of its
right, title and interest in, to and under the Collateral (including the
Assigned Agreements).
18. Liability. The obligations hereunder are subject to the limitations
---------
set forth in Section 6.11 of the Credit Agreement, the provisions of which are
hereby incorporated by reference.
19. Governing Law. This Agreement, including all matters of construction,
-------------
validity, performance and the creation, validity, enforcement or priority of the
lien of, and security interests created by, this Agreement in or upon the
Collateral shall be governed by the
9
<PAGE>
laws of the State of New York, without reference to conflicts of law (other than
Section 5-1401 of the New York General Obligations Law), except as required by
mandatory provisions of law and except to the extent that the validity or
perfection of the lien and security interest hereunder, or remedies hereunder,
in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York.
20. Attorney-In-Fact. Grantor hereby constitutes and appoints Collateral
----------------
Agent, acting for and on behalf of itself, Trustee, the Holders of the Senior
Secured Notes, the Permitted Additional Senior Lenders, if any, and each
successor or assign of Collateral Agent, Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, the true and
lawful attorney-in-fact of Grantor, with full power upon the occurrence and
during the continuance of an Event of Default (in the name of Grantor or
otherwise) to enforce all rights of Grantor with respect to the Collateral,
including, without limitation the right:
(a) to ask, require, demand, receive and give acquittance for any and
all moneys and claims for moneys due and to become due under or arising out of
the Assigned Agreements or any of the other Collateral;
(b) to elect remedies thereunder and to endorse any checks or other
instruments or orders in connection therewith;
(c) to file any claims or take any action or institute any proceedings
in connection therewith which Collateral Agent may reasonably deem to be
necessary or advisable to protect the Collateral;
(d) to pay, settle or compromise all bills and claims which may be or
become liens or security interests (other than Permitted Liens prior to
foreclosure by Collateral Agent) against any or all of the Collateral, or any
part thereof, unless a bond or other security satisfactory to Collateral Agent
has been provided; and
(e) in connection with any acceleration and foreclosure, to do any and
every act which Grantor may do on its behalf with respect to the Collateral or
any part thereof and to exercise any or all of Grantor's rights and remedies
under any or all of the Assigned Agreements.
21. Reinstatement. This Agreement shall continue to be effective or be
-------------
reinstated, as the case may be, if at any time any amount received by Collateral
Agent in respect of the Obligations is rescinded or must otherwise be restored
or returned by Collateral Agent upon the insolvency, bankruptcy, reorganization,
liquidation of Grantor or any Partner or upon the dissolution of, or appointment
of any intervenor or conservator of, or trustee or similar official for, Grantor
or any Partner or any substantial part of Grantor's or any Partner's assets, or
otherwise, all as though such payments had been made.
22. WAIVER OF JURY TRIAL. GRANTOR AND COLLATERAL AGENT HEREBY KNOWINGLY,
--------------------
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION
10
<PAGE>
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR
ANY OTHER FINANCING DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF COLLATERAL AGENT OR
GRANTOR. THIS PROVISION IS A MATERIAL INDUCEMENT FOR COLLATERAL AGENT TO ENTER
INTO THIS AGREEMENT.
23. Amendment. No modification or waiver of any of the provisions of this
---------
Agreement shall be binding on Collateral Agent, except as expressly set forth in
a writing duly signed and delivered by Collateral Agent and which is otherwise
in accordance with Article 8 of the Indenture.
24. Regarding the Collateral. The Collateral Agent shall be afforded
------------------------
all of the rights, powers, protections, immunities and indemnities set forth in
that certain Security Agreement, dated as of the date hereof, between Collateral
Agent and Navy I as if the same were specifically set forth herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this
Security Agreement to be duly executed by their partners and officers thereunto
duly authorized, as of the day and year first above written.
GRANTOR:
- --------
CAITHNESS COSO FUNDING CORP.,
a Delaware corporation
By: /s/ Christopher T. McCallion
----------------------------------
Christopher T. McCallion
Executive Vice President
COLLATERAL AGENT:
- -----------------
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy Manansala
----------------------------------
Name: Judy Manansala
Title:
<PAGE>
Exhibit 10.13
SECURITY AGREEMENT
Dated as
of May 28, 1999
Between
COSO FINANCE PARTNERS,
a California general partnership,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. Definitions............................................... 1
2. Assignment, Pledge and Grant of Security Interest......... 2
3. Obligations Secured....................................... 6
4. Events of Default......................................... 6
5. Remedies.................................................. 7
6. Remedies Cumulative; Delay Not Waiver..................... 8
7. Covenants................................................. 9
8. Representations and Warranties............................ 9
9. Notices................................................... 9
10. Further Assurances........................................ 9
11. Place of Perfection; Records.............................. 10
12. Continuing Assignment and Security Interest; Transfer..... 10
13. Release of Collateral..................................... 11
14. Attorneys' Fees........................................... 11
15. Severability.............................................. 12
16. Time...................................................... 12
17. Agreement for Security Purposes........................... 12
18. Liability................................................. 12
19. Governing Law............................................. 12
20. Attorney-In-Fact.......................................... 12
21. Reinstatement............................................. 13
22. WAIVER OF JURY TRIAL...................................... 13
23. Amendment................................................. 13
24. Duties and Liabilities of the Collateral Agent Generally.. 14
</TABLE>
i
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SECURITY AGREEMENT
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This Security Agreement ("Agreement"), dated as of May 28, 1999, is
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entered into by and between COSO FINANCE PARTNERS, a California general
partnership ("Grantor"), and U.S. BANK TRUST NATIONAL ASSOCIATION, in its
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capacity as collateral agent ("Collateral Agent"), for the benefit of U.S. BANK
TRUST NATIONAL ASSOCIATION, in its capacity as trustee ("Trustee") for the
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holders of all senior secured notes issued pursuant to that certain Indenture
dated as of May 28, 1999, (the "Indenture") among Grantor, Trustee, Coso Energy
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Developers, a California general partnership ("BLM"), Coso Power Developers, a
---
California general partnership ("Navy II"), and Caithness Coso Funding Corp., a
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Delaware corporation (the "Issuer") (such notes, the "Senior Secured Notes", and
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the holders thereof, the "Holders of the Senior Secured Notes") and all other
-----------------------------------
Permitted Additional Senior Lenders (as defined in the Indenture). Terms not
otherwise defined herein are defined in the Indenture.
PREFACE
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A. Grantor owns the Navy I Project (as defined in the Indenture) (the
"Project").
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B. Issuer has, simultaneously with the execution and delivery of this
Agreement, issued $110,000,000 of 6.80% Senior Secured Notes due 2001 and
$303,000,000 of 9.05% of Senior Secured Notes due 2009, the proceeds of which
will be used to make loans to Grantor, BLM and Navy II.
C. Pursuant to a Guarantee dated as of even date herewith (the
"Guarantee"), Grantor has guaranteed the payment and performance of Issuer's
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obligations under the Senior Secured Notes and the Indenture.
D. Grantor desires now to grant Collateral Agent, for the benefit of
Trustee, the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, a security interest in the Collateral (as defined below)
as security for the payment and performance of Grantor's obligations under the
Guarantee.
AGREEMENT
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In consideration of the premises herein, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with the Collateral Agent as follows:
1. Definitions. (a) Unless otherwise defined, all terms used herein
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which are defined in the Indenture shall have their respective meanings therein
defined and the Rules of Interpretation included in the Indenture shall apply
hereto. All terms defined in the UCC shall have the respective meanings given to
those terms in the UCC; and (b) "UCC" shall mean the Uniform Commercial Code as
the same may, from time to time, be in effect in the State of New York;
provided, however, in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of the security interest in
any Collateral is governed by
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the Uniform Commercial Code as in effect in a jurisdiction other than the State
of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect
in such other jurisdiction for purposes of the provisions hereof relating to
such attachment, perfection or priority and for purposes of definitions related
to such provisions.
2. Assignment, Pledge and Grant of Security Interest.
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(a) To secure the timely payment and performance of the Obligations
(as that term is defined in Section 3, Grantor does hereby assign, grant and
pledge to, and subject to a security interest in favor of, the Collateral Agent,
on behalf of the Trustee, the Holders of the Senior Secured Notes, and the
Permitted Additional Senior Lenders, if any, all the estate, right, title and
interest of Grantor, whether now owned or hereafter acquired, in, to and under:
(i) the following agreements and documents, as amended,
supplemented, substituted, renewed or replaced from time to time (individually,
an "Assigned Agreement," collectively, the "Assigned Agreements") and all of
------------------ -------------------
Grantor's rights thereunder:
(A) that certain Amended and Restated Plant Operations and
Maintenance Agreement, dated as of May 28, 1999, by and between Grantor, Coso
Operating Company LLC, a Delaware limited liability company ("COC") and FPL
---
Energy Operating Services, Inc., a Florida corporation;
(B) that certain Amended and Restated Field Operations and
Maintenance Agreement, dated as of May 28, 1999, by and between Grantor and COC;
(C) that certain Power Purchase Contract, dated as of June
4, 1984, as amended, by and between Southern California Edison Company and
Grantor (as assignee of China Lake Joint Venture, a California general
partnership);
(D) that certain Interconnection Facilities Agreement,
dated as of May 29, 1985, by and between Southern California Edison Company and
Grantor (as assignee of China Lake Joint Venture, a California general
partnership);
(E) that certain contract No. N62474-79-C-5382, dated
December 6, 1979, by and between the United States of America acting through the
Department of the Navy and California Energy Company, Inc., as modified,
amended, assigned and restated by contract modification P00004 dated as of
October 19, 1983, a memorandum of which was recorded on March 12, 1986 as
instrument No. 86-1043 of official records of Inyo County, California, including
all modifications, amendments and assignment thereto and thereof made before the
effective date of this Security Agreement and any permitted modifications,
amendments and assignment thereto and thereof made after the effective date of
this Security agreement;
(F) that certain Acquisition Agreement of even date
herewith among Coso Land Company, a California general partnership, Grantor,
BLM, Navy II and COC;
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(G) those certain documents constituting the Steam Exchange
Agreements including:
(1) that certain Coso Geothermal Exchange Agreement,
by and between the Coso Partnerships and CalEnergy, dated January 11, 1994;
(2) that certain Amendment to Coso Geothermal Exchange
Agreement, by and between the Coso Partnerships and CalEnergy, dated April 12,
1995;
(3) that certain Amendment to Coso Geothermal Exchange
Agreement, by and between the Coso Partnerships, dated May 28, 1999;
(4) that certain Amendment Number P00029 to the
Original Navy Contract, dated October 4, 1994;
(5) that certain Amendment Number P00030 to the
Original Navy Contract, dated December 19, 1994;
(6) that certain Amendment P00033 to the Original Navy
Contract, dated January 8, 1995;
(7) that certain Amendment P00039 to the Navy
Contract, dated November 19, 1998;
(8) that certain Agreement for the Calculation of
Mineral Royalties/Revenues in the Coso Known Geothermal Resource Area, executed
by the USBLM, MMS and CalEnergy, dated December 16, 1994;
(9) that certain Amendment to the Agreement for the
Calculation of Mineral Royalties/Revenues in the Coso Known Geothermal Resource
Area, executed by the USBLM, MMS and the Coso Partnerships, dated May 28, 1999;
and
(10) that certain Cotenancy Agreement, executed by the
Coso Partnerships, dated May 28, 1999;
(H) that certain Settlement Agreement and Release, by and
between the Mission Group, Mission Power Engineering Company, California Energy
Company, Inc., and the Grantor, BLM and Navy II, dated June 9, 1993;
(I) all other Project Documents, as defined in the
Indenture, not listed above;
(J) all proceeds of and any unearned premiums on any
insurance policies maintained by Grantor or any other Person covering the
property, rights and interests of
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Grantor (the "Trust Property"), including, without limitation, the right to
--------------
receive the proceeds of any insurance, judgments, or settlements made in lieu
thereof, for damage to the Trust Property;
(K) (to the extent assignable) all other agreements,
including vendor warranties, running to Grantor or assigned to Grantor, relating
to the maintenance, improvement, operation or acquisition of the Project or any
part thereof, or transport of material, equipment and other parts of the Project
or any part thereof;
(L) any lease or sublease agreements or easement agreements
relating to the Project or any part thereof or any ancillary facilities, to
which Grantor is or may become a party;
(M) each Additional Project Document, and any other
agreements to which Grantor may hereafter be or become a party relating to the
operation or maintenance of the Project or any part thereof;
(N) all amendments, supplements, substitutions and renewals
to any of the aforesaid agreements; and
(O) all Governmental Approvals (as defined in the
Indenture), permits, approvals and consents relating to the Project, but
excluding any such permits, approvals and consents which by their terms or by
operation of law would become void solely by virtue of a security interest being
granted therein;
(ii) all rents, profits, income, royalties and revenues derived
in any other manner by Grantor from its ownership of the Project or any part
thereof and the operation of the Project or any part thereof, including all
revenues from sale of electricity, steam, goods or services;
(iii) all other personal property and fixtures of Grantor,
whether now owned or existing or hereafter acquired or arising, or in which
Grantor may have an interest, and wheresoever located, whether or not of a type
which may be subject to a security interest under the UCC, including all
mirrors, piping, fluids, turbines, generators, machinery, tools, engines,
appliances, mechanical and electrical systems, transmission lines, transformers,
towers, elevators, lighting, alarm systems, fire control systems, furnishings,
furniture, service equipment, motor vehicles, building or maintenance equipment,
building or maintenance materials, supplies, goods and property covered by any
warehouse receipts or bills of lading or other such documents, spare parts,
maps, plans, specifications, architectural, engineering, construction or shop
drawings, manuals or similar documents, copyrights, trademarks and trade names,
and any replacements, renewals or substitutions for any of the foregoing or
additional tangible or intangible personal property hereafter acquired by
Grantor;
(iv) all goods, money, instruments, investment securities,
accounts, contract rights, documents, deposit accounts, bank accounts, chattel
paper, general intangibles, equipment and inventory;
4
<PAGE>
(v) the Revenue Account, the Principal Account, the Interest
Account, the Debt Service Reserve Account, the Capital Expenditure Reserve
Account, the Operating and Maintenance Fees Account, the Management Fees
Account, the Distribution Account, the Distributions Suspense Account, the Loss
Proceeds Account and the Redemption Account, including any subaccounts within
such accounts, all other accounts and sub-accounts established pursuant to that
certain Deposit and Disbursement Agreement, dated as of May 28, 1999, by and
between the Issuer, the Grantor, BLM, Navy II, the Collateral Agent, and U.S.
Bank Trust National Association as Depositary;
(vi) the proceeds of all of the foregoing (all of the collateral
described in clauses (i) through (vi) being herein collectively referred to as
the "Collateral"), including without limitation (1) all rights of Grantor to
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receive moneys due and to become due under or pursuant to the Collateral, (2)
all rights of Grantor to receive return of any premiums for or proceeds of any
insurance, indemnity, warranty or guaranty with respect to the Collateral or to
receive condemnation proceeds, (3) all claims of Grantor for damages arising out
of or for breach of or default under the Assigned Agreements or any other
Collateral, and (4) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed, whether voluntarily or
involuntarily.
(b) Grantor has heretofore delivered or concurrently with the
delivery hereof is delivering to the Collateral Agent, a copy of an executed
counterpart of each of the Assigned Agreements. Grantor will deliver to
Collateral Agent an executed counterpart of each Additional Project Document,
and material amendments and supplements to the foregoing, included in the
Collateral, as they are entered into by Grantor promptly upon the execution
thereof.
(c) Anything herein contained to the contrary notwithstanding,
Grantor shall remain liable under each of the Assigned Agreements, to perform
all of the obligations undertaken by it thereunder, all in accordance with and
pursuant to the terms and provisions thereof, and the Collateral Agent shall
have no obligation or liability under any of such Assigned Agreements by reason
of or arising out of this Agreement (during the period of Grantor's right of use
and possession thereof as provided herein), nor shall the Collateral Agent be
required or obligated in any manner to perform or fulfill any obligations of
Grantor thereunder or to make any payment, or to make any inquiry as to the
nature or sufficiency of any payment received by it, or present or file any
claim, or take any action to collect or enforce the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
(d) Subject to the terms of the Guarantee, upon the occurrence and
during the continuance of an Event of Default, Grantor does hereby constitute
the Collateral Agent, acting for and on behalf of Trustee, the Holders of the
Senior Secured Notes, and the Permitted Additional Senior Lenders, if any, and
each successor or assign thereof, the true and lawful attorney of Grantor,
irrevocably, with full power coupled with an interest (in the name of Grantor or
otherwise) to ask, require, demand, receive, compound and give acquittance for
any and all moneys and claims for moneys due and to become due under or arising
out of the Assigned Agreements or any of the other Collateral, including without
limitation any insurance policies
5
<PAGE>
with respect to the Project, to elect remedies thereunder, to endorse any checks
or other instruments or orders in connection therewith and to file any claims or
take any action or institute any proceedings in connection therewith which the
Collateral Agent may deem to be necessary or advisable; provided, however, that
the Collateral Agent shall give Grantor notice of any action taken by it as such
attorney-in-fact promptly after taking any such action.
(e) If any default by Grantor under any of the Assigned Agreements
shall occur, the Collateral Agent shall, at its option, be permitted (but shall
not be obligated) to remedy any such default by giving written notice of such
intent to Grantor and to the parties to each Assigned Agreement in default. The
Collateral Agent shall have a reasonable opportunity, but not fewer than sixty
(60) days (or such other period as the Collateral Agent and the Persons other
than Grantor who are parties to such Assigned Agreement may agree) after giving
such notice, in which to cure such default and upon the commencement thereof
will proceed diligently to cure such default. Any curing by the Collateral Agent
of Grantor's default under any of the Assigned Agreements shall not be construed
as an assumption by the Collateral Agent of any obligations, covenants or
agreements of Grantor under such Assigned Agreements, and the Collateral Agent
shall not incur any liability to Grantor or any other Person as a result of any
actions undertaken by the Collateral Agent in curing or attempting to cure any
such default. This Agreement shall not be deemed to release or to affect in any
way the obligations of Grantor under the Assigned Agreements.
3. Obligations Secured. This Agreement and all of the Collateral secure
-------------------
the payment and performance of Grantor's (a) obligations under the Guarantee,
including, but not limited to, the payment of all amounts owed to Trustee for
the benefit of the Holders of the Senior Secured Notes and (b) obligations
owing, if any, to the Permitted Additional Senior Lenders, of every kind and
description (whether or not evidenced by any note or instrument and whether or
not for the payment of money), direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, pursuant to the terms of
the Guarantee, or any other instrument evidencing Permitted Indebtedness (other
than Permitted Indebtedness described in clause (4) of the definition of
Permitted Indebtedness), including, but not limited to, the payment of all
amounts owed to the Collateral Agent of every kind and description (whether or
not evidenced by any note or instrument and whether or not for the payment of
money), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, pursuant to the terms of the Indenture, the
Financing Documents or this Agreement, including all interest, fees, charges,
expenses, attorney's fees and accountant's fees (all such obligations being
herein called the "Obligations").
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4. Events of Default. The occurrence and continuance of an Event of
-----------------
Default under the Indenture, whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body, shall constitute an Event
of Default hereunder.
5. Remedies.
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6
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(a) Subject to the terms of the Guarantee and the notice and other
requirements of applicable law, if any Event of Default has occurred and is
continuing, the Collateral Agent may (i) exercise the rights of acceleration set
forth in Section 5.2 of the Indenture, (ii) proceed to protect and enforce the
rights vested in it by this Agreement, including, but not limited to, the right
to cause all revenues hereby pledged as security and all other moneys pledged
hereunder to be paid directly to it, and to enforce its rights hereunder to such
payments and all other rights hereunder by such appropriate judicial proceedings
as it shall deem most effective to protect and enforce any of such rights,
either at law or in equity or otherwise, whether for specific enforcement of any
covenant or agreement contained in any of the Assigned Agreements, or in aid of
the exercise of any power therein or herein granted, or for any foreclosure
hereunder and sale under a judgment or decree in any judicial proceeding, or to
enforce any other legal or equitable right vested in it by this Agreement or by
law; (iii) cause any action at law or suit in equity or other proceeding to be
instituted and prosecuted to collect or enforce any Obligations or rights
included in the Collateral, or to foreclose or enforce any other agreement or
other instrument by or under or pursuant to which such Obligations are issued or
secured, either in Grantor's name or in Collateral Agent's name as Collateral
Agent may deem necessary, subject in each case to the provisions and
requirements thereof; (iv) sell or otherwise dispose of any or all of the
Collateral or cause the Collateral to be sold or otherwise disposed of in one or
more sales or transactions, at such prices as the Collateral Agent may deem
commercially reasonable, and for cash or on credit or for future delivery,
without assumption of any credit risk, at any broker's board or at public or
private sale, without demand of performance or notice of intention to sell or of
time or place of sale (except such notice as is required by applicable statute
and cannot be waived or is contemplated herein or by the other Financing
Documents), it being agreed that the Collateral Agent may be a purchaser on
behalf of Trustee, the Holders of the Senior Secured Notes, the Permitted
Additional Senior Lenders, if any, or on its own behalf at any such sale and
that the Collateral Agent or anyone else who may be the purchaser of any or all
of the Collateral so sold shall thereafter hold the same absolutely, free from
any claim or right of whatsoever kind, including any equity of redemption, of
Grantor, any such demand, notice or right and equity being hereby expressly
waived and released to the extent permitted by law; (v) incur reasonable
expenses, including reasonable attorneys' fees, consultants' fees, and other
costs appropriate to the exercise of any right or power under this Agreement;
(vi) perform any obligation of Grantor hereunder or under any other Financing
Document, Project Document or Additional Project Document, and make payments,
purchase, contest or compromise any encumbrance, charge, or lien, and pay taxes
and expenses, without, however, any obligation so to do; (vii) take possession
of the Collateral and render it usable, and repair and renovate the same,
without, however, any obligation to do so, and enter upon the site where the
Project is located or any other location where the same may be located for that
purpose, control, manage, operate, rent and lease the Collateral, either
separately or in conjunction with the Project, collect all rents and income from
the Collateral and apply the same to reimburse the Holders of the Senior Secured
Notes or the Permitted Additional Senior Lenders, if any, for any cost or
expenses incurred hereunder or under any of the Financing Documents and to the
payment or performance of the Obligations, and apply the balance to whomsoever
is legally entitled thereto; (viii) secure the appointment of a receiver of the
Project or any part thereof and/or the Collateral or any part thereof (to the
extent and in the manner provided by applicable law); or (ix) exercise any other
or additional rights or remedies granted to a secured party under the UCC. If,
pursuant to applicable law, prior notice of
7
<PAGE>
any such action is required to be given to Grantor, Grantor hereby acknowledges
that the minimum time required by such applicable law, or if no minimum is
specified, ten (10) Business Days, shall be deemed a reasonable notice period.
Notwithstanding anything herein to the contrary, any purchase price obtained by
the Collateral Agent in a foreclosure sale instituted and prosecuted in
accordance with the terms hereof shall be deemed binding and conclusive on the
parties hereto and the Trustee, the Holders of the Senior Secured Notes and the
Permitted Additional Senior Lenders, if any.
(b) All costs and expenses (including, but without being limited to,
reasonable attorneys' fees and expenses) incurred by the Collateral Agent in
connection with any such suit or proceeding, or in connection with the
performance by the Collateral Agent of any of Grantor's agreements contained
herein or in any exercise of Collateral Agent's rights or remedies hereunder,
including any of the Assigned Agreements pursuant to the terms of this
Agreement, together with interest thereon (to the extent permitted by law)
computed at a rate per annum equal to the "Prime Rate" of Bankers Trust Company,
as such rate is announced from time to time, plus one percent (1%), said rate to
change when and as the said Prime Rate changes, from the date on which such
costs or expenses are incurred to the date of payment thereof, shall constitute
additional indebtedness secured by this Agreement and shall be paid by Grantor
to the Trustee on demand.
6. Remedies Cumulative; Delay Not Waiver.
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(a) No right, power or remedy herein conferred upon or reserved to the
Collateral Agent is intended to be exclusive of any other right, power or
remedy, and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Resort to any or all security now or hereafter held by the
Collateral Agent, may be taken concurrently or successively and in one or
several consolidated or independent judicial actions or lawfully taken
nonjudicial proceedings, or both.
(b) No delay or omission of the Collateral Agent to exercise any right
or power accruing upon the occurrence and during the continuance of any Event of
Default as aforesaid shall impair any such right or power or shall be construed
to be a waiver of any such Event of Default or an acquiescence therein; and
every power and remedy given by this Agreement may be exercised from time to
time, and as often as shall be deemed expedient, by the Collateral Agent.
(c) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority specified in Section 5.10 of the Indenture. If all
Obligations and any other amounts due under this Agreement have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Grantor, if it is lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
8
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7. Covenants. Grantor covenants as follows:
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(a) Grantor will duly and punctually pay all amounts payable to the
Collateral Agent, the Trustee, the Holders of the Senior Secured Notes and the
Permitted Additional Senior Lenders, in accordance with, and subject to, the
terms of the Guarantee and such other instruments evidencing other Senior
Indebtedness, if any.
(b) Any action or proceeding to enforce this Agreement or any Assigned
Agreement may be taken by the Collateral Agent either in Grantor's name or in
the Collateral Agent's name, as the Collateral Agent may deem necessary.
(c) Grantor agrees to use its commercially reasonable efforts to
obtain consents to this Agreement from each future or successor party to the
Assigned Agreements (the "Contracting Parties").
-------------------
(d) Grantor will not make any other assignment (other than to
Collateral Agent) of its rights under the Assigned Agreements.
8. Representations and Warranties. Grantor represents and warrants as
------------------------------
follows:
(a) No effective financing statement or other instrument similar in
effect covering all or any part of Grantor's interest in the Collateral is on
file in any recording office, except such as may have been filed pursuant to
this Agreement and the other Financing Documents or pursuant to the documents
evidencing Permitted Liens.
(b) Grantor has not assigned any of its rights under the Assigned
Agreements except as specifically provided in this Agreement or as set forth in
the Indenture.
(c) Grantor has obtained all necessary consents to this Agreement from
each of the Contracting Parties.
9. Notices. Unless otherwise specifically herein provided, all notices
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required or permitted under the terms and provisions hereof shall be in writing
and any such notice shall become effective if given in accordance with Section
10.02 of the Indenture.
10. Further Assurances. (a) Grantor agrees that from time to time, at the
------------------
expense of Grantor, Grantor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
required, or that the Collateral Agent may reasonably request, in order to
perfect and protect the assignment and security interest granted or intended to
be granted hereby or to enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, Grantor will: (i) if any Collateral shall be
evidenced by a promissory note or other instrument, deliver and pledge to the
Collateral Agent, for the benefit of Trustee, the Holders of Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, such note or
instrument duly endorsed (without recourse) and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
enable the Collateral Agent to
9
<PAGE>
enforce the provisions of this Agreement and the security interests described
herein; and (ii) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments, endorsement or notices, as may
be necessary or required, or as the Collateral Agent may reasonably request, in
order to perfect and preserve the assignments and security interests granted or
purported to be granted hereby; it being understood and agreed that the
Collateral Agent shall have no obligation in respect of the filing of such
statements or in the perfection or preservation of any such security interests.
(b) Grantor hereby authorizes the Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor where permitted by
law. Copies of any such statement or amendment thereto shall promptly be
delivered to Grantor
(c) Grantor shall pay all filing, registration and recording fees or
refiling, re-registration and re-recording fees, and all expenses incident to
the execution and acknowledgment of this Agreement, any instruments of further
assurance, and (except as otherwise provided in the Indenture) all federal,
state, county and municipal stamp taxes and other taxes, duties, imports,
assessments and charges arising out of or in connection with the execution and
delivery of this Agreement, any agreement supplemental hereto and any
instruments of further assurance.
11. Place of Perfection; Records. The location of Grantor's chief office
----------------------------
is 1114 Avenue of the Americas, New York, New York 10036-7790, and the location
of Grantor's place of business is Inyo County, California. Grantor shall give
the Collateral Agent at least forty-five (45) days prior written notice before
it changes the location of its chief executive office and shall at the expense
of Grantor execute and deliver such instruments and documents as required to
maintain a prior perfected security interest and as requested by the Collateral
Agent. Grantor will hold and preserve such records and will permit
representatives of the Collateral Agent upon reasonable notice during normal
business hours to inspect and make abstracts from such records.
12. Continuing Assignment and Security Interest; Transfer. This
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Agreement shall create a continuing assignment of and security interest in the
Collateral and shall (i) remain in full force and effect until payment in full
of the Obligations, (ii) be binding upon Grantor, its successors and assigns and
(iii) inure, together with the rights and remedies of the Collateral Agent, to
the benefit of the Trustee, the Holders of the Senior Secured Notes, the
Permitted Additional Senior Lenders, if any, and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(iii), but subject to Section 2.06 of the Indenture, the Holders of the Senior
Secured Notes may assign or otherwise transfer their Senior Secured Notes to any
other Person, and such other Person shall thereupon become vested with all or an
appropriate part of the benefits in respect thereof granted to the Holders of
the Senior Secured Notes herein or otherwise. The release of the security
interest in any or all of the Collateral, the taking or acceptance of additional
security, or the resort by Collateral Agent to any security it may have in any
order it may deem appropriate, shall not affect the liability of any person on
the indebtedness secured hereby. Upon the payment in full of the Obligations,
the
10
<PAGE>
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination, the Collateral
Agent shall, at Grantor's expense, execute and deliver to Grantor such documents
as Grantor shall reasonably request to evidence such termination. If this
Agreement shall be terminated or revoked by operation of law, Grantor will
indemnify and save Collateral Agent, Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, harmless from any
loss which may be suffered or incurred by Collateral Agent, Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
in acting hereunder prior to the receipt by Collateral Agent, its successors,
transferees, or assigns of written notice of such termination or revocation.
13. Release of Collateral.
---------------------
(a) Subject to paragraphs (b) and (c) of this Section 13, Collateral
may be released from the security interest created by this Agreement at any time
or from time to time upon the request of the Grantor pursuant to a certificate
of a Responsible Officer of the Grantor certifying that all terms for release
and conditions precedent under Section 4.4 of the Credit Agreement, dated as of
the date hereof, by and between the Grantor and the Issuer, have been met and
that such Collateral is being, or has been, sold, leased or transferred, and
specifying the identity of the Collateral to be released. Upon receipt of such
certificate, a Responsible Officer of the Collateral Agent shall execute,
deliver or acknowledge any necessary or proper instruments of termination,
satisfaction or release to evidence the release of any Collateral permitted to
be released pursuant to this Agreement.
(b) No Collateral shall be released from the security interest created
hereunder unless there shall have been delivered to the Collateral Agent the
certificate required by this Section 13.
(c) The Collateral Agent may release Collateral from the security
interest created hereunder upon the sale or disposition of Collateral pursuant
to the Collateral Agent's powers, rights and duties with respect to remedies
provided herein.
14. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
15. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
16. Time. Time is of the essence of this Agreement.
----
11
<PAGE>
17. Agreement for Security Purposes. This Agreement is for security
-------------------------------
purposes only. Accordingly, the Collateral Agent shall not, pursuant to this
Agreement, enforce Grantor's rights with respect to the Collateral, including
the exercise of any rights granted under the Consents, until such time as an
Event of Default shall have occurred and is continuing at the time such
enforcement is sought, and after any required notice of such enforcement has
been given, and until such time, subject to the terms of the Indenture and the
other Financing Documents, Grantor reserves the right to exercise all of its
right, title and interest in, to and under the Collateral (including the
Assigned Agreements).
18. Liability. The obligations hereunder are subject to the limitations
---------
set forth in Section 6.11 of the Credit Agreement, the provisions of which are
hereby incorporated by reference.
19. Governing Law. This Agreement, including all matters of construction,
-------------
validity, performance and the creation, validity, enforcement or priority of the
lien of, and security interests created by, this Agreement in or upon the
Collateral shall be governed by the laws of the State of New York, without
reference to conflicts of law (other than Section 5-1401 of the New York General
Obligations Law), except as required by mandatory provisions of law and except
to the extent that the validity or perfection of the lien and security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York.
20. Attorney-In-Fact. Grantor hereby constitutes and appoints Collateral
----------------
Agent, acting for and on behalf of itself, Trustee, the Holders of the Senior
Secured Notes, the Permitted Additional Senior Lenders, if any, and each
successor or assign of Collateral Agent, Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, the true and
lawful attorney-in-fact of Grantor, with full power upon the occurrence and
during the continuance of an Event of Default (in the name of Grantor or
otherwise) to enforce all rights of Grantor with respect to the Collateral,
including, without limitation the right:
(a) to ask, require, demand, receive and give acquittance for any and
all moneys and claims for moneys due and to become due under or arising out of
the Assigned Agreements or any of the other Collateral;
(b) to elect remedies thereunder and to endorse any checks or other
instruments or orders in connection therewith;
(c) to file any claims or take any action or institute any proceedings
in connection therewith which Collateral Agent may reasonably deem to be
necessary or advisable to protect the Collateral;
(d) to pay, settle or compromise all bills and claims which may be or
become liens or security interests (other than Permitted Liens prior to
foreclosure by Collateral Agent) against any or all of the Collateral, or any
part thereof, unless a bond or other security satisfactory to Collateral Agent
has been provided; and
12
<PAGE>
(e) in connection with any acceleration and foreclosure, to do any and
every act which Grantor may do on its behalf with respect to the Collateral or
any part thereof and to exercise any or all of Grantor's rights and remedies
under any or all of the Assigned Agreements.
21. Reinstatement. This Agreement shall continue to be effective or be
-------------
reinstated, as the case may be, if at any time any amount received by Collateral
Agent in respect of the Obligations is rescinded or must otherwise be restored
or returned by Collateral Agent upon the insolvency, bankruptcy, reorganization,
liquidation of Grantor or any Navy I Partner or upon the dissolution of, or
appointment of any intervenor or conservator of, or trustee or similar official
for, Grantor or any Navy I Partner or any substantial part of Grantor's or any
Navy I Partner's assets, or otherwise, all as though such payments had been
made.
22. WAIVER OF JURY TRIAL. GRANTOR AND COLLATERAL AGENT HEREBY KNOWINGLY,
--------------------
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF COLLATERAL AGENT OR GRANTOR. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR COLLATERAL AGENT TO ENTER INTO THIS AGREEMENT.
23. Amendment. No modification or waiver of any of the provisions of this
---------
Agreement shall be binding on Collateral Agent, except as expressly set forth in
a writing duly signed and delivered by Collateral Agent and which is otherwise
in accordance with Article 8 of the Indenture.
24. Duties and Liabilities of the Collateral Agent Generally.
--------------------------------------------------------
(a) The Collateral Agent undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement. The Collateral
Agent shall not have any duties or responsibilities except those expressly set
forth in this Agreement or be a trustee for or have any fiduciary obligation to
any party hereto.
(b) The duties and obligations of the Collateral Agent shall be
determined solely by the express provisions of this Agreement, and the
Collateral Agent shall take such action with respect to this Agreement as it
shall be directed in writing by Trustee, and the Collateral Agent shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement and no implied covenants or obligations
shall be read into this Agreement against the Collateral Agent; and
(i) In the absence of bad faith on the part of the Collateral
Agent, the Collateral Agent may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Collateral Agent which conform to the
requirements of this Agreement;
13
<PAGE>
(ii) The Collateral Agent shall not be liable for any error of
judgment made in good faith by an officer or officers of the Collateral Agent,
unless it shall be conclusively determined by a court of competent jurisdiction
that the Collateral Agent was negligent in ascertaining the pertinent facts; and
(iii) The Collateral Agent shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance with
any direction of Trustee or Grantor given under this Agreement.
(c) None of the provisions of this Agreement shall require the
Collateral Agent to expend or risk its own funds or otherwise to incur any
liability, financial or otherwise, in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk or liability is not assured to it;
(d) The Collateral Agent may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(e) Whenever in the administration of the provisions of this Agreement
the Collateral Agent shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering any action to be taken
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Collateral Agent, be deemed to be conclusively proved and
established by a certificate signed by a Responsible Officer of Trustee or
Grantor as the case may be, and delivered to the Collateral Agent and such
certificate, in the absence of negligence or bad faith on the part of the
Collateral Agent, shall be full warrant to the Collateral Agent for any action
taken, suffered or omitted by it under the provisions of this Agreement upon the
faith thereof;
(f) The Collateral Agent may consult with counsel and the advice or
any opinion of counsel shall be full and complete authorization and protection
in respect of any action taken or omitted by it hereunder in good faith and in
accordance with such advice or opinion of counsel;
(g) The Collateral Agent shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, entitlement order,
approval or other paper or document;
(h) The Collateral Agent may execute any of the powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys,
custodians or nominees appointed with due care, and shall not be responsible for
any willful misconduct or negligence on the part of or for the supervision of,
any agent, attorney, custodian or nominee so appointed;
14
<PAGE>
(i) Grantor covenants and agrees to pay to the Collateral Agent from
time to time, and the Collateral Agent shall be entitled to, the fees and
expenses agreed in writing between Grantor and the Collateral Agent, and will
further pay or reimburse the Collateral Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Collateral Agent in accordance with any of the provisions hereof or any other
documents executed in connection herewith (including the compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ). The obligations of Grantor under this Section 24(i) to compensate
the Collateral Agent and to pay or reimburse the Collateral Agent for reasonable
expenses, disbursements and advances shall survive the satisfaction and
discharge of this Agreement or the earlier resignation or removal of the
Collateral Agent;
(j) The Collateral Agent may at any time resign by giving 30 days
written notice of resignation to Grantor and Trustee. Upon receiving such
notice of resignation, Grantor shall promptly appoint a successor and, upon the
acceptance by the successor of such appointment, release the resigning
Collateral Agent from its obligations hereunder by written instrument, a copy of
which instrument shall be delivered to each of Grantor and Trustee, the
resigning Collateral Agent and the successor. If no successor shall have been
so appointed and have accepted appointment within 45 days after the giving of
such notice of resignation, the resigning Collateral Agent may petition any
court of competent jurisdiction for the appointment of a successor;
(k) Any corporation into which the Collateral Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Collateral Agent shall
be a party, or any corporation succeeding to the business of the Collateral
Agent shall be the successor of the Collateral Agent hereunder without the
execution or filing of any paper with any party hereto or any further act on the
part of any of the parties hereto except where an instrument of transfer or
assignment is required by law to effect such succession, anything herein to the
contrary notwithstanding;
(l) Neither the Collateral Agent nor any of its officers, directors,
employees or agents shall be liable for any action taken or omitted under this
Agreement or in connection therewith except to the extent caused by the
Collateral Agent's negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction, no longer subject to appeal or
review. The parties each (for itself and any person or entity claiming through
it) hereby releases, waives, discharges, exculpates and covenants not to sue the
Collateral Agent for any action taken or omitted under this Agreement except to
the extent caused by the Collateral Agent's negligence or willful misconduct.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Collateral Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if the Collateral Agent has been advised of the likelihood of such loss or
damage and regardless of the form of action;
(m) Grantor shall indemnify, defend and hold harmless the Collateral
Agent and its officers, directors, employees, representatives and agents, from
and against and
15
<PAGE>
reimburse the Collateral Agent for any and all claims, expenses, obligations,
liabilities, losses, damages, injuries (to person, property, or natural
resources), penalties, stamp or other similar taxes, actions, suits, judgments,
reasonable costs and expenses (including reasonable attorney's and agent's fees
and expenses) of whatever kind or nature regardless of their merit, demanded,
asserted or claimed against the Collateral Agent directly or indirectly relating
to, or arising from, claims against the Collateral Agent by reason of its
participation in the transactions contemplated hereby, including without
limitation all reasonable costs required to be associated with claims for
damages to persons or property, and reasonable attorneys' and consultants' fees
and expenses and court costs except to the extent caused by the Collateral
Agent's negligence or willful misconduct. The provisions of this Section 24(m)
shall survive the termination of this Agreement or the earlier resignation or
removal of the Collateral Agent;
(n) The Collateral Agent shall not be responsible in any manner
whatsoever for the correctness of any recitals, statements, representations or
warranties contained herein or in the other Security Documents, except for those
made by the Collateral Agent, or for filing any financing statement,
continuation statement or any other perfection instrument or notice, or for
recording or re-recording any Security Document in any public office at any time
or for taking any other action to perfect or maintain the perfection, priority
or effectiveness of any interest on any of the Collateral or in any other
property granted to it hereunder or under any of the other Security Documents.
The Collateral Agent makes no representations as to the value or condition of
the Collateral or any part thereof, or as to the title of the Grantor thereto or
as to the security afforded by the Security Documents or this Agreement or as to
the validity, execution, enforceability, legality or sufficiency of this
Agreement, of any other Security Document, of the Obligations secured hereby and
thereby and the Collateral Agent shall incur no liability or responsibility in
respect of any such matters. The Collateral Agent shall not be responsible for
insuring the Collateral or for the payment of taxes, charges, assessments or
liens upon the Collateral or for the maintenance of the Collateral, except that
in the event the Collateral Agent enters into possession of all or any part of
the Collateral, the Collateral Agent shall preserve the portion of the
Collateral in its possession; and
(o) The Collateral Agent shall not be required to ascertain or inquire
as to the Grantor's performance of any of the covenants or agreements contained
herein or in any Security Document. Whenever it is necessary, or in the opinion
of the Collateral Agent advisable, for the Collateral Agent to ascertain the
amount of obligations then held by a Trustee, on behalf of the Holders of the
Senior Secured Notes, or Permitted Additional Senior Lender, the Collateral
Agent may conclusively rely on a certificate of such party as to such amount.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this
Security Agreement to be duly executed by their partners and officers thereunto
duly authorized, as of the day and year first above written.
GRANTOR:
- --------
COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
COLLATERAL AGENT:
- -----------------
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------
Name: Judy P. Manansala
its: Trust Officer
<PAGE>
Exhibit 10.14
SECURITY AGREEMENT
Dated as
of May 28, 1999
Between
COSO ENERGY DEVELOPERS,
a California general partnership,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. Definitions............................................... 1
2. Assignment, Pledge and Grant of Security Interest......... 2
3. Obligations Secured....................................... 6
4. Events of Default......................................... 7
5. Remedies.................................................. 7
6. Remedies Cumulative; Delay Not Waiver..................... 8
7. Covenants................................................. 9
8. Representations and Warranties............................ 9
9. Notices................................................... 9
10. Further Assurances........................................ 10
11. Place of Perfection; Records.............................. 10
12. Continuing Assignment and Security Interest; Transfer..... 11
13. Release of Collateral..................................... 11
14. Attorneys' Fees........................................... 12
15. Severability.............................................. 12
16. Time...................................................... 12
17. Agreement for Security Purposes........................... 12
18. Liability................................................. 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
19. Governing Law............................................. 12
20. Attorney-In-Fact.......................................... 12
21. Reinstatement............................................. 13
22. WAIVER OF JURY TRIAL...................................... 13
23. Amendment................................................. 14
24. Duties and Liabilities of the Collateral Agent Generally.. 14
</TABLE>
ii
<PAGE>
SECURITY AGREEMENT
------------------
This Security Agreement ("Agreement"), dated as of May 28, 1999, is
---------
entered into by and between COSO ENERGY DEVELOPERS, a California general
partnership ("Grantor"), and U.S. BANK TRUST NATIONAL ASSOCIATION, in its
-------
capacity as collateral agent ("Collateral Agent"), for the benefit of U.S. BANK
TRUST NATIONAL ASSOCIATION, in its capacity as trustee ("Trustee") for the
-------
holders of all senior secured notes issued pursuant to that certain Indenture
dated as of May 28, 1999, (the "Indenture") among Grantor, Trustee, Coso Finance
---------
Partners, a California general partnership ("Navy I"), Coso Power Developers, a
------
California general partnership ("Navy II"), and Caithness Coso Funding Corp., a
-------
Delaware corporation (the "Issuer") (such notes, the "Senior Secured Notes", and
------ --------------------
the holders thereof, the "Holders of the Senior Secured Notes") and all other
-----------------------------------
Permitted Additional Senior Lenders (as defined in the Indenture). Terms not
otherwise defined herein are defined in the Indenture.
PREFACE
-------
A. Grantor owns the BLM Project (as defined in the Indenture) (the
"Project").
-------
B. Issuer has, simultaneously with the execution and delivery of this
Agreement, issued $110,000,000 of 6.80% Senior Secured Notes due 2001 and
$303,000,000 of 9.05% of Senior Secured Notes due 2009, the proceeds of which
will be used to make loans to Grantor, Navy I and Navy II.
C. Pursuant to a Guarantee dated as of even date herewith (the
"Guarantee"), Grantor has guaranteed the payment and performance of Issuer's
---------
obligations under the Senior Secured Notes and the Indenture.
D. Grantor desires now to grant Collateral Agent, for the benefit of
Trustee, the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, a security interest in the Collateral (as defined below)
as security for the payment and performance of Grantor's obligations under the
Guarantee.
AGREEMENT
---------
In consideration of the premises herein, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with the Collateral Agent as follows:
1. Definitions. (a) Unless otherwise defined, all terms used herein which
-----------
are defined in the Indenture shall have their respective meanings therein
defined and the Rules of Interpretation included in the Indenture shall apply
hereto. All terms defined in the UCC shall have the respective meanings given to
those terms in the UCC; and (b) "UCC" shall mean the Uniform Commercial Code as
the same may, from time to time, be in effect in the State of New York;
provided, however, in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of the security interest in
any Collateral is governed by
1
<PAGE>
the Uniform Commercial Code as in effect in a jurisdiction other than the State
of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect
in such other jurisdiction for purposes of the provisions hereof relating to
such attachment, perfection or priority and for purposes of definitions related
to such provisions.
2. Assignment, Pledge and Grant of Security Interest.
-------------------------------------------------
(a) To secure the timely payment and performance of the Obligations
(as that term is defined in Section 3, Grantor does hereby assign, grant and
pledge to, and subject to a security interest in favor of, the Collateral Agent,
on behalf of the Trustee, the Holders of the Senior Secured Notes, and the
Permitted Additional Senior Lenders, if any, all the estate, right, title and
interest of Grantor, whether now owned or hereafter acquired, in, to and under:
(i) the following agreements and documents, as amended,
supplemented, substituted, renewed or replaced from time to time (individually,
an "Assigned Agreement," collectively, the "Assigned Agreements") and all of
------------------ -------------------
Grantor's rights thereunder:
(A) that certain Plant Operations and Maintenance
Agreement, dated as of May 28, 1999, by and between Grantor, Coso Operating
Company LLC, a Delaware limited liability company ("COC") and FPL Energy
---
Operating Services, Inc., a Florida corporation;
(B) that certain Field Operations and Maintenance
Agreement, dated as of May 28, 1999, by and between Grantor and COC;
(C) that certain Power Purchase Contract, dated as of June
4, 1984, as amended, by and between Southern California Edison Company and
Grantor (as assignee of China Lake Joint Venture, a California general
partnership);
(D) that certain Interconnection Facilities Agreement,
dated as of December 15, 1998, by and between Southern California Edison Company
and Grantor (as assignee of China Lake Joint Venture, a California general
partnership);
(E) that certain contract No. N62474-79-C-5382, dated
December 6, 1979, by and between the United States of America acting through the
Department of the Navy and California Energy Company, Inc., as modified,
amended, assigned and restated by contract modification P00004 dated as of
October 19, 1983, a memorandum of which was recorded on March 12, 1986 as
instrument No. 86-1043 of official records of Inyo County, California, including
all modifications, amendments and assignment thereto and thereof made before the
effective date of this Security Agreement and any permitted modifications,
amendments and assignment thereto and thereof made after the effective date of
this Security agreement;
(F) that certain Acquisition Agreement of even date
herewith among Coso Land Company, a California general partnership, Grantor,
Navy I, Navy II and COC;
2
<PAGE>
(G) those certain documents constituting the Steam Exchange
Agreements including:
(1) that certain Coso Geothermal Exchange Agreement,
by and between the Coso Partnerships and CalEnergy, dated January 11, 1994;
(2) that certain Amendment to Coso Geothermal Exchange
Agreement, by and between the Coso Partnerships and CalEnergy, dated April 12,
1995;
(3) that certain Amendment to Coso Geothermal Exchange
Agreement, by and between the Coso Partnerships, dated May 28, 1999;
(4) that certain Amendment Number P00029 to the
Original Navy Contract, dated October 4, 1994;
(5) that certain Amendment Number P00030 to the
Original Navy Contract, dated December 19, 1994;
(6) that certain Amendment P00033 to the Original Navy
Contract, dated January 8, 1995;
(7) that certain Amendment P00039 to the Navy
Contract, dated November 19, 1998;
(8) that certain Agreement for the Calculation of
Mineral Royalties/Revenues in the Coso Known Geothermal Resource Area, executed
by the USBLM, MMS and CalEnergy, dated December 16, 1994;
(9) that certain Amendment to the Agreement for the
Calculation of Mineral Royalties/Revenues in the Coso Known Geothermal Resource
Area, executed by the USBLM, MMS and the Coso Partnerships, to be entered into
after the Closing Date; and
(10) that certain Cotenancy Agreement, executed by the
Coso Partnerships, dated May 28, 1999;
(H) that certain Settlement Agreement and Release, by and
between the Mission Group, Mission Power Engineering Company, California Energy
Company, Inc., and the Grantor, Navy I and Navy II, dated June 9, 1993;
(I) that certain Amended and Restated General Partnership
Agreement of Coso Transmission Line Partners, dated as of July 31, 1989, by and
between the Grantor and Navy II, as amended by the First Amendment to the
Amended and Restated General Partnership Agreement of Coso Transmission Line
Partners dated as of December 16, 1998 by and between the Grantor and Navy II;
3
<PAGE>
(J) all other Project Documents, as defined in the
Indenture, not listed above;
(K) all proceeds of and any unearned premiums on any
insurance policies maintained by Grantor or any other Person covering the
property, rights and interests of Grantor (the "Trust Property"), including,
--------------
without limitation, the right to receive the proceeds of any insurance,
judgments, or settlements made in lieu thereof, for damage to the Trust
Property;
(L) (to the extent assignable) all other agreements,
including vendor warranties, running to Grantor or assigned to Grantor, relating
to the maintenance, improvement, operation or acquisition of the Project or any
part thereof, or transport of material, equipment and other parts of the Project
or any part thereof;
(M) any lease or sublease agreements or easement
agreements relating to the Project or any part thereof or any ancillary
facilities, to which Grantor is or may become a party;
(N) each Additional Project Document, and any other
agreements to which Grantor may hereafter be or become a party relating to the
operation or maintenance of the Project or any part thereof;
(O) all amendments, supplements, substitutions and
renewals to any of the aforesaid agreements; and
(P) all Governmental Approvals (as defined in the
Indenture), permits, approvals and consents relating to the Projects but
excluding any such permits, approvals and consents which by their terms or by
operation of law would become void solely by virtue of a security interest being
granted therein;
(ii) all rents, profits, income, royalties and revenues derived
in any other manner by Grantor from its ownership of the Project or any part
thereof and the operation of the Project or any part thereof, including all
revenues from sale of electricity, steam, goods or services;
(iii) all other personal property and fixtures of Grantor,
whether now owned or existing or hereafter acquired or arising, or in which
Grantor may have an interest, and wheresoever located, whether or not of a type
which may be subject to a security interest under the UCC, including all
mirrors, piping, fluids, turbines, generators, machinery, tools, engines,
appliances, mechanical and electrical systems, transmission lines, transformers,
towers, elevators, lighting, alarm systems, fire control systems, furnishings,
furniture, service equipment, motor vehicles, building or maintenance equipment,
building or maintenance materials, supplies, goods and property covered by any
warehouse receipts or bills of lading or other such documents, spare parts,
maps, plans, specifications, architectural, engineering, construction or shop
drawings, manuals or similar documents, copyrights, trademarks and trade names,
and any replacements, renewals or substitutions for any of the foregoing or
additional tangible or intangible personal property hereafter acquired by
Grantor;
4
<PAGE>
(iv) all goods, money, instruments, investment securities,
accounts, contract rights, documents, deposit accounts, bank accounts, chattel
paper, general intangibles, equipment and inventory;
(v) the Revenue Account, the Principal Account, the Interest
Account, the Debt Service Reserve Account, the Capital Expenditure Reserve
Account, the Operating and Maintenance Fees Account, the Management Fees
Account, the Distribution Account, the Distributions Suspense Account, the Loss
Proceeds Account and the Redemption Account, including any subaccounts within
such accounts, all other accounts and sub-accounts established pursuant to that
certain Deposit and Disbursement Agreement, dated as of May 28, 1999, by and
between the Issuer, the Grantor, Navy I, Navy II, the Collateral Agent, and U.S.
Bank Trust National Association as Depositary;
(vi) the proceeds of all of the foregoing (all of the collateral
described in clauses (i) through (vi) being herein collectively referred to as
the "Collateral"), including without limitation (1) all rights of Grantor to
----------
receive moneys due and to become due under or pursuant to the Collateral, (2)
all rights of Grantor to receive return of any premiums for or proceeds of any
insurance, indemnity, warranty or guaranty with respect to the Collateral or to
receive condemnation proceeds, (3) all claims of Grantor for damages arising out
of or for breach of or default under the Assigned Agreements or any other
Collateral, and (4) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed, whether voluntarily or
involuntarily.
(b) Grantor has heretofore delivered or concurrently with the
delivery hereof is delivering to the Collateral Agent, a copy of an executed
counterpart of each of the Assigned Agreements. Grantor will deliver to
Collateral Agent an executed counterpart of each Additional Project Document,
and material amendments and supplements to the foregoing, included in the
Collateral, as they are entered into by Grantor promptly upon the execution
thereof.
(c) Anything herein contained to the contrary notwithstanding,
Grantor shall remain liable under each of the Assigned Agreements, to perform
all of the obligations undertaken by it thereunder, all in accordance with and
pursuant to the terms and provisions thereof, and the Collateral Agent shall
have no obligation or liability under any of such Assigned Agreements by reason
of or arising out of this Agreement (during the period of Grantor's right of use
and possession thereof as provided herein), nor shall the Collateral Agent be
required or obligated in any manner to perform or fulfill any obligations of
Grantor thereunder or to make any payment, or to make any inquiry as to the
nature or sufficiency of any payment received by it, or present or file any
claim, or take any action to collect or enforce the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
(d) Subject to the terms of the Guarantee, upon the occurrence and
during the continuance of an Event of Default, Grantor does hereby constitute
the Collateral Agent, acting for and on behalf of Trustee, the Holders of the
Senior Secured Notes, and the Permitted Additional Senior Lenders, if any, and
each successor or assign thereof, the true and lawful
5
<PAGE>
attorney of Grantor, irrevocably, with full power coupled with an interest (in
the name of Grantor or otherwise) to ask, require, demand, receive, compound and
give acquittance for any and all moneys and claims for moneys due and to become
due under or arising out of the Assigned Agreements or any of the other
Collateral, including without limitation any insurance policies with respect to
the Project, to elect remedies thereunder, to endorse any checks or other
instruments or orders in connection therewith and to file any claims or take any
action or institute any proceedings in connection therewith which the Collateral
Agent may deem to be necessary or advisable; provided, however, that the
Collateral Agent shall give Grantor notice of any action taken by it as such
attorney-in-fact promptly after taking any such action.
(e) If any default by Grantor under any of the Assigned Agreements
shall occur, the Collateral Agent shall, at its option, be permitted (but shall
not be obligated) to remedy any such default by giving written notice of such
intent to Grantor and to the parties to each Assigned Agreement in default. The
Collateral Agent shall have a reasonable opportunity, but not fewer than sixty
(60) days (or such other period as the Collateral Agent and the Persons other
than Grantor who are parties to such Assigned Agreement may agree) after giving
such notice, in which to cure such default and upon the commencement thereof
will proceed diligently to cure such default. Any curing by the Collateral Agent
of Grantor's default under any of the Assigned Agreements shall not be construed
as an assumption by the Collateral Agent of any obligations, covenants or
agreements of Grantor under such Assigned Agreements, and the Collateral Agent
shall not incur any liability to Grantor or any other Person as a result of any
actions undertaken by the Collateral Agent in curing or attempting to cure any
such default. This Agreement shall not be deemed to release or to affect in any
way the obligations of Grantor under the Assigned Agreements.
3. Obligations Secured. This Agreement and all of the Collateral
-------------------
secure the payment and performance of Grantor's (a) obligations under the
Guarantee, including, but not limited to, the payment of all amounts owed to
Trustee for the benefit of the Holders of the Senior Secured Notes and (b)
obligations owing, if any, to the Permitted Additional Senior Lenders, of every
kind and description (whether or not evidenced by any note or instrument and
whether or not for the payment of money), direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, pursuant to
the terms of the Guarantee, or any other instrument evidencing Permitted
Indebtedness (other than Permitted Indebtedness described in clause (4) of the
definition of Permitted Indebtedness), including, but not limited to, the
payment of all amounts owed to the Collateral Agent of every kind and
description (whether or not evidenced by any note or instrument and whether or
not for the payment of money), direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, pursuant to the terms of
the Indenture, the Financing Documents or this Agreement, including all
interest, fees, charges, expenses, attorney's fees and accountant's fees (all
such obligations being herein called the "Obligations").
-----------
4. Events of Default. The occurrence and continuance of an Event of
-----------------
Default under the Indenture, whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of
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any court or any order, rule or regulation of any administrative or governmental
body, shall constitute an Event of Default hereunder.
5. Remedies.
--------
(a) Subject to the terms of the Guarantee and the notice and other
requirements of applicable law, if any Event of Default has occurred and is
continuing, the Collateral Agent may (i) exercise the rights of acceleration set
forth in Section 5.2 of the Indenture, (ii) proceed to protect and enforce the
rights vested in it by this Agreement, including, but not limited to, the right
to cause all revenues hereby pledged as security and all other moneys pledged
hereunder to be paid directly to it, and to enforce its rights hereunder to such
payments and all other rights hereunder by such appropriate judicial proceedings
as it shall deem most effective to protect and enforce any of such rights,
either at law or in equity or otherwise, whether for specific enforcement of any
covenant or agreement contained in any of the Assigned Agreements, or in aid of
the exercise of any power therein or herein granted, or for any foreclosure
hereunder and sale under a judgment or decree in any judicial proceeding, or to
enforce any other legal or equitable right vested in it by this Agreement or by
law; (iii) cause any action at law or suit in equity or other proceeding to be
instituted and prosecuted to collect or enforce any Obligations or rights
included in the Collateral, or to foreclose or enforce any other agreement or
other instrument by or under or pursuant to which such Obligations are issued or
secured, either in Grantor's name or in Collateral Agent's name as Collateral
Agent may deem necessary, subject in each case to the provisions and
requirements thereof; (iv) sell or otherwise dispose of any or all of the
Collateral or cause the Collateral to be sold or otherwise disposed of in one or
more sales or transactions, at such prices as the Collateral Agent may deem
commercially reasonable, and for cash or on credit or for future delivery,
without assumption of any credit risk, at any broker's board or at public or
private sale, without demand of performance or notice of intention to sell or of
time or place of sale (except such notice as is required by applicable statute
and cannot be waived or is contemplated herein or by the other Financing
Documents), it being agreed that the Collateral Agent may be a purchaser on
behalf of Trustee, the Holders of the Senior Secured Notes, the Permitted
Additional Senior Lenders, if any, or on its own behalf at any such sale and
that the Collateral Agent or anyone else who may be the purchaser of any or all
of the Collateral so sold shall thereafter hold the same absolutely, free from
any claim or right of whatsoever kind, including any equity of redemption, of
Grantor, any such demand, notice or right and equity being hereby expressly
waived and released to the extent permitted by law; (v) incur reasonable
expenses, including reasonable attorneys' fees, consultants' fees, and other
costs appropriate to the exercise of any right or power under this Agreement;
(vi) perform any obligation of Grantor hereunder or under any other Financing
Document, Project Document or Additional Project Document, and make payments,
purchase, contest or compromise any encumbrance, charge, or lien, and pay taxes
and expenses, without, however, any obligation so to do; (vii) take possession
of the Collateral and render it usable, and repair and renovate the same,
without, however, any obligation to do so, and enter upon the site where the
Project is located or any other location where the same may be located for that
purpose, control, manage, operate, rent and lease the Collateral, either
separately or in conjunction with the Project, collect all rents and income from
the Collateral and apply the same to reimburse the Holders of the Senior Secured
Notes or the Permitted Additional Senior Lenders, if any, for any cost or
expenses incurred hereunder or
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<PAGE>
under any of the Financing Documents and to the payment or performance of the
Obligations, and apply the balance to whomsoever is legally entitled thereto;
(viii) secure the appointment of a receiver of the Project or any part thereof
and/or the Collateral or any part thereof (to the extent and in the manner
provided by applicable law); or (ix) exercise any other or additional rights or
remedies granted to a secured party under the UCC. If, pursuant to applicable
law, prior notice of any such action is required to be given to Grantor, Grantor
hereby acknowledges that the minimum time required by such applicable law, or if
no minimum is specified, ten (10) Business Days, shall be deemed a reasonable
notice period. Notwithstanding anything herein to the contrary, any purchase
price obtained by the Collateral Agent in a foreclosure sale instituted and
prosecuted in accordance with the terms hereof shall be deemed binding and
conclusive on the parties hereto and the Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any.
(b) All costs and expenses (including, but without being limited to,
reasonable attorneys' fees and expenses) incurred by the Collateral Agent in
connection with any such suit or proceeding, or in connection with the
performance by the Collateral Agent of any of Grantor's agreements contained
herein or in any exercise of Collateral Agent's rights or remedies hereunder,
including any of the Assigned Agreements pursuant to the terms of this
Agreement, together with interest thereon (to the extent permitted by law)
computed at a rate per annum equal to the "Prime Rate" of Bankers Trust Company,
as such rate is announced from time to time, plus one percent (1%), said rate to
change when and as the said Prime Rate changes, from the date on which such
costs or expenses are incurred to the date of payment thereof, shall constitute
additional indebtedness secured by this Agreement and shall be paid by Grantor
to the Trustee on demand.
6. Remedies Cumulative; Delay Not Waiver.
-------------------------------------
(a) No right, power or remedy herein conferred upon or reserved to
the Collateral Agent is intended to be exclusive of any other right, power or
remedy, and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Resort to any or all security now or hereafter held by the
Collateral Agent, may be taken concurrently or successively and in one or
several consolidated or independent judicial actions or lawfully taken
nonjudicial proceedings, or both.
(b) No delay or omission of the Collateral Agent to exercise any
right or power accruing upon the occurrence and during the continuance of any
Event of Default as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein; and every power and remedy given by this Agreement may be exercised
from time to time, and as often as shall be deemed expedient, by the Collateral
Agent.
(c) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority
8
<PAGE>
specified in Section 5.10 of the Indenture. If all Obligations and any other
amounts due under this Agreement have been indefeasibly paid, satisfied and
discharged in full, any surplus then remaining shall be paid to Grantor, if it
is lawfully entitled to receive the same, or shall be paid to whomsoever a court
of competent jurisdiction may direct.
7. Covenants. Grantor covenants as follows:
---------
(a) Grantor will duly and punctually pay all amounts payable to the
Collateral Agent, the Trustee, the Holders of the Senior Secured Notes and the
Permitted Additional Senior Lenders, in accordance with, and subject to, the
terms of the Guarantee and such other instruments evidencing other Senior
Indebtedness, if any.
(b) Any action or proceeding to enforce this Agreement or any
Assigned Agreement may be taken by the Collateral Agent either in Grantor's name
or in the Collateral Agent's name, as the Collateral Agent may deem necessary.
(c) Grantor agrees to use its commercially reasonable efforts to
obtain consents to this Agreement from each future or successor party to the
Assigned Agreements (the "Contracting Parties").
-------------------
(d) Grantor will not make any other assignment (other than to
Collateral Agent) of its rights under the Assigned Agreements.
8. Representations and Warranties. Grantor represents and warrants
------------------------------
as follows:
(a) No effective financing statement or other instrument similar in
effect covering all or any part of Grantor's interest in the Collateral is on
file in any recording office, except such as may have been filed pursuant to
this Agreement and the other Financing Documents or pursuant to the documents
evidencing Permitted Liens.
(b) Grantor has not assigned any of its rights under the Assigned
Agreements except as specifically provided in this Agreement or as set forth in
the Indenture.
(c) Grantor has obtained all necessary consents to this Agreement
from each of the Contracting Parties.
9. Notices. Unless otherwise specifically herein provided, all
-------
notices required or permitted under the terms and provisions hereof shall be in
writing and any such notice shall become effective if given in accordance with
Section 10.02 of the Indenture.
10. Further Assurances. (a) Grantor agrees that from time to time,
------------------
at the expense of Grantor, Grantor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
required, or that the Collateral Agent may reasonably request, in order to
perfect and protect the assignment and security interest granted or intended to
be granted hereby or to enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the
9
<PAGE>
foregoing, Grantor will: (i) if any Collateral shall be evidenced by a
promissory note or other instrument, deliver and pledge to the Collateral Agent,
for the benefit of Trustee, the Holders of Senior Secured Notes and the
Permitted Additional Senior Lenders, if any, such note or instrument duly
endorsed (without recourse) and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to enable the
Collateral Agent to enforce the provisions of this Agreement and the security
interests described herein; and (ii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments,
endorsement or notices, as may be necessary or required, or as the Collateral
Agent may reasonably request, in order to perfect and preserve the assignments
and security interests granted or purported to be granted hereby; it being
understood and agreed that the Collateral Agent shall have no obligation in
respect of the filing of such statements or in the perfection or preservation of
any such security interests.
(b) Grantor hereby authorizes the Collateral Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of Grantor where
permitted by law. Copies of any such statement or amendment thereto shall
promptly be delivered to Grantor
(c) Grantor shall pay all filing, registration and recording fees or
refiling, re-registration and re-recording fees, and all expenses incident to
the execution and acknowledgment of this Agreement, any instruments of further
assurance, and (except as otherwise provided in the Indenture) all federal,
state, county and municipal stamp taxes and other taxes, duties, imports,
assessments and charges arising out of or in connection with the execution and
delivery of this Agreement, any agreement supplemental hereto and any
instruments of further assurance.
11. Place of Perfection; Records. The location of Grantor's chief
----------------------------
executive office is 1114 Avenue of the Americas, New York, New York 10036-7790,
and the location of Grantor's place of business is Inyo and Kern Counties,
California. Grantor shall give the Collateral Agent at least forty-five (45)
days prior written notice before it changes the location of its chief executive
office and shall at the expense of Grantor execute and deliver such instruments
and documents as required to maintain a prior perfected security interest and as
requested by the Collateral Agent. Grantor will hold and preserve such records
and will permit representatives of the Collateral Agent upon reasonable notice
during normal business hours to inspect and make abstracts from such records.
12. Continuing Assignment and Security Interest; Transfer. This
-----------------------------------------------------
Agreement shall create a continuing assignment of and security interest in the
Collateral and shall (i) remain in full force and effect until payment in full
of the Obligations, (ii) be binding upon Grantor, its successors and assigns and
(iii) inure, together with the rights and remedies of the Collateral Agent, to
the benefit of the Trustee, the Holders of the Senior Secured Notes, the
Permitted Additional Senior Lenders, if any, and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(iii), but subject to Section 2.06 of the Indenture, the Holders of the Senior
Secured Notes may assign or otherwise transfer their Senior Secured Notes to any
other Person, and such other Person shall thereupon become vested with all
10
<PAGE>
or an appropriate part of the benefits in respect thereof granted to the Holders
of the Senior Secured Notes herein or otherwise. The release of the security
interest in any or all of the Collateral, the taking or acceptance of additional
security, or the resort by Collateral Agent to any security it may have in any
order it may deem appropriate, shall not affect the liability of any person on
the indebtedness secured hereby. Upon the payment in full of the Obligations,
the security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination, the Collateral
Agent shall, at Grantor's expense, execute and deliver to Grantor such documents
as Grantor shall reasonably request to evidence such termination. If this
Agreement shall be terminated or revoked by operation of law, Grantor will
indemnify and save Collateral Agent, Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, harmless from any
loss which may be suffered or incurred by Collateral Agent, Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
in acting hereunder prior to the receipt by Collateral Agent, its successors,
transferees, or assigns of written notice of such termination or revocation.
13. Release of Collateral.
---------------------
(a) Subject to paragraphs (b) and (c) of this Section 13, Collateral
may be released from the security interest created by this Agreement at any time
or from time to time upon the request of the Grantor pursuant to a certificate
of a Responsible Officer of the Grantor certifying that all terms for release
and conditions precedent under Section 4.4 of the Credit Agreement, dated as of
the date hereof, by and between Grantee and the Issuer have been met and that
such Collateral is being, or has been, sold, leased or transferred, and
specifying the identity of the Collateral to be released. Upon receipt of such
certificate, a Responsible Officer of the Collateral Agent shall execute,
deliver or acknowledge any necessary or proper instruments of termination,
satisfaction or release to evidence the release of any Collateral permitted to
be released pursuant to this Agreement.
(b) No Collateral shall be released from the security interest
created hereunder unless there shall have been delivered to the Collateral Agent
the certificate required by this Section 13.
(c) The Collateral Agent may release Collateral from the security
interest created hereunder upon the sale or disposition of Collateral pursuant
to the Collateral Agent's powers, rights and duties with respect to remedies
provided herein.
14. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
15. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such
11
<PAGE>
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
16. Time. Time is of the essence of this Agreement.
----
17. Agreement for Security Purposes. This Agreement is for security
-------------------------------
purposes only. Accordingly, the Collateral Agent shall not, pursuant to this
Agreement, enforce Grantor's rights with respect to the Collateral, including
the exercise of any rights granted under the Consents, until such time as an
Event of Default shall have occurred and is continuing at the time such
enforcement is sought, and after any required notice of such enforcement has
been given, and until such time, subject to the terms of the Indenture and the
other Financing Documents, Grantor reserves the right to exercise all of its
right, title and interest in, to and under the Collateral (including the
Assigned Agreements).
18. Liability. The obligations hereunder are subject to the limitations
---------
set forth in Section 6.11 of the Credit Agreement, the provisions of which are
hereby incorporated by reference.
19. Governing Law. This Agreement, including all matters of construction,
-------------
validity, performance and the creation, validity, enforcement or priority of the
lien of, and security interests created by, this Agreement in or upon the
Collateral shall be governed by the laws of the State of New York, without
reference to conflicts of law (other than Section 5-1401 of the New York General
Obligations Law), except as required by mandatory provisions of law and except
to the extent that the validity or perfection of the lien and security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York.
20. Attorney-In-Fact. Grantor hereby constitutes and appoints Collateral
----------------
Agent, acting for and on behalf of itself, Trustee, the Holders of the Senior
Secured Notes, the Permitted Additional Senior Lenders, if any, and each
successor or assign of Collateral Agent, Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, the true and
lawful attorney-in-fact of Grantor, with full power upon the occurrence and
during the continuance of an Event of Default (in the name of Grantor or
otherwise) to enforce all rights of Grantor with respect to the Collateral,
including, without limitation the right:
(a) to ask, require, demand, receive and give acquittance for any and
all moneys and claims for moneys due and to become due under or arising out of
the Assigned Agreements or any of the other Collateral;
(b) to elect remedies thereunder and to endorse any checks or other
instruments or orders in connection therewith;
(c) to file any claims or take any action or institute any
proceedings in connection therewith which Collateral Agent may reasonably deem
to be necessary or advisable to protect the Collateral;
12
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(d) to pay, settle or compromise all bills and claims which may be or
become liens or security interests (other than Permitted Liens prior to
foreclosure by Collateral Agent) against any or all of the Collateral, or any
part thereof, unless a bond or other security satisfactory to Collateral Agent
has been provided; and
(e) in connection with any acceleration and foreclosure, to do any
and every act which Grantor may do on its behalf with respect to the Collateral
or any part thereof and to exercise any or all of Grantor's rights and remedies
under any or all of the Assigned Agreements.
21. Reinstatement. This Agreement shall continue to be effective or be
-------------
reinstated, as the case may be, if at any time any amount received by Collateral
Agent in respect of the Obligations is rescinded or must otherwise be restored
or returned by Collateral Agent upon the insolvency, bankruptcy, reorganization,
liquidation of Grantor or any BLM Partner or upon the dissolution of, or
appointment of any intervenor or conservator of, or trustee or similar official
for, Grantor or any BLM Partner or any substantial part of Grantor's or any BLM
Partner's assets, or otherwise, all as though such payments had been made.
22. WAIVER OF JURY TRIAL. GRANTOR AND COLLATERAL AGENT HEREBY KNOWINGLY,
--------------------
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF COLLATERAL AGENT OR GRANTOR. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR COLLATERAL AGENT TO ENTER INTO THIS AGREEMENT.
23. Amendment. No modification or waiver of any of the provisions of this
---------
Agreement shall be binding on Collateral Agent, except as expressly set forth in
a writing duly signed and delivered by Collateral Agent and which is otherwise
in accordance with Article 8 of the Indenture.
24. Duties and Liabilities of the Collateral Agent Generally.
--------------------------------------------------------
(a) The Collateral Agent undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement. The Collateral
Agent shall not have any duties or responsibilities except those expressly set
forth in this Agreement or be a trustee for or have any fiduciary obligation to
any party hereto.
(b) The duties and obligations of the Collateral Agent shall be
determined solely by the express provisions of this Agreement, and the
Collateral Agent shall take such action with respect to this Agreement as it
shall be directed in writing by Trustee, and the Collateral Agent shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement and no implied covenants or obligations
shall be read into this Agreement against the Collateral Agent; and
13
<PAGE>
(i) In the absence of bad faith on the part of the Collateral
Agent, the Collateral Agent may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Collateral Agent which conform to the
requirements of this Agreement;
(ii) The Collateral Agent shall not be liable for any error of
judgment made in good faith by an officer or officers of the Collateral Agent,
unless it shall be conclusively determined by a court of competent jurisdiction
that the Collateral Agent was negligent in ascertaining the pertinent facts; and
(iii) The Collateral Agent shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance with
any direction of Trustee or Grantor given under this Agreement.
(c) None of the provisions of this Agreement shall require the
Collateral Agent to expend or risk its own funds or otherwise to incur any
liability, financial or otherwise, in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk or liability is not assured to it;
(d) The Collateral Agent may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(e) Whenever in the administration of the provisions of this
Agreement the Collateral Agent shall deem it necessary or desirable that a
matter be proved or established prior to taking or suffering any action to be
taken hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Collateral Agent, be deemed to be conclusively proved and
established by a certificate signed by a Responsible Officer of Trustee or
Grantor as the case may be, and delivered to the Collateral Agent and such
certificate, in the absence of negligence or bad faith on the part of the
Collateral Agent, shall be full warrant to the Collateral Agent for any action
taken, suffered or omitted by it under the provisions of this Agreement upon the
faith thereof;
(f) The Collateral Agent may consult with counsel and the advice or
any opinion of counsel shall be full and complete authorization and protection
in respect of any action taken or omitted by it hereunder in good faith and in
accordance with such advice or opinion of counsel;
(g) The Collateral Agent shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, entitlement order,
approval or other paper or document;
(h) The Collateral Agent may execute any of the powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys,
custodians or
14
<PAGE>
nominees appointed with due care, and shall not be responsible for any willful
misconduct or negligence on the part of or for the supervision of, any agent,
attorney, custodian or nominee so appointed;
(i) Grantor covenants and agrees to pay to the Collateral Agent from
time to time, and the Collateral Agent shall be entitled to, the fees and
expenses agreed in writing between Grantor and the Collateral Agent, and will
further pay or reimburse the Collateral Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Collateral Agent in accordance with any of the provisions hereof or any other
documents executed in connection herewith (including the compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ). The obligations of Grantor under this Section 24(i) to compensate
the Collateral Agent and to pay or reimburse the Collateral Agent for reasonable
expenses, disbursements and advances shall survive the satisfaction and
discharge of this Agreement or the earlier resignation or removal of the
Collateral Agent;
(j) The Collateral Agent may at any time resign by giving 30 days
written notice of resignation to Grantor and Trustee. Upon receiving such
notice of resignation, Grantor shall promptly appoint a successor and, upon the
acceptance by the successor of such appointment, release the resigning
Collateral Agent from its obligations hereunder by written instrument, a copy of
which instrument shall be delivered to each of Grantor and Trustee, the
resigning Collateral Agent and the successor. If no successor shall have been
so appointed and have accepted appointment within 45 days after the giving of
such notice of resignation, the resigning Collateral Agent may petition any
court of competent jurisdiction for the appointment of a successor;
(k) Any corporation into which the Collateral Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Collateral Agent shall
be a party, or any corporation succeeding to the business of the Collateral
Agent shall be the successor of the Collateral Agent hereunder without the
execution or filing of any paper with any party hereto or any further act on the
part of any of the parties hereto except where an instrument of transfer or
assignment is required by law to effect such succession, anything herein to the
contrary notwithstanding;
(l) Neither the Collateral Agent nor any of its officers, directors,
employees or agents shall be liable for any action taken or omitted under this
Agreement or in connection therewith except to the extent caused by the
Collateral Agent's negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction, no longer subject to appeal or
review. The parties each (for itself and any person or entity claiming through
it) hereby releases, waives, discharges, exculpates and covenants not to sue the
Collateral Agent for any action taken or omitted under this Agreement except to
the extent caused by the Collateral Agent's negligence or willful misconduct.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Collateral Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to
15
<PAGE>
lost profits), even if the Collateral Agent has been advised of the likelihood
of such loss or damage and regardless of the form of action;
(m) Grantor shall indemnify, defend and hold harmless the Collateral
Agent and its officers, directors, employees, representatives and agents, from
and against and reimburse the Collateral Agent for any and all claims, expenses,
obligations, liabilities, losses, damages, injuries (to person, property, or
natural resources), penalties, stamp or other similar taxes, actions, suits,
judgments, reasonable costs and expenses (including reasonable attorney's and
agent's fees and expenses) of whatever kind or nature regardless of their merit,
demanded, asserted or claimed against the Collateral Agent directly or
indirectly relating to, or arising from, claims against the Collateral Agent by
reason of its participation in the transactions contemplated hereby, including
without limitation all reasonable costs required to be associated with claims
for damages to persons or property, and reasonable attorneys' and consultants'
fees and expenses and court costs except to the extent caused by the Collateral
Agent's negligence or willful misconduct. The provisions of this Section 24(m)
shall survive the termination of this Agreement or the earlier resignation or
removal of the Collateral Agent;
(n) The Collateral Agent shall not be responsible in any manner
whatsoever for the correctness of any recitals, statements, representations or
warranties contained herein or in the other Security Documents, except for those
made by the Collateral Agent, or for filing any financing statement,
continuation statement or any other perfection instrument or notice, or for
recording or re-recording any Security Document in any public office at any time
or for taking any other action to perfect or maintain the perfection, priority
or effectiveness of any interest on any of the Collateral or in any other
property granted to it hereunder or under any of the other Security Documents.
The Collateral Agent makes no representations as to the value or condition of
the Collateral or any part thereof, or as to the title of the Grantor thereto or
as to the security afforded by the Security Documents or this Agreement or as to
the validity, execution, enforceability, legality or sufficiency of this
Agreement, of any other Security Document, of the Obligations secured hereby and
thereby and the Collateral Agent shall incur no liability or responsibility in
respect of any such matters. The Collateral Agent shall not be responsible for
insuring the Collateral or for the payment of taxes, charges, assessments or
liens upon the Collateral or for the maintenance of the Collateral, except that
in the event the Collateral Agent enters into possession of all or any part of
the Collateral, the Collateral Agent shall preserve the portion of the
Collateral in its possession; and
(o) The Collateral Agent shall not be required to ascertain or
inquire as to the Grantor's performance of any of the covenants or agreements
contained herein or in any Security Document. Whenever it is necessary, or in
the opinion of the Collateral Agent advisable, for the Collateral Agent to
ascertain the amount of obligations then held by a Trustee, on behalf of the
Holders of the Senior Secured Notes, or Permitted Additional Senior Lender, the
Collateral Agent may conclusively rely on a certificate of such party as to such
amount.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this
Security Agreement to be duly executed by their partners and officers thereunto
duly authorized, as of the day and year first above written.
GRANTOR:
- --------
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
COLLATERAL AGENT:
- -----------------
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------
Name: Judy P. Manansala
its: Trust Officer
17
<PAGE>
Exhibit 10.15
SECURITY AGREEMENT
Dated as
of May 28, 1999
Between
COSO POWER DEVELOPERS,
a California general partnership,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. Definitions................................................ 1
2. Assignment, Pledge and Grant of Security Interest.......... 2
3. Obligations Secured........................................ 6
4. Events of Default.......................................... 6
5. Remedies................................................... 7
6. Remedies Cumulative; Delay Not Waiver...................... 8
7. Covenants.................................................. 9
8. Representations and Warranties............................. 9
9. Notices.................................................... 9
10. Further Assurances........................................ 9
11. Place of Perfection; Records.............................. 10
12. Continuing Assignment and Security Interest; Transfer..... 10
13. Release of Collateral..................................... 11
14. Attorneys' Fees........................................... 11
15. Severability.............................................. 11
16. Time..................................................... 12
17. Agreement for Security Purposes........................... 12
18. Liability................................................. 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
19. Governing Law............................................. 12
20. Attorney-In-Fact.......................................... 12
21. Reinstatement............................................. 13
22. WAIVER OF JURY TRIAL...................................... 13
23. Amendment................................................. 13
24. Duties and Liabilities of the Collateral Agent Generally.. 13
</TABLE>
ii
<PAGE>
SECURITY AGREEMENT
------------------
This Security Agreement ("Agreement"), dated as of May 28, 1999, is
---------
entered into by and between COSO POWER DEVELOPERS, a California general
partnership ("Grantor"), and U.S. BANK TRUST NATIONAL ASSOCIATION, in its
-------
capacity as collateral agent ("Collateral Agent"), for the benefit of U.S. BANK
TRUST NATIONAL ASSOCIATION, in its capacity as trustee ("Trustee") for the
-------
holders of all senior secured notes issued pursuant to that certain Indenture
dated as of May 28, 1999, (the "Indenture") among Grantor, Trustee, Coso Finance
---------
Partners, a California general partnership ("Navy I"), Coso Energy Developers, a
------
California general partnership ("BLM"), and Caithness Coso Funding Corp., a
---
Delaware corporation (the "Issuer") (such notes, the "Senior Secured Notes", and
------ --------------------
the holders thereof, the "Holders of the Senior Secured Notes") and all other
-----------------------------------
Permitted Additional Senior Lenders (as defined in the Indenture). Terms not
otherwise defined herein are defined in the Indenture.
PREFACE
-------
A. Grantor owns the Navy II Project (as defined in the Indenture) (the
"Project").
- --------
B. Issuer has, simultaneously with the execution and delivery of this
Agreement, issued $110,000,000 of 6.80% Senior Secured Notes due 2001 and
$303,000,000 of 9.05% of Senior Secured Notes due 2009, the proceeds of which
will be used to make loans to Grantor, Navy I and BLM.
C. Pursuant to a Guarantee dated as of even date herewith (the
"Guarantee"), Grantor has guaranteed the payment and performance of Issuer's
---------
obligations under the Senior Secured Notes and the Indenture.
D. Grantor desires now to grant Collateral Agent, for the benefit of
Trustee, the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, a security interest in the Collateral (as defined below)
as security for the payment and performance of Grantor's obligations under the
Guarantee.
AGREEMENT
---------
In consideration of the premises herein, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with the Collateral Agent as follows:
1. Definitions. (a) Unless otherwise defined, all terms used herein
-----------
which are defined in the Indenture shall have their respective meanings therein
defined and the Rules of Interpretation included in the Indenture shall apply
hereto. All terms defined in the UCC shall have the respective meanings given to
those terms in the UCC; and (b) "UCC" shall mean the Uniform Commercial Code as
the same may, from time to time, be in effect in the State of New York;
provided, however, in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of the security interest in
any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for
1
<PAGE>
purposes of the provisions hereof relating to such attachment, perfection or
priority and for purposes of definitions related to such provisions.
2. Assignment, Pledge and Grant of Security Interest.
-------------------------------------------------
(a) To secure the timely payment and performance of the Obligations
(as that term is defined in Section 3, Grantor does hereby assign, grant and
pledge to, and subject to a security interest in favor of, the Collateral Agent,
on behalf of the Trustee, the Holders of the Senior Secured Notes, and the
Permitted Additional Senior Lenders, if any, all the estate, right, title and
interest of Grantor, whether now owned or hereafter acquired, in, to and under:
(i) the following agreements and documents, as amended,
supplemented, substituted, renewed or replaced from time to time (individually,
an "Assigned Agreement," collectively, the "Assigned Agreements") and all of
------------------ -------------------
Grantor's rights thereunder:
(A) that certain Plant Operations and Maintenance
Agreement, dated as of May 28, 1999, by and between Grantor, Coso Operating
Company LLC, a Delaware limited liability company ("COC") and FPL Energy
---
Operating Services, Inc., a Florida corporation;
(B) that certain Field Operations and Maintenance
Agreement, dated as of May 28, 1999, by and between Grantor and COC;
(C) that certain Power Purchase Contract, dated as of
June 4, 1984, as amended, by and between Southern California Edison Company and
Grantor (as assignee of China Lake Joint Venture, a California general
partnership);
(D) that certain Interconnection Facilities Agreement,
dated as of December 15, 1998, by and between Southern California Edison Company
and Grantor (as assignee of China Lake Joint Venture, a California general
partnership);
(E) that certain contract No. N62474-79-C-5382, dated
December 6, 1979, by and between the United States of America acting through the
Department of the Navy and California Energy Company, Inc., as modified,
amended, assigned and restated by contract modification P00004 dated as of
October 19, 1983, a memorandum of which was recorded on March 12, 1986 as
instrument No. 86-1043 of official records of Inyo County, California, including
all modifications, amendments and assignment thereto and thereof made before the
effective date of this Security Agreement and any permitted modifications,
amendments and assignment thereto and thereof made after the effective date of
this Security agreement;
(F) that certain Acquisition Agreement of even date
herewith among Coso Land Company, a California general partnership, Grantor,
Navy I, BLM and COC;
(G) those certain documents constituting the Steam
Exchange Agreements including:
2
<PAGE>
(1) that certain Coso Geothermal Exchange Agreement, by and
between the Coso Partnerships and CalEnergy, dated January 11, 1994;
(2) that certain Amendment to Coso Geothermal Exchange
Agreement, by and between the Coso Partnerships and CalEnergy, dated April 12,
1995;
(3) that certain Amendment to Coso Geothermal Exchange
Agreement, by and between the Coso Partnerships, dated May 28, 1999;
(4) that certain Amendment Number P00029 to the Original
Navy Contract, dated October 4, 1994;
(5) that certain Amendment Number P00030 to the Original
Navy Contract, dated December 19, 1994;
(6) that certain Amendment P00033 to the Original Navy
Contract, dated January 8, 1995;
(7) that certain Amendment P00039 to the Navy Contract,
dated November 19, 1998;
(8) that certain Agreement for the Calculation of Mineral
Royalties/Revenues in the Coso Known Geothermal Resource Area, executed by the
USBLM, MMS and CalEnergy, dated December 16, 1994;
(9) that certain Amendment to the Agreement for the
Calculation of Mineral Royalties/Revenues in the Coso Known Geothermal Resource
Area, executed by the USBLM, MMS and the Coso Partnerships, to be entered into
after the Closing Date; and
(10) that certain Cotenancy Agreement, executed by the Coso
Partnerships, dated May 28, 1999;
(H) that certain Settlement Agreement and Release, by and between the
Mission Group, Mission Power Engineering Company, California Energy Company,
Inc., and the Grantor, Navy I and BLM, dated June 9, 1993;
(I) that certain Amended and Restated General Partnership Agreement
of Coso Transmission Line Partners, dated as of July 31, 1989, by and between
the Grantor and BLM, as amended by the First Amendment to the Amended and
Restated General Partnership Agreement of Coso Transmission Line Partners dated
as of December 16, 1998 by and between the Grantor and BLM;
(J) all other Project Documents, as defined in the Indenture, not
listed above;
3
<PAGE>
(K) all proceeds of and any unearned premiums on any insurance
policies maintained by Grantor or any other Person covering the property, rights
and interests of Grantor (the "Trust Property"), including, without limitation,
--------------
the right to receive the proceeds of any insurance, judgments, or settlements
made in lieu thereof, for damage to the Trust Property;
(L) (to the extent assignable) all other agreements, including vendor
warranties, running to Grantor or assigned to Grantor, relating to the
maintenance, improvement, operation or acquisition of the Project or any part
thereof, or transport of material, equipment and other parts of the Project or
any part thereof;
(M) any lease or sublease agreements or easement agreements relating
to the Project or any part thereof or any ancillary facilities, to which Grantor
is or may become a party;
(N) each Additional Project Document, and any other agreements to
which Grantor may hereafter be or become a party relating to the operation or
maintenance of the Project or any part thereof;
(O) all amendments, supplements, substitutions and renewals to any of
the aforesaid agreements; and
(P) all Governmental Approvals (as defined in the Indenture),
permits, approvals and consents relating to the Project, but excluding any such
permits, approvals and consents which by their terms or by operation of law
would become void solely by virtue of a security interest being granted therein;
(ii) all rents, profits, income, royalties and revenues derived in any
other manner by Grantor from its ownership of the Project or any part thereof
and the operation of the Project or any part thereof, including all revenues
from sale of electricity, steam, goods or services;
(iii) all other personal property and fixtures of Grantor, whether now
owned or existing or hereafter acquired or arising, or in which Grantor may have
an interest, and wheresoever located, whether or not of a type which may be
subject to a security interest under the UCC, including all mirrors, piping,
fluids, turbines, generators, machinery, tools, engines, appliances, mechanical
and electrical systems, transmission lines, transformers, towers, elevators,
lighting, alarm systems, fire control systems, furnishings, furniture, service
equipment, motor vehicles, building or maintenance equipment, building or
maintenance materials, supplies, goods and property covered by any warehouse
receipts or bills of lading or other such documents, spare parts, maps, plans,
specifications, architectural, engineering, construction or shop drawings,
manuals or similar documents, copyrights, trademarks and trade names, and any
replacements, renewals or substitutions for any of the foregoing or additional
tangible or intangible personal property hereafter acquired by Grantor;
4
<PAGE>
(iv) all goods, money, instruments, investment securities, accounts,
contract rights, documents, deposit accounts, bank accounts, chattel paper,
general intangibles, equipment and inventory;
(v) the Revenue Account, the Principal Account, the Interest Account,
the Debt Service Reserve Account, the Capital Expenditure Reserve Account, the
Operating and Maintenance Fees Account, the Management Fees Account, the
Distribution Account, the Distributions Suspense Account, the Loss Proceeds
Account and the Redemption Account, including any subaccounts within such
accounts, all other accounts and sub-accounts established pursuant to that
certain Deposit and Disbursement Agreement, dated as of May 28, 1999, by and
between the Issuer, the Grantor, Navy I, BLM, the Collateral Agent, and U.S.
Bank Trust National Association as Depositary;
(vi) the proceeds of all of the foregoing (all of the collateral
described in clauses (i) through (vi) being herein collectively referred to as
the "Collateral"), including without limitation (1) all rights of Grantor to
----------
receive moneys due and to become due under or pursuant to the Collateral, (2)
all rights of Grantor to receive return of any premiums for or proceeds of any
insurance, indemnity, warranty or guaranty with respect to the Collateral or to
receive condemnation proceeds, (3) all claims of Grantor for damages arising out
of or for breach of or default under the Assigned Agreements or any other
Collateral, and (4) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed, whether voluntarily or
involuntarily.
(b) Grantor has heretofore delivered or concurrently with the delivery
hereof is delivering to the Collateral Agent, a copy of an executed counterpart
of each of the Assigned Agreements. Grantor will deliver to Collateral Agent an
executed counterpart of each Additional Project Document, and material
amendments and supplements to the foregoing, included in the Collateral, as they
are entered into by Grantor promptly upon the execution thereof.
(c) Anything herein contained to the contrary notwithstanding, Grantor
shall remain liable under each of the Assigned Agreements, to perform all of the
obligations undertaken by it thereunder, all in accordance with and pursuant to
the terms and provisions thereof, and the Collateral Agent shall have no
obligation or liability under any of such Assigned Agreements by reason of or
arising out of this Agreement (during the period of Grantor's right of use and
possession thereof as provided herein), nor shall the Collateral Agent be
required or obligated in any manner to perform or fulfill any obligations of
Grantor thereunder or to make any payment, or to make any inquiry as to the
nature or sufficiency of any payment received by it, or present or file any
claim, or take any action to collect or enforce the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
(d) Subject to the terms of the Guarantee, upon the occurrence and during
the continuance of an Event of Default, Grantor does hereby constitute the
Collateral Agent, acting for and on behalf of Trustee, the Holders of the Senior
Secured Notes, and the Permitted Additional Senior Lenders, if any, and each
successor or assign thereof, the true and lawful
5
<PAGE>
attorney of Grantor, irrevocably, with full power coupled with an interest (in
the name of Grantor or otherwise) to ask, require, demand, receive, compound and
give acquittance for any and all moneys and claims for moneys due and to become
due under or arising out of the Assigned Agreements or any of the other
Collateral, including without limitation any insurance policies with respect to
the Project, to elect remedies thereunder, to endorse any checks or other
instruments or orders in connection therewith and to file any claims or take any
action or institute any proceedings in connection therewith which the Collateral
Agent may deem to be necessary or advisable; provided, however, that the
Collateral Agent shall give Grantor notice of any action taken by it as such
attorney-in-fact promptly after taking any such action.
(e) If any default by Grantor under any of the Assigned Agreements
shall occur, the Collateral Agent shall, at its option, be permitted (but shall
not be obligated) to remedy any such default by giving written notice of such
intent to Grantor and to the parties to each Assigned Agreement in default. The
Collateral Agent shall have a reasonable opportunity, but not fewer than sixty
(60) days (or such other period as the Collateral Agent and the Persons other
than Grantor who are parties to such Assigned Agreement may agree) after giving
such notice, in which to cure such default and upon the commencement thereof
will proceed diligently to cure such default. Any curing by the Collateral Agent
of Grantor's default under any of the Assigned Agreements shall not be construed
as an assumption by the Collateral Agent of any obligations, covenants or
agreements of Grantor under such Assigned Agreements, and the Collateral Agent
shall not incur any liability to Grantor or any other Person as a result of any
actions undertaken by the Collateral Agent in curing or attempting to cure any
such default. This Agreement shall not be deemed to release or to affect in any
way the obligations of Grantor under the Assigned Agreements.
3. Obligations Secured. This Agreement and all of the Collateral secure
-------------------
the payment and performance of Grantor's (a) obligations under the Guarantee,
including, but not limited to, the payment of all amounts owed to Trustee for
the benefit of the Holders of the Senior Secured Notes and (b) obligations
owing, if any, to the Permitted Additional Senior Lenders, of every kind and
description (whether or not evidenced by any note or instrument and whether or
not for the payment of money), direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, pursuant to the terms of
the Guarantee, or any other instrument evidencing Permitted Indebtedness (other
than Permitted Indebtedness described in clause (4) of the definition of
Permitted Indebtedness), including, but not limited to, the payment of all
amounts owed to the Collateral Agent of every kind and description (whether or
not evidenced by any note or instrument and whether or not for the payment of
money), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, pursuant to the terms of the Indenture, the
Financing Documents or this Agreement, including all interest, fees, charges,
expenses, attorney's fees and accountant's fees (all such obligations being
herein called the "Obligations").
-----------
4. Events of Default. The occurrence and continuance of an Event of
-----------------
Default under the Indenture, whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of
6
<PAGE>
any court or any order, rule or regulation of any administrative or governmental
body, shall constitute an Event of Default hereunder.
5. Remedies.
--------
(a) Subject to the terms of the Guarantee and the notice and other
requirements of applicable law, if any Event of Default has occurred and is
continuing, the Collateral Agent may (i) exercise the rights of acceleration set
forth in Section 5.2 of the Indenture, (ii) proceed to protect and enforce the
rights vested in it by this Agreement, including, but not limited to, the right
to cause all revenues hereby pledged as security and all other moneys pledged
hereunder to be paid directly to it, and to enforce its rights hereunder to such
payments and all other rights hereunder by such appropriate judicial proceedings
as it shall deem most effective to protect and enforce any of such rights,
either at law or in equity or otherwise, whether for specific enforcement of any
covenant or agreement contained in any of the Assigned Agreements, or in aid of
the exercise of any power therein or herein granted, or for any foreclosure
hereunder and sale under a judgment or decree in any judicial proceeding, or to
enforce any other legal or equitable right vested in it by this Agreement or by
law; (iii) cause any action at law or suit in equity or other proceeding to be
instituted and prosecuted to collect or enforce any Obligations or rights
included in the Collateral, or to foreclose or enforce any other agreement or
other instrument by or under or pursuant to which such Obligations are issued or
secured, either in Grantor's name or in Collateral Agent's name as Collateral
Agent may deem necessary, subject in each case to the provisions and
requirements thereof; (iv) sell or otherwise dispose of any or all of the
Collateral or cause the Collateral to be sold or otherwise disposed of in one or
more sales or transactions, at such prices as the Collateral Agent may deem
commercially reasonable, and for cash or on credit or for future delivery,
without assumption of any credit risk, at any broker's board or at public or
private sale, without demand of performance or notice of intention to sell or of
time or place of sale (except such notice as is required by applicable statute
and cannot be waived or is contemplated herein or by the other Financing
Documents), it being agreed that the Collateral Agent may be a purchaser on
behalf of Trustee, the Holders of the Senior Secured Notes, the Permitted
Additional Senior Lenders, if any, or on its own behalf at any such sale and
that the Collateral Agent or anyone else who may be the purchaser of any or all
of the Collateral so sold shall thereafter hold the same absolutely, free from
any claim or right of whatsoever kind, including any equity of redemption, of
Grantor, any such demand, notice or right and equity being hereby expressly
waived and released to the extent permitted by law; (v) incur reasonable
expenses, including reasonable attorneys' fees, consultants' fees, and other
costs appropriate to the exercise of any right or power under this Agreement;
(vi) perform any obligation of Grantor hereunder or under any other Financing
Document, Project Document or Additional Project Document, and make payments,
purchase, contest or compromise any encumbrance, charge, or lien, and pay taxes
and expenses, without, however, any obligation so to do; (vii) take possession
of the Collateral and render it usable, and repair and renovate the same,
without, however, any obligation to do so, and enter upon the site where the
Project is located or any other location where the same may be located for that
purpose, control, manage, operate, rent and lease the Collateral, either
separately or in conjunction with the Project, collect all rents and income from
the Collateral and apply the same to reimburse the Holders of the Senior Secured
Notes or the Permitted Additional Senior Lenders, if any, for any cost or
expenses incurred hereunder or
7
<PAGE>
under any of the Financing Documents and to the payment or performance of the
Obligations, and apply the balance to whomsoever is legally entitled thereto;
(viii) secure the appointment of a receiver of the Project or any part thereof
and/or the Collateral or any part thereof (to the extent and in the manner
provided by applicable law); or (ix) exercise any other or additional rights or
remedies granted to a secured party under the UCC. If, pursuant to applicable
law, prior notice of any such action is required to be given to Grantor, Grantor
hereby acknowledges that the minimum time required by such applicable law, or if
no minimum is specified, ten (10) Business Days, shall be deemed a reasonable
notice period. Notwithstanding anything herein to the contrary, any purchase
price obtained by the Collateral Agent in a foreclosure sale instituted and
prosecuted in accordance with the terms hereof shall be deemed binding and
conclusive on the parties hereto and the Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any.
(b) All costs and expenses (including, but without being limited to,
reasonable attorneys' fees and expenses) incurred by the Collateral Agent in
connection with any such suit or proceeding, or in connection with the
performance by the Collateral Agent of any of Grantor's agreements contained
herein or in any exercise of Collateral Agent's rights or remedies hereunder,
including any of the Assigned Agreements pursuant to the terms of this
Agreement, together with interest thereon (to the extent permitted by law)
computed at a rate per annum equal to the "Prime Rate" of Bankers Trust Company,
as such rate is announced from time to time, plus one percent (1%), said rate to
change when and as the said Prime Rate changes, from the date on which such
costs or expenses are incurred to the date of payment thereof, shall constitute
additional indebtedness secured by this Agreement and shall be paid by Grantor
to the Trustee on demand.
6. Remedies Cumulative; Delay Not Waiver.
-------------------------------------
(a) No right, power or remedy herein conferred upon or reserved to
the Collateral Agent is intended to be exclusive of any other right, power or
remedy, and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Resort to any or all security now or hereafter held by the
Collateral Agent, may be taken concurrently or successively and in one or
several consolidated or independent judicial actions or lawfully taken
nonjudicial proceedings, or both.
(b) No delay or omission of the Collateral Agent to exercise any
right or power accruing upon the occurrence and during the continuance of any
Event of Default as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein; and every power and remedy given by this Agreement may be exercised
from time to time, and as often as shall be deemed expedient, by the Collateral
Agent.
(c) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority
8
<PAGE>
specified in Section 5.10 of the Indenture. If all Obligations and any other
amounts due under this Agreement have been indefeasibly paid, satisfied and
discharged in full, any surplus then remaining shall be paid to Grantor, if it
is lawfully entitled to receive the same, or shall be paid to whomsoever a court
of competent jurisdiction may direct.
7. Covenants. Grantor covenants as follows:
---------
(a) Grantor will duly and punctually pay all amounts payable to the
Collateral Agent, the Trustee, the Holders of the Senior Secured Notes and the
Permitted Additional Senior Lenders, in accordance with, and subject to, the
terms of the Guarantee and such other instruments evidencing other Senior
Indebtedness, if any.
(b) Any action or proceeding to enforce this Agreement or any
Assigned Agreement may be taken by the Collateral Agent either in Grantor's name
or in the Collateral Agent's name, as the Collateral Agent may deem necessary.
(c) Grantor agrees to use its commercially reasonable efforts to
obtain consents to this Agreement from each future or successor party to the
Assigned Agreements (the "Contracting Parties").
-------------------
(d) Grantor will not make any other assignment (other than to
Collateral Agent) of its rights under the Assigned Agreements.
8. Representations and Warranties. Grantor represents and warrants as
------------------------------
follows:
(a) No effective financing statement or other instrument similar in
effect covering all or any part of Grantor's interest in the Collateral is on
file in any recording office, except such as may have been filed pursuant to
this Agreement and the other Financing Documents or pursuant to the documents
evidencing Permitted Liens.
(b) Grantor has not assigned any of its rights under the Assigned
Agreements except as specifically provided in this Agreement or as set forth in
the Indenture.
(c) Grantor has obtained all necessary consents to this Agreement
from each of the Contracting Parties.
9. Notices. Unless otherwise specifically herein provided, all notices
-------
required or permitted under the terms and provisions hereof shall be in writing
and any such notice shall become effective if given in accordance with Section
10.02 of the Indenture.
10. Further Assurances. (a) Grantor agrees that from time to time, at the
------------------
expense of Grantor, Grantor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
required, or that the Collateral Agent may reasonably request, in order to
perfect and protect the assignment and security interest granted or intended to
be granted hereby or to enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the
9
<PAGE>
foregoing, Grantor will: (i) if any Collateral shall be evidenced by a
promissory note or other instrument, deliver and pledge to the Collateral Agent,
for the benefit of Trustee, the Holders of Senior Secured Notes and the
Permitted Additional Senior Lenders, if any, such note or instrument duly
endorsed (without recourse) and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to enable the
Collateral Agent to enforce the provisions of this Agreement and the security
interests described herein; and (ii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments,
endorsement or notices, as may be necessary or required, or as the Collateral
Agent may reasonably request, in order to perfect and preserve the assignments
and security interests granted or purported to be granted hereby; it being
understood and agreed that the Collateral Agent shall have no obligation in
respect of the filing of such statements or in the perfection or preservation of
any such security interests.
(b) Grantor hereby authorizes the Collateral Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of Grantor where
permitted by law. Copies of any such statement or amendment thereto shall
promptly be delivered to Grantor
(c) Grantor shall pay all filing, registration and recording fees or
refiling, re-registration and re-recording fees, and all expenses incident to
the execution and acknowledgment of this Agreement, any instruments of further
assurance, and (except as otherwise provided in the Indenture) all federal,
state, county and municipal stamp taxes and other taxes, duties, imports,
assessments and charges arising out of or in connection with the execution and
delivery of this Agreement, any agreement supplemental hereto and any
instruments of further assurance.
11. Place of Perfection; Records. The location of Grantor's chief
----------------------------
executive office is 1114 Avenue of the Americas, New York, New York 10036-7790,
and the location of Grantor's place of business is Inyo and Kern Counties,
California. Grantor shall give the Collateral Agent at least forty-five (45)
days prior written notice before it changes the location of its chief executive
office and shall at the expense of Grantor execute and deliver such instruments
and documents as required to maintain a prior perfected security interest and as
requested by the Collateral Agent. Grantor will hold and preserve such records
and will permit representatives of the Collateral Agent upon reasonable notice
during normal business hours to inspect and make abstracts from such records.
12. Continuing Assignment and Security Interest; Transfer. This
-----------------------------------------------------
Agreement shall create a continuing assignment of and security interest in the
Collateral and shall (i) remain in full force and effect until payment in full
of the Obligations, (ii) be binding upon Grantor, its successors and assigns and
(iii) inure, together with the rights and remedies of the Collateral Agent, to
the benefit of the Trustee, the Holders of the Senior Secured Notes, the
Permitted Additional Senior Lenders, if any, and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(iii), but subject to Section 2.06 of the Indenture, the Holders of the Senior
Secured Notes may assign or otherwise transfer their Senior Secured Notes to any
other Person, and such other Person shall thereupon become vested with all
10
<PAGE>
or an appropriate part of the benefits in respect thereof granted to the Holders
of the Senior Secured Notes herein or otherwise. The release of the security
interest in any or all of the Collateral, the taking or acceptance of additional
security, or the resort by Collateral Agent to any security it may have in any
order it may deem appropriate, shall not affect the liability of any person on
the indebtedness secured hereby. Upon the payment in full of the Obligations,
the security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination, the Collateral
Agent shall, at Grantor's expense, execute and deliver to Grantor such documents
as Grantor shall reasonably request to evidence such termination. If this
Agreement shall be terminated or revoked by operation of law, Grantor will
indemnify and save Collateral Agent, Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, harmless from any
loss which may be suffered or incurred by Collateral Agent, Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
in acting hereunder prior to the receipt by Collateral Agent, its successors,
transferees, or assigns of written notice of such termination or revocation.
13. Release of Collateral.
---------------------
(a) Subject to paragraphs (b) and (c) of this Section 13, Collateral
may be released from the security interest created by this Agreement at any time
or from time to time upon the request of the Grantor pursuant to a certificate
of a Responsible Officer of the Grantor certifying that all terms for release
and conditions precedent under Section 4.4 of the Credit Agreement, dated as of
the date hereof, by and between the Grantee of the Issuer, have been met and
that such Collateral is being, or has been, sold, leased or transferred, and
specifying the identity of the Collateral to be released. Upon receipt of such
certificate, a Responsible Officer of the Collateral Agent shall execute,
deliver or acknowledge any necessary or proper instruments of termination,
satisfaction or release to evidence the release of any Collateral permitted to
be released pursuant to this Agreement.
(b) No Collateral shall be released from the security interest
created hereunder unless there shall have been delivered to the Collateral Agent
the certificate required by this Section 13.
(c) The Collateral Agent may release Collateral from the security
interest created hereunder upon the sale or disposition of Collateral pursuant
to the Collateral Agent's powers, rights and duties with respect to remedies
provided herein.
14. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
15. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such
11
<PAGE>
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
16. Time. Time is of the essence of this Agreement.
----
17. Agreement for Security Purposes. This Agreement is for security
-------------------------------
purposes only. Accordingly, the Collateral Agent shall not, pursuant to this
Agreement, enforce Grantor's rights with respect to the Collateral, including
the exercise of any rights granted under the Consents, until such time as an
Event of Default shall have occurred and is continuing at the time such
enforcement is sought, and after any required notice of such enforcement has
been given, and until such time, subject to the terms of the Indenture and the
other Financing Documents, Grantor reserves the right to exercise all of its
right, title and interest in, to and under the Collateral (including the
Assigned Agreements).
18. Liability. The obligations hereunder are subject to the limitations
---------
set forth in Section 6.11 of the Credit Agreement, the provisions of which are
hereby incorporated by reference.
19. Governing Law. This Agreement, including all matters of construction,
-------------
validity, performance and the creation, validity, enforcement or priority of the
lien of, and security interests created by, this Agreement in or upon the
Collateral shall be governed by the laws of the State of New York, without
reference to conflicts of law (other than Section 5-1401 of the New York General
Obligations Law), except as required by mandatory provisions of law and except
to the extent that the validity or perfection of the lien and security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York.
20. Attorney-In-Fact. Grantor hereby constitutes and appoints
----------------
Collateral Agent, acting for and on behalf of itself, Trustee, the Holders of
the Senior Secured Notes, the Permitted Additional Senior Lenders, if any, and
each successor or assign of Collateral Agent, Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, the true and
lawful attorney-in-fact of Grantor, with full power upon the occurrence and
during the continuance of an Event of Default (in the name of Grantor or
otherwise) to enforce all rights of Grantor with respect to the Collateral,
including, without limitation the right:
(a) to ask, require, demand, receive and give acquittance for any and
all moneys and claims for moneys due and to become due under or arising out of
the Assigned Agreements or any of the other Collateral;
(b) to elect remedies thereunder and to endorse any checks or other
instruments or orders in connection therewith;
(c) to file any claims or take any action or institute any
proceedings in connection therewith which Collateral Agent may reasonably deem
to be necessary or advisable to protect the Collateral;
12
<PAGE>
(d) to pay, settle or compromise all bills and claims which may be or
become liens or security interests (other than Permitted Liens prior to
foreclosure by Collateral Agent) against any or all of the Collateral, or any
part thereof, unless a bond or other security satisfactory to Collateral Agent
has been provided; and
(e) in connection with any acceleration and foreclosure, to do any
and every act which Grantor may do on its behalf with respect to the Collateral
or any part thereof and to exercise any or all of Grantor's rights and remedies
under any or all of the Assigned Agreements.
21. Reinstatement. This Agreement shall continue to be effective or be
-------------
reinstated, as the case may be, if at any time any amount received by Collateral
Agent in respect of the Obligations is rescinded or must otherwise be restored
or returned by Collateral Agent upon the insolvency, bankruptcy, reorganization,
liquidation of Grantor or any Navy II Partner or upon the dissolution of, or
appointment of any intervenor or conservator of, or trustee or similar official
for, Grantor or any Navy II Partner or any substantial part of Grantor's or any
Navy II Partner's assets, or otherwise, all as though such payments had been
made.
22. WAIVER OF JURY TRIAL. GRANTOR AND COLLATERAL AGENT HEREBY KNOWINGLY,
--------------------
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF COLLATERAL AGENT OR GRANTOR. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR COLLATERAL AGENT TO ENTER INTO THIS AGREEMENT.
23. Amendment. No modification or waiver of any of the provisions of
---------
this Agreement shall be binding on Collateral Agent, except as expressly set
forth in a writing duly signed and delivered by Collateral Agent and which is
otherwise in accordance with Article 8 of the Indenture.
24. Duties and Liabilities of the Collateral Agent Generally.
--------------------------------------------------------
(a) The Collateral Agent undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement. The Collateral
Agent shall not have any duties or responsibilities except those expressly set
forth in this Agreement or be a trustee for or have any fiduciary obligation to
any party hereto.
(b) The duties and obligations of the Collateral Agent shall be
determined solely by the express provisions of this Agreement, and the
Collateral Agent shall take such action with respect to this Agreement as it
shall be directed in writing by Trustee, and the Collateral Agent shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement and no implied covenants or obligations
shall be read into this Agreement against the Collateral Agent; and
13
<PAGE>
(i) In the absence of bad faith on the part of the Collateral
Agent, the Collateral Agent may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Collateral Agent which conform to the
requirements of this Agreement;
(ii) The Collateral Agent shall not be liable for any error of
judgment made in good faith by an officer or officers of the Collateral Agent,
unless it shall be conclusively determined by a court of competent jurisdiction
that the Collateral Agent was negligent in ascertaining the pertinent facts; and
(iii) The Collateral Agent shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with any
direction of Trustee or Grantor given under this Agreement.
(c) None of the provisions of this Agreement shall require the Collateral
Agent to expend or risk its own funds or otherwise to incur any liability,
financial or otherwise, in the performance of any of its duties hereunder, or in
the exercise of any of its rights or powers if it shall have reasonable grounds
for believing that repayment of such funds or indemnity satisfactory to it
against such risk or liability is not assured to it;
(d) The Collateral Agent may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(e) Whenever in the administration of the provisions of this Agreement the
Collateral Agent shall deem it necessary or desirable that a matter be proved or
established prior to taking or suffering any action to be taken hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence or bad faith on the part of the
Collateral Agent, be deemed to be conclusively proved and established by a
certificate signed by a Responsible Officer of Trustee or Grantor as the case
may be, and delivered to the Collateral Agent and such certificate, in the
absence of negligence or bad faith on the part of the Collateral Agent, shall be
full warrant to the Collateral Agent for any action taken, suffered or omitted
by it under the provisions of this Agreement upon the faith thereof;
(f) The Collateral Agent may consult with counsel and the advice or any
opinion of counsel shall be full and complete authorization and protection in
respect of any action taken or omitted by it hereunder in good faith and in
accordance with such advice or opinion of counsel;
(g) The Collateral Agent shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, entitlement order,
approval or other paper or document;
(h) The Collateral Agent may execute any of the powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys,
custodians or
14
<PAGE>
nominees appointed with due care, and shall not be responsible for any willful
misconduct or negligence on the part of or for the supervision of, any agent,
attorney, custodian or nominee so appointed;
(i) Grantor covenants and agrees to pay to the Collateral Agent from
time to time, and the Collateral Agent shall be entitled to, the fees and
expenses agreed in writing between Grantor and the Collateral Agent, and will
further pay or reimburse the Collateral Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Collateral Agent in accordance with any of the provisions hereof or any other
documents executed in connection herewith (including the compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ). The obligations of Grantor under this Section 24(i) to compensate
the Collateral Agent and to pay or reimburse the Collateral Agent for reasonable
expenses, disbursements and advances shall survive the satisfaction and
discharge of this Agreement or the earlier resignation or removal of the
Collateral Agent;
(j) The Collateral Agent may at any time resign by giving 30 days
written notice of resignation to Grantor and Trustee. Upon receiving such
notice of resignation, Grantor shall promptly appoint a successor and, upon the
acceptance by the successor of such appointment, release the resigning
Collateral Agent from its obligations hereunder by written instrument, a copy of
which instrument shall be delivered to each of Grantor and Trustee, the
resigning Collateral Agent and the successor. If no successor shall have been
so appointed and have accepted appointment within 45 days after the giving of
such notice of resignation, the resigning Collateral Agent may petition any
court of competent jurisdiction for the appointment of a successor;
(k) Any corporation into which the Collateral Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Collateral Agent shall
be a party, or any corporation succeeding to the business of the Collateral
Agent shall be the successor of the Collateral Agent hereunder without the
execution or filing of any paper with any party hereto or any further act on the
part of any of the parties hereto except where an instrument of transfer or
assignment is required by law to effect such succession, anything herein to the
contrary notwithstanding;
(l) Neither the Collateral Agent nor any of its officers, directors,
employees or agents shall be liable for any action taken or omitted under this
Agreement or in connection therewith except to the extent caused by the
Collateral Agent's negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction, no longer subject to appeal or
review. The parties each (for itself and any person or entity claiming through
it) hereby releases, waives, discharges, exculpates and covenants not to sue the
Collateral Agent for any action taken or omitted under this Agreement except to
the extent caused by the Collateral Agent's negligence or willful misconduct.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Collateral Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to
15
<PAGE>
lost profits), even if the Collateral Agent has been advised of the likelihood
of such loss or damage and regardless of the form of action;
(m) Grantor shall indemnify, defend and hold harmless the Collateral
Agent and its officers, directors, employees, representatives and agents, from
and against and reimburse the Collateral Agent for any and all claims, expenses,
obligations, liabilities, losses, damages, injuries (to person, property, or
natural resources), penalties, stamp or other similar taxes, actions, suits,
judgments, reasonable costs and expenses (including reasonable attorney's and
agent's fees and expenses) of whatever kind or nature regardless of their merit,
demanded, asserted or claimed against the Collateral Agent directly or
indirectly relating to, or arising from, claims against the Collateral Agent by
reason of its participation in the transactions contemplated hereby, including
without limitation all reasonable costs required to be associated with claims
for damages to persons or property, and reasonable attorneys' and consultants'
fees and expenses and court costs except to the extent caused by the Collateral
Agent's negligence or willful misconduct. The provisions of this Section 24(m)
shall survive the termination of this Agreement or the earlier resignation or
removal of the Collateral Agent;
(n) The Collateral Agent shall not be responsible in any manner
whatsoever for the correctness of any recitals, statements, representations or
warranties contained herein or in the other Security Documents, except for those
made by the Collateral Agent, or for filing any financing statement,
continuation statement or any other perfection instrument or notice, or for
recording or re-recording any Security Document in any public office at any time
or for taking any other action to perfect or maintain the perfection, priority
or effectiveness of any interest on any of the Collateral or in any other
property granted to it hereunder or under any of the other Security Documents.
The Collateral Agent makes no representations as to the value or condition of
the Collateral or any part thereof, or as to the title of the Grantor thereto or
as to the security afforded by the Security Documents or this Agreement or as to
the validity, execution, enforceability, legality or sufficiency of this
Agreement, of any other Security Document, of the Obligations secured hereby and
thereby and the Collateral Agent shall incur no liability or responsibility in
respect of any such matters. The Collateral Agent shall not be responsible for
insuring the Collateral or for the payment of taxes, charges, assessments or
liens upon the Collateral or for the maintenance of the Collateral, except that
in the event the Collateral Agent enters into possession of all or any part of
the Collateral, the Collateral Agent shall preserve the portion of the
Collateral in its possession; and
(o) The Collateral Agent shall not be required to ascertain or
inquire as to the Grantor's performance of any of the covenants or agreements
contained herein or in any Security Document. Whenever it is necessary, or in
the opinion of the Collateral Agent advisable, for the Collateral Agent to
ascertain the amount of obligations then held by a Trustee, on behalf of the
Holders of the Senior Secured Notes, or Permitted Additional Senior Lender, the
Collateral Agent may conclusively rely on a certificate of such party as to such
amount.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this
Security Agreement to be duly executed by their partners and officers thereunto
duly authorized, as of the day and year first above written.
GRANTOR:
- --------
COSO POWER DEVELOPERS,"
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
---------------------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------------------
Christopher T. McCallion
Executive Vice President
COLLATERAL AGENT:
- -----------------
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
----------------------------------------
Name: Judy P. Manansala
its: Trust Officer
<PAGE>
Exhibit 10.19
SECURITY AGREEMENT
(Governmental Approvals)
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
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. Definitions................................................ 2
2. Assignment, Pledge and Grant of Security Interest.......... 2
3. Obligations Secured........................................ 3
4. Events of Default.......................................... 3
5. Remedies................................................... 4
6. Remedies Cumulative; Delay Not Waiver...................... 5
7. Covenants.................................................. 6
8. Certain Consents and Waivers............................... 6
9. Representations and Warranties............................. 8
10. Notices................................................... 9
11. Further Assurances........................................ 10
12. Place of Perfection; Records.............................. 11
13. Continuing Assignment and Security Interest; Transfer..... 11
14. Attorneys' Fees........................................... 11
15. Severability.............................................. 12
16. Time..................................................... 12
17. Agreement for Security Purposes........................... 12
18. Governing Law............................................. 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
19. Reinstatement............................................. 12
20. WAIVER OF JURY TRIAL...................................... 12
21. Amendment................................................. 13
22. Duties and Liabilities of the Collateral Agent Generally.. 13
</TABLE>
ii
<PAGE>
SECURITY AGREEMENT
------------------
This Security Agreement ("Agreement"), dated as of May 28, 1999, is entered
---------
into by and between COSO OPERATING COMPANY LLC, a Delaware limited liability
company ("Grantor"), and U.S. BANK TRUST NATIONAL ASSOCIATION, in its capacity
-------
as collateral agent ("Collateral Agent"), for the benefit of U.S. BANK TRUST
----------------
NATIONAL ASSOCIATION, in its capacity as trustee ("Trustee") for the holders of
-------
all senior secured notes issued pursuant to that certain Indenture dated as of
May 28, 1999 (the "Indenture"), among Trustee, Coso Finance Partners, a
---------
California general partnership ("Navy I"), Coso Energy Developers, a California
general partnership ("BLM"), Coso Power Developers, a California general
---
partnership ("Navy II"), and Caithness Coso Funding Corp., a Delaware
-------
corporation (the "Issuer") (such notes, the "Senior Secured Notes," and the
------ --------------------
holders thereof, the "Holders of the Senior Secured Notes") and all other
-----------------------------------
Permitted Additional Senior Lenders (as defined in the Indenture).
PREFACE
-------
A. Issuer has, as of the date of this Security Agreement, issued
$413,000,000 of the Senior Secured Notes, the proceeds of which will be used to
make loans to the Coso Partnerships.
B. Pursuant to a Guarantee dated as of the date of this Security
Agreement (the "Guarantee") the Coso Partnerships have guaranteed to Trustee and
---------
the Holders of the Senior Secured Notes the payment and performance of Issuer's
obligations under the Senior Secured Notes and the Indenture.
C. The Grantor is party to the Amended and Restated Field Operation and
Maintenance Agreement dated as of May 28, 1999, by and between BLM and the
Grantor (the "Field O&M Agreement"), and the Amended and Restated Plant
-------------------
Operation and Maintenance Agreement dated as of May 28, 1999, by and between
BLM, FPL Energy Operating Services, Inc., a Florida corporation, and the
Grantor.
D. As a condition precedent to the sale of the Senior Secured Notes, the
Grantor is required to have executed this Security Agreement as security for the
payment and performance of the BLM's obligations under the Guarantee.
E. As additional security for the payment and performance of BLM's
obligations under the Guarantee, it is the intent of Grantor to grant to the
Collateral Agent, for the benefit of the Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, a security
interest in the Collateral (as defined below) as security for the payment and
performance of BLM's obligations under the Guarantee.
AGREEMENT
---------
In consideration of the premises herein, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with the Collateral Agent as follows:
1
<PAGE>
1. Definitions. (a) Unless otherwise defined, all terms used herein
-----------
which are defined in the Indenture shall have their respective meanings therein
defined and the Rules of Interpretation included in the Indenture shall apply
hereto. All terms defined in the UCC shall have the respective meanings given to
those terms in the UCC; and (b) "UCC" shall mean the Uniform Commercial Code as
the same may, from time to time, be in effect in the State of New York;
provided, however, in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of the security interest in
any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.
2. Assignment, Pledge and Grant of Security Interest.
-------------------------------------------------
(a) To secure the timely payment and performance of the Obligations
(as that term is defined in Section 3), Grantor does hereby assign, grant and
pledge to, and subject to a security interest in favor of, the Collateral Agent,
on behalf of the Trustee, the Holders of the Senior Secured Notes, and the
Permitted Additional Senior Lenders, if any, all the estate, right, title and
interest of Grantor, whether now owned or hereafter acquired, in, to and under:
(i) all Governmental Approvals (as defined in the
Indenture) relating to the BLM Project whether now existing or hereafter
acquired, excluding, however, any such Governmental Approvals and consents which
by their terms or by operation of law would become void solely by virtue of a
security interest being granted therein;
(ii) the proceeds of all of the foregoing (all of the
collateral described in clauses (i) and (ii) being herein collectively referred
to as the "Collateral"), including without limitation (1) all rights of Grantor
to receive moneys due and to become due under or pursuant to the Collateral, (2)
all rights of Grantor to receive return of any premiums for or proceeds of any
insurance, indemnity, warranty or guaranty with respect to the Collateral or to
receive condemnation proceeds, (3) all claims of Grantor for damages arising out
of or for breach of or default under the Governmental Approvals or any other
Collateral, and (4) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed, whether voluntarily or
involuntarily.
(b) Grantor has heretofore delivered or concurrently with the
delivery hereof is delivering to the Collateral Agent, a true and correct copy
of each of the Governmental Approvals. Grantor will deliver to Collateral Agent
a true and correct copy of any additional Governmental Approval, and material
amendments and supplements to the foregoing, included in the Collateral, as they
are obtained by Grantor.
(c) Anything herein contained to the contrary notwithstanding,
Grantor shall remain liable under each of the Governmental Approvals, to perform
all of the obligations undertaken by it thereunder, all in accordance with and
pursuant to the terms and provisions
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thereof, and the Collateral Agent shall have no obligation or liability under
any of such Governmental Approvals by reason of or arising out of this Agreement
(during the period of Grantor's right of use and possession thereof as provided
herein), nor shall the Collateral Agent be required or obligated in any manner
to perform or fulfill any obligations of Grantor thereunder.
(d) Upon the occurrence and during the continuance of an Event of
Default, Grantor does hereby constitute the Collateral Agent, acting for and on
behalf of Trustee, the Holders of the Senior Secured Notes, and the Permitted
Additional Senior Lenders, if any, and each successor or assign thereof, the
true and lawful attorney of Grantor, irrevocably, with full power coupled with
an interest (in the name of Grantor or otherwise) to ask, require, demand,
receive, compound and give acquittance for any and all claims arising out of the
Governmental Approvals to elect remedies thereunder, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or
take any action or institute any proceedings in connection therewith which the
Collateral Agent may deem to be necessary or advisable; provided, however, that
the Collateral Agent shall give Grantor notice of any action taken by it as such
attorney-in-fact promptly after taking any such action.
3. Obligations Secured. This Agreement and all of the Collateral secure
-------------------
the payment and performance of Grantor's (a) obligations under the Guarantee,
including, but not limited to, the payment of all amounts owed to Trustee for
the benefit of the Holders of the Senior Secured Notes and (b) obligations
owing, if any, to the Permitted Additional Senior Lenders, of every kind and
description (whether or not evidenced by any note or instrument and whether or
not for the payment of money), direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, pursuant to the terms of
the Guarantee, or any other instrument evidencing Permitted Indebtedness (other
than Permitted Indebtedness described in clause (4) of the definition of
Permitted Indebtedness), including, but not limited to, the payment of all
amounts owed to the Collateral Agent of every kind and description (whether or
not evidenced by any note or instrument and whether or not for the payment of
money), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, pursuant to the terms of the Indenture, the
Financing Documents or this Agreement, including all interest, fees, charges,
expenses, attorney's fees and accountant's fees (all such obligations being
herein called the "Obligations").
-----------
4. Events of Default. The following shall constitute an Event of
-----------------
Default hereunder:
(a) The occurrence and continuance of an Event of Default under the
Indenture, whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body; and
(b) the failure on the part of Grantor to observe or perform any
covenant, condition or agreement on its part to be observed or performed under,
or the breach of any representation or warranty of Grantor contained in this
Agreement and such failure continues uncured for 30 or more days from the date a
Responsible Officer of Grantor receives notice thereof
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from the Collateral Agent; provided that if Grantor commences and diligently
pursues efforts to cure such default within such 30-day period, Grantor may
continue to effect such cure of the default and such default will not be deemed
an Event of Default for an additional 60 days so long as Grantor is diligently
pursuing such cure.
5. Remedies.
--------
(a) Subject to the terms of the Guarantee and the notice and other
requirements of applicable law, if any Event of Default has occurred and is
continuing, the Collateral Agent may (i) exercise the rights of acceleration set
forth in Section 5.2 of the Indenture, (ii) proceed to protect and enforce the
rights vested in it by this Agreement, and to enforce its rights hereunder by
such appropriate judicial proceedings as it shall deem most effective to protect
and enforce any of such rights, either at law or in equity or otherwise, whether
for specific enforcement of any covenant or agreement contained in any of the
Governmental Approvals, or in aid of the exercise of any power therein or herein
granted, or for any foreclosure hereunder and sale under a judgment or decree in
any judicial proceeding, or to enforce any other legal or equitable right vested
in it by this Agreement or by law; (iii) cause any action at law or suit in
equity or other proceeding to be instituted and prosecuted to collect or enforce
any Obligations or rights included in the Collateral, or to foreclose or enforce
any other agreement or other instrument by or under or pursuant to which such
Obligations are issued or secured, either in Grantor's name or in Collateral
Agent's name as Collateral Agent may deem necessary, subject in each case to the
provisions and requirements thereof; (iv) sell or otherwise dispose of any or
all of the Collateral or cause the Collateral to be sold or otherwise disposed
of in one or more sales or transactions, at such prices as the Collateral Agent
may deem commercially reasonable, and for cash or on credit or for future
delivery, without assumption of any credit risk, at any broker's board or at
public or private sale, without demand of performance or notice of intention to
sell or of time or place of sale (except such notice as is required by
applicable statute and cannot be waived or is contemplated herein or by the
other Financing Documents), it being agreed that the Collateral Agent may be a
purchaser on behalf of Trustee, the Holders of the Senior Secured Notes, the
Permitted Additional Senior Lenders, if any, or on its own behalf at any such
sale and that the Collateral Agent or anyone else who may be the purchaser of
any or all of the Collateral so sold shall thereafter hold the same absolutely,
free from any claim or right of whatsoever kind, including any equity of
redemption, of Grantor, any such demand, notice or right and equity being hereby
expressly waived and released to the extent permitted by law; (v) incur
reasonable expenses, including reasonable attorneys' fees, consultants' fees,
and other costs appropriate to the exercise of any right or power under this
Agreement; (vi) perform any obligation of Grantor under this Agreement, or under
any other Financing Document, Project Document or Additional Project Document,
and make payments, purchase, contest or compromise any encumbrance, charge, or
lien, and pay taxes and expenses, without, however, any obligation so to do;
(vii) take possession of the Collateral and render it usable, and repair and
renovate the same, without, however, any obligation to do so, and enter upon the
site where the Project is located or any other location where the same may be
located for that purpose, control, manage, operate, rent and lease the
Collateral, either separately or in conjunction with the Project, collect all
rents and income from the Collateral and apply the same to reimburse the Holders
of the Senior Secured Notes or the Permitted Additional Senior Lenders, if any,
for any cost or expenses incurred hereunder or
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<PAGE>
under any of the Financing Documents and to the payment or performance of the
Obligations, and apply the balance to whomsoever is legally entitled thereto;
(viii) secure the appointment of a receiver of the Collateral or any part
thereof (to the extent and in the manner provided by applicable law); or (ix)
exercise any other or additional rights or remedies granted to a secured party
under the UCC. If, pursuant to applicable law, prior notice of any such action
is required to be given to Grantor, Grantor hereby acknowledges that the minimum
time required by such applicable law, or if no minimum is specified, ten (10)
Business Days, shall be deemed a reasonable notice period. Notwithstanding
anything herein to the contrary, any purchase price obtained by the Collateral
Agent in a foreclosure sale instituted and prosecuted in accordance with the
terms hereof shall be deemed binding and conclusive on the parties hereto and
the Trustee, the Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any.
(b) All costs and expenses (including, but without being limited to,
reasonable attorneys' fees and expenses) incurred by the Collateral Agent in
connection with any such suit or proceeding, or in connection with the
performance by the Collateral Agent of any of Grantor's agreements contained
herein or in any exercise of Collateral Agent's rights or remedies hereunder,
including any of the Governmental Approvals pursuant to the terms of this
Agreement, together with interest thereon (to the extent permitted by law)
computed at a rate per annum equal to the "Prime Rate" of Bankers Trust Company,
as such rate is announced from time to time, plus one percent (1%), said rate to
change when and as the said Prime Rate changes, from the date on which such
costs or expenses are incurred to the date of payment thereof, shall constitute
additional indebtedness secured by this Agreement and shall be paid by Grantor
to the Trustee on demand.
6. Remedies Cumulative; Delay Not Waiver.
-------------------------------------
(a) No right, power or remedy herein conferred upon or reserved to
the Collateral Agent is intended to be exclusive of any other right, power or
remedy, and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Resort to any or all security now or hereafter held by the
Collateral Agent, may be taken concurrently or successively and in one or
several consolidated or independent judicial actions or lawfully taken
nonjudicial proceedings, or both.
(b) No delay or omission of the Collateral Agent to exercise any
right or power accruing upon the occurrence and during the continuance of any
Event of Default as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein; and every power and remedy given by this Agreement may be exercised
from time to time, and as often as shall be deemed expedient, by the Collateral
Agent.
(c) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority
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specified in Section 5.10 of the Indenture. If all Obligations and any other
amounts due under this Agreement have been indefeasibly paid, satisfied and
discharged in full, any surplus then remaining shall be paid to Grantor, if it
is lawfully entitled to receive the same, or shall be paid to whomsoever a court
of competent jurisdiction may direct.
7. Covenants. Grantor covenants as follows:
---------
(a) Any action or proceeding to enforce this Agreement or any
Assigned Agreement may be taken by the Collateral Agent either in Grantor's name
or in the Collateral Agent's name, as the Collateral Agent may deem necessary.
(b) Not to make any other assignment (other than to Collateral Agent)
of its rights under the Governmental Approvals.
(c) To do all acts that may reasonably be necessary to maintain,
preserve and protect the Collateral.
(d) Not to use or permit any Collateral to be used unlawfully or in
material violation of any provision of applicable statute, regulation or
ordinance.
(e) To pay promptly when due all taxes, assessments, charges,
encumbrances and liens now or hereafter imposed upon or affecting any
Collateral.
(f) To procure, execute and deliver from time to time any
endorsements, assignments, financing statements and other writings reasonably
necessary to perfect, maintain and protect the Collateral Agent's security
interest hereunder and the priority thereof.
(g) To appear in and defend any action or proceeding that may affect
its title to or the Collateral Agent's interest in the Collateral.
(h) Not to sell, encumber, lease, rent, or otherwise dispose of or
transfer any Collateral or right or interest therein.
(i) To comply with all laws, regulations and ordinances relating to
the Collateral.
8. Certain Consents and Waivers.
----------------------------
(a) Grantor hereby waives, to the maximum extent permitted by law (i)
all rights under any law limiting remedies, including recovery of a deficiency,
under an obligation secured by a deed of trust on real property if the real
property is sold under a power of sale contained in the deed of trust, and all
defenses based on any loss whether as a result of any such sale or otherwise, of
Grantor's right to recover any amount from BLM, whether by right of subrogation
or otherwise; (ii) all rights under any law to require Collateral Agent to
pursue BLM or any other Person, any security which Collateral Agent may hold, or
any other remedy before proceeding against Grantor; (iii) all rights of
reimbursement or subrogation, all rights to enforce any remedy that Collateral
Agent, the Trustee, the Holders of the Senior Secured Notes or the
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Permitted Additional Senior Lenders, if any, may have against BLM, and all
rights to participate in any security held by Collateral Agent until the
Obligations have been paid and the covenants of the Indenture have been
performed in full; (iv) all rights to require Collateral Agent to give any
notices of any kind, including without limitation notices of nonpayment,
nonperformance, protest, dishonor, default, delinquency or acceleration, or to
make any presentments, demands or protests, except as expressly provided herein
and in the Indenture; (v) all rights to assert the bankruptcy or insolvency of
BLM as a defense hereunder or as the basis for rescission hereof; (vi) all
rights under any law purporting to reduce Grantors' Obligations hereunder if
BLM's Obligations are reduced; (vii) all defenses based on the disability or
lack of authority of BLM or any Person, the repudiation of the Guarantees or any
related Financing Documents by BLM or any Person, the failure by Collateral
Agent, the Trustee, the Holders of the Senior Secured Notes or any Permitted
Additional Senior Lender, if any, to enforce any claim against BLM, or the
unenforceability in whole or in part of any Financing Document; (viii) all
suretyship and guarantor's defenses generally; (ix) all rights to insist upon,
plead or in any manner whatever claim or take the benefit or advantage of, any
appraisal, valuation, stay, extension, marshaling of assets, redemption or
similar law, or exemption, whether now or at any time hereafter in force, which
may delay, prevent or otherwise affect the performance by Grantor or its
obligations under, or the enforcement by Collateral Agent of, this Agreement;
(x) any requirement on the part of Collateral Agent, Trustee, the Holders of the
Senior Secured Notes or any Permitted Additional Senior Lender, if any, to
mitigate the damages resulting from any default; and (xi) except as otherwise
specifically set forth herein, all rights of notice and hearing of any kind
prior to the exercise of rights by Collateral Agent upon the occurrence and
during the continuation of an Event of Default to repossess with judicial
process or to replevy, attach or levy upon the Collateral. To the extent
permitted by applicable law, Grantor waives the posting of any bond otherwise
required of Collateral Agent in connection with any judicial process or
proceeding to obtain possession of, replevy, attach, or levy upon the
Collateral, to enforce any judgment or other security for the Obligations, to
enforce any judgment or other court order entered in favor of Collateral Agent,
or to enforce by specific performance, temporary restraining order, preliminary
or permanent injunction, this Agreement or any other agreement or document
between Grantor, Collateral Agent, Trustee, the Holders of the Senior Secured
Notes or any Permitted Additional Senior Lender, if any. Grantor further agrees
that upon the occurrence and continuance of an Event of Default, Collateral
Agent may elect to nonjudicially or judicially foreclose against any real or
personal property security it holds for the Obligations or any part thereof, or
to exercise any other remedy against BLM, any security or any guarantor, even if
the effect of that action is to deprive a Grantor of the right to collect
reimbursement from BLM for any sums paid by Grantor to Collateral Agent, Trustee
or any Holder of the Senior Secured Notes or any Permitted Additional Senior
Lender, if any.
(b) If Collateral Agent may, under applicable law, proceed to realize
its benefits under any of the Financing Documents giving Collateral Agent a Lien
upon any Collateral, whether owned by any BLM, Grantor or by any other Person,
either by judicial foreclosure or by nonjudicial sale or enforcement, Collateral
Agent may, at its sole option, determine which of its remedies or rights it may
pursue without affecting any of the rights and remedies of Collateral Agent
under this Agreement. In the event Collateral Agent shall bid at any
foreclosure or trustee's sale or at any private sale permitted by law or the
Financing Documents, Collateral Agent may bid all or less than the amount of
Obligations. To the extent permitted by applicable law, the amount of the
successful
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bid at any such sale, whether Collateral Agent or any other party is the
successful bidder, shall be conclusively deemed to be the fair market value of
the Collateral and the difference between such bid amount and the remaining
balance of the Obligations shall be conclusively deemed to be the amount of the
Obligations.
9. Representations and Warranties. Grantor represents and warrants as
------------------------------
follows:
(a) No effective financing statement or other instrument similar in
effect covering all or any part of Grantor's interest in the Collateral is on
file in any recording office, except such as may have been filed pursuant to
this Agreement and the other Financing Documents or pursuant to the documents
evidencing Permitted Liens.
(b) Grantor has not assigned any of its rights under the Governmental
Approvals except as specifically provided in this Agreement or as set forth in
the Indenture.
(c) Grantor will perform and comply, in all material respects, with
all obligations and conditions on its part to be performed hereunder, under the
Field O&M Agreement or with respect to the Collateral.
(d) Grantor (i) is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite power and authority under the laws of its state of
organization to enter into this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby, (ii) is duly
qualified, authorized to do business and in good standing in each jurisdiction
where the character of its properties or the nature of its activities makes such
qualification necessary, and (iii) has all requisite power and authority to
carry on its business as now being conducted and as proposed to be conducted by
it, (X) to execute, deliver and perform this Agreement, (Y) to take all action
as may be necessary to consummate the transactions contemplated hereunder, and
(Z) to grant liens and security interest provided for in this Agreement.
(e) Grantor has (i) taken all necessary action to authorize the
execution, delivery and performance of this Agreement; and (ii) duly executed
and delivered this Agreement. Neither Grantor's execution and delivery of this
Agreement nor its consummation of the transactions contemplated hereby nor its
compliance with the terms hereof (i) does or will contravene the documents of
formation of Grantor or any other requirements of law applicable to or binding
on such Grantor or any of its properties, (ii) does or will contravene or result
in any breach of or constitute any default under, or result in or require the
creation of any Lien (other than Permitted Liens) upon any of its property
under, any agreement or instrument to which it is a party or by which it or any
of its properties may be bound or affected or (iii) does or will require the
consent or approval of any Person which has not already been obtained.
(f) This Agreement is the legal, valid and binding obligation of such
Grantor, enforceable against such Grantor in accordance with its terms, except
to the extent the enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and subject to general equitable
principles.
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(g) Grantor is the lawful owner of and has full right, title and
interest in and to, the Collateral, subject to no mortgages, liens, charges, or
encumbrances of any kind and has full power and lawful authority to pledge,
assign and grant a security interest in the Collateral granted by it hereunder.
Grantor will, so long as any Obligations shall be outstanding, warrant and
defend its title to the Collateral against any claims and demands which may
affect to a material extent its title to, or the Collateral Agent's right or
interest in, such Collateral.
(h) Grantor will not directly or indirectly create, incur, assume or
suffer to exist any Liens on or with respect to any part of the Collateral other
than the rights and interests of the Collateral Agent, the Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
hereunder. Grantor will at its own cost and expense promptly take such action
as may be necessary to discharge any such liens not so permitted.
(i) Any action or proceeding to enforce the rights granted or to
protect or preserve the Collateral under this Agreement may be taken by
Collateral Agent either in Grantor's name or in Collateral Agent's name, as
Collateral Agent may deem necessary.
(j) Grantor will, at all times, keep accurate and complete records of
the Collateral. Grantor shall, at all times on three (3) Business Days' notice,
permit representatives of Collateral Agent at any time during normal business
hours of such Grantor to inspect and make abstracts from such Grantor's books
and records pertaining to the Collateral. Upon the occurrence and continuance of
any Event of Default, at Collateral Agent's request, Grantor shall promptly
deliver any and all such records to Collateral Agent.
(k) Grantor will give prompt notice in writing to Collateral Agent of
any change in the location of the place of business where correspondence,
notices or proceeds in connection with the Collateral are received or located or
of any change in the location of the place of business where records concerning
Collateral are kept.
10. Notices. Any notice or communication by the Grantor or the Collateral
-------
Agent to the other is duly given if in writing and delivered in person or mailed
by first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
other's address:
If to the Grantor:
Coso Operating Company
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Telecopier No.: (212) 921-9239
Attention: Christopher T. McCallion
With a copy to:
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Riordan & McKenzie
300 South Grand Avenue
Twenty-Ninth Floor
Los Angeles, Ca 90071
Telecopier No.: (213) 629-4824
Attention: Thomas L. Harnsberger, Esq.
If to the Collateral Agent:
U.S. Bank Trust National Association
One California Street
Fourth Floor
San Francisco, California 94111
Telecopier No.: (415) 273-4590
11. Further Assurances.
------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or required, or that the
Collateral Agent may reasonably request, in order to perfect and protect the
assignment and security interest granted or intended to be granted hereby or to
enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of the
foregoing, Grantor will: (i) if any Collateral shall be evidenced by a
promissory note or other instrument, deliver and pledge to the Collateral Agent,
for the benefit of Trustee, the Holders of Senior Secured Notes and the
Permitted Additional Senior Lenders, if any, such note or instrument duly
endorsed (without recourse) and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to enable the
Collateral Agent to enforce the provisions of this Agreement and the security
interests described herein; and (ii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments,
endorsement or notices, as may be necessary or required, or as the Collateral
Agent may reasonably request, in order to perfect and preserve the assignments
and security interests granted or purported to be granted hereby; it being
understood and agreed that the Collateral Agent shall have no obligation in
respect of the filing of such statements or in the perfection or preservation of
any such security interests.
(b) Grantor hereby authorizes the Collateral Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of Grantor where
permitted by law. Copies of any such statement or amendment thereto shall
promptly be delivered to Grantor.
(c) Grantor shall pay all filing, registration and recording fees or
refiling, re-registration and re-recording fees, and all expenses incident to
the execution and acknowledgment of this Agreement, any instruments of further
assurance, and (except as
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otherwise provided in the Indenture) all federal, state, county and municipal
stamp taxes and other taxes, duties, imports, assessments and charges arising
out of or in connection with the execution and delivery of this Agreement, any
agreement supplemental hereto and any instruments of further assurance.
12. Place of Perfection; Records. The location of Grantor's chief
----------------------------
executive office is 1114 Avenue of the Americas, New York, New York 10036-7790,
and the location of Grantor's place of business is Inyo and Kern County,
California. Grantor shall give the Collateral Agent at least forty-five (45)
days prior written notice before it changes the location of its chief executive
office and shall at the expense of Grantor execute and deliver such instruments
and documents as required to maintain a prior perfected security interest and as
requested by the Collateral Agent. Grantor will hold and preserve such records
and will permit representatives of the Collateral Agent upon reasonable notice
during normal business hours to inspect and make abstracts from such records.
13. Continuing Assignment and Security Interest; Transfer. This
-----------------------------------------------------
Agreement shall create a continuing assignment of and security interest in the
Collateral and shall (i) remain in full force and effect until payment in full
of the Obligations, (ii) be binding upon Grantor, its successors and assigns and
(iii) inure, together with the rights and remedies of the Collateral Agent, to
the benefit of the Trustee, the Holders of the Senior Secured Notes, the
Permitted Additional Senior Lenders, if any, and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(iii), but subject to Section 2.06 of the Indenture, the Holders of the Senior
Secured Notes may assign or otherwise transfer their Senior Secured Notes to any
other Person, and such other Person shall thereupon become vested with all or an
appropriate part of the benefits in respect thereof granted to the Holders of
the Senior Secured Notes herein or otherwise. The release of the security
interest in any or all of the Collateral, the taking or acceptance of additional
security, or the resort by Collateral Agent to any security it may have in any
order it may deem appropriate, shall not affect the liability of any person on
the indebtedness secured hereby. Upon the payment in full of the Obligations,
the security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination, the Collateral
Agent shall, at Grantor's expense, execute and deliver to Grantor such documents
as Grantor shall reasonably request to evidence such termination. If this
Agreement shall be terminated or revoked by operation of law, Grantor will
indemnify and save Collateral Agent, Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, harmless from any
loss which may be suffered or incurred by Collateral Agent, Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
in acting hereunder prior to the receipt by Collateral Agent, its successors,
transferees, or assigns of written notice of such termination or revocation.
14. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
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15. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
16. Time. Time is of the essence of this Agreement.
----
17. Agreement for Security Purposes. This Agreement is for security
-------------------------------
purposes only. Accordingly, the Collateral Agent shall not, pursuant to this
Agreement, enforce Grantor's rights with respect to the Collateral, including
the exercise of any rights granted under the Consents, until such time as an
Event of Default shall have occurred and is continuing at the time such
enforcement is sought, and after any required notice of such enforcement has
been given, and until such time, subject to the terms of the Indenture and the
other Financing Documents, Grantor reserves the right to exercise all of its
right, title and interest in, to and under the Collateral (including the
Governmental Approvals).
18. Governing Law. This Agreement, including all matters of construction,
-------------
validity, performance and the creation, validity, enforcement or priority of the
lien of, and security interests created by, this Agreement in or upon the
Collateral shall be governed by the laws of the State of New York, without
reference to conflicts of law (other than Section 5-1401 of the New York General
Obligations Law), except as required by mandatory provisions of law and except
to the extent that the validity or perfection of the lien and security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York.
19. Reinstatement. This Agreement shall continue to be effective or be
-------------
reinstated, as the case may be, if at any time any amount received by Collateral
Agent in respect of the Obligations is rescinded or must otherwise be restored
or returned by Collateral Agent upon the insolvency, bankruptcy, reorganization,
liquidation of Grantor or any of the Coso Partnerships or upon the dissolution
of, or appointment of any intervenor or conservator of, or trustee or similar
official for, Grantor or any of the Coso Partnerships or any substantial part of
Grantor's or any of the Coso Partnership's assets, or otherwise, all as though
such payments had been made.
20. WAIVER OF JURY TRIAL. GRANTOR AND COLLATERAL AGENT HEREBY KNOWINGLY,
--------------------
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF COLLATERAL AGENT OR GRANTOR. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR COLLATERAL AGENT TO ENTER INTO THIS AGREEMENT.
12
<PAGE>
21. Amendment. No modification or waiver of any of the provisions of this
---------
Agreement shall be binding on Collateral Agent, except as expressly set forth in
a writing duly signed and delivered by Collateral Agent and which is otherwise
in accordance with Article 8 of the Indenture.
22. Duties and Liabilities of the Collateral Agent Generally.
--------------------------------------------------------
(a) The Collateral Agent undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement. The Collateral
Agent shall not have any duties or responsibilities except those expressly set
forth in this Agreement or be a trustee for or have any fiduciary obligation to
any party hereto.
(b) The duties and obligations of the Collateral Agent shall be
determined solely by the express provisions of this Agreement, and the
Collateral Agent shall take such action with respect to this Agreement as it
shall be directed in writing by Trustee, and the Collateral Agent shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement and no implied covenants or obligations
shall be read into this Agreement against the Collateral Agent; and
(i) In the absence of bad faith on the part of the
Collateral Agent, the Collateral Agent may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Collateral Agent which conform to the
requirements of this Agreement;
(ii) The Collateral Agent shall not be liable for any
error of judgment made in good faith by an officer or officers of the Collateral
Agent, unless it shall be conclusively determined by a court of competent
jurisdiction that the Collateral Agent was negligent in ascertaining the
pertinent facts; and
(iii) The Collateral Agent shall not be liable with
respect to any action taken or omitted to be taken by it in good faith in
accordance with any direction of Trustee or Grantor given under this Agreement.
(c) None of the provisions of this Agreement shall require the
Collateral Agent to expend or risk its own funds or otherwise to incur any
liability, financial or otherwise, in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk or liability is not assured to it.
(d) The Collateral Agent may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties.
(e) Whenever in the administration of the provisions of this
Agreement the Collateral Agent shall deem it necessary or desirable that a
matter be proved or established
13
<PAGE>
prior to taking or suffering any action to be taken hereunder, such matter
(unless other evidence in respect thereof be herein specifically prescribed)
may, in the absence of negligence or bad faith on the part of the Collateral
Agent, be deemed to be conclusively proved and established by a certificate
signed by a Responsible Officer of Trustee or Grantor as the case may be, and
delivered to the Collateral Agent and such certificate, in the absence of
negligence or bad faith on the part of the Collateral Agent, shall be full
warrant to the Collateral Agent for any action taken, suffered or omitted by it
under the provisions of this Agreement upon the faith thereof.
(f) The Collateral Agent may consult with counsel and the advice or
any opinion of counsel shall be full and complete authorization and protection
in respect of any action taken or omitted by it hereunder in good faith and in
accordance with such advice or opinion of counsel.
(g) The Collateral Agent shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, entitlement order,
approval or other paper or document.
(h) The Collateral Agent may execute any of the powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys,
custodians or nominees appointed with due care, and shall not be responsible for
any willful misconduct or negligence on the part of or for the supervision of,
any agent, attorney, custodian or nominee so appointed.
(i) Grantor covenants and agrees to pay to the Collateral Agent from
time to time, and the Collateral Agent shall be entitled to, the fees and
expenses agreed in writing between Grantor and the Collateral Agent, and will
further pay or reimburse the Collateral Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Collateral Agent in accordance with any of the provisions hereof or any other
documents executed in connection herewith (including the compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ). The obligations of Grantor under this Section 22(i) to compensate
the Collateral Agent and to pay or reimburse the Collateral Agent for reasonable
expenses, disbursements and advances shall survive the satisfaction and
discharge of this Agreement or the earlier resignation or removal of the
Collateral Agent.
(j) The Collateral Agent may at any time resign by giving 30 days
written notice of resignation to Trustee. Upon receiving such notice of
resignation, Grantor shall promptly appoint a successor and, upon the acceptance
by the successor of such appointment, release the resigning Collateral Agent
from its obligations hereunder by written instrument, a copy of which instrument
shall be delivered to each of Grantor and Trustee, the resigning Collateral
Agent and the successor. If no successor shall have been so appointed and have
accepted appointment within 45 days after the giving of such notice of
resignation, the resigning Collateral Agent may petition any court of competent
jurisdiction for the appointment of a successor.
14
<PAGE>
(k) Any corporation into which the Collateral Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Collateral Agent shall
be a party, or any corporation succeeding to the business of the Collateral
Agent shall be the successor of the Collateral Agent hereunder without the
execution or filing of any paper with any party hereto or any further act on the
part of any of the parties hereto except where an instrument of transfer or
assignment is required by law to effect such succession, anything herein to the
contrary notwithstanding.
(l) Neither the Collateral Agent nor any of its officers, directors,
employees or agents shall be liable for any action taken or omitted under this
Agreement or in connection therewith except to the extent caused by the
Collateral Agent's negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction, no longer subject to appeal or
review. The parties each (for itself and any person or entity claiming through
it) hereby releases, waives, discharges, exculpates and covenants not to sue the
Collateral Agent for any action taken or omitted under this Agreement except to
the extent caused by the Collateral Agent's negligence or willful misconduct.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Collateral Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if the Collateral Agent has been advised of the likelihood of such loss or
damage and regardless of the form of action,
(m) Grantor shall indemnify, defend and hold harmless the Collateral
Agent and its officers, directors, employees, representatives and agents, from
and against and reimburse the Collateral Agent for any and all claims, expenses,
obligations, liabilities, losses, damages, injuries (to person, property, or
natural resources), penalties, stamp or other similar taxes, actions, suits,
judgments, reasonable costs and expenses (including reasonable attorney's and
agent's fees and expenses) of whatever kind or nature regardless of their merit,
demanded, asserted or claimed against the Collateral Agent directly or
indirectly relating to, or arising from, claims against the Collateral Agent by
reason of its participation in the transactions contemplated hereby, including
without limitation all reasonable costs required to be associated with claims
for damages to persons or property, and reasonable attorneys' and consultants'
fees and expenses and court costs except to the extent caused by the Collateral
Agent's negligence or willful misconduct. The provisions of this Section 22(m)
shall survive the termination of this Agreement or the earlier resignation or
removal of the Collateral Agent.
(n) The Collateral Agent shall not be responsible in any manner
whatsoever for the correctness of any recitals, statements, representations or
warranties contained herein or in the other Security Documents, except for those
made by the Collateral Agent, or for filing any financing statement,
continuation statement or any other perfection instrument or notice, or for
recording or re-recording any Security Document in any public office at any time
or for taking any other action to perfect or maintain the perfection, priority
or effectiveness of any interest on any of the Collateral or in any other
property granted to it hereunder or under any of the other Security Documents.
The Collateral Agent makes no representations as to the value or condition of
the Collateral or any part thereof, or as to the title of the Grantor thereto or
as to the security afforded by the Security Documents or this Agreement or as to
the validity,
15
<PAGE>
execution, enforceability, legality or sufficiency of this Agreement, of any
other Security Document, of the Obligations secured hereby and thereby and the
Collateral Agent shall incur no liability or responsibility in respect of any
such matters. The Collateral Agent shall not be responsible for insuring the
Collateral or for the payment of taxes, charges, assessments or liens upon the
Collateral or for the maintenance of the Collateral, except that in the event
the Collateral Agent enters into possession of all or any part of the
Collateral, the Collateral Agent shall preserve the portion of the Collateral in
its possession.
(o) The Collateral Agent shall not be required to ascertain or
inquire as to the Grantor's performance of any of the covenants or agreements
contained herein or in any Security Document. Whenever it is necessary, or in
the opinion of the Collateral Agent advisable, for the Collateral Agent to
ascertain the amount of obligations then held by a Trustee, on behalf of the
Holders of the Senior Secured Notes, or Permitted Additional Senior Lender, the
Collateral Agent may conclusively rely on a certificate of such party as to such
amount.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this
Security Agreement to be duly executed by their partners and officers thereunto
duly authorized, as of the day and year first above written.
GRANTOR:
- --------
COSO OPERATING COMPANY LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
---------------------------------
Name: Christopher T. McCallion
its: Executive Vice President
<PAGE>
COLLATERAL AGENT:
- -----------------
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
--------------------------
Name: Judy P. Manansala
its: Trust Officer
The undersigned consents 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/ Christopher T. McCallion
------------------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
------------------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
Exhibit 10.20
SECURITY AGREEMENT
(Governmental Approvals)
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
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. Definitions........................................................ 2
2. Assignment, Pledge and Grant of Security Interest.................. 2
3. Obligations Secured................................................ 3
4. Events of Default.................................................. 3
5. Remedies........................................................... 4
6. Remedies Cumulative; Delay Not Waiver.............................. 5
7. Covenants.......................................................... 6
8. Certain Consents and Waivers....................................... 6
9. Representations and Warranties..................................... 8
10. Notices............................................................ 9
11. Further Assurances................................................. 10
12. Place of Perfection; Records....................................... 11
13. Continuing Assignment and Security Interest; Transfer.............. 11
14. Attorneys' Fees.................................................... 11
15. Severability....................................................... 12
16. Time............................................................... 12
17. Agreement for Security Purposes.................................... 12
18. Governing Law...................................................... 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
19. Reinstatement...................................................... 12
20. WAIVER OF JURY TRIAL............................................... 12
21. Amendment.......................................................... 13
22. Duties and Liabilities of the Collateral Agent Generally........... 13
</TABLE>
ii
<PAGE>
SECURITY AGREEMENT
------------------
This Security Agreement ("Agreement"), dated as of May 28, 1999, is entered
---------
into by and between COSO OPERATING COMPANY LLC, a Delaware limited liability
company ("Grantor"), and U.S. BANK TRUST NATIONAL ASSOCIATION, in its capacity
-------
as collateral agent ("Collateral Agent"), for the benefit of U.S. BANK TRUST
----------------
NATIONAL ASSOCIATION, in its capacity as trustee ("Trustee") for the holders of
-------
all senior secured notes issued pursuant to that certain Indenture dated as of
May 28, 1999 (the "Indenture"), among Trustee, Coso Finance Partners, a
---------
California general partnership ("Navy I"), Coso Energy Developers, a California
general partnership ("BLM"), Coso Power Developers, a California general
---
partnership ("Navy II"), and Caithness Coso Funding Corp., a Delaware
-------
corporation (the "Issuer") (such notes, the "Senior Secured Notes," and the
------ --------------------
holders thereof, the "Holders of the Senior Secured Notes") and all other
-----------------------------------
Permitted Additional Senior Lenders (as defined in the Indenture).
PREFACE
-------
A. Issuer has, as of the date of this Security Agreement, issued
$413,000,000 of the Senior Secured Notes, the proceeds of which will be used to
make loans to the Coso Partnerships.
B. Pursuant to a Guarantee dated as of the date of this Security
Agreement (the "Guarantee") the Coso Partnerships have guaranteed to Trustee and
---------
the Holders of the Senior Secured Notes the payment and performance of Issuer's
obligations under the Senior Secured Notes and the Indenture.
C. The Grantor is party to the Amended and Restated Field Operation and
Maintenance Agreement dated as of May 28, 1999, by and between Navy II and the
Grantor (the "Field O&M Agreement"), and the Amended and Restated Plant
-------------------
Operation and Maintenance Agreement dated as of May 28, 1999, by and between
Navy II, FPL Energy Operating Services, Inc., a Florida corporation, and the
Grantor.
D. As a condition precedent to the sale of the Senior Secured Notes, the
Grantor is required to have executed this Security Agreement as security for the
payment and performance of the Navy II's obligations under the Guarantee.
E. As additional security for the payment and performance of Navy II's
obligations under the Guarantee, it is the intent of Grantor to grant to the
Collateral Agent, for the benefit of the Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, a security
interest in the Collateral (as defined below) as security for the payment and
performance of Navy II's obligations under the Guarantee.
AGREEMENT
---------
In consideration of the premises herein, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with the Collateral Agent as follows:
1
<PAGE>
1. Definitions. (a) Unless otherwise defined, all terms used herein
-----------
which are defined in the Indenture shall have their respective meanings therein
defined and the Rules of Interpretation included in the Indenture shall apply
hereto. All terms defined in the UCC shall have the respective meanings given to
those terms in the UCC; and (b) "UCC" shall mean the Uniform Commercial Code as
the same may, from time to time, be in effect in the State of New York;
provided, however, in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of the security interest in
any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.
2. Assignment, Pledge and Grant of Security Interest.
-------------------------------------------------
(a) To secure the timely payment and performance of the Obligations
(as that term is defined in Section 3), Grantor does hereby assign, grant and
pledge to, and subject to a security interest in favor of, the Collateral Agent,
on behalf of the Trustee, the Holders of the Senior Secured Notes, and the
Permitted Additional Senior Lenders, if any, all the estate, right, title and
interest of Grantor, whether now owned or hereafter acquired, in, to and under:
(i) all Governmental Approvals (as defined in the Indenture)
relating to the Navy II Project whether now existing or hereafter acquired,
excluding, however, any such Governmental Approvals and consents which by their
terms or by operation of law would become void solely by virtue of a security
interest being granted therein;
(ii) the proceeds of all of the foregoing (all of the collateral
described in clauses (i) and (ii) being herein collectively referred to as the
"Collateral"), including without limitation (1) all rights of Grantor to receive
moneys due and to become due under or pursuant to the Collateral, (2) all rights
of Grantor to receive return of any premiums for or proceeds of any insurance,
indemnity, warranty or guaranty with respect to the Collateral or to receive
condemnation proceeds, (3) all claims of Grantor for damages arising out of or
for breach of or default under the Governmental Approvals or any other
Collateral, and (4) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed, whether voluntarily or
involuntarily.
(b) Grantor has heretofore delivered or concurrently with the
delivery hereof is delivering to the Collateral Agent, a true and correct copy
of each of the Governmental Approvals. Grantor will deliver to Collateral Agent
a true and correct copy of any additional Governmental Approval, and material
amendments and supplements to the foregoing, included in the Collateral, as they
are obtained by Grantor.
(c) Anything herein contained to the contrary notwithstanding,
Grantor shall remain liable under each of the Governmental Approvals, to perform
all of the obligations undertaken by it thereunder, all in accordance with and
pursuant to the terms and provisions
2
<PAGE>
thereof, and the Collateral Agent shall have no obligation or liability under
any of such Governmental Approvals by reason of or arising out of this Agreement
(during the period of Grantor's right of use and possession thereof as provided
herein), nor shall the Collateral Agent be required or obligated in any manner
to perform or fulfill any obligations of Grantor thereunder.
(d) Upon the occurrence and during the continuance of an Event of
Default, Grantor does hereby constitute the Collateral Agent, acting for and on
behalf of Trustee, the Holders of the Senior Secured Notes, and the Permitted
Additional Senior Lenders, if any, and each successor or assign thereof, the
true and lawful attorney of Grantor, irrevocably, with full power coupled with
an interest (in the name of Grantor or otherwise) to ask, require, demand,
receive, compound and give acquittance for any and all claims arising out of the
Governmental Approvals to elect remedies thereunder, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or
take any action or institute any proceedings in connection therewith which the
Collateral Agent may deem to be necessary or advisable; provided, however, that
the Collateral Agent shall give Grantor notice of any action taken by it as such
attorney-in-fact promptly after taking any such action.
3. Obligations Secured. This Agreement and all of the Collateral
-------------------
secure the payment and performance of Grantor's (a) obligations under the
Guarantee, including, but not limited to, the payment of all amounts owed to
Trustee for the benefit of the Holders of the Senior Secured Notes and (b)
obligations owing, if any, to the Permitted Additional Senior Lenders, of every
kind and description (whether or not evidenced by any note or instrument and
whether or not for the payment of money), direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, pursuant to
the terms of the Guarantee, or any other instrument evidencing Permitted
Indebtedness (other than Permitted Indebtedness described in clause (4) of the
definition of Permitted Indebtedness), including, but not limited to, the
payment of all amounts owed to the Collateral Agent of every kind and
description (whether or not evidenced by any note or instrument and whether or
not for the payment of money), direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, pursuant to the terms of
the Indenture, the Financing Documents or this Agreement, including all
interest, fees, charges, expenses, attorney's fees and accountant's fees (all
such obligations being herein called the "Obligations").
-----------
4. Events of Default. The following shall constitute an Event of
-----------------
Default hereunder:
(a) The occurrence and continuance of an Event of Default under the
Indenture, whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body; and
(b) the failure on the part of Grantor to observe or perform any
covenant, condition or agreement on its part to be observed or performed under,
or the breach of any representation or warranty of Grantor contained in this
Agreement and such failure continues uncured for 30 or more days from the date a
Responsible Officer of Grantor receives notice thereof
3
<PAGE>
from the Collateral Agent; provided that if Grantor commences and diligently
pursues efforts to cure such default within such 30-day period, Grantor may
continue to effect such cure of the default and such default will not be deemed
an Event of Default for an additional 60 days so long as Grantor is diligently
pursuing such cure.
5. Remedies.
--------
(a) Subject to the terms of the Guarantee and the notice and other
requirements of applicable law, if any Event of Default has occurred and is
continuing, the Collateral Agent may (i) exercise the rights of acceleration set
forth in Section 5.2 of the Indenture, (ii) proceed to protect and enforce the
rights vested in it by this Agreement, and to enforce its rights hereunder by
such appropriate judicial proceedings as it shall deem most effective to protect
and enforce any of such rights, either at law or in equity or otherwise, whether
for specific enforcement of any covenant or agreement contained in any of the
Governmental Approvals, or in aid of the exercise of any power therein or herein
granted, or for any foreclosure hereunder and sale under a judgment or decree in
any judicial proceeding, or to enforce any other legal or equitable right vested
in it by this Agreement or by law; (iii) cause any action at law or suit in
equity or other proceeding to be instituted and prosecuted to collect or enforce
any Obligations or rights included in the Collateral, or to foreclose or enforce
any other agreement or other instrument by or under or pursuant to which such
Obligations are issued or secured, either in Grantor's name or in Collateral
Agent's name as Collateral Agent may deem necessary, subject in each case to the
provisions and requirements thereof; (iv) sell or otherwise dispose of any or
all of the Collateral or cause the Collateral to be sold or otherwise disposed
of in one or more sales or transactions, at such prices as the Collateral Agent
may deem commercially reasonable, and for cash or on credit or for future
delivery, without assumption of any credit risk, at any broker's board or at
public or private sale, without demand of performance or notice of intention to
sell or of time or place of sale (except such notice as is required by
applicable statute and cannot be waived or is contemplated herein or by the
other Financing Documents), it being agreed that the Collateral Agent may be a
purchaser on behalf of Trustee, the Holders of the Senior Secured Notes, the
Permitted Additional Senior Lenders, if any, or on its own behalf at any such
sale and that the Collateral Agent or anyone else who may be the purchaser of
any or all of the Collateral so sold shall thereafter hold the same absolutely,
free from any claim or right of whatsoever kind, including any equity of
redemption, of Grantor, any such demand, notice or right and equity being hereby
expressly waived and released to the extent permitted by law; (v) incur
reasonable expenses, including reasonable attorneys' fees, consultants' fees,
and other costs appropriate to the exercise of any right or power under this
Agreement; (vi) perform any obligation of Grantor under this Agreement, or under
any other Financing Document, Project Document or Additional Project Document,
and make payments, purchase, contest or compromise any encumbrance, charge, or
lien, and pay taxes and expenses, without, however, any obligation so to do;
(vii) take possession of the Collateral and render it usable, and repair and
renovate the same, without, however, any obligation to do so, and enter upon the
site where the Project is located or any other location where the same may be
located for that purpose, control, manage, operate, rent and lease the
Collateral, either separately or in conjunction with the Project, collect all
rents and income from the Collateral and apply the same to reimburse the Holders
of the Senior Secured Notes or the Permitted Additional Senior Lenders, if any,
for any cost or expenses incurred hereunder or
4
<PAGE>
under any of the Financing Documents and to the payment or performance of the
Obligations, and apply the balance to whomsoever is legally entitled thereto;
(viii) secure the appointment of a receiver of the Collateral or any part
thereof (to the extent and in the manner provided by applicable law); or (ix)
exercise any other or additional rights or remedies granted to a secured party
under the UCC. If, pursuant to applicable law, prior notice of any such action
is required to be given to Grantor, Grantor hereby acknowledges that the minimum
time required by such applicable law, or if no minimum is specified, ten (10)
Business Days, shall be deemed a reasonable notice period. Notwithstanding
anything herein to the contrary, any purchase price obtained by the Collateral
Agent in a foreclosure sale instituted and prosecuted in accordance with the
terms hereof shall be deemed binding and conclusive on the parties hereto and
the Trustee, the Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any.
(b) All costs and expenses (including, but without being limited to,
reasonable attorneys' fees and expenses) incurred by the Collateral Agent in
connection with any such suit or proceeding, or in connection with the
performance by the Collateral Agent of any of Grantor's agreements contained
herein or in any exercise of Collateral Agent's rights or remedies hereunder,
including any of the Governmental Approvals pursuant to the terms of this
Agreement, together with interest thereon (to the extent permitted by law)
computed at a rate per annum equal to the "Prime Rate" of Bankers Trust Company,
as such rate is announced from time to time, plus one percent (1%), said rate to
change when and as the said Prime Rate changes, from the date on which such
costs or expenses are incurred to the date of payment thereof, shall constitute
additional indebtedness secured by this Agreement and shall be paid by Grantor
to the Trustee on demand.
6. Remedies Cumulative; Delay Not Waiver.
-------------------------------------
(a) No right, power or remedy herein conferred upon or reserved to
the Collateral Agent is intended to be exclusive of any other right, power or
remedy, and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Resort to any or all security now or hereafter held by the
Collateral Agent, may be taken concurrently or successively and in one or
several consolidated or independent judicial actions or lawfully taken
nonjudicial proceedings, or both.
(b) No delay or omission of the Collateral Agent to exercise any
right or power accruing upon the occurrence and during the continuance of any
Event of Default as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein; and every power and remedy given by this Agreement may be exercised
from time to time, and as often as shall be deemed expedient, by the Collateral
Agent.
(c) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority
5
<PAGE>
specified in Section 5.10 of the Indenture. If all Obligations and any other
amounts due under this Agreement have been indefeasibly paid, satisfied and
discharged in full, any surplus then remaining shall be paid to Grantor, if it
is lawfully entitled to receive the same, or shall be paid to whomsoever a court
of competent jurisdiction may direct.
7. Covenants. Grantor covenants as follows:
---------
(a) Any action or proceeding to enforce this Agreement or any
Assigned Agreement may be taken by the Collateral Agent either in Grantor's name
or in the Collateral Agent's name, as the Collateral Agent may deem necessary.
(b) Not to make any other assignment (other than to Collateral Agent)
of its rights under the Governmental Approvals.
(c) To do all acts that may reasonably be necessary to maintain,
preserve and protect the Collateral.
(d) Not to use or permit any Collateral to be used unlawfully or in
material violation of any provision of applicable statute, regulation or
ordinance.
(e) To pay promptly when due all taxes, assessments, charges,
encumbrances and liens now or hereafter imposed upon or affecting any
Collateral.
(f) To procure, execute and deliver from time to time any
endorsements, assignments, financing statements and other writings reasonably
necessary to perfect, maintain and protect the Collateral Agent's security
interest hereunder and the priority thereof.
(g) To appear in and defend any action or proceeding that may affect
its title to or the Collateral Agent's interest in the Collateral.
(h) Not to sell, encumber, lease, rent, or otherwise dispose of or
transfer any Collateral or right or interest therein.
(i) To comply with all laws, regulations and ordinances relating to
the Collateral.
8. Certain Consents and Waivers.
----------------------------
(a) Grantor hereby waives, to the maximum extent permitted by law (i)
all rights under any law limiting remedies, including recovery of a deficiency,
under an obligation secured by a deed of trust on real property if the real
property is sold under a power of sale contained in the deed of trust, and all
defenses based on any loss whether as a result of any such sale or otherwise, of
Grantor's right to recover any amount from Navy II, whether by right of
subrogation or otherwise; (ii) all rights under any law to require Collateral
Agent to pursue Navy II or any other Person, any security which Collateral Agent
may hold, or any other remedy before proceeding against Grantor; (iii) all
rights of reimbursement or subrogation, all rights to enforce any remedy that
Collateral Agent, the Trustee, the Holders of the Senior Secured Notes or the
6
<PAGE>
Permitted Additional Senior Lenders, if any, may have against Navy II, and all
rights to participate in any security held by Collateral Agent until the
Obligations have been paid and the covenants of the Indenture have been
performed in full; (iv) all rights to require Collateral Agent to give any
notices of any kind, including without limitation notices of nonpayment,
nonperformance, protest, dishonor, default, delinquency or acceleration, or to
make any presentments, demands or protests, except as expressly provided herein
and in the Indenture; (v) all rights to assert the bankruptcy or insolvency of
Navy II as a defense hereunder or as the basis for rescission hereof; (vi) all
rights under any law purporting to reduce Grantors' Obligations hereunder if
Navy II's Obligations are reduced; (vii) all defenses based on the disability or
lack of authority of Navy II or any Person, the repudiation of the Guarantees or
any related Financing Documents by Navy II or any Person, the failure by
Collateral Agent, the Trustee, the Holders of the Senior Secured Notes or any
Permitted Additional Senior Lender, if any, to enforce any claim against Navy
II, or the unenforceability in whole or in part of any Financing Document;
(viii) all suretyship and guarantor's defenses generally; (ix) all rights to
insist upon, plead or in any manner whatever claim or take the benefit or
advantage of, any appraisal, valuation, stay, extension, marshaling of assets,
redemption or similar law, or exemption, whether now or at any time hereafter in
force, which may delay, prevent or otherwise affect the performance by Grantor
or its obligations under, or the enforcement by Collateral Agent of, this
Agreement; (x) any requirement on the part of Collateral Agent, Trustee, the
Holders of the Senior Secured Notes or any Permitted Additional Senior Lender,
if any, to mitigate the damages resulting from any default; and (xi) except as
otherwise specifically set forth herein, all rights of notice and hearing of any
kind prior to the exercise of rights by Collateral Agent upon the occurrence and
during the continuation of an Event of Default to repossess with judicial
process or to replevy, attach or levy upon the Collateral. To the extent
permitted by applicable law, Grantor waives the posting of any bond otherwise
required of Collateral Agent in connection with any judicial process or
proceeding to obtain possession of, replevy, attach, or levy upon the
Collateral, to enforce any judgment or other security for the Obligations, to
enforce any judgment or other court order entered in favor of Collateral Agent,
or to enforce by specific performance, temporary restraining order, preliminary
or permanent injunction, this Agreement or any other agreement or document
between Grantor, Collateral Agent, Trustee, the Holders of the Senior Secured
Notes or any Permitted Additional Senior Lender, if any. Grantor further agrees
that upon the occurrence and continuance of an Event of Default, Collateral
Agent may elect to nonjudicially or judicially foreclose against any real or
personal property security it holds for the Obligations or any part thereof, or
to exercise any other remedy against Navy II, any security or any guarantor,
even if the effect of that action is to deprive a Grantor of the right to
collect reimbursement from Navy II for any sums paid by Grantor to Collateral
Agent, Trustee or any Holder of the Senior Secured Notes or any Permitted
Additional Senior Lender, if any.
(b) If Collateral Agent may, under applicable law, proceed to realize
its benefits under any of the Financing Documents giving Collateral Agent a Lien
upon any Collateral, whether owned by any Navy II, Grantor or by any other
Person, either by judicial foreclosure or by nonjudicial sale or enforcement,
Collateral Agent may, at its sole option, determine which of its remedies or
rights it may pursue without affecting any of the rights and remedies of
Collateral Agent under this Agreement. In the event Collateral Agent shall bid
at any foreclosure or trustee's sale or at any private sale permitted by law or
the Financing Documents, Collateral Agent may bid all or less than the amount of
Obligations. To the extent permitted by applicable law, the amount of
7
<PAGE>
the successful bid at any such sale, whether Collateral Agent or any other party
is the successful bidder, shall be conclusively deemed to be the fair market
value of the Collateral and the difference between such bid amount and the
remaining balance of the Obligations shall be conclusively deemed to be the
amount of the Obligations.
9. Representations and Warranties. Grantor represents and warrants as
------------------------------
follows:
(a) No effective financing statement or other instrument similar in
effect covering all or any part of Grantor's interest in the Collateral is on
file in any recording office, except such as may have been filed pursuant to
this Agreement and the other Financing Documents or pursuant to the documents
evidencing Permitted Liens.
(b) Grantor has not assigned any of its rights under the Governmental
Approvals except as specifically provided in this Agreement or as set forth in
the Indenture.
(c) Grantor will perform and comply, in all material respects, with
all obligations and conditions on its part to be performed hereunder, under the
Field O&M Agreement or with respect to the Collateral.
(d) Grantor (i) is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite power and authority under the laws of its state of
organization to enter into this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby, (ii) is duly
qualified, authorized to do business and in good standing in each jurisdiction
where the character of its properties or the nature of its activities makes such
qualification necessary, and (iii) has all requisite power and authority to
carry on its business as now being conducted and as proposed to be conducted by
it, (X) to execute, deliver and perform this Agreement, (Y) to take all action
as may be necessary to consummate the transactions contemplated hereunder, and
(Z) to grant liens and security interest provided for in this Agreement.
(e) Grantor has (i) taken all necessary action to authorize the
execution, delivery and performance of this Agreement; and (ii) duly executed
and delivered this Agreement. Neither Grantor's execution and delivery of this
Agreement nor its consummation of the transactions contemplated hereby nor its
compliance with the terms hereof (i) does or will contravene the documents of
formation of Grantor or any other requirements of law applicable to or binding
on such Grantor or any of its properties, (ii) does or will contravene or result
in any breach of or constitute any default under, or result in or require the
creation of any Lien (other than Permitted Liens) upon any of its property
under, any agreement or instrument to which it is a party or by which it or any
of its properties may be bound or affected or (iii) does or will require the
consent or approval of any Person which has not already been obtained.
(f) This Agreement is the legal, valid and binding obligation of such
Grantor, enforceable against such Grantor in accordance with its terms, except
to the extent the enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and subject to general equitable
principles.
8
<PAGE>
(g) Grantor is the lawful owner of and has full right, title and
interest in and to, the Collateral, subject to no mortgages, liens, charges, or
encumbrances of any kind and has full power and lawful authority to pledge,
assign and grant a security interest in the Collateral granted by it hereunder.
Grantor will, so long as any Obligations shall be outstanding, warrant and
defend its title to the Collateral against any claims and demands which may
affect to a material extent its title to, or the Collateral Agent's right or
interest in, such Collateral.
(h) Grantor will not directly or indirectly create, incur, assume or
suffer to exist any Liens on or with respect to any part of the Collateral other
than the rights and interests of the Collateral Agent, the Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
hereunder. Grantor will at its own cost and expense promptly take such action
as may be necessary to discharge any such liens not so permitted.
(i) Any action or proceeding to enforce the rights granted or to
protect or preserve the Collateral under this Agreement may be taken by
Collateral Agent either in Grantor's name or in Collateral Agent's name, as
Collateral Agent may deem necessary.
(j) Grantor will, at all times, keep accurate and complete records of
the Collateral. Grantor shall, at all times on three (3) Business Days' notice,
permit representatives of Collateral Agent at any time during normal business
hours of such Grantor to inspect and make abstracts from such Grantor's books
and records pertaining to the Collateral. Upon the occurrence and continuance of
any Event of Default, at Collateral Agent's request, Grantor shall promptly
deliver any and all such records to Collateral Agent.
(k) Grantor will give prompt notice in writing to Collateral Agent of
any change in the location of the place of business where correspondence,
notices or proceeds in connection with the Collateral are received or located or
of any change in the location of the place of business where records concerning
Collateral are kept.
10. Notices. Any notice or communication by the Grantor or the Collateral
-------
Agent to the other is duly given if in writing and delivered in person or mailed
by first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
other's address:
If to the Grantor:
Coso Operating Company
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Telecopier No.: (212) 921-9239
Attention: Christopher T. McCallion
With a copy to:
9
<PAGE>
Riordan & McKenzie
300 South Grand Avenue
Twenty-Ninth Floor
Los Angeles, Ca 90071
Telecopier No.: (213) 629-4824
Attention: Thomas L. Harnsberger, Esq.
If to the Collateral Agent:
U.S. Bank Trust National Association
One California Street
Fourth Floor
San Francisco, California 94111
Telecopier No.: (415) 273-4590
11. Further Assurances.
------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or required, or that the
Collateral Agent may reasonably request, in order to perfect and protect the
assignment and security interest granted or intended to be granted hereby or to
enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of the
foregoing, Grantor will: (i) if any Collateral shall be evidenced by a
promissory note or other instrument, deliver and pledge to the Collateral Agent,
for the benefit of Trustee, the Holders of Senior Secured Notes and the
Permitted Additional Senior Lenders, if any, such note or instrument duly
endorsed (without recourse) and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to enable the
Collateral Agent to enforce the provisions of this Agreement and the security
interests described herein; and (ii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments,
endorsement or notices, as may be necessary or required, or as the Collateral
Agent may reasonably request, in order to perfect and preserve the assignments
and security interests granted or purported to be granted hereby; it being
understood and agreed that the Collateral Agent shall have no obligation in
respect of the filing of such statements or in the perfection or preservation of
any such security interests.
(b) Grantor hereby authorizes the Collateral Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of Grantor where
permitted by law. Copies of any such statement or amendment thereto shall
promptly be delivered to Grantor .
(c) Grantor shall pay all filing, registration and recording fees or
refiling, re-registration and re-recording fees, and all expenses incident to
the execution and acknowledgment of this Agreement, any instruments of further
assurance, and (except as
10
<PAGE>
otherwise provided in the Indenture) all federal, state, county and municipal
stamp taxes and other taxes, duties, imports, assessments and charges arising
out of or in connection with the execution and delivery of this Agreement, any
agreement supplemental hereto and any instruments of further assurance.
12. Place of Perfection; Records. The location of Grantor's chief
----------------------------
executive office is 1114 Avenue of the Americas, New York, New York 10036-7790,
and the location of Grantor's place of business is Inyo and Kern County,
California. Grantor shall give the Collateral Agent at least forty-five (45)
days prior written notice before it changes the location of its chief executive
office and shall at the expense of Grantor execute and deliver such instruments
and documents as required to maintain a prior perfected security interest and as
requested by the Collateral Agent. Grantor will hold and preserve such records
and will permit representatives of the Collateral Agent upon reasonable notice
during normal business hours to inspect and make abstracts from such records.
13. Continuing Assignment and Security Interest; Transfer. This Agreement
-----------------------------------------------------
shall create a continuing assignment of and security interest in the Collateral
and shall (i) remain in full force and effect until payment in full of the
Obligations, (ii) be binding upon Grantor, its successors and assigns and (iii)
inure, together with the rights and remedies of the Collateral Agent, to the
benefit of the Trustee, the Holders of the Senior Secured Notes, the Permitted
Additional Senior Lenders, if any, and their respective successors, transferees
and assigns. Without limiting the generality of the foregoing clause (iii), but
subject to Section 2.06 of the Indenture, the Holders of the Senior Secured
Notes may assign or otherwise transfer their Senior Secured Notes to any other
Person, and such other Person shall thereupon become vested with all or an
appropriate part of the benefits in respect thereof granted to the Holders of
the Senior Secured Notes herein or otherwise. The release of the security
interest in any or all of the Collateral, the taking or acceptance of
additional security, or the resort by Collateral Agent to any security it may
have in any order it may deem appropriate, shall not affect the liability of
any person on the indebtedness secured hereby. Upon the payment in full of the
Obligations, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to Grantor. Upon any such termination,
the Collateral Agent shall, at Grantor's expense, execute and deliver to
Grantor such documents as Grantor shall reasonably request to evidence such
termination. If this Agreement shall be terminated or revoked by operation of
law, Grantor will indemnify and save Collateral Agent, Trustee, the Holders of
the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
harmless from any loss which may be suffered or incurred by Collateral Agent,
Trustee, the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, in acting hereunder prior to the receipt by Collateral
Agent, its successors, transferees, or assigns of written notice of such
termination or revocation .
14. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
11
<PAGE>
15. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
16. Time. Time is of the essence of this Agreement.
----
17. Agreement for Security Purposes. This Agreement is for security
-------------------------------
purposes only. Accordingly, the Collateral Agent shall not, pursuant to this
Agreement, enforce Grantor's rights with respect to the Collateral, including
the exercise of any rights granted under the Consents, until such time as an
Event of Default shall have occurred and is continuing at the time such
enforcement is sought, and after any required notice of such enforcement has
been given, and until such time, subject to the terms of the Indenture and the
other Financing Documents, Grantor reserves the right to exercise all of its
right, title and interest in, to and under the Collateral (including the
Governmental Approvals).
18. Governing Law. This Agreement, including all matters of construction,
-------------
validity, performance and the creation, validity, enforcement or priority of the
lien of, and security interests created by, this Agreement in or upon the
Collateral shall be governed by the laws of the State of New York, without
reference to conflicts of law (other than Section 5-1401 of the New York General
Obligations Law), except as required by mandatory provisions of law and except
to the extent that the validity or perfection of the lien and security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York.
19. Reinstatement. This Agreement shall continue to be effective or be
-------------
reinstated, as the case may be, if at any time any amount received by Collateral
Agent in respect of the Obligations is rescinded or must otherwise be restored
or returned by Collateral Agent upon the insolvency, bankruptcy, reorganization,
liquidation of Grantor or any of the Coso Partnerships or upon the dissolution
of, or appointment of any intervenor or conservator of, or trustee or similar
official for, Grantor or any of the Coso Partnerships or any substantial part of
Grantor's or any of the Coso Partnership's assets, or otherwise, all as though
such payments had been made.
20. WAIVER OF JURY TRIAL. GRANTOR AND COLLATERAL AGENT HEREBY KNOWINGLY,
--------------------
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF COLLATERAL AGENT OR GRANTOR. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR COLLATERAL AGENT TO ENTER INTO THIS AGREEMENT.
12
<PAGE>
21. Amendment. No modification or waiver of any of the provisions of this
---------
Agreement shall be binding on Collateral Agent, except as expressly set forth in
a writing duly signed and delivered by Collateral Agent and which is otherwise
in accordance with Article 8 of the Indenture.
22. Duties and Liabilities of the Collateral Agent Generally.
--------------------------------------------------------
(a) The Collateral Agent undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement. The Collateral
Agent shall not have any duties or responsibilities except those expressly set
forth in this Agreement or be a trustee for or have any fiduciary obligation to
any party hereto.
(b) The duties and obligations of the Collateral Agent shall be
determined solely by the express provisions of this Agreement, and the
Collateral Agent shall take such action with respect to this Agreement as it
shall be directed in writing by Trustee, and the Collateral Agent shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement and no implied covenants or obligations
shall be read into this Agreement against the Collateral Agent; and
(i) In the absence of bad faith on the part of the Collateral
Agent, the Collateral Agent may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Collateral Agent which conform to the
requirements of this Agreement;
(ii) The Collateral Agent shall not be liable for any error of
judgment made in good faith by an officer or officers of the Collateral Agent,
unless it shall be conclusively determined by a court of competent jurisdiction
that the Collateral Agent was negligent in ascertaining the pertinent facts; and
(iii) The Collateral Agent shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance with
any direction of Trustee or Grantor given under this Agreement.
(c) None of the provisions of this Agreement shall require the
Collateral Agent to expend or risk its own funds or otherwise to incur any
liability, financial or otherwise, in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk or liability is not assured to it.
(d) The Collateral Agent may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties.
(e) Whenever in the administration of the provisions of this
Agreement the Collateral Agent shall deem it necessary or desirable that a
matter be proved or established
13
<PAGE>
prior to taking or suffering any action to be taken hereunder, such matter
(unless other evidence in respect thereof be herein specifically prescribed)
may, in the absence of negligence or bad faith on the part of the Collateral
Agent, be deemed to be conclusively proved and established by a certificate
signed by a Responsible Officer of Trustee or Grantor as the case may be, and
delivered to the Collateral Agent and such certificate, in the absence of
negligence or bad faith on the part of the Collateral Agent, shall be full
warrant to the Collateral Agent for any action taken, suffered or omitted by it
under the provisions of this Agreement upon the faith thereof.
(f) The Collateral Agent may consult with counsel and the advice or
any opinion of counsel shall be full and complete authorization and protection
in respect of any action taken or omitted by it hereunder in good faith and in
accordance with such advice or opinion of counsel.
(g) The Collateral Agent shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, entitlement order,
approval or other paper or document.
(h) The Collateral Agent may execute any of the powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys,
custodians or nominees appointed with due care, and shall not be responsible for
any willful misconduct or negligence on the part of or for the supervision of,
any agent, attorney, custodian or nominee so appointed.
(i) Grantor covenants and agrees to pay to the Collateral Agent from
time to time, and the Collateral Agent shall be entitled to, the fees and
expenses agreed in writing between Grantor and the Collateral Agent, and will
further pay or reimburse the Collateral Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Collateral Agent in accordance with any of the provisions hereof or any other
documents executed in connection herewith (including the compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ). The obligations of Grantor under this Section 22(i) to compensate
the Collateral Agent and to pay or reimburse the Collateral Agent for reasonable
expenses, disbursements and advances shall survive the satisfaction and
discharge of this Agreement or the earlier resignation or removal of the
Collateral Agent.
(j) The Collateral Agent may at any time resign by giving 30 days
written notice of resignation to Trustee. Upon receiving such notice of
resignation, Grantor shall promptly appoint a successor and, upon the acceptance
by the successor of such appointment, release the resigning Collateral Agent
from its obligations hereunder by written instrument, a copy of which instrument
shall be delivered to each of Grantor and Trustee, the resigning Collateral
Agent and the successor. If no successor shall have been so appointed and have
accepted appointment within 45 days after the giving of such notice of
resignation, the resigning Collateral Agent may petition any court of competent
jurisdiction for the appointment of a successor.
14
<PAGE>
(k) Any corporation into which the Collateral Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Collateral Agent shall
be a party, or any corporation succeeding to the business of the Collateral
Agent shall be the successor of the Collateral Agent hereunder without the
execution or filing of any paper with any party hereto or any further act on the
part of any of the parties hereto except where an instrument of transfer or
assignment is required by law to effect such succession, anything herein to the
contrary notwithstanding.
(l) Neither the Collateral Agent nor any of its officers, directors,
employees or agents shall be liable for any action taken or omitted under this
Agreement or in connection therewith except to the extent caused by the
Collateral Agent's negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction, no longer subject to appeal or
review. The parties each (for itself and any person or entity claiming through
it) hereby releases, waives, discharges, exculpates and covenants not to sue the
Collateral Agent for any action taken or omitted under this Agreement except to
the extent caused by the Collateral Agent's negligence or willful misconduct.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Collateral Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if the Collateral Agent has been advised of the likelihood of such loss or
damage and regardless of the form of action,
(m) Grantor shall indemnify, defend and hold harmless the Collateral
Agent and its officers, directors, employees, representatives and agents, from
and against and reimburse the Collateral Agent for any and all claims, expenses,
obligations, liabilities, losses, damages, injuries (to person, property, or
natural resources), penalties, stamp or other similar taxes, actions, suits,
judgments, reasonable costs and expenses (including reasonable attorney's and
agent's fees and expenses) of whatever kind or nature regardless of their merit,
demanded, asserted or claimed against the Collateral Agent directly or
indirectly relating to, or arising from, claims against the Collateral Agent by
reason of its participation in the transactions contemplated hereby, including
without limitation all reasonable costs required to be associated with claims
for damages to persons or property, and reasonable attorneys' and consultants'
fees and expenses and court costs except to the extent caused by the Collateral
Agent's negligence or willful misconduct. The provisions of this Section 22(m)
shall survive the termination of this Agreement or the earlier resignation or
removal of the Collateral Agent.
(n) The Collateral Agent shall not be responsible in any manner
whatsoever for the correctness of any recitals, statements, representations or
warranties contained herein or in the other Security Documents, except for those
made by the Collateral Agent, or for filing any financing statement,
continuation statement or any other perfection instrument or notice, or for
recording or re-recording any Security Document in any public office at any time
or for taking any other action to perfect or maintain the perfection, priority
or effectiveness of any interest on any of the Collateral or in any other
property granted to it hereunder or under any of the other Security Documents.
The Collateral Agent makes no representations as to the value or condition of
the Collateral or any part thereof, or as to the title of the Grantor thereto or
as to the security afforded by the Security Documents or this Agreement or as to
the validity,
15
<PAGE>
execution, enforceability, legality or sufficiency of this Agreement, of any
other Security Document, of the Obligations secured hereby and thereby and the
Collateral Agent shall incur no liability or responsibility in respect of any
such matters. The Collateral Agent shall not be responsible for insuring the
Collateral or for the payment of taxes, charges, assessments or liens upon the
Collateral or for the maintenance of the Collateral, except that in the event
the Collateral Agent enters into possession of all or any part of the
Collateral, the Collateral Agent shall preserve the portion of the Collateral in
its possession.
(o) The Collateral Agent shall not be required to ascertain or
inquire as to the Grantor's performance of any of the covenants or agreements
contained herein or in any Security Document. Whenever it is necessary, or in
the opinion of the Collateral Agent advisable, for the Collateral Agent to
ascertain the amount of obligations then held by a Trustee, on behalf of the
Holders of the Senior Secured Notes, or Permitted Additional Senior Lender, the
Collateral Agent may conclusively rely on a certificate of such party as to such
amount.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this
Security Agreement to be duly executed by their partners and officers thereunto
duly authorized, as of the day and year first above written.
GRANTOR:
- --------
COSO OPERATING COMPANY LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
--------------------------------------
Name: Christopher T. McCallion
its: Executive Vice President
<PAGE>
COLLATERAL AGENT:
- -----------------
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------------
Name: Judy P. Manansala
its: Trust Officer
The undersigned consents and agrees to the foregoing:
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
------------------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
------------------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
Exhibit 10.21
SECURITY AGREEMENT (NAVY I)
(Governmental Approvals)
Dated as
of May 28, 1999
between
FPL ENERGY OPERATING SERVICES, INC.,
a Florida corporation,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
1. Definitions................................................. 2
2. Assignment, Pledge and Grant of Security Interest........... 2
3. Obligations Secured......................................... 3
4. Events of Default........................................... 3
5. Remedies.................................................... 4
6. Remedies Cumulative; Delay Not Waiver....................... 5
7. Covenants................................................... 6
8. Certain Consents and Waivers................................ 6
9. Representations and Warranties.............................. 8
10. Notices.................................................... 9
11. Further Assurances......................................... 10
12. Place of Perfection; Records............................... 11
13. Continuing Assignment and Security Interest; Transfer...... 11
14. Attorneys' Fees............................................ 12
15. Severability............................................... 12
16. Time....................................................... 12
17. Agreement for Security Purposes............................ 12
18. Governing Law.............................................. 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
19. Reinstatement.............................................. 12
20. Waiver of Jury Trial....................................... 13
21. Amendment.................................................. 13
22. Duties and Liabilities of the Collateral Agent Generally... 13
</TABLE>
ii
<PAGE>
SECURITY AGREEMENT
------------------
This Security Agreement ("Agreement"), dated as of May 28, 1999, is entered
---------
into by and between FPL ENERGY OPERATING SERVICES, INC., a Florida corporation
("Grantor"), and U.S. BANK TRUST NATIONAL ASSOCIATION, in its capacity as
-------
collateral agent ("Collateral Agent"), for the benefit of U.S. BANK TRUST
----------------
NATIONAL ASSOCIATION, in its capacity as trustee ("Trustee") for the holders of
-------
all senior secured notes issued pursuant to that certain Indenture dated as of
May 28, 1999 (the "Indenture"), among Trustee, Coso Finance Partners, a
---------
California general partnership ("Navy I"), Coso Energy Developers, a California
general partnership ("BLM"), Coso Power Developers, a California general
---
partnership ("Navy II"), and Caithness Coso Funding Corp., a Delaware
-------
corporation (the "Issuer") (such notes, the "Senior Secured Notes," and the
------ --------------------
holders thereof, the "Holders of the Senior Secured Notes") and all other
----------------------
Permitted Additional Senior Lenders (as defined in the Indenture).
PREFACE
-------
A. Issuer has, as of the date of this Security Agreement, issued
$413,000,000 of the Senior Secured Notes, the proceeds of which will be used to
make loans to the Coso Partnerships.
B. Pursuant to a Guarantee dated as of the date of this Security
Agreement (the "Guarantee") the Coso Partnerships have guaranteed to Trustee and
---------
the Holders of the Senior Secured Notes the payment and performance of Issuer's
obligations under the Senior Secured Notes and the Indenture.
C. The Grantor is party to the Operation and Maintenance Agreement dated
as of May 28, 1999, by and between Navy I and the Grantor (the "Plant O&M
---------
Agreement").
- ---------
D. As a condition precedent to the sale of the Senior Secured Notes, the
Grantor is required to have executed this Security Agreement as security for the
payment and performance of the Navy I's obligations under the Guarantee.
E. As additional security for the payment and performance of Navy I's
obligations under the Guarantee, it is the intent of Grantor to grant to the
Collateral Agent, for the benefit of the Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, a security
interest in the Collateral (as defined below) as security for the payment and
performance of Navy I's obligations under the Guarantee.
AGREEMENT
---------
In consideration of the premises herein, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with the Collateral Agent as follows:
1
<PAGE>
1. Definitions. (a) Unless otherwise defined, all terms used herein
-----------
which are defined in the Indenture shall have their respective meanings therein
defined and the Rules of Interpretation included in the Indenture shall apply
hereto. All terms defined in the UCC shall have the respective meanings given to
those terms in the UCC; and (b) "UCC" shall mean the Uniform Commercial Code as
the same may, from time to time, be in effect in the State of New York;
provided, however, in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of the security interest in
any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.
2. Assignment, Pledge and Grant of Security Interest.
-------------------------------------------------
(a) To secure the timely payment and performance of the Obligations
(as that term is defined in Section 3), Grantor does hereby assign, grant and
pledge to, and subject to a security interest in favor of, the Collateral Agent,
on behalf of the Trustee, the Holders of the Senior Secured Notes, and the
Permitted Additional Senior Lenders, if any, all the estate, right, title and
interest of Grantor, whether now owned or hereafter acquired, in, to and under:
(i) all Governmental Approvals (as defined in the Indenture),
solely to the extent relating to the Navy I Project, whether now existing or
hereafter acquired; excluding, however, any such Governmental Approvals and
consents which by their terms or by operation of law would become void solely by
virtue of a security interest being granted therein;
(ii) the proceeds of all of the foregoing (all of the collateral
described in clauses (i) and (ii) being herein collectively referred to as the
"Collateral"), including without limitation (1) all rights of Grantor to receive
moneys due and to become due under or pursuant to the Collateral, (2) all rights
of Grantor to receive return of any premiums for or proceeds of any insurance,
indemnity, warranty or guaranty with respect to the Collateral or to receive
condemnation proceeds, (3) all claims of Grantor for damages arising out of or
for breach of or default under the Governmental Approvals or any other
Collateral, and (4) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed, whether voluntarily or
involuntarily.
(b) Anything herein contained to the contrary notwithstanding, to the
extent set forth in the Plant O&M Agreement Grantor shall remain liable under
each of the Governmental Approvals, to perform all of the obligations undertaken
by it thereunder, and the Collateral Agent shall have no obligation or liability
under any of such Governmental Approvals by reason of or arising out of this
Agreement (during the period of Grantor's right of use and possession thereof as
provided herein), nor shall the Collateral Agent be required or obligated in any
manner to perform or fulfill any obligations of Grantor thereunder.
(c) Upon the occurrence and during the continuance of an Event of
Default,
2
<PAGE>
Grantor does hereby constitute the Collateral Agent, acting for and on behalf of
Trustee, the Holders of the Senior Secured Notes, and the Permitted Additional
Senior Lenders, if any, and each successor or assign thereof, the true and
lawful attorney of Grantor, irrevocably, with full power coupled with an
interest (in the name of Grantor or otherwise) to ask, require, demand, receive,
compound and give acquittance for any and all claims arising out of the
Governmental Approvals to elect remedies thereunder, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or
take any action or institute any proceedings in connection therewith which the
Collateral Agent may deem to be necessary or advisable; provided, however, that
the Collateral Agent shall give Grantor notice of any action taken by it as such
attorney-in-fact promptly after taking any such action.
3. Obligations Secured. This Agreement and all of the Collateral secure
-------------------
the payment and performance of Navy I's (a) obligations under its Guarantee,
including, but not limited to, the payment of all amounts owed to Trustee for
the benefit of the Holders of the Senior Secured Notes and (b) obligations
owing, if any, to the Permitted Additional Senior Lenders, of every kind and
description (whether or not evidenced by any note or instrument and whether or
not for the payment of money), direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, pursuant to the terms of
the Guarantee, or any other instrument evidencing Permitted Indebtedness (other
than Permitted Indebtedness described in clause (e) of the definition of
Permitted Indebtedness), including, but not limited to, the payment of all
amounts owed to the Collateral Agent of every kind and description (whether or
not evidenced by any note or instrument and whether or not for the payment of
money), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, pursuant to the terms of the Indenture, the
Financing Documents or this Agreement, including all interest, fees, charges,
expenses, attorney's fees and accountant's fees (all such obligations being
herein called the "Obligations").
-----------
4. Events of Default. The following shall constitute an Event of Default
-----------------
hereunder:
(a) The occurrence and continuance of an Event of Default under the
Guarantee (as such term is defined in the Indenture), whatever the reason for
such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body; and
(b) the failure on the part of Grantor to observe or perform any
covenant, condition or agreement on its part to be observed or performed under,
or the breach of any representation or warranty of Grantor contained in this
Agreement and such failure continues uncured for 30 or more days from the date a
Responsible Officer of Grantor receives notice thereof from the Collateral
Agent; provided that if Grantor commences and diligently pursues efforts to
cure such default within such 30-day period, Grantor may continue to effect such
cure of the default and such default will not be deemed an Event of Default for
an additional 60 days so long as Grantor is diligently pursuing such cure.
5. Remedies.
--------
3
<PAGE>
(a) Subject to the terms of the Guarantee and the notice and other
requirements of applicable law, if any Event of Default has occurred and is
continuing, the Collateral Agent may (i) exercise the rights of acceleration set
forth in Section 5.2 of the Indenture, (ii) proceed to protect and enforce the
rights vested in it by this Agreement, and to enforce its rights hereunder by
such appropriate judicial proceedings as it shall deem most effective to protect
and enforce any of such rights, either at law or in equity or otherwise, whether
for specific enforcement of any covenant or agreement contained in any of the
Governmental Approvals, or in aid of the exercise of any power therein or herein
granted, or for any foreclosure hereunder and sale under a judgment or decree in
any judicial proceeding, or to enforce any other legal or equitable right vested
in it by this Agreement or by law; (iii) cause any action at law or suit in
equity or other proceeding to be instituted and prosecuted to collect or enforce
any Obligations or rights included in the Collateral, or to foreclose or enforce
any other agreement or other instrument by or under or pursuant to which such
Obligations are issued or secured, either in Grantor's name or in Collateral
Agent's name as Collateral Agent may deem necessary, subject in each case to the
provisions and requirements thereof; (iv) sell or otherwise dispose of any or
all of the Collateral or cause the Collateral to be sold or otherwise disposed
of in one or more sales or transactions, at such prices as the Collateral Agent
may deem commercially reasonable, and for cash or on credit or for future
delivery, without assumption of any credit risk, at any broker's board or at
public or private sale, without demand of performance or notice of intention to
sell or of time or place of sale (except such notice as is required by
applicable statute and cannot be waived or is contemplated herein or by the
other Financing Documents), it being agreed that the Collateral Agent may be a
purchaser on behalf of Trustee, the Holders of the Senior Secured Notes, the
Permitted Additional Senior Lenders, if any, or on its own behalf at any such
sale and that the Collateral Agent or anyone else who may be the purchaser of
any or all of the Collateral so sold shall thereafter hold the same absolutely,
free from any claim or right of whatsoever kind, including any equity of
redemption, of Grantor, any such demand, notice or right and equity being hereby
expressly waived and released to the extent permitted by law; (v) incur
reasonable expenses, including reasonable attorneys' fees, consultants' fees,
and other costs appropriate to the exercise of any right or power under this
Agreement; (vi) perform any obligation of Grantor under this Agreement, or under
any other Financing Document, Project Document or Additional Project Document,
and make payments, purchase, contest or compromise any encumbrance, charge, or
lien, and pay taxes and expenses, without, however, any obligation so to do;
(vii) take possession of the Collateral and render it usable, and repair and
renovate the same, without, however, any obligation to do so, and enter upon the
site where the Project is located or any other location where the same may be
located for that purpose, control, manage, operate, rent and lease the
Collateral, either separately or in conjunction with the Project, collect all
rents and income from the Collateral and apply the same to reimburse the Holders
of the Senior Secured Notes or the Permitted Additional Senior Lenders, if any,
for any cost or expenses incurred hereunder or under any of the Financing
Documents and to the payment or performance of the Obligations, and apply the
balance to whomsoever is legally entitled thereto; (viii) secure the appointment
of a receiver of the Collateral or any part thereof (to the extent and in the
manner provided by applicable law); or (ix) exercise any other or additional
rights or remedies granted to a secured party under the UCC. If, pursuant to
applicable law, prior notice of any such action is required to be given to
Grantor, Grantor hereby acknowledges that the minimum time required by such
applicable law, or if no minimum is specified, ten (10) Business Days, shall be
deemed a
4
<PAGE>
reasonable notice period. Notwithstanding anything herein to the contrary, any
purchase price obtained by the Collateral Agent in a foreclosure sale instituted
and prosecuted in accordance with the terms hereof shall be deemed binding and
conclusive on the parties hereto and the Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any.
(b) All costs and expenses (including, but without being limited to,
reasonable attorneys' fees and expenses) incurred by the Collateral Agent in
connection with any such suit or proceeding, or in connection with the
performance by the Collateral Agent of any of Grantor's agreements contained
herein or in any exercise of Collateral Agent's rights or remedies hereunder,
including any of the Governmental Approvals pursuant to the terms of this
Agreement, together with interest thereon (to the extent permitted by law)
computed at a rate per annum equal to the "Prime Rate" of Bankers Trust Company,
as such rate is announced from time to time, plus one percent (1%), said rate to
change when and as the said Prime Rate changes, from the date on which such
costs or expenses are incurred to the date of payment thereof, shall constitute
additional indebtedness secured by this Agreement and shall be paid by Navy I to
the Trustee on demand.
6. Remedies Cumulative; Delay Not Waiver.
-------------------------------------
(a) No right, power or remedy herein conferred upon or reserved to the
Collateral Agent is intended to be exclusive of any other right, power or
remedy, and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Resort to any or all security now or hereafter held by the
Collateral Agent, may be taken concurrently or successively and in one or
several consolidated or independent judicial actions or lawfully taken
nonjudicial proceedings, or both.
(b) No delay or omission of the Collateral Agent to exercise any right
or power accruing upon the occurrence and during the continuance of any Event of
Default as aforesaid shall impair any such right or power or shall be construed
to be a waiver of any such Event of Default or an acquiescence therein; and
every power and remedy given by this Agreement may be exercised from time to
time, and as often as shall be deemed expedient, by the Collateral Agent.
(c) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority specified in Section 5.10 of the Indenture. If all
Obligations and any other amounts due under this Agreement have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Grantor, if it is lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
7. Covenants. Grantor covenants as follows:
---------
5
<PAGE>
(a) Any action or proceeding to enforce this Agreement or any Assigned
Agreement may be taken by the Collateral Agent either in Grantor's name or in
the Collateral Agent's name, as the Collateral Agent may deem necessary.
(b) Not to make any other assignment (other than to Collateral Agent)
of its rights under the Governmental Approvals, except to Navy I or a successor
operator in accordance with the Plant O&M Agreement.
(c) To do all acts that may reasonably be necessary to maintain,
preserve and protect the Collateral.
(d) Not to use or permit any Collateral to be used unlawfully or in
material violation of any provision of applicable statute, regulation or
ordinance.
(e) To pay promptly when due all taxes, assessments, charges,
encumbrances and liens now or hereafter imposed upon or affecting any
Collateral.
(f) To procure, execute and deliver from time to time any
endorsements, assignments, financing statements and other writings reasonably
necessary to perfect, maintain and protect the Collateral Agent's security
interest hereunder and the priority thereof.
(g) To appear in and defend any action or proceeding that may affect
its title to or the Collateral Agent's interest in the Collateral.
(h) Not to sell, encumber, lease, rent, or otherwise dispose of or
transfer any Collateral or right or interest therein.
(i) To comply with all laws, regulations and ordinances relating to
the Collateral.
8. Certain Consents and Waivers.
----------------------------
(a) Grantor hereby waives, to the maximum extent permitted by law (i)
all rights under any law limiting remedies, including recovery of a deficiency,
under an obligation secured by a deed of trust on real property if the real
property is sold under a power of sale contained in the deed of trust, and all
defenses based on any loss whether as a result of any such sale or otherwise, of
Grantor's right to recover any amount from Navy I, whether by right of
subrogation or otherwise; (ii) all rights under any law to require Collateral
Agent to pursue Navy I or any other Person, any security which Collateral Agent
may hold, or any other remedy before proceeding against Grantor; (iii) all
rights of reimbursement or subrogation, all rights to enforce any remedy that
Collateral Agent, the Trustee, the Holders of the Senior Secured Notes or the
Permitted Additional Senior Lenders, if any, may have against Navy I, and all
rights to participate in any security held by Collateral Agent until the
Obligations have been paid and the covenants of the Indenture have been
performed in full; (iv) all rights to require Collateral Agent to give any
notices of any kind, including without limitation notices of nonpayment,
nonperformance, protest, dishonor, default, delinquency or acceleration, or to
make any presentments, demands or protests, except as expressly provided herein
and in the Indenture; (v) all rights to assert the bankruptcy or
6
<PAGE>
insolvency of Navy I as a defense hereunder or as the basis for rescission
hereof; (vi) all rights under any law purporting to reduce Grantors' Obligations
hereunder if Navy I's Obligations are reduced; (vii) all defenses based on the
disability or lack of authority of Navy I or any Person, the repudiation of the
Guarantees or any related Financing Documents by Navy I or any Person, the
failure by Collateral Agent, the Trustee, the Holders of the Senior Secured
Notes or any Permitted Additional Senior Lender, if any, to enforce any claim
against Navy I, or the unenforceability in whole or in part of any Financing
Document; (viii) all suretyship and guarantor's defenses generally; (ix) all
rights to insist upon, plead or in any manner whatever claim or take the benefit
or advantage of, any appraisal, valuation, stay, extension, marshaling of
assets, redemption or similar law, or exemption, whether now or at any time
hereafter in force, which may delay, prevent or otherwise affect the performance
by Grantor or its obligations under, or the enforcement by Collateral Agent of,
this Agreement; (x) any requirement on the part of Collateral Agent, Trustee,
the Holders of the Senior Secured Notes or any Permitted Additional Senior
Lender, if any, to mitigate the damages resulting from any default; and (xi)
except as otherwise specifically set forth herein, all rights of notice and
hearing of any kind prior to the exercise of rights by Collateral Agent upon the
occurrence and during the continuation of an Event of Default to repossess with
judicial process or to replevy, attach or levy upon the Collateral. To the
extent permitted by applicable law, Grantor waives the posting of any bond
otherwise required of Collateral Agent in connection with any judicial process
or proceeding to obtain possession of, replevy, attach, or levy upon the
Collateral, to enforce any judgment or other security for the Obligations, to
enforce any judgment or other court order entered in favor of Collateral Agent,
or to enforce by specific performance, temporary restraining order, preliminary
or permanent injunction, this Agreement or any other agreement or document
between Grantor, Collateral Agent, Trustee, the Holders of the Senior Secured
Notes or any Permitted Additional Senior Lender, if any. Grantor further agrees
that upon the occurrence and continuance of an Event of Default, Collateral
Agent may elect to nonjudicially or judicially foreclose against any real or
personal property security it holds for the Obligations or any part thereof, or
to exercise any other remedy against Navy I, any security or any guarantor, even
if the effect of that action is to deprive a Grantor of the right to collect
reimbursement from Navy I for any sums paid by Grantor to Collateral Agent,
Trustee or any Holder of the Senior Secured Notes or any Permitted Additional
Senior Lender, if any.
(b) If Collateral Agent may, under applicable law, proceed to realize
its benefits under any of the Financing Documents giving Collateral Agent a Lien
upon any Collateral, whether owned by any Navy I, Grantor or by any other
Person, either by judicial foreclosure or by nonjudicial sale or enforcement,
Collateral Agent may, at its sole option, determine which of its remedies or
rights it may pursue without affecting any of the rights and remedies of
Collateral Agent under this Agreement. In the event Collateral Agent shall bid
at any foreclosure or trustee's sale or at any private sale permitted by law or
the Financing Documents, Collateral Agent may bid all or less than the amount of
Obligations. To the extent permitted by applicable law, the amount of the
successful bid at any such sale, whether Collateral Agent or any other party is
the successful bidder, shall be conclusively deemed to be the fair market value
of the Collateral and the difference between such bid amount and the remaining
balance of the Obligations shall be conclusively deemed to be the amount of the
Obligations.
9. Representations and Warranties. Grantor represents and warrants as
------------------------------
follows:
7
<PAGE>
(a) No effective financing statement or other instrument similar in
effect covering all or any part of Grantor's interest in the Collateral is on
file in any recording office, except such as may have been filed pursuant to
this Agreement and the other Financing Documents or pursuant to the documents
evidencing Permitted Liens.
(b) Grantor has not assigned any of its rights under the Governmental
Approvals except as specifically provided in this Agreement or as set forth in
the Indenture.
(c) Grantor will perform and comply, in all material respects, with
all obligations and conditions on its part to be performed hereunder with
respect to the Collateral.
(d) Grantor (i) is a corporation duly organized, validly existing and
in good standing under the laws of the State of Florida and has all requisite
power and authority under the laws of its state of organization to enter into
this Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby, (ii) is duly qualified, authorized to do
business and in good standing in each jurisdiction where the character of its
properties or the nature of its activities makes such qualification necessary,
and (iii) has all requisite power and authority; (W) to carry on its business as
now being conducted and as proposed to be conducted by it; (X) to execute,
deliver and perform this Agreement; (Y) to take all action as may be necessary
to consummate the transactions contemplated hereunder; and (Z) to grant liens
and security interest provided for in this Agreement.
(e) Grantor has (i) taken all necessary action to authorize the
execution, delivery and performance of this Agreement; and (ii) duly executed
and delivered this Agreement. Neither Grantor's execution and delivery of this
Agreement nor its consummation of the transactions contemplated hereby nor its
compliance with the terms hereof (i) does or will contravene the documents of
formation of Grantor or any other requirements of law applicable to or binding
on such Grantor or any of its properties, (ii) does or will contravene or result
in any breach of or constitute any default under, or result in or require the
creation of any Lien (other than Permitted Liens) upon any of its property
under, any agreement or instrument to which it is a party or by which it or any
of its properties may be bound or affected or (iii) does or will require the
consent or approval of any Person which has not already been obtained.
(f) This Agreement is the legal, valid and binding obligation of such
Grantor, enforceable against such Grantor in accordance with its terms, except
to the extent the enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and subject to general equitable
principles.
(g) Grantor is the lawful owner of and has full right, title and
interest in and to, the Collateral, subject to no mortgages, liens, charges, or
encumbrances of any kind (other than hereunder) and has full power and lawful
authority to pledge, assign and grant a security interest in the Collateral
granted by it hereunder. Grantor will, so long as any Obligations shall be
outstanding, warrant and defend its title to the Collateral against any claims
and demands which
8
<PAGE>
may affect to a material extent its title to, or the Collateral Agent's right or
interest in, such Collateral.
(h) Grantor will not directly or indirectly create, incur, assume or
suffer to exist any Liens on or with respect to any part of the Collateral other
than the rights and interests of the Collateral Agent, the Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
hereunder. Grantor will at its own cost and expense promptly take such action
as may be necessary to discharge any such liens not so permitted.
(i) Any action or proceeding to enforce the rights granted or to
protect or preserve the Collateral under this Agreement may be taken by
Collateral Agent either in Grantor's name or in Collateral Agent's name, as
Collateral Agent may deem necessary.
(j) Grantor will, at all times, keep accurate and complete records of
the Collateral. Grantor shall, at all times on three (3) Business Days' notice,
permit representatives of Collateral Agent at any time during normal business
hours of such Grantor to inspect and make abstracts from such Grantor's books
and records pertaining to the Collateral. Upon the occurrence and continuance of
any Event of Default, at Collateral Agent's request, Grantor shall promptly
deliver any and all such records to Collateral Agent.
(k) Grantor will give prompt notice in writing to Collateral Agent of
any change in the location of the place of business where correspondence,
notices or proceeds in connection with the Collateral are received or located or
of any change in the location of the place of business where records concerning
Collateral are kept.
10. Notices. Any notice or communication by the Grantor or the
-------
Collateral Agent to the other is duly given if in writing and delivered in
person or mailed by first class mail (registered or certified, return receipt
requested), telex, telecopier or overnight air courier guaranteeing next day
delivery, to the other's address:
If to the Grantor:
FPL Energy Operating Services, Inc.
700 Universe Blvd.
Juno Beach, FL 33408
Telecopier No.: (561) 691-7309
Attention: Vice President - Operations
With a copy to:
FPL Energy Operating Services, Inc.
6952 Preston Ave.
Livermore, CA 94552
Telecopier No.: (925) 455-3101
9
<PAGE>
Attention: Vice President - Operations
If to the Collateral Agent:
U.S. Bank Trust National Association
One California Street
Fourth Floor
San Francisco, California 94111
Telecopier No.: (415) 273-4590
11. Further Assurances.
------------------
(a) Grantor agrees that from time to time, at the expense of Navy I,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or required, or that the
Collateral Agent may reasonably request, in order to perfect and protect the
assignment and security interest granted or intended to be granted hereby or to
enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of the
foregoing, Grantor will: (i) if any Collateral shall be evidenced by a
promissory note or other instrument, deliver and pledge to the Collateral Agent,
for the benefit of Trustee, the Holders of Senior Secured Notes and the
Permitted Additional Senior Lenders, if any, such note or instrument duly
endorsed (without recourse) and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to enable the
Collateral Agent to enforce the provisions of this Agreement and the security
interests described herein; and (ii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments,
endorsement or notices, as may be necessary or required, or as the Collateral
Agent may reasonably request, in order to perfect and preserve the assignments
and security interests granted or purported to be granted hereby; it being
understood and agreed that the Collateral Agent shall have no obligation in
respect of the filing of such statements or in the perfection or preservation of
any such security interests.
(b) Grantor hereby authorizes the Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor where permitted by
law; provided that no financing statement that constitutes a security agreement
shall be filed in the State of Florida. Copies of any such statement or
amendment thereto shall promptly be delivered to Grantor.
(c) Navy I shall pay all filing, registration and recording fees or
refiling, re-registration and re-recording fees, and all expenses incident to
the execution and acknowledgment of this Agreement, any instruments of further
assurance, and (except as otherwise provided in the Indenture) all federal,
state, county and municipal stamp taxes and other taxes, duties, imports,
assessments and charges arising out of or in connection with the execution and
delivery of this Agreement, any agreement supplemental hereto and any
instruments of further assurance.
10
<PAGE>
12. Place of Perfection; Records. The location of Grantor's chief
----------------------------
executive office is 700 Universe Blvd., Juno Florida 33408, and the location of
Grantor's place of business is Inyo and Kern County, California. Grantor shall
give the Collateral Agent at least forty-five (45) days prior written notice
before it changes the location of its chief executive office and shall at the
expense of Navy I execute and deliver such instruments and documents as required
to maintain a prior perfected security interest and as requested by the
Collateral Agent. Grantor will hold and preserve such records and will permit
representatives of the Collateral Agent upon reasonable notice during normal
business hours to inspect and make abstracts from such records.
13. Continuing Assignment and Security Interest; Transfer. This
-----------------------------------------------------
Agreement shall create a continuing assignment of and security interest in the
Collateral and shall (i) remain in full force and effect until the earlier of
(x) payment in full of the Obligations or (y) termination of the Plant O&M
Agreement and transfer of the Collateral to Navy I or a successor operator of
the Navy I Project, (ii) be binding upon Grantor, its successors and assigns and
(iii) inure, together with the rights and remedies of the Collateral Agent, to
the benefit of the Trustee, the Holders of the Senior Secured Notes, the
Permitted Additional Senior Lenders, if any, and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(iii), but subject to Section 2.06 of the Indenture, the Holders of the Senior
Secured Notes may assign or otherwise transfer their Senior Secured Notes to any
other Person, and such other Person shall thereupon become vested with all or an
appropriate part of the benefits in respect thereof granted to the Holders of
the Senior Secured Notes herein or otherwise. The release of the security
interest in any or all of the Collateral, the taking or acceptance of additional
security, or the resort by Collateral Agent to any security it may have in any
order it may deem appropriate, shall not affect the liability of any person on
the indebtedness secured hereby. Upon the payment in full of the Obligations,
the security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination, the Collateral
Agent shall, at Grantor's expense, execute and deliver to Grantor such documents
as Grantor shall reasonably request to evidence such termination. If this
Agreement shall be terminated or revoked by operation of law, Grantor will
indemnify and save Collateral Agent, Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, harmless from any
loss which may be suffered or incurred by Collateral Agent, Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
in acting hereunder prior to the receipt by Collateral Agent, its successors,
transferees, or assigns of written notice of such termination or revocation.
14. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
15. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any
11
<PAGE>
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
16. Time. Time is of the essence of this Agreement.
----
17. Agreement for Security Purposes. This Agreement is for security
-------------------------------
purposes only. Accordingly, the Collateral Agent shall not, pursuant to this
Agreement, enforce Grantor's rights with respect to the Collateral, including
the exercise of any rights granted under the Consents, until such time as an
Event of Default shall have occurred and is continuing at the time such
enforcement is sought, and after any required notice of such enforcement has
been given, and until such time, subject to the terms of the Indenture and the
other Financing Documents, Grantor reserves the right to exercise all of its
right, title and interest in, to and under the Collateral (including the
Governmental Approvals).
18. Governing Law. This Agreement, including all matters of construction,
-------------
validity, performance and the creation, validity, enforcement or priority of the
lien of, and security interests created by, this Agreement in or upon the
Collateral shall be governed by the laws of the State of New York, without
reference to conflicts of law (other than Section 5-1401 of the New York General
Obligations Law), except as required by mandatory provisions of law and except
to the extent that the validity or perfection of the lien and security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York.
19. Reinstatement. This Agreement shall continue to be effective or be
-------------
reinstated, as the case may be, if at any time any amount received by Collateral
Agent in respect of the Obligations is rescinded or must otherwise be restored
or returned by Collateral Agent upon the insolvency, bankruptcy, reorganization,
liquidation of Grantor or any of the Coso Partnerships or upon the dissolution
of, or appointment of any intervenor or conservator of, or trustee or similar
official for, Grantor or any of the Coso Partnerships or any substantial part of
Grantor's or any of the Coso Partnership's assets, or otherwise, all as though
such payments had been made.
20. WAIVER OF JURY TRIAL. GRANTOR AND COLLATERAL AGENT HEREBY KNOWINGLY,
--------------------
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF COLLATERAL AGENT OR GRANTOR. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR COLLATERAL AGENT TO ENTER INTO THIS AGREEMENT.
21. Amendment. No modification or waiver of any of the provisions of this
---------
Agreement shall be binding on Collateral Agent, except as expressly set forth in
a writing duly signed and delivered by Collateral Agent and which is otherwise
in accordance with Article 8 of the Indenture.
12
<PAGE>
22. Duties and Liabilities of the Collateral Agent Generally.
--------------------------------------------------------
(a) The Collateral Agent undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement. The Collateral
Agent shall not have any duties or responsibilities except those expressly set
forth in this Agreement or be a trustee for or have any fiduciary obligation to
any party hereto.
(b) The duties and obligations of the Collateral Agent shall be
determined solely by the express provisions of this Agreement, and the
Collateral Agent shall take such action with respect to this Agreement as it
shall be directed in writing by Trustee, and the Collateral Agent shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement and no implied covenants or obligations
shall be read into this Agreement against the Collateral Agent; and
(i) In the absence of bad faith on the part of the Collateral
Agent, the Collateral Agent may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Collateral Agent which conform to the
requirements of this Agreement;
(ii) The Collateral Agent shall not be liable for any error of
judgment made in good faith by an officer or officers of the Collateral Agent,
unless it shall be conclusively determined by a court of competent jurisdiction
that the Collateral Agent was negligent in ascertaining the pertinent facts; and
(iii) The Collateral Agent shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance with
any direction of Trustee or Grantor given under this Agreement.
(c) None of the provisions of this Agreement shall require the
Collateral Agent to expend or risk its own funds or otherwise to incur any
liability, financial or otherwise, in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk or liability is not assured to it.
(d) The Collateral Agent may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties.
(e) Whenever in the administration of the provisions of this Agreement
the Collateral Agent shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering any action to be taken
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Collateral Agent, be deemed to be conclusively proved and
established by a certificate signed by a Responsible Officer of Trustee or
Grantor as the case may be, and delivered to the Collateral Agent and such
certificate, in the absence of negligence or bad faith
13
<PAGE>
on the part of the Collateral Agent, shall be full warrant to the Collateral
Agent for any action taken, suffered or omitted by it under the provisions of
this Agreement upon the faith thereof.
(f) The Collateral Agent may consult with counsel and the advice or
any opinion of counsel shall be full and complete authorization and protection
in respect of any action taken or omitted by it hereunder in good faith and in
accordance with such advice or opinion of counsel.
(g) The Collateral Agent shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, entitlement order,
approval or other paper or document.
(h) The Collateral Agent may execute any of the powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys,
custodians or nominees appointed with due care, and shall not be responsible for
any willful misconduct or negligence on the part of or for the supervision of,
any agent, attorney, custodian or nominee so appointed.
(i) Navy I shall pay or reimburse the Collateral Agent upon Collateral
Agent's request for all reasonable expenses, disbursements and advances incurred
or made by the Collateral Agent in accordance with any of the provisions hereof
or any other documents executed in connection herewith (including the
compensation and the expenses and disbursements of its counsel and of all
persons not regularly in its employ). The obligations of Navy I under this
Section 22(i) to compensate the Collateral Agent and to pay or reimburse the
Collateral Agent for reasonable expenses, disbursements and advances shall
survive the satisfaction and discharge of this Agreement or the earlier
resignation or removal of the Collateral Agent.
(j) Any corporation into which the Collateral Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Collateral Agent shall
be a party, or any corporation succeeding to the business of the Collateral
Agent shall be the successor of the Collateral Agent hereunder without the
execution or filing of any paper with any party hereto or any further act on the
part of any of the parties hereto except where an instrument of transfer or
assignment is required by law to effect such succession, anything herein to the
contrary notwithstanding.
(k) Neither the Collateral Agent nor any of its officers, directors,
employees or agents shall be liable for any action taken or omitted under this
Agreement or in connection therewith except to the extent caused by the
Collateral Agent's negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction, no longer subject to appeal or
review. The parties each (for itself and any person or entity claiming through
it) hereby releases, waives, discharges, exculpates and covenants not to sue the
Collateral Agent for any action taken or omitted under this Agreement except to
the extent caused by the Collateral Agent's negligence or willful misconduct.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Collateral Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to
14
<PAGE>
lost profits), even if the Collateral Agent has been advised of the likelihood
of such loss or damage and regardless of the form of action,
(l) The Collateral Agent shall not be responsible in any manner
whatsoever for the correctness of any recitals, statements, representations or
warranties contained herein or in the other Security Documents, except for those
made by the Collateral Agent, or for filing any financing statement,
continuation statement or any other perfection instrument or notice, or for
recording or re-recording any Security Document in any public office at any time
or for taking any other action to perfect or maintain the perfection, priority
or effectiveness of any interest on any of the Collateral or in any other
property granted to it hereunder or under any of the other Security Documents.
The Collateral Agent makes no representations as to the value or condition of
the Collateral or any part thereof, or as to the title of the Grantor thereto or
as to the security afforded by the Security Documents or this Agreement or as to
the validity, execution, enforceability, legality or sufficiency of this
Agreement, of any other Security Document, of the Obligations secured hereby and
thereby and the Collateral Agent shall incur no liability or responsibility in
respect of any such matters. The Collateral Agent shall not be responsible for
insuring the Collateral or for the payment of taxes, charges, assessments or
liens upon the Collateral or for the maintenance of the Collateral, except that
in the event the Collateral Agent enters into possession of all or any part of
the Collateral, the Collateral Agent shall preserve the portion of the
Collateral in its possession.
(m) The Collateral Agent shall not be required to ascertain or inquire
as to the Grantor's performance of any of the covenants or agreements contained
herein or in any Security Document. Whenever it is necessary, or in the opinion
of the Collateral Agent advisable, for the Collateral Agent to ascertain the
amount of obligations then held by a Trustee, on behalf of the Holders of the
Senior Secured Notes, or Permitted Additional Senior Lender, the Collateral
Agent may conclusively rely on a certificate of such party as to such amount
23. No Recourse. Funding Corporation agrees that neither Grantor nor any
-----------
officer, director, employee, shareholder, partner or holder of Capital Stock of
Grantor, nor any director, officer, employee, incorporator, shareholder, partner
or member of any partner of Grantor or any Affiliate of any such party
(collectively, the "Nonrecourse Parties") shall be personally liable under this
-------------------
Agreement for the payment of any sums now or hereafter owing Collateral Agent
under the terms of, or for the performance of any obligation contained in, this
Agreement. Collateral Agent agrees that its rights shall be limited to
proceeding against the security provided or intended to be provided hereunder
and that it shall have no right to proceed against the Nonrecourse Parties for
(a) the satisfaction of any monetary obligation of, or enforcement of any
monetary claim against, Grantor, (b) the performance of any obligation, covenant
or agreement arising under this Agreement, or (c) any deficiency judgment
remaining after foreclosure of any property securing the obligations hereunder;
provided that (v) the foregoing provisions of this Section 23 shall not
constitute a waiver, release or discharge of any of the Indebtedness, or of any
of the terms, covenants, conditions or provisions of this agreement or any
Financing Document and the same shall continue until fully paid, discharged,
observed or performed; (w) the foregoing provisions of this Section 23 shall not
limit or restrict the right of the Collateral Agent, the Holders of the Senior
Secured Notes, the Depositary or the Trustee to name Grantor or any
15
<PAGE>
other Person as a defendant in any action or suit for a judicial foreclosure or
for the exercise of any other remedy under or with respect to this Agreement or
any other Financing Document, or for injunction or specific performance, so long
as no judgment in the nature of a deficiency judgment shall be enforced against
any Nonrecourse Party, except as set forth in this Section 6.11; (x) the
foregoing provisions of this Section 23 shall not in any way limit or restrict
any right or remedy of Collateral Agent, the Holders of the Senior Secured
Notes, the Depositary or the Trustee (or any assignee or beneficiary thereof or
successor thereto) with respect to, and all of the Nonrecourse Parties shall
remain fully liable to the extent that it would otherwise be liable for its own
actions with respect to, any fraud, or willful misrepresentation, (y) the
foregoing provisions of this Section 23 shall not affect or diminish or
constitute a waiver, release or discharge or limit in any way the rights and
remedies available to Collateral Agent, the Holders of the Senior Secured Notes,
the Depositary or the Trustee (or any assignee or beneficiary thereof or
successor thereto) with respect to, and all of the Nonrecourse Parties shall
remain fully liable to the extent provided therein pursuant to (i) the Plant O&M
Agreement and the Consent executed by Grantor to the Collateral Agent with
respect thereto or (ii) any Person rendering a legal opinion, in each case under
this clause (z) relating solely to such liability of such Person as may arise
under such referenced instrument, agreement or opinion; and (z) the foregoing
provisions of this Section 23 shall not affect or diminish or constitute a
waiver, release or discharge or limit in any way the rights and remedies
available to Collateral Agent, the Holders of the Senior Secured Notes, the
Depositary or the Trustee (or any assignee or beneficiary thereof or successor
thereto) with respect to the security granted by the Nonrecourse Parties as
security for the obligations of Grantor or Funding Corporation..
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this
Security Agreement to be duly executed by their partners and officers thereunto
duly authorized, as of the day and year first above written.
GRANTOR:
- --------
FPL ENERGY OPERATING SERVICES, INC.,
a Florida corporation
By: /s/ John A. Keener
---------------------------------
Name: John A. Keener
its: Vice President
<PAGE>
COLLATERAL AGENT:
- -----------------
U.S. BANK TRUST NATIONAL ASSOCIATION
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------------------
Name: Judy P. Manansala
its: Trust Officer
The undersigned consents and agrees to the foregoing.
COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
Exhibit 10.22
SECURITY AGREEMENT (BLM)
(Governmental Approvals)
Dated as
of May 28, 1999
between
FPL ENERGY OPERATING SERVICES, INC.,
a Florida corporation,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. Definitions............................................... 2
2. Assignment, Pledge and Grant of Security Interest......... 2
3. Obligations Secured....................................... 3
4. Events of Default......................................... 3
5. Remedies.................................................. 3
6. Remedies Cumulative; Delay Not Waiver..................... 5
7. Covenants................................................. 5
8. Certain Consents and Waivers.............................. 6
9. Representations and Warranties............................ 8
10. Notices................................................... 9
11. Further Assurances........................................ 10
12. Place of Perfection; Records.............................. 11
13. Continuing Assignment and Security Interest; Transfer..... 11
14. Attorneys' Fees........................................... 11
15. Severability.............................................. 11
16. Time...................................................... 12
17. Agreement for Security Purposes........................... 12
18. Governing Law............................................. 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
19. Reinstatement............................................. 12
20. Waiver of Jury Trial...................................... 12
21. Amendment................................................. 12
22. Duties and Liabilities of the Collateral Agent Generally.. 13
</TABLE>
ii
<PAGE>
SECURITY AGREEMENT
------------------
This Security Agreement ("Agreement"), dated as of May 28, 1999, is entered
---------
into by and between FPL ENERGY OPERATING SERVICES, INC., a Florida corporation
("Grantor"), and U.S. BANK TRUST NATIONAL ASSOCIATION, in its capacity as
-------
collateral agent ("Collateral Agent"), for the benefit of U.S. BANK TRUST
----------------
NATIONAL ASSOCIATION, in its capacity as trustee ("Trustee") for the holders of
-------
all senior secured notes issued pursuant to that certain Indenture dated as of
May 28, 1999 (the "Indenture"), among Trustee, Coso Finance Partners, a
---------
California general partnership ("Navy I"), Coso Energy Developers, a California
general partnership ("BLM"), Coso Power Developers, a California general
---
partnership ("Navy II"), and Caithness Coso Funding Corp., a Delaware
-------
corporation (the "Issuer") (such notes, the "Senior Secured Notes," and the
------ --------------------
holders thereof, the "Holders of the Senior Secured Notes") and all other
-----------------------------------
Permitted Additional Senior Lenders (as defined in the Indenture).
PREFACE
-------
A. Issuer has, as of the date of this Security Agreement, issued
$413,000,000 of the Senior Secured Notes, the proceeds of which will be used to
make loans to the Coso Partnerships.
B. Pursuant to a Guarantee dated as of the date of this Security
Agreement (the "Guarantee") the Coso Partnerships have guaranteed to Trustee and
---------
the Holders of the Senior Secured Notes the payment and performance of Issuer's
obligations under the Senior Secured Notes and the Indenture.
C. The Grantor is party to the Operation and Maintenance Agreement dated
as of May 28, 1999, by and between BLM and the Grantor (the "Plant O&M
---------
Agreement").
- ---------
D. As a condition precedent to the sale of the Senior Secured Notes, the
Grantor is required to have executed this Security Agreement as security for the
payment and performance of the BLM's obligations under the Guarantee.
E. As additional security for the payment and performance of BLM's
obligations under the Guarantee, it is the intent of Grantor to grant to the
Collateral Agent, for the benefit of the Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, a security
interest in the Collateral (as defined below) as security for the payment and
performance of BLM's obligations under the Guarantee.
AGREEMENT
---------
In consideration of the premises herein, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with the Collateral Agent as follows:
1
<PAGE>
1. Definitions. (a) Unless otherwise defined, all terms used herein
-----------
which are defined in the Indenture shall have their respective meanings therein
defined and the Rules of Interpretation included in the Indenture shall apply
hereto. All terms defined in the UCC shall have the respective meanings given to
those terms in the UCC; and (b) "UCC" shall mean the Uniform Commercial Code as
the same may, from time to time, be in effect in the State of New York;
provided, however, in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of the security interest in
any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.
2. Assignment, Pledge and Grant of Security Interest.
-------------------------------------------------
(a) To secure the timely payment and performance of the Obligations
(as that term is defined in Section 3), Grantor does hereby assign, grant and
pledge to, and subject to a security interest in favor of, the Collateral Agent,
on behalf of the Trustee, the Holders of the Senior Secured Notes, and the
Permitted Additional Senior Lenders, if any, all the estate, right, title and
interest of Grantor, whether now owned or hereafter acquired, in, to and under:
(i) all Governmental Approvals (as defined in the Indenture),
solely to the extent relating to the BLM Project, whether now existing or
hereafter acquired; excluding, however, any such Governmental Approvals and
consents which by their terms or by operation of law would become void solely by
virtue of a security interest being granted therein;
(ii) the proceeds of all of the foregoing (all of the collateral
described in clauses (i) and (ii) being herein collectively referred to as the
"Collateral"), including without limitation (1) all rights of Grantor to receive
moneys due and to become due under or pursuant to the Collateral, (2) all rights
of Grantor to receive return of any premiums for or proceeds of any insurance,
indemnity, warranty or guaranty with respect to the Collateral or to receive
condemnation proceeds, (3) all claims of Grantor for damages arising out of or
for breach of or default under the Governmental Approvals or any other
Collateral, and (4) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed, whether voluntarily or
involuntarily.
(b) Anything herein contained to the contrary notwithstanding, to the
extent set forth in the Plant O&M Agreement Grantor shall remain liable under
each of the Governmental Approvals, to perform all of the obligations undertaken
by it thereunder, and the Collateral Agent shall have no obligation or liability
under any of such Governmental Approvals by reason of or arising out of this
Agreement (during the period of Grantor's right of use and possession thereof as
provided herein), nor shall the Collateral Agent be required or obligated in any
manner to perform or fulfill any obligations of Grantor thereunder.
(c) Upon the occurrence and during the continuance of an Event of
Default,
2
<PAGE>
Grantor does hereby constitute the Collateral Agent, acting for and on
behalf of Trustee, the Holders of the Senior Secured Notes, and the Permitted
Additional Senior Lenders, if any, and each successor or assign thereof, the
true and lawful attorney of Grantor, irrevocably, with full power coupled with
an interest (in the name of Grantor or otherwise) to ask, require, demand,
receive, compound and give acquittance for any and all claims arising out of the
Governmental Approvals to elect remedies thereunder, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or
take any action or institute any proceedings in connection therewith which the
Collateral Agent may deem to be necessary or advisable; provided, however, that
the Collateral Agent shall give Grantor notice of any action taken by it as such
attorney-in-fact promptly after taking any such action.
3. Obligations Secured. This Agreement and all of the Collateral
-------------------
secure the payment and performance of BLM's (a) obligations under its Guarantee,
including, but not limited to, the payment of all amounts owed to Trustee for
the benefit of the Holders of the Senior Secured Notes and (b) obligations
owing, if any, to the Permitted Additional Senior Lenders, of every kind and
description (whether or not evidenced by any note or instrument and whether or
not for the payment of money), direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, pursuant to the terms of
the Guarantee, or any other instrument evidencing Permitted Indebtedness (other
than Permitted Indebtedness described in clause (e) of the definition of
Permitted Indebtedness), including, but not limited to, the payment of all
amounts owed to the Collateral Agent of every kind and description (whether or
not evidenced by any note or instrument and whether or not for the payment of
money), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, pursuant to the terms of the Indenture, the
Financing Documents or this Agreement, including all interest, fees, charges,
expenses, attorney's fees and accountant's fees (all such obligations being
herein called the "Obligations").
-----------
4. Events of Default. The following shall constitute an Event of
-----------------
Default hereunder:
(a) The occurrence and continuance of an Event of Default under the
Guarantee (as such term is defined in the Indenture), whatever the reason for
such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body; and
(b) the failure on the part of Grantor to observe or perform any
covenant, condition or agreement on its part to be observed or performed under,
or the breach of any representation or warranty of Grantor contained in this
Agreement and such failure continues uncured for 30 or more days from the date a
Responsible Officer of Grantor receives notice thereof from the Collateral
Agent; provided that if Grantor commences and diligently pursues efforts to
cure such default within such 30-day period, Grantor may continue to effect such
cure of the default and such default will not be deemed an Event of Default for
an additional 60 days so long as Grantor is diligently pursuing such cure.
5. Remedies.
--------
3
<PAGE>
(a) Subject to the terms of the Guarantee and the notice and other
requirements of applicable law, if any Event of Default has occurred and is
continuing, the Collateral Agent may (i) exercise the rights of acceleration set
forth in Section 5.2 of the Indenture, (ii) proceed to protect and enforce the
rights vested in it by this Agreement, and to enforce its rights hereunder by
such appropriate judicial proceedings as it shall deem most effective to protect
and enforce any of such rights, either at law or in equity or otherwise, whether
for specific enforcement of any covenant or agreement contained in any of the
Governmental Approvals, or in aid of the exercise of any power therein or herein
granted, or for any foreclosure hereunder and sale under a judgment or decree in
any judicial proceeding, or to enforce any other legal or equitable right vested
in it by this Agreement or by law; (iii) cause any action at law or suit in
equity or other proceeding to be instituted and prosecuted to collect or enforce
any Obligations or rights included in the Collateral, or to foreclose or enforce
any other agreement or other instrument by or under or pursuant to which such
Obligations are issued or secured, either in Grantor's name or in Collateral
Agent's name as Collateral Agent may deem necessary, subject in each case to the
provisions and requirements thereof; (iv) sell or otherwise dispose of any or
all of the Collateral or cause the Collateral to be sold or otherwise disposed
of in one or more sales or transactions, at such prices as the Collateral Agent
may deem commercially reasonable, and for cash or on credit or for future
delivery, without assumption of any credit risk, at any broker's board or at
public or private sale, without demand of performance or notice of intention to
sell or of time or place of sale (except such notice as is required by
applicable statute and cannot be waived or is contemplated herein or by the
other Financing Documents), it being agreed that the Collateral Agent may be a
purchaser on behalf of Trustee, the Holders of the Senior Secured Notes, the
Permitted Additional Senior Lenders, if any, or on its own behalf at any such
sale and that the Collateral Agent or anyone else who may be the purchaser of
any or all of the Collateral so sold shall thereafter hold the same absolutely,
free from any claim or right of whatsoever kind, including any equity of
redemption, of Grantor, any such demand, notice or right and equity being hereby
expressly waived and released to the extent permitted by law; (v) incur
reasonable expenses, including reasonable attorneys' fees, consultants' fees,
and other costs appropriate to the exercise of any right or power under this
Agreement; (vi) perform any obligation of Grantor under this Agreement, or under
any other Financing Document, Project Document or Additional Project Document,
and make payments, purchase, contest or compromise any encumbrance, charge, or
lien, and pay taxes and expenses, without, however, any obligation so to do;
(vii) take possession of the Collateral and render it usable, and repair and
renovate the same, without, however, any obligation to do so, and enter upon the
site where the Project is located or any other location where the same may be
located for that purpose, control, manage, operate, rent and lease the
Collateral, either separately or in conjunction with the Project, collect all
rents and income from the Collateral and apply the same to reimburse the Holders
of the Senior Secured Notes or the Permitted Additional Senior Lenders, if any,
for any cost or expenses incurred hereunder or under any of the Financing
Documents and to the payment or performance of the Obligations, and apply the
balance to whomsoever is legally entitled thereto; (viii) secure the appointment
of a receiver of the Collateral or any part thereof (to the extent and in the
manner provided by applicable law); or (ix) exercise any other or additional
rights or remedies granted to a secured party under the UCC. If, pursuant to
applicable law, prior notice of any such action is required to be given to
Grantor, Grantor hereby acknowledges that the minimum time required by such
applicable law, or if no minimum is specified, ten (10) Business Days, shall be
deemed a
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reasonable notice period. Notwithstanding anything herein to the
contrary, any purchase price obtained by the Collateral Agent in a foreclosure
sale instituted and prosecuted in accordance with the terms hereof shall be
deemed binding and conclusive on the parties hereto and the Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any.
(b) All costs and expenses (including, but without being limited to,
reasonable attorneys' fees and expenses) incurred by the Collateral Agent in
connection with any such suit or proceeding, or in connection with the
performance by the Collateral Agent of any of Grantor's agreements contained
herein or in any exercise of Collateral Agent's rights or remedies hereunder,
including any of the Governmental Approvals pursuant to the terms of this
Agreement, together with interest thereon (to the extent permitted by law)
computed at a rate per annum equal to the "Prime Rate" of Bankers Trust Company,
as such rate is announced from time to time, plus one percent (1%), said rate to
change when and as the said Prime Rate changes, from the date on which such
costs or expenses are incurred to the date of payment thereof, shall constitute
additional indebtedness secured by this Agreement and shall be paid by BLM to
the Trustee on demand.
6. Remedies Cumulative; Delay Not Waiver.
-------------------------------------
(a) No right, power or remedy herein conferred upon or reserved to the
Collateral Agent is intended to be exclusive of any other right, power or
remedy, and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Resort to any or all security now or hereafter held by the
Collateral Agent, may be taken concurrently or successively and in one or
several consolidated or independent judicial actions or lawfully taken
nonjudicial proceedings, or both.
(b) No delay or omission of the Collateral Agent to exercise any right
or power accruing upon the occurrence and during the continuance of any Event of
Default as aforesaid shall impair any such right or power or shall be construed
to be a waiver of any such Event of Default or an acquiescence therein; and
every power and remedy given by this Agreement may be exercised from time to
time, and as often as shall be deemed expedient, by the Collateral Agent.
(c) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority specified in Section 5.10 of the Indenture. If all
Obligations and any other amounts due under this Agreement have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Grantor, if it is lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
7. Covenants. Grantor covenants as follows:
---------
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(a) Any action or proceeding to enforce this Agreement or any Assigned
Agreement may be taken by the Collateral Agent either in Grantor's name or in
the Collateral Agent's name, as the Collateral Agent may deem necessary.
(b) Not to make any other assignment (other than to Collateral Agent)
of its rights under the Governmental Approvals, except to BLM or a successor
operator in accordance with the Plant O&M Agreement.
(c) To do all acts that may reasonably be necessary to maintain,
preserve and protect the Collateral.
(d) Not to use or permit any Collateral to be used unlawfully or in
material violation of any provision of applicable statute, regulation or
ordinance.
(e) To pay promptly when due all taxes, assessments, charges,
encumbrances and liens now or hereafter imposed upon or affecting any
Collateral.
(f) To procure, execute and deliver from time to time any
endorsements, assignments, financing statements and other writings reasonably
necessary to perfect, maintain and protect the Collateral Agent's security
interest hereunder and the priority thereof.
(g) To appear in and defend any action or proceeding that may affect
its title to or the Collateral Agent's interest in the Collateral.
(h) Not to sell, encumber, lease, rent, or otherwise dispose of or
transfer any Collateral or right or interest therein.
(i) To comply with all laws, regulations and ordinances relating to
the Collateral.
8. Certain Consents and Waivers.
----------------------------
(a) Grantor hereby waives, to the maximum extent permitted by law (i)
all rights under any law limiting remedies, including recovery of a deficiency,
under an obligation secured by a deed of trust on real property if the real
property is sold under a power of sale contained in the deed of trust, and all
defenses based on any loss whether as a result of any such sale or otherwise, of
Grantor's right to recover any amount from BLM, whether by right of subrogation
or otherwise; (ii) all rights under any law to require Collateral Agent to
pursue BLM or any other Person, any security which Collateral Agent may hold, or
any other remedy before proceeding against Grantor; (iii) all rights of
reimbursement or subrogation, all rights to enforce any remedy that Collateral
Agent, the Trustee, the Holders of the Senior Secured Notes or the Permitted
Additional Senior Lenders, if any, may have against BLM, and all rights to
participate in any security held by Collateral Agent until the Obligations have
been paid and the covenants of the Indenture have been performed in full; (iv)
all rights to require Collateral Agent to give any notices of any kind,
including without limitation notices of nonpayment, nonperformance, protest,
dishonor, default, delinquency or acceleration, or to make any presentments,
demands or protests, except as expressly provided herein and in the Indenture;
(v) all rights to assert the bankruptcy or
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<PAGE>
insolvency of BLM as a defense hereunder or as the basis for rescission hereof;
(vi) all rights under any law purporting to reduce Grantors' Obligations
hereunder if BLM's Obligations are reduced; (vii) all defenses based on the
disability or lack of authority of BLM or any Person, the repudiation of the
Guarantees or any related Financing Documents by BLM or any Person, the failure
by Collateral Agent, the Trustee, the Holders of the Senior Secured Notes or any
Permitted Additional Senior Lender, if any, to enforce any claim against BLM, or
the unenforceability in whole or in part of any Financing Document; (viii) all
suretyship and guarantor's defenses generally; (ix) all rights to insist upon,
plead or in any manner whatever claim or take the benefit or advantage of, any
appraisal, valuation, stay, extension, marshaling of assets, redemption or
similar law, or exemption, whether now or at any time hereafter in force, which
may delay, prevent or otherwise affect the performance by Grantor or its
obligations under, or the enforcement by Collateral Agent of, this Agreement;
(x) any requirement on the part of Collateral Agent, Trustee, the Holders of the
Senior Secured Notes or any Permitted Additional Senior Lender, if any, to
mitigate the damages resulting from any default; and (xi) except as otherwise
specifically set forth herein, all rights of notice and hearing of any kind
prior to the exercise of rights by Collateral Agent upon the occurrence and
during the continuation of an Event of Default to repossess with judicial
process or to replevy, attach or levy upon the Collateral. To the extent
permitted by applicable law, Grantor waives the posting of any bond otherwise
required of Collateral Agent in connection with any judicial process or
proceeding to obtain possession of, replevy, attach, or levy upon the
Collateral, to enforce any judgment or other security for the Obligations, to
enforce any judgment or other court order entered in favor of Collateral Agent,
or to enforce by specific performance, temporary restraining order, preliminary
or permanent injunction, this Agreement or any other agreement or document
between Grantor, Collateral Agent, Trustee, the Holders of the Senior Secured
Notes or any Permitted Additional Senior Lender, if any. Grantor further agrees
that upon the occurrence and continuance of an Event of Default, Collateral
Agent may elect to nonjudicially or judicially foreclose against any real or
personal property security it holds for the Obligations or any part thereof, or
to exercise any other remedy against BLM, any security or any guarantor, even if
the effect of that action is to deprive a Grantor of the right to collect
reimbursement from BLM for any sums paid by Grantor to Collateral Agent, Trustee
or any Holder of the Senior Secured Notes or any Permitted Additional Senior
Lender, if any.
(b) If Collateral Agent may, under applicable law, proceed to realize
its benefits under any of the Financing Documents giving Collateral Agent a Lien
upon any Collateral, whether owned by any BLM, Grantor or by any other Person,
either by judicial foreclosure or by nonjudicial sale or enforcement, Collateral
Agent may, at its sole option, determine which of its remedies or rights it may
pursue without affecting any of the rights and remedies of Collateral Agent
under this Agreement. In the event Collateral Agent shall bid at any
foreclosure or trustee's sale or at any private sale permitted by law or the
Financing Documents, Collateral Agent may bid all or less than the amount of
Obligations. To the extent permitted by applicable law, the amount of the
successful bid at any such sale, whether Collateral Agent or any other party is
the successful bidder, shall be conclusively deemed to be the fair market value
of the Collateral and the difference between such bid amount and the remaining
balance of the Obligations shall be conclusively deemed to be the amount of the
Obligations.
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9. Representations and Warranties. Grantor represents and warrants
------------------------------
as follows:
(a) No effective financing statement or other instrument similar in
effect covering all or any part of Grantor's interest in the Collateral is on
file in any recording office, except such as may have been filed pursuant to
this Agreement and the other Financing Documents or pursuant to the documents
evidencing Permitted Liens.
(b) Grantor has not assigned any of its rights under the Governmental
Approvals except as specifically provided in this Agreement or as set forth in
the Indenture.
(c) Grantor will perform and comply, in all material respects, with
all obligations and conditions on its part to be performed hereunder with
respect to the Collateral.
(d) Grantor (i) is a corporation duly organized, validly existing and
in good standing under the laws of the State of Florida and has all requisite
power and authority under the laws of its state of organization to enter into
this Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby, (ii) is duly qualified, authorized to do
business and in good standing in each jurisdiction where the character of its
properties or the nature of its activities makes such qualification necessary,
and (iii) has all requisite power and authority; (W) to carry on its business as
now being conducted and as proposed to be conducted by it; (X) to execute,
deliver and perform this Agreement; (Y) to take all action as may be necessary
to consummate the transactions contemplated hereunder; and (Z) to grant liens
and security interest provided for in this Agreement.
(e) Grantor has (i) taken all necessary action to authorize the
execution, delivery and performance of this Agreement; and (ii) duly executed
and delivered this Agreement. Neither Grantor's execution and delivery of this
Agreement nor its consummation of the transactions contemplated hereby nor its
compliance with the terms hereof (i) does or will contravene the documents of
formation of Grantor or any other requirements of law applicable to or binding
on such Grantor or any of its properties, (ii) does or will contravene or result
in any breach of or constitute any default under, or result in or require the
creation of any Lien (other than Permitted Liens) upon any of its property
under, any agreement or instrument to which it is a party or by which it or any
of its properties may be bound or affected or (iii) does or will require the
consent or approval of any Person which has not already been obtained.
(f) This Agreement is the legal, valid and binding obligation of such
Grantor, enforceable against such Grantor in accordance with its terms, except
to the extent the enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and subject to general equitable
principles.
(g) Grantor is the lawful owner of and has full right, title and
interest in and to, the Collateral, subject to no mortgages, liens, charges, or
encumbrances of any kind (other than hereunder) and has full power and lawful
authority to pledge, assign and grant a security interest in the Collateral
granted by it hereunder. Grantor will, so long as any Obligations shall be
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<PAGE>
outstanding, warrant and defend its title to the Collateral against any claims
and demands which may affect to a material extent its title to, or the
Collateral Agent's right or interest in, such Collateral.
(h) Grantor will not directly or indirectly create, incur, assume or
suffer to exist any Liens on or with respect to any part of the Collateral other
than the rights and interests of the Collateral Agent, the Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
hereunder. Grantor will at its own cost and expense promptly take such action
as may be necessary to discharge any such liens not so permitted.
(i) Any action or proceeding to enforce the rights granted or to
protect or preserve the Collateral under this Agreement may be taken by
Collateral Agent either in Grantor's name or in Collateral Agent's name, as
Collateral Agent may deem necessary.
(j) Grantor will, at all times, keep accurate and complete records of
the Collateral. Grantor shall, at all times on three (3) Business Days' notice,
permit representatives of Collateral Agent at any time during normal business
hours of such Grantor to inspect and make abstracts from such Grantor's books
and records pertaining to the Collateral. Upon the occurrence and continuance of
any Event of Default, at Collateral Agent's request, Grantor shall promptly
deliver any and all such records to Collateral Agent.
(k) Grantor will give prompt notice in writing to Collateral Agent of
any change in the location of the place of business where correspondence,
notices or proceeds in connection with the Collateral are received or located or
of any change in the location of the place of business where records concerning
Collateral are kept.
10. Notices. Any notice or communication by the Grantor or the
-------
Collateral Agent to the other is duly given if in writing and delivered in
person or mailed by first class mail (registered or certified, return receipt
requested), telex, telecopier or overnight air courier guaranteeing next day
delivery, to the other's address:
If to the Grantor:
FPL Energy Operating Services, Inc.
700 Universe Blvd.
Juno Beach, FL 33408
Telecopier No.: (561) 691-7309
Attention: Vice President - Operations
With a copy to:
FPL Energy Operating Services, Inc.
6952 Preston Ave.
Livermore, CA 94552
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<PAGE>
Telecopier No.: (925) 455-3101
Attention: Vice President - Operations
If to the Collateral Agent:
U.S. Bank Trust National Association
One California Street
Fourth Floor
San Francisco, California 94111
Telecopier No.: (415) 273-4590
11. Further Assurances.
------------------
(a) Grantor agrees that from time to time, at the expense of BLM,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or required, or that the
Collateral Agent may reasonably request, in order to perfect and protect the
assignment and security interest granted or intended to be granted hereby or to
enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of the
foregoing, Grantor will: (i) if any Collateral shall be evidenced by a
promissory note or other instrument, deliver and pledge to the Collateral Agent,
for the benefit of Trustee, the Holders of Senior Secured Notes and the
Permitted Additional Senior Lenders, if any, such note or instrument duly
endorsed (without recourse) and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to enable the
Collateral Agent to enforce the provisions of this Agreement and the security
interests described herein; and (ii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments,
endorsement or notices, as may be necessary or required, or as the Collateral
Agent may reasonably request, in order to perfect and preserve the assignments
and security interests granted or purported to be granted hereby; it being
understood and agreed that the Collateral Agent shall have no obligation in
respect of the filing of such statements or in the perfection or preservation of
any such security interests.
(b) Grantor hereby authorizes the Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor where permitted by
law; provided that no financing statement that constitutes a security agreement
shall be filed in the State of Florida. Copies of any such statement or
amendment thereto shall promptly be delivered to Grantor.
(c) BLM shall pay all filing, registration and recording fees or
refiling, re-registration and re-recording fees, and all expenses incident to
the execution and acknowledgment of this Agreement, any instruments of further
assurance, and (except as otherwise provided in the Indenture) all federal,
state, county and municipal stamp taxes and other taxes, duties, imports,
assessments and charges arising out of or in connection with the execution and
delivery of this Agreement, any agreement supplemental hereto and any
instruments of further assurance.
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12. Place of Perfection; Records. The location of Grantor's chief
----------------------------
executive office is 700 Universe Blvd., Juno Florida 33408, and the location of
Grantor's place of business is Inyo and Kern County, California. Grantor shall
give the Collateral Agent at least forty-five (45) days prior written notice
before it changes the location of its chief executive office and shall at the
expense of BLM execute and deliver such instruments and documents as required to
maintain a prior perfected security interest and as requested by the Collateral
Agent. Grantor will hold and preserve such records and will permit
representatives of the Collateral Agent upon reasonable notice during normal
business hours to inspect and make abstracts from such records.
13. Continuing Assignment and Security Interest; Transfer. This
-----------------------------------------------------
Agreement shall create a continuing assignment of and security interest in the
Collateral and shall (i) remain in full force and effect until the earlier of
(x) payment in full of the Obligations or (y) termination of the Plant O&M
Agreement and transfer of the Collateral to BLM or a successor operator of the
BLM Project, (ii) be binding upon Grantor, its successors and assigns and (iii)
inure, together with the rights and remedies of the Collateral Agent, to the
benefit of the Trustee, the Holders of the Senior Secured Notes, the Permitted
Additional Senior Lenders, if any, and their respective successors, transferees
and assigns. Without limiting the generality of the foregoing clause (iii), but
subject to Section 2.06 of the Indenture, the Holders of the Senior Secured
Notes may assign or otherwise transfer their Senior Secured Notes to any other
Person, and such other Person shall thereupon become vested with all or an
appropriate part of the benefits in respect thereof granted to the Holders of
the Senior Secured Notes herein or otherwise. The release of the security
interest in any or all of the Collateral, the taking or acceptance of additional
security, or the resort by Collateral Agent to any security it may have in any
order it may deem appropriate, shall not affect the liability of any person on
the indebtedness secured hereby. Upon the payment in full of the Obligations,
the security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination, the Collateral
Agent shall, at Grantor's expense, execute and deliver to Grantor such documents
as Grantor shall reasonably request to evidence such termination. If this
Agreement shall be terminated or revoked by operation of law, Grantor will
indemnify and save Collateral Agent, Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, harmless from any
loss which may be suffered or incurred by Collateral Agent, Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
in acting hereunder prior to the receipt by Collateral Agent, its successors,
transferees, or assigns of written notice of such termination or revocation.
14. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
15. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any
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such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
16. Time. Time is of the essence of this Agreement.
----
17. Agreement for Security Purposes. This Agreement is for security
-------------------------------
purposes only. Accordingly, the Collateral Agent shall not, pursuant to this
Agreement, enforce Grantor's rights with respect to the Collateral, including
the exercise of any rights granted under the Consents, until such time as an
Event of Default shall have occurred and is continuing at the time such
enforcement is sought, and after any required notice of such enforcement has
been given, and until such time, subject to the terms of the Indenture and the
other Financing Documents, Grantor reserves the right to exercise all of its
right, title and interest in, to and under the Collateral (including the
Governmental Approvals).
18. Governing Law. This Agreement, including all matters of
-------------
construction, validity, performance and the creation, validity, enforcement or
priority of the lien of, and security interests created by, this Agreement in or
upon the Collateral shall be governed by the laws of the State of New York,
without reference to conflicts of law (other than Section 5-1401 of the New York
General Obligations Law), except as required by mandatory provisions of law and
except to the extent that the validity or perfection of the lien and security
interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the State of
New York.
19. Reinstatement. This Agreement shall continue to be effective or
-------------
be reinstated, as the case may be, if at any time any amount received by
Collateral Agent in respect of the Obligations is rescinded or must otherwise be
restored or returned by Collateral Agent upon the insolvency, bankruptcy,
reorganization, liquidation of Grantor or any of the Coso Partnerships or upon
the dissolution of, or appointment of any intervenor or conservator of, or
trustee or similar official for, Grantor or any of the Coso Partnerships or any
substantial part of Grantor's or any of the Coso Partnership's assets, or
otherwise, all as though such payments had been made.
20. WAIVER OF JURY TRIAL. GRANTOR AND COLLATERAL AGENT HEREBY
--------------------
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN), OR ACTIONS OF COLLATERAL AGENT OR GRANTOR. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR COLLATERAL AGENT TO ENTER INTO THIS AGREEMENT.
21. Amendment. No modification or waiver of any of the provisions of
---------
this Agreement shall be binding on Collateral Agent, except as expressly set
forth in a writing duly signed and delivered by Collateral Agent and which is
otherwise in accordance with Article 8 of the Indenture.
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22. Duties and Liabilities of the Collateral Agent Generally.
--------------------------------------------------------
(a) The Collateral Agent undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement. The Collateral
Agent shall not have any duties or responsibilities except those expressly set
forth in this Agreement or be a trustee for or have any fiduciary obligation to
any party hereto.
(b) The duties and obligations of the Collateral Agent shall be
determined solely by the express provisions of this Agreement, and the
Collateral Agent shall take such action with respect to this Agreement as it
shall be directed in writing by Trustee, and the Collateral Agent shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement and no implied covenants or obligations
shall be read into this Agreement against the Collateral Agent; and
(i) In the absence of bad faith on the part of the Collateral
Agent, the Collateral Agent may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Collateral Agent which conform to the
requirements of this Agreement;
(ii) The Collateral Agent shall not be liable for any error of
judgment made in good faith by an officer or officers of the Collateral Agent,
unless it shall be conclusively determined by a court of competent jurisdiction
that the Collateral Agent was negligent in ascertaining the pertinent facts; and
(iii) The Collateral Agent shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance with
any direction of Trustee or Grantor given under this Agreement.
(c) None of the provisions of this Agreement shall require the
Collateral Agent to expend or risk its own funds or otherwise to incur any
liability, financial or otherwise, in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk or liability is not assured to it.
(d) The Collateral Agent may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties.
(e) Whenever in the administration of the provisions of this Agreement
the Collateral Agent shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering any action to be taken
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Collateral Agent, be deemed to be conclusively proved and
established by a certificate signed by a Responsible Officer of Trustee or
Grantor as the case may be, and delivered to the Collateral Agent and such
certificate, in the absence of negligence or bad faith
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<PAGE>
on the part of the Collateral Agent, shall be full warrant to the Collateral
Agent for any action taken, suffered or omitted by it under the provisions of
this Agreement upon the faith thereof.
(f) The Collateral Agent may consult with counsel and the advice or
any opinion of counsel shall be full and complete authorization and protection
in respect of any action taken or omitted by it hereunder in good faith and in
accordance with such advice or opinion of counsel.
(g) The Collateral Agent shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, entitlement order,
approval or other paper or document.
(h) The Collateral Agent may execute any of the powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys,
custodians or nominees appointed with due care, and shall not be responsible for
any willful misconduct or negligence on the part of or for the supervision of,
any agent, attorney, custodian or nominee so appointed.
(i) BLM shall pay or reimburse the Collateral Agent upon Collateral
Agent's request for all reasonable expenses, disbursements and advances incurred
or made by the Collateral Agent in accordance with any of the provisions hereof
or any other documents executed in connection herewith (including the
compensation and the expenses and disbursements of its counsel and of all
persons not regularly in its employ). The obligations of BLM under this Section
22(i) to compensate the Collateral Agent and to pay or reimburse the Collateral
Agent for reasonable expenses, disbursements and advances shall survive the
satisfaction and discharge of this Agreement or the earlier resignation or
removal of the Collateral Agent.
(j) Any corporation into which the Collateral Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Collateral Agent shall
be a party, or any corporation succeeding to the business of the Collateral
Agent shall be the successor of the Collateral Agent hereunder without the
execution or filing of any paper with any party hereto or any further act on the
part of any of the parties hereto except where an instrument of transfer or
assignment is required by law to effect such succession, anything herein to the
contrary notwithstanding.
(k) Neither the Collateral Agent nor any of its officers, directors,
employees or agents shall be liable for any action taken or omitted under this
Agreement or in connection therewith except to the extent caused by the
Collateral Agent's negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction, no longer subject to appeal or
review. The parties each (for itself and any person or entity claiming through
it) hereby releases, waives, discharges, exculpates and covenants not to sue the
Collateral Agent for any action taken or omitted under this Agreement except to
the extent caused by the Collateral Agent's negligence or willful misconduct.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Collateral Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to
14
<PAGE>
lost profits), even if the Collateral Agent has been advised of the likelihood
of such loss or damage and regardless of the form of action,
(l) The Collateral Agent shall not be responsible in any manner
whatsoever for the correctness of any recitals, statements, representations or
warranties contained herein or in the other Security Documents, except for those
made by the Collateral Agent, or for filing any financing statement,
continuation statement or any other perfection instrument or notice, or for
recording or re-recording any Security Document in any public office at any time
or for taking any other action to perfect or maintain the perfection, priority
or effectiveness of any interest on any of the Collateral or in any other
property granted to it hereunder or under any of the other Security Documents.
The Collateral Agent makes no representations as to the value or condition of
the Collateral or any part thereof, or as to the title of the Grantor thereto or
as to the security afforded by the Security Documents or this Agreement or as to
the validity, execution, enforceability, legality or sufficiency of this
Agreement, of any other Security Document, of the Obligations secured hereby and
thereby and the Collateral Agent shall incur no liability or responsibility in
respect of any such matters. The Collateral Agent shall not be responsible for
insuring the Collateral or for the payment of taxes, charges, assessments or
liens upon the Collateral or for the maintenance of the Collateral, except that
in the event the Collateral Agent enters into possession of all or any part of
the Collateral, the Collateral Agent shall preserve the portion of the
Collateral in its possession.
(n) The Collateral Agent shall not be required to ascertain or inquire
as to the Grantor's performance of any of the covenants or agreements contained
herein or in any Security Document. Whenever it is necessary, or in the opinion
of the Collateral Agent advisable, for the Collateral Agent to ascertain the
amount of obligations then held by a Trustee, on behalf of the Holders of the
Senior Secured Notes, or Permitted Additional Senior Lender, the Collateral
Agent may conclusively rely on a certificate of such party as to such amount
23. No Recourse. Funding Corporation agrees that neither Grantor nor any
-----------
officer, director, employee, shareholder, partner or holder of Capital Stock of
Grantor, nor any director, officer, employee, incorporator, shareholder, partner
or member of any partner of Grantor or any Affiliate of any such party
(collectively, the "Nonrecourse Parties") shall be personally liable under this
-------------------
Agreement for the payment of any sums now or hereafter owing Collateral Agent
under the terms of, or for the performance of any obligation contained in, this
Agreement. Collateral Agent agrees that its rights shall be limited to
proceeding against the security provided or intended to be provided hereunder
and that it shall have no right to proceed against the Nonrecourse Parties for
(a) the satisfaction of any monetary obligation of, or enforcement of any
monetary claim against, Grantor, (b) the performance of any obligation, covenant
or agreement arising under this Agreement, or (c) any deficiency judgment
remaining after foreclosure of any property securing the obligations hereunder;
provided that (v) the foregoing provisions of this Section 23 shall not
constitute a waiver, release or discharge of any of the Indebtedness, or of any
of the terms, covenants, conditions or provisions of this agreement or any
Financing Document and the same shall continue until fully paid, discharged,
observed or performed; (w) the foregoing provisions of this Section 23 shall not
limit or restrict the right of the Collateral Agent, the Holders of the Senior
Secured Notes, the Depositary or the Trustee to name Grantor or any
15
<PAGE>
other Person as a defendant in any action or suit for a judicial foreclosure or
for the exercise of any other remedy under or with respect to this Agreement or
any other Financing Document, or for injunction or specific performance, so long
as no judgment in the nature of a deficiency judgment shall be enforced against
any Nonrecourse Party, except as set forth in this Section 6.11; (x) the
foregoing provisions of this Section 23 shall not in any way limit or restrict
any right or remedy of Collateral Agent, the Holders of the Senior Secured
Notes, the Depositary or the Trustee (or any assignee or beneficiary thereof or
successor thereto) with respect to, and all of the Nonrecourse Parties shall
remain fully liable to the extent that it would otherwise be liable for its own
actions with respect to, any fraud, or willful misrepresentation, (y) the
foregoing provisions of this Section 23 shall not affect or diminish or
constitute a waiver, release or discharge or limit in any way the rights and
remedies available to Collateral Agent, the Holders of the Senior Secured Notes,
the Depositary or the Trustee (or any assignee or beneficiary thereof or
successor thereto) with respect to, and all of the Nonrecourse Parties shall
remain fully liable to the extent provided therein pursuant to (i) the Plant O&M
Agreement and the Consent executed by Grantor to the Collateral Agent with
respect thereto or (ii) any Person rendering a legal opinion, in each case under
this clause (z) relating solely to such liability of such Person as may arise
under such referenced instrument, agreement or opinion; and (z) the foregoing
provisions of this Section 23 shall not affect or diminish or constitute a
waiver, release or discharge or limit in any way the rights and remedies
available to Collateral Agent, the Holders of the Senior Secured Notes, the
Depositary or the Trustee (or any assignee or beneficiary thereof or successor
thereto) with respect to the security granted by the Nonrecourse Parties as
security for the obligations of Grantor or Funding Corporation..
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this
Security Agreement to be duly executed by their partners and officers thereunto
duly authorized, as of the day and year first above written.
GRANTOR:
- --------
FPL ENERGY OPERATING SERVICES, INC.,
a Florida corporation
By: /s/ John A. Keener
------------------------------------------
Name: John A. Keener
its: Vice President
17
<PAGE>
COLLATERAL AGENT:
- -----------------
U.S. BANK TRUST NATIONAL ASSOCIATION
as Collateral Agent
By: /s/ Judy P. Manansala
------------------------------------------
Name: Judy P. Manansala
its: Trust Officer
The undersigned consents and agrees to the foregoing.
COSO ENERGY DEVELOPERS,
a California general parnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------------------
Christopher T. McCallion
Executive Vice President
18
<PAGE>
Exhibit 10.23
SECURITY AGREEMENT (NAVY II)
(Governmental Approvals)
Dated as
of May 28, 1999
between
FPL ENERGY OPERATING SERVICES, INC.,
a Florida corporation,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
1. Definitions............................................... 2
2. Assignment, Pledge and Grant of Security Interest......... 2
3. Obligations Secured....................................... 3
4. Events of Default......................................... 3
5. Remedies.................................................. 4
6. Remedies Cumulative; Delay Not Waiver..................... 5
7. Covenants................................................. 6
8. Certain Consents and Waivers.............................. 6
9. Representations and Warranties............................ 8
10. Notices................................................... 9
11. Further Assurances........................................ 10
12. Place of Perfection; Records.............................. 11
13. Continuing Assignment and Security Interest; Transfer..... 11
14. Attorneys' Fees........................................... 12
15. Severability.............................................. 12
16. Time...................................................... 12
17. Agreement for Security Purposes........................... 12
18. Governing Law............................................. 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
19. Reinstatement............................................. 12
20. Waiver of Jury Trial...................................... 13
21. Amendment................................................. 13
22. Duties and Liabilities of the Collateral Agent Generally.. 13
</TABLE>
ii
<PAGE>
SECURITY AGREEMENT
------------------
This Security Agreement ("Agreement"), dated as of May 28, 1999, is entered
---------
into by and between FPL ENERGY OPERATING SERVICES, INC., a Florida corporation
("Grantor"), and U.S. BANK TRUST NATIONAL ASSOCIATION, in its capacity as
-------
collateral agent ("Collateral Agent"), for the benefit of U.S. BANK TRUST
----------------
NATIONAL ASSOCIATION, in its capacity as trustee ("Trustee") for the holders of
-------
all senior secured notes issued pursuant to that certain Indenture dated as of
May 28, 1999 (the "Indenture"), among Trustee, Coso Finance Partners, a
---------
California general partnership ("Navy I"), Coso Energy Developers, a California
general partnership ("BLM"), Coso Power Developers, a California general
---
partnership ("Navy II"), and Caithness Coso Funding Corp., a Delaware
-------
corporation (the "Issuer") (such notes, the "Senior Secured Notes," and the
------ --------------------
holders thereof, the "Holders of the Senior Secured Notes") and all other
----------------------
Permitted Additional Senior Lenders (as defined in the Indenture).
PREFACE
-------
A. Issuer has, as of the date of this Security Agreement, issued
$413,000,000 of the Senior Secured Notes, the proceeds of which will be used to
make loans to the Coso Partnerships.
B. Pursuant to a Guarantee dated as of the date of this Security
Agreement (the "Guarantee") the Coso Partnerships have guaranteed to Trustee and
---------
the Holders of the Senior Secured Notes the payment and performance of Issuer's
obligations under the Senior Secured Notes and the Indenture.
C. The Grantor is party to the Operation and Maintenance Agreement dated
as of May 28, 1999, by and between Navy II and the Grantor (the "Plant O&M
---------
Agreement").
- ---------
D. As a condition precedent to the sale of the Senior Secured Notes, the
Grantor is required to have executed this Security Agreement as security for the
payment and performance of the Navy II's obligations under the Guarantee.
E. As additional security for the payment and performance of Navy II's
obligations under the Guarantee, it is the intent of Grantor to grant to the
Collateral Agent, for the benefit of the Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, a security
interest in the Collateral (as defined below) as security for the payment and
performance of Navy II's obligations under the Guarantee.
AGREEMENT
---------
In consideration of the premises herein, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with the Collateral Agent as follows:
1
<PAGE>
1. Definitions. (a) Unless otherwise defined, all terms used herein which
-----------
are defined in the Indenture shall have their respective meanings therein
defined and the Rules of Interpretation included in the Indenture shall apply
hereto. All terms defined in the UCC shall have the respective meanings given to
those terms in the UCC; and (b) "UCC" shall mean the Uniform Commercial Code as
the same may, from time to time, be in effect in the State of New York;
provided, however, in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of the security interest in
any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.
2. Assignment, Pledge and Grant of Security Interest.
-------------------------------------------------
(a) To secure the timely payment and performance of the Obligations
(as that term is defined in Section 3), Grantor does hereby assign, grant and
pledge to, and subject to a security interest in favor of, the Collateral Agent,
on behalf of the Trustee, the Holders of the Senior Secured Notes, and the
Permitted Additional Senior Lenders, if any, all the estate, right, title and
interest of Grantor, whether now owned or hereafter acquired, in, to and under:
(i) all Governmental Approvals (as defined in the Indenture),
solely to the extent relating to the Navy II Project, whether now existing or
hereafter acquired; excluding, however, any such Governmental Approvals and
consents which by their terms or by operation of law would become void solely by
virtue of a security interest being granted therein;
(ii) the proceeds of all of the foregoing (all of the collateral
described in clauses (i) and (ii) being herein collectively referred to as the
"Collateral"), including without limitation (1) all rights of Grantor to receive
moneys due and to become due under or pursuant to the Collateral, (2) all rights
of Grantor to receive return of any premiums for or proceeds of any insurance,
indemnity, warranty or guaranty with respect to the Collateral or to receive
condemnation proceeds, (3) all claims of Grantor for damages arising out of or
for breach of or default under the Governmental Approvals or any other
Collateral, and (4) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed, whether voluntarily or
involuntarily.
(b) Anything herein contained to the contrary notwithstanding, to the
extent set forth in the Plant O&M Agreement Grantor shall remain liable under
each of the Governmental Approvals, to perform all of the obligations undertaken
by it thereunder, and the Collateral Agent shall have no obligation or liability
under any of such Governmental Approvals by reason of or arising out of this
Agreement (during the period of Grantor's right of use and possession thereof as
provided herein), nor shall the Collateral Agent be required or obligated in any
manner to perform or fulfill any obligations of Grantor thereunder.
(c) Upon the occurrence and during the continuance of an Event of
Default,
2
<PAGE>
Grantor does hereby constitute the Collateral Agent, acting for and on behalf of
Trustee, the Holders of the Senior Secured Notes, and the Permitted Additional
Senior Lenders, if any, and each successor or assign thereof, the true and
lawful attorney of Grantor, irrevocably, with full power coupled with an
interest (in the name of Grantor or otherwise) to ask, require, demand, receive,
compound and give acquittance for any and all claims arising out of the
Governmental Approvals to elect remedies thereunder, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or
take any action or institute any proceedings in connection therewith which the
Collateral Agent may deem to be necessary or advisable; provided, however, that
the Collateral Agent shall give Grantor notice of any action taken by it as such
attorney-in-fact promptly after taking any such action.
3. Obligations Secured. This Agreement and all of the Collateral secure
-------------------
the payment and performance of Navy II's (a) obligations under its Guarantee,
including, but not limited to, the payment of all amounts owed to Trustee for
the benefit of the Holders of the Senior Secured Notes and (b) obligations
owing, if any, to the Permitted Additional Senior Lenders, of every kind and
description (whether or not evidenced by any note or instrument and whether or
not for the payment of money), direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, pursuant to the terms of
the Guarantee, or any other instrument evidencing Permitted Indebtedness (other
than Permitted Indebtedness described in clause (e) of the definition of
Permitted Indebtedness), including, but not limited to, the payment of all
amounts owed to the Collateral Agent of every kind and description (whether or
not evidenced by any note or instrument and whether or not for the payment of
money), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, pursuant to the terms of the Indenture, the
Financing Documents or this Agreement, including all interest, fees, charges,
expenses, attorney's fees and accountant's fees (all such obligations being
herein called the "Obligations").
-----------
4. Events of Default. The following shall constitute an Event of Default
-----------------
hereunder:
(a) The occurrence and continuance of an Event of Default under the
Guarantee (as such term is defined in the Indenture), whatever the reason for
such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body; and
(b) the failure on the part of Grantor to observe or perform any
covenant, condition or agreement on its part to be observed or performed under,
or the breach of any representation or warranty of Grantor contained in this
Agreement and such failure continues uncured for 30 or more days from the date a
Responsible Officer of Grantor receives notice thereof from the Collateral
Agent; provided that if Grantor commences and diligently pursues efforts to
cure such default within such 30-day period, Grantor may continue to effect such
cure of the default and such default will not be deemed an Event of Default for
an additional 60 days so long as Grantor is diligently pursuing such cure.
5. Remedies.
--------
3
<PAGE>
(a) Subject to the terms of the Guarantee and the notice and other
requirements of applicable law, if any Event of Default has occurred and is
continuing, the Collateral Agent may (i) exercise the rights of acceleration set
forth in Section 5.2 of the Indenture, (ii) proceed to protect and enforce the
rights vested in it by this Agreement, and to enforce its rights hereunder by
such appropriate judicial proceedings as it shall deem most effective to protect
and enforce any of such rights, either at law or in equity or otherwise, whether
for specific enforcement of any covenant or agreement contained in any of the
Governmental Approvals, or in aid of the exercise of any power therein or herein
granted, or for any foreclosure hereunder and sale under a judgment or decree in
any judicial proceeding, or to enforce any other legal or equitable right vested
in it by this Agreement or by law; (iii) cause any action at law or suit in
equity or other proceeding to be instituted and prosecuted to collect or enforce
any Obligations or rights included in the Collateral, or to foreclose or enforce
any other agreement or other instrument by or under or pursuant to which such
Obligations are issued or secured, either in Grantor's name or in Collateral
Agent's name as Collateral Agent may deem necessary, subject in each case to the
provisions and requirements thereof; (iv) sell or otherwise dispose of any or
all of the Collateral or cause the Collateral to be sold or otherwise disposed
of in one or more sales or transactions, at such prices as the Collateral Agent
may deem commercially reasonable, and for cash or on credit or for future
delivery, without assumption of any credit risk, at any broker's board or at
public or private sale, without demand of performance or notice of intention to
sell or of time or place of sale (except such notice as is required by
applicable statute and cannot be waived or is contemplated herein or by the
other Financing Documents), it being agreed that the Collateral Agent may be a
purchaser on behalf of Trustee, the Holders of the Senior Secured Notes, the
Permitted Additional Senior Lenders, if any, or on its own behalf at any such
sale and that the Collateral Agent or anyone else who may be the purchaser of
any or all of the Collateral so sold shall thereafter hold the same absolutely,
free from any claim or right of whatsoever kind, including any equity of
redemption, of Grantor, any such demand, notice or right and equity being hereby
expressly waived and released to the extent permitted by law; (v) incur
reasonable expenses, including reasonable attorneys' fees, consultants' fees,
and other costs appropriate to the exercise of any right or power under this
Agreement; (vi) perform any obligation of Grantor under this Agreement, or under
any other Financing Document, Project Document or Additional Project Document,
and make payments, purchase, contest or compromise any encumbrance, charge, or
lien, and pay taxes and expenses, without, however, any obligation so to do;
(vii) take possession of the Collateral and render it usable, and repair and
renovate the same, without, however, any obligation to do so, and enter upon the
site where the Project is located or any other location where the same may be
located for that purpose, control, manage, operate, rent and lease the
Collateral, either separately or in conjunction with the Project, collect all
rents and income from the Collateral and apply the same to reimburse the Holders
of the Senior Secured Notes or the Permitted Additional Senior Lenders, if any,
for any cost or expenses incurred hereunder or under any of the Financing
Documents and to the payment or performance of the Obligations, and apply the
balance to whomsoever is legally entitled thereto; (viii) secure the appointment
of a receiver of the Collateral or any part thereof (to the extent and in the
manner provided by applicable law); or (ix) exercise any other or additional
rights or remedies granted to a secured party under the UCC. If, pursuant to
applicable law, prior notice of any such action is required to be given to
Grantor, Grantor hereby acknowledges that the minimum time required by such
applicable law, or if no minimum is specified, ten (10) Business Days, shall be
deemed a
4
<PAGE>
reasonable notice period. Notwithstanding anything herein to the contrary, any
purchase price obtained by the Collateral Agent in a foreclosure sale instituted
and prosecuted in accordance with the terms hereof shall be deemed binding and
conclusive on the parties hereto and the Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any.
(b) All costs and expenses (including, but without being limited to,
reasonable attorneys' fees and expenses) incurred by the Collateral Agent in
connection with any such suit or proceeding, or in connection with the
performance by the Collateral Agent of any of Grantor's agreements contained
herein or in any exercise of Collateral Agent's rights or remedies hereunder,
including any of the Governmental Approvals pursuant to the terms of this
Agreement, together with interest thereon (to the extent permitted by law)
computed at a rate per annum equal to the "Prime Rate" of Bankers Trust Company,
as such rate is announced from time to time, plus one percent (1%), said rate to
change when and as the said Prime Rate changes, from the date on which such
costs or expenses are incurred to the date of payment thereof, shall constitute
additional indebtedness secured by this Agreement and shall be paid by Navy II
to the Trustee on demand.
6. Remedies Cumulative; Delay Not Waiver.
-------------------------------------
(a) No right, power or remedy herein conferred upon or reserved to the
Collateral Agent is intended to be exclusive of any other right, power or
remedy, and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Resort to any or all security now or hereafter held by the
Collateral Agent, may be taken concurrently or successively and in one or
several consolidated or independent judicial actions or lawfully taken
nonjudicial proceedings, or both.
(b) No delay or omission of the Collateral Agent to exercise any right
or power accruing upon the occurrence and during the continuance of any Event of
Default as aforesaid shall impair any such right or power or shall be construed
to be a waiver of any such Event of Default or an acquiescence therein; and
every power and remedy given by this Agreement may be exercised from time to
time, and as often as shall be deemed expedient, by the Collateral Agent.
(c) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority specified in Section 5.10 of the Indenture. If all
Obligations and any other amounts due under this Agreement have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Grantor, if it is lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
7. Covenants. Grantor covenants as follows:
---------
5
<PAGE>
(a) Any action or proceeding to enforce this Agreement or any Assigned
Agreement may be taken by the Collateral Agent either in Grantor's name or in
the Collateral Agent's name, as the Collateral Agent may deem necessary.
(b) Not to make any other assignment (other than to Collateral Agent)
of its rights under the Governmental Approvals, except to Navy II or a successor
operator in accordance with the Plant O&M Agreement.
(c) To do all acts that may reasonably be necessary to maintain,
preserve and protect the Collateral.
(d) Not to use or permit any Collateral to be used unlawfully or in
material violation of any provision of applicable statute, regulation or
ordinance.
(e) To pay promptly when due all taxes, assessments, charges,
encumbrances and liens now or hereafter imposed upon or affecting any
Collateral.
(f) To procure, execute and deliver from time to time any
endorsements, assignments, financing statements and other writings reasonably
necessary to perfect, maintain and protect the Collateral Agent's security
interest hereunder and the priority thereof.
(g) To appear in and defend any action or proceeding that may affect
its title to or the Collateral Agent's interest in the Collateral.
(h) Not to sell, encumber, lease, rent, or otherwise dispose of or
transfer any Collateral or right or interest therein.
(i) To comply with all laws, regulations and ordinances relating to
the Collateral.
8. Certain Consents and Waivers.
----------------------------
(a) Grantor hereby waives, to the maximum extent permitted by law (i)
all rights under any law limiting remedies, including recovery of a deficiency,
under an obligation secured by a deed of trust on real property if the real
property is sold under a power of sale contained in the deed of trust, and all
defenses based on any loss whether as a result of any such sale or otherwise, of
Grantor's right to recover any amount from Navy II, whether by right of
subrogation or otherwise; (ii) all rights under any law to require Collateral
Agent to pursue Navy II or any other Person, any security which Collateral Agent
may hold, or any other remedy before proceeding against Grantor; (iii) all
rights of reimbursement or subrogation, all rights to enforce any remedy that
Collateral Agent, the Trustee, the Holders of the Senior Secured Notes or the
Permitted Additional Senior Lenders, if any, may have against Navy II, and all
rights to participate in any security held by Collateral Agent until the
Obligations have been paid and the covenants of the Indenture have been
performed in full; (iv) all rights to require Collateral Agent to give any
notices of any kind, including without limitation notices of nonpayment,
nonperformance, protest, dishonor, default, delinquency or acceleration, or to
make any presentments, demands or protests, except as expressly provided herein
and in the Indenture; (v) all rights to assert the bankruptcy or
6
<PAGE>
insolvency of Navy II as a defense hereunder or as the basis for rescission
hereof; (vi) all rights under any law purporting to reduce Grantors' Obligations
hereunder if Navy II's Obligations are reduced; (vii) all defenses based on the
disability or lack of authority of Navy II or any Person, the repudiation of the
Guarantees or any related Financing Documents by Navy II or any Person, the
failure by Collateral Agent, the Trustee, the Holders of the Senior Secured
Notes or any Permitted Additional Senior Lender, if any, to enforce any claim
against Navy II, or the unenforceability in whole or in part of any Financing
Document; (viii) all suretyship and guarantor's defenses generally; (ix) all
rights to insist upon, plead or in any manner whatever claim or take the benefit
or advantage of, any appraisal, valuation, stay, extension, marshaling of
assets, redemption or similar law, or exemption, whether now or at any time
hereafter in force, which may delay, prevent or otherwise affect the performance
by Grantor or its obligations under, or the enforcement by Collateral Agent of,
this Agreement; (x) any requirement on the part of Collateral Agent, Trustee,
the Holders of the Senior Secured Notes or any Permitted Additional Senior
Lender, if any, to mitigate the damages resulting from any default; and (xi)
except as otherwise specifically set forth herein, all rights of notice and
hearing of any kind prior to the exercise of rights by Collateral Agent upon the
occurrence and during the continuation of an Event of Default to repossess with
judicial process or to replevy, attach or levy upon the Collateral. To the
extent permitted by applicable law, Grantor waives the posting of any bond
otherwise required of Collateral Agent in connection with any judicial process
or proceeding to obtain possession of, replevy, attach, or levy upon the
Collateral, to enforce any judgment or other security for the Obligations, to
enforce any judgment or other court order entered in favor of Collateral Agent,
or to enforce by specific performance, temporary restraining order, preliminary
or permanent injunction, this Agreement or any other agreement or document
between Grantor, Collateral Agent, Trustee, the Holders of the Senior Secured
Notes or any Permitted Additional Senior Lender, if any. Grantor further agrees
that upon the occurrence and continuance of an Event of Default, Collateral
Agent may elect to nonjudicially or judicially foreclose against any real or
personal property security it holds for the Obligations or any part thereof, or
to exercise any other remedy against Navy II, any security or any guarantor,
even if the effect of that action is to deprive a Grantor of the right to
collect reimbursement from Navy II for any sums paid by Grantor to Collateral
Agent, Trustee or any Holder of the Senior Secured Notes or any Permitted
Additional Senior Lender, if any.
(b) If Collateral Agent may, under applicable law, proceed to realize
its benefits under any of the Financing Documents giving Collateral Agent a Lien
upon any Collateral, whether owned by any Navy II, Grantor or by any other
Person, either by judicial foreclosure or by nonjudicial sale or enforcement,
Collateral Agent may, at its sole option, determine which of its remedies or
rights it may pursue without affecting any of the rights and remedies of
Collateral Agent under this Agreement. In the event Collateral Agent shall bid
at any foreclosure or trustee's sale or at any private sale permitted by law or
the Financing Documents, Collateral Agent may bid all or less than the amount of
Obligations. To the extent permitted by applicable law, the amount of the
successful bid at any such sale, whether Collateral Agent or any other party is
the successful bidder, shall be conclusively deemed to be the fair market value
of the Collateral and the difference between such bid amount and the remaining
balance of the Obligations shall be conclusively deemed to be the amount of the
Obligations.
9. Representations and Warranties. Grantor represents and warrants as
------------------------------
follows:
7
<PAGE>
(a) No effective financing statement or other instrument similar in
effect covering all or any part of Grantor's interest in the Collateral is on
file in any recording office, except such as may have been filed pursuant to
this Agreement and the other Financing Documents or pursuant to the documents
evidencing Permitted Liens.
(b) Grantor has not assigned any of its rights under the Governmental
Approvals except as specifically provided in this Agreement or as set forth in
the Indenture.
(c) Grantor will perform and comply, in all material respects, with
all obligations and conditions on its part to be performed hereunder with
respect to the Collateral.
(d) Grantor (i) is a corporation duly organized, validly existing and
in good standing under the laws of the State of Florida and has all requisite
power and authority under the laws of its state of organization to enter into
this Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby, (ii) is duly qualified, authorized to do
business and in good standing in each jurisdiction where the character of its
properties or the nature of its activities makes such qualification necessary,
and (iii) has all requisite power and authority; (W) to carry on its business as
now being conducted and as proposed to be conducted by it; (X) to execute,
deliver and perform this Agreement; (Y) to take all action as may be necessary
to consummate the transactions contemplated hereunder; and (Z) to grant liens
and security interest provided for in this Agreement.
(e) Grantor has (i) taken all necessary action to authorize the
execution, delivery and performance of this Agreement; and (ii) duly executed
and delivered this Agreement. Neither Grantor's execution and delivery of this
Agreement nor its consummation of the transactions contemplated hereby nor its
compliance with the terms hereof (i) does or will contravene the documents of
formation of Grantor or any other requirements of law applicable to or binding
on such Grantor or any of its properties, (ii) does or will contravene or result
in any breach of or constitute any default under, or result in or require the
creation of any Lien (other than Permitted Liens) upon any of its property
under, any agreement or instrument to which it is a party or by which it or any
of its properties may be bound or affected or (iii) does or will require the
consent or approval of any Person which has not already been obtained.
(f) This Agreement is the legal, valid and binding obligation of such
Grantor, enforceable against such Grantor in accordance with its terms, except
to the extent the enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and subject to general equitable
principles.
(g) Grantor is the lawful owner of and has full right, title and
interest in and to, the Collateral, subject to no mortgages, liens, charges, or
encumbrances of any kind (other than hereunder) and has full power and lawful
authority to pledge, assign and grant a security interest in the Collateral
granted by it hereunder. Grantor will, so long as any Obligations shall be
outstanding, warrant and defend its title to the Collateral against any claims
and demands which
8
<PAGE>
may affect to a material extent its title to, or the Collateral Agent's right or
interest in, such Collateral.
(h) Grantor will not directly or indirectly create, incur, assume or
suffer to exist any Liens on or with respect to any part of the Collateral other
than the rights and interests of the Collateral Agent, the Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
hereunder. Grantor will at its own cost and expense promptly take such action
as may be necessary to discharge any such liens not so permitted.
(i) Any action or proceeding to enforce the rights granted or to
protect or preserve the Collateral under this Agreement may be taken by
Collateral Agent either in Grantor's name or in Collateral Agent's name, as
Collateral Agent may deem necessary.
(j) Grantor will, at all times, keep accurate and complete records of
the Collateral. Grantor shall, at all times on three (3) Business Days' notice,
permit representatives of Collateral Agent at any time during normal business
hours of such Grantor to inspect and make abstracts from such Grantor's books
and records pertaining to the Collateral. Upon the occurrence and continuance of
any Event of Default, at Collateral Agent's request, Grantor shall promptly
deliver any and all such records to Collateral Agent.
(k) Grantor will give prompt notice in writing to Collateral Agent of
any change in the location of the place of business where correspondence,
notices or proceeds in connection with the Collateral are received or located or
of any change in the location of the place of business where records concerning
Collateral are kept.
10. Notices. Any notice or communication by the Grantor or the Collateral
-------
Agent to the other is duly given if in writing and delivered in person or mailed
by first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
other's address:
If to the Grantor:
FPL Energy Operating Services, Inc.
700 Universe Blvd.
Juno Beach, FL 33408
Telecopier No.: (561) 691-7309
Attention: Vice President - Operations
With a copy to:
FPL Energy Operating Services, Inc.
6952 Preston Ave.
Livermore, CA 94552
Telecopier No.: (925) 455-3101
9
<PAGE>
Attention: Vice President - Operations
If to the Collateral Agent:
U.S. Bank Trust National Association
One California Street
Fourth Floor
San Francisco, California 94111
Telecopier No.: (415) 273-4590
11. Further Assurances.
------------------
(a) Grantor agrees that from time to time, at the expense of Navy II,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or required, or that the
Collateral Agent may reasonably request, in order to perfect and protect the
assignment and security interest granted or intended to be granted hereby or to
enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of the
foregoing, Grantor will: (i) if any Collateral shall be evidenced by a
promissory note or other instrument, deliver and pledge to the Collateral Agent,
for the benefit of Trustee, the Holders of Senior Secured Notes and the
Permitted Additional Senior Lenders, if any, such note or instrument duly
endorsed (without recourse) and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to enable the
Collateral Agent to enforce the provisions of this Agreement and the security
interests described herein; and (ii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments,
endorsement or notices, as may be necessary or required, or as the Collateral
Agent may reasonably request, in order to perfect and preserve the assignments
and security interests granted or purported to be granted hereby; it being
understood and agreed that the Collateral Agent shall have no obligation in
respect of the filing of such statements or in the perfection or preservation of
any such security interests.
(b) Grantor hereby authorizes the Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor where permitted by
law; provided that no financing statement that constitutes a security agreement
shall be filed in the State of Florida. Copies of any such statement or
amendment thereto shall promptly be delivered to Grantor.
(c) Navy II shall pay all filing, registration and recording fees or
refiling, re-registration and re-recording fees, and all expenses incident to
the execution and acknowledgment of this Agreement, any instruments of further
assurance, and (except as otherwise provided in the Indenture) all federal,
state, county and municipal stamp taxes and other taxes, duties, imports,
assessments and charges arising out of or in connection with the execution and
delivery of this Agreement, any agreement supplemental hereto and any
instruments of further assurance.
10
<PAGE>
12. Place of Perfection; Records. The location of Grantor's chief
----------------------------
executive office is 700 Universe Blvd., Juno Florida 33408, and the location of
Grantor's place of business is Inyo and Kern County, California. Grantor shall
give the Collateral Agent at least forty-five (45) days prior written notice
before it changes the location of its chief executive office and shall at the
expense of Navy II execute and deliver such instruments and documents as
required to maintain a prior perfected security interest and as requested by the
Collateral Agent. Grantor will hold and preserve such records and will permit
representatives of the Collateral Agent upon reasonable notice during normal
business hours to inspect and make abstracts from such records.
13. Continuing Assignment and Security Interest; Transfer. This Agreement
-----------------------------------------------------
shall create a continuing assignment of and security interest in the Collateral
and shall (i) remain in full force and effect until the earlier of (x) payment
in full of the Obligations or (y) termination of the Plant O&M Agreement and
transfer of the Collateral to Navy II or a successor operator of the Navy II
Project, (ii) be binding upon Grantor, its successors and assigns and (iii)
inure, together with the rights and remedies of the Collateral Agent, to the
benefit of the Trustee, the Holders of the Senior Secured Notes, the Permitted
Additional Senior Lenders, if any, and their respective successors, transferees
and assigns. Without limiting the generality of the foregoing clause (iii), but
subject to Section 2.06 of the Indenture, the Holders of the Senior Secured
Notes may assign or otherwise transfer their Senior Secured Notes to any other
Person, and such other Person shall thereupon become vested with all or an
appropriate part of the benefits in respect thereof granted to the Holders of
the Senior Secured Notes herein or otherwise. The release of the security
interest in any or all of the Collateral, the taking or acceptance of additional
security, or the resort by Collateral Agent to any security it may have in any
order it may deem appropriate, shall not affect the liability of any person on
the indebtedness secured hereby. Upon the payment in full of the Obligations,
the security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination, the Collateral
Agent shall, at Grantor's expense, execute and deliver to Grantor such documents
as Grantor shall reasonably request to evidence such termination. If this
Agreement shall be terminated or revoked by operation of law, Grantor will
indemnify and save Collateral Agent, Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, harmless from any
loss which may be suffered or incurred by Collateral Agent, Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
in acting hereunder prior to the receipt by Collateral Agent, its successors,
transferees, or assigns of written notice of such termination or revocation.
14. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
15. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any
11
<PAGE>
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
16. Time. Time is of the essence of this Agreement.
----
17. Agreement for Security Purposes. This Agreement is for security
-------------------------------
purposes only. Accordingly, the Collateral Agent shall not, pursuant to this
Agreement, enforce Grantor's rights with respect to the Collateral, including
the exercise of any rights granted under the Consents, until such time as an
Event of Default shall have occurred and is continuing at the time such
enforcement is sought, and after any required notice of such enforcement has
been given, and until such time, subject to the terms of the Indenture and the
other Financing Documents, Grantor reserves the right to exercise all of its
right, title and interest in, to and under the Collateral (including the
Governmental Approvals).
18. Governing Law. This Agreement, including all matters of construction,
-------------
validity, performance and the creation, validity, enforcement or priority of the
lien of, and security interests created by, this Agreement in or upon the
Collateral shall be governed by the laws of the State of New York, without
reference to conflicts of law (other than Section 5-1401 of the New York General
Obligations Law), except as required by mandatory provisions of law and except
to the extent that the validity or perfection of the lien and security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York.
19. Reinstatement. This Agreement shall continue to be effective or be
-------------
reinstated, as the case may be, if at any time any amount received by Collateral
Agent in respect of the Obligations is rescinded or must otherwise be restored
or returned by Collateral Agent upon the insolvency, bankruptcy, reorganization,
liquidation of Grantor or any of the Coso Partnerships or upon the dissolution
of, or appointment of any intervenor or conservator of, or trustee or similar
official for, Grantor or any of the Coso Partnerships or any substantial part of
Grantor's or any of the Coso Partnership's assets, or otherwise, all as though
such payments had been made.
20. WAIVER OF JURY TRIAL. GRANTOR AND COLLATERAL AGENT HEREBY KNOWINGLY,
--------------------
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF COLLATERAL AGENT OR GRANTOR. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR COLLATERAL AGENT TO ENTER INTO THIS AGREEMENT.
21. Amendment. No modification or waiver of any of the provisions of this
---------
Agreement shall be binding on Collateral Agent, except as expressly set forth in
a writing duly signed and delivered by Collateral Agent and which is otherwise
in accordance with Article 8 of the Indenture.
12
<PAGE>
22. Duties and Liabilities of the Collateral Agent Generally.
--------------------------------------------------------
(a) The Collateral Agent undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement. The Collateral
Agent shall not have any duties or responsibilities except those expressly set
forth in this Agreement or be a trustee for or have any fiduciary obligation to
any party hereto.
(b) The duties and obligations of the Collateral Agent shall be
determined solely by the express provisions of this Agreement, and the
Collateral Agent shall take such action with respect to this Agreement as it
shall be directed in writing by Trustee, and the Collateral Agent shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement and no implied covenants or obligations
shall be read into this Agreement against the Collateral Agent; and
(i) In the absence of bad faith on the part of the
Collateral Agent, the Collateral Agent may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Collateral Agent which conform to the
requirements of this Agreement;
(ii) The Collateral Agent shall not be liable for any error
of judgment made in good faith by an officer or officers of the Collateral
Agent, unless it shall be conclusively determined by a court of competent
jurisdiction that the Collateral Agent was negligent in ascertaining the
pertinent facts; and
(iii) The Collateral Agent shall not be liable with respect
to any action taken or omitted to be taken by it in good faith in accordance
with any direction of Trustee or Grantor given under this Agreement.
(c) None of the provisions of this Agreement shall require the
Collateral Agent to expend or risk its own funds or otherwise to incur any
liability, financial or otherwise, in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk or liability is not assured to it.
(d) The Collateral Agent may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties.
(e) Whenever in the administration of the provisions of this Agreement
the Collateral Agent shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering any action to be taken
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Collateral Agent, be deemed to be conclusively proved and
established by a certificate signed by a Responsible Officer of Trustee or
Grantor as the case may be, and delivered to the Collateral Agent and such
certificate, in the absence of negligence or bad faith
13
<PAGE>
on the part of the Collateral Agent, shall be full warrant to the Collateral
Agent for any action taken, suffered or omitted by it under the provisions of
this Agreement upon the faith thereof.
(f) The Collateral Agent may consult with counsel and the advice or
any opinion of counsel shall be full and complete authorization and protection
in respect of any action taken or omitted by it hereunder in good faith and in
accordance with such advice or opinion of counsel.
(g) The Collateral Agent shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, entitlement order,
approval or other paper or document.
(h) The Collateral Agent may execute any of the powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys,
custodians or nominees appointed with due care, and shall not be responsible for
any willful misconduct or negligence on the part of or for the supervision of,
any agent, attorney, custodian or nominee so appointed.
(i) Navy II shall pay or reimburse the Collateral Agent upon
Collateral Agent's request for all reasonable expenses, disbursements and
advances incurred or made by the Collateral Agent in accordance with any of the
provisions hereof or any other documents executed in connection herewith
(including the compensation and the expenses and disbursements of its counsel
and of all persons not regularly in its employ). The obligations of Navy II
under this Section 22(i) to compensate the Collateral Agent and to pay or
reimburse the Collateral Agent for reasonable expenses, disbursements and
advances shall survive the satisfaction and discharge of this Agreement or the
earlier resignation or removal of the Collateral Agent.
(j) Any corporation into which the Collateral Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Collateral Agent shall
be a party, or any corporation succeeding to the business of the Collateral
Agent shall be the successor of the Collateral Agent hereunder without the
execution or filing of any paper with any party hereto or any further act on the
part of any of the parties hereto except where an instrument of transfer or
assignment is required by law to effect such succession, anything herein to the
contrary notwithstanding.
(k) Neither the Collateral Agent nor any of its officers, directors,
employees or agents shall be liable for any action taken or omitted under this
Agreement or in connection therewith except to the extent caused by the
Collateral Agent's negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction, no longer subject to appeal or
review. The parties each (for itself and any person or entity claiming through
it) hereby releases, waives, discharges, exculpates and covenants not to sue the
Collateral Agent for any action taken or omitted under this Agreement except to
the extent caused by the Collateral Agent's negligence or willful misconduct.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Collateral Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to
14
<PAGE>
lost profits), even if the Collateral Agent has been advised of the likelihood
of such loss or damage and regardless of the form of action,
(l) The Collateral Agent shall not be responsible in any manner
whatsoever for the correctness of any recitals, statements, representations or
warranties contained herein or in the other Security Documents, except for those
made by the Collateral Agent, or for filing any financing statement,
continuation statement or any other perfection instrument or notice, or for
recording or re-recording any Security Document in any public office at any time
or for taking any other action to perfect or maintain the perfection, priority
or effectiveness of any interest on any of the Collateral or in any other
property granted to it hereunder or under any of the other Security Documents.
The Collateral Agent makes no representations as to the value or condition of
the Collateral or any part thereof, or as to the title of the Grantor thereto or
as to the security afforded by the Security Documents or this Agreement or as to
the validity, execution, enforceability, legality or sufficiency of this
Agreement, of any other Security Document, of the Obligations secured hereby and
thereby and the Collateral Agent shall incur no liability or responsibility in
respect of any such matters. The Collateral Agent shall not be responsible for
insuring the Collateral or for the payment of taxes, charges, assessments or
liens upon the Collateral or for the maintenance of the Collateral, except that
in the event the Collateral Agent enters into possession of all or any part of
the Collateral, the Collateral Agent shall preserve the portion of the
Collateral in its possession.
(m) The Collateral Agent shall not be required to ascertain or inquire
as to the Grantor's performance of any of the covenants or agreements contained
herein or in any Security Document. Whenever it is necessary, or in the opinion
of the Collateral Agent advisable, for the Collateral Agent to ascertain the
amount of obligations then held by a Trustee, on behalf of the Holders of the
Senior Secured Notes, or Permitted Additional Senior Lender, the Collateral
Agent may conclusively rely on a certificate of such party as to such amount
23. No Recourse. Funding Corporation agrees that neither Grantor nor any
-----------
officer, director, employee, shareholder, partner or holder of Capital Stock of
Grantor, nor any director, officer, employee, incorporator, shareholder, partner
or member of any partner of Grantor or any Affiliate of any such party
(collectively, the "Nonrecourse Parties") shall be personally liable under this
-------------------
Agreement for the payment of any sums now or hereafter owing Collateral Agent
under the terms of, or for the performance of any obligation contained in, this
Agreement. Collateral Agent agrees that its rights shall be limited to
proceeding against the security provided or intended to be provided hereunder
and that it shall have no right to proceed against the Nonrecourse Parties for
(a) the satisfaction of any monetary obligation of, or enforcement of any
monetary claim against, Grantor, (b) the performance of any obligation, covenant
or agreement arising under this Agreement, or (c) any deficiency judgment
remaining after foreclosure of any property securing the obligations hereunder;
provided that (v) the foregoing provisions of this Section 23 shall not
constitute a waiver, release or discharge of any of the Indebtedness, or of any
of the terms, covenants, conditions or provisions of this agreement or any
Financing Document and the same shall continue until fully paid, discharged,
observed or performed; (w) the foregoing provisions of this Section 23 shall not
limit or restrict the right of the Collateral Agent, the Holders of the Senior
Secured Notes, the Depositary or the Trustee to name Grantor or any
15
<PAGE>
other Person as a defendant in any action or suit for a judicial foreclosure or
for the exercise of any other remedy under or with respect to this Agreement or
any other Financing Document, or for injunction or specific performance, so long
as no judgment in the nature of a deficiency judgment shall be enforced against
any Nonrecourse Party, except as set forth in this Section 6.11; (x) the
foregoing provisions of this Section 23 shall not in any way limit or restrict
any right or remedy of Collateral Agent, the Holders of the Senior Secured
Notes, the Depositary or the Trustee (or any assignee or beneficiary thereof or
successor thereto) with respect to, and all of the Nonrecourse Parties shall
remain fully liable to the extent that it would otherwise be liable for its own
actions with respect to, any fraud, or willful misrepresentation, (y) the
foregoing provisions of this Section 23 shall not affect or diminish or
constitute a waiver, release or discharge or limit in any way the rights and
remedies available to Collateral Agent, the Holders of the Senior Secured Notes,
the Depositary or the Trustee (or any assignee or beneficiary thereof or
successor thereto) with respect to, and all of the Nonrecourse Parties shall
remain fully liable to the extent provided therein pursuant to (i) the Plant O&M
Agreement and the Consent executed by Grantor to the Collateral Agent with
respect thereto or (ii) any Person rendering a legal opinion, in each case under
this clause (z) relating solely to such liability of such Person as may arise
under such referenced instrument, agreement or opinion; and (z) the foregoing
provisions of this Section 23 shall not affect or diminish or constitute a
waiver, release or discharge or limit in any way the rights and remedies
available to Collateral Agent, the Holders of the Senior Secured Notes, the
Depositary or the Trustee (or any assignee or beneficiary thereof or successor
thereto) with respect to the security granted by the Nonrecourse Parties as
security for the obligations of Grantor or Funding Corporation..
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
16
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this
Security Agreement to be duly executed by their partners and officers thereunto
duly authorized, as of the day and year first above written.
GRANTOR:
- --------
FPL ENERGY OPERATING SERVICES, INC.,
a Florida corporation
By: /s/ John A. Keener
------------------
Name: John A. Keener
its: Vice President
<PAGE>
COLLATERAL AGENT:
- -----------------
U.S. BANK TRUST NATIONAL ASSOCIATION
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------
Name: Judy P. Manansala
its: Trust Officer
The undersigned consents and agrees to the foregoing.
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
Exhibit 10.24
RECORDING REQUESTED BY:
WHEN RECORDED RETURN TO:
The Law Offices of David E. Chanover
16776 Bernardo Center Drive
Suite 110B
San Diego, California 92128
Attention: David E. Chanover
- --------------------------------------------------------------------------------
COSO FINANCE PARTNERS
(as Trustor)
to
CHICAGO TITLE INSURANCE COMPANY
(as Trustee)
for the use and benefit of
U.S. BANK TRUST NATIONAL ASSOCIATION
(as Beneficiary)
DEED OF TRUST, ASSIGNMENT OF RENTS,
FIXTURE FILING AND SECURITY AGREEMENT
(NAVY I)
Dated: May 28, 1999
Location: County of Inyo and
County of Kern,
State of California
<PAGE>
DEED OF TRUST, ASSIGNMENT OF RENTS,
FIXTURE FILING AND SECURITY AGREEMENT
(NAVY I)
THIS DEED OF TRUST, ASSIGNMENT OF RENTS, FIXTURE FILING AND SECURITY
AGREEMENT (NAVY I) (this "Deed of Trust") is made as of May 28, 1999, by COSO
FINANCE PARTNERS, a California general partnership whose address is c/o New CLOC
Company, 1114 Avenue of the Americas, 41st Floor, New York, New York 10036, as
trustor ("Trustor"), to CHICAGO TITLE INSURANCE COMPANY, a Missouri corporation,
whose address is 2425 West Shaw, Fresno, California 93711, as trustee
("Trustee"), in favor of U.S. Bank Trust National Association, whose address is
One California Street, 4th Floor, San Francisco, California 94111, as
beneficiary ("Beneficiary") not in its individual capacity but solely as trustee
and collateral agent pursuant to the Indenture of even date herewith (the
"Indenture") among Beneficiary, Caithness Coso Funding Corp., as issuer (the
"Issuer"), Trustor, Coso Power Developers, a California general partnership
("CPD") and Coso Energy Developers, a California general partnership ("CED"), as
guarantors. Unless otherwise defined herein, capitalized terms shall have the
meanings set forth in the Indenture, which is hereby incorporated herein by this
reference.
NOW, THEREFORE, in consideration of, and to secure the payment and
performance of the Obligations (as hereinafter defined) which Obligations may
increase, decrease and increase again from time to time and may be evidenced by
one or more notes, Trustor has given, granted, bargained, sold, alienated,
conveyed, confirmed and assigned, and by these presents does give, grant,
bargain, sell, alienate, convey, confirm and assign unto Trustee, its successors
and assigns, with general warranties of title as provided herein or under Civil
Code Section 1113 (but subject to Permitted Liens), in trust with power of sale
and right of entry and possession forever, for the benefit and security of
Beneficiary as Collateral Agent, all right, title and interest of Trustor in and
to the following property, assets, rights and interests, whether now owned or
hereafter acquired (such property, assets, rights and interests being
collectively referred to herein as the "Trust Property"):
(a) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California, described
in Exhibit A attached hereto and by this reference incorporated herein (the
---------
"Navy I Land");
(b) all of Trustor's right, title and interest in and under that
certain agreement described in Exhibit B attached hereto (the "Navy
---------
Contract"), together with all renewals, extensions, supplements,
amendments, cancellations or terminations thereof and all credits,
deposits, options, privileges and rights thereunder;
(c) all of Trustor's right, title and interest in and to that certain
approximately 80 megawatt geothermal electrical generating facility (and
each unit thereof) commonly known as Navy I, together with the related
geothermal resource gathering system, geothermal resource disposal and
injection system, geothermal resource reserves, interconnection equipment
and Transmission Line (as defined below) system (the "Navy I Project");
(d) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California, described
in Exhibit C attached hereto and by this reference incorporated herein (the
---------
"BLM North Lease Premises"), including, without limitation, all of its
right, title and interest in and under those certain geothermal resources
leases (the "BLM North Leases") described in said Exhibit C (as and when
---------
such right, title and interest is
2
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transferred to Trustor), together with all renewals, extensions,
supplements, amendments, cancellations or terminations thereof and all
credits, deposits, options, privileges and rights thereunder;
(e) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California, described
in Exhibit D attached hereto and by this reference incorporated herein (the
---------
"BLM Right-of-Way Premises"), including, without limitation, all of its
right, title and interest in and under those certain right-of-way grants
(the "BLM Rights-of-Way") described in said Exhibit D, together with all
---------
renewals, extensions, supplements, amendments, cancellations or
terminations thereof and all credits, deposits, options, privileges and
rights thereunder;
(f) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California and in the
County of Kern, State of California, described in Exhibit E attached hereto
---------
and by this reference incorporated herein (the "Transmission Line
Property"), and all of Trustor's right, title and interest in and to that
certain 115KV electric transmission line (and related improvements,
equipment and facilities) located on the Transmission Line Property that
connects the Navy I Project to Southern California Edison Company's
interconnect facility at Inyokern, California (the "Transmission Line")
(the Navy I Land, the BLM North Lease Premises, the BLM Right-of-Way
Premises and the Transmission Line Property are collectively referred to
herein as the "Site");
(g) all of Trustor's right, title and interest in and under any
contracts, agreements and other documents for or relating to (i) the
acquisition, development, possession, use, exchange or disposition of
geothermal resources, steam, condensate, injectate or other fluids and/or
(ii) the ownership or co-ownership (as the case may be) of pipelines, wells
and/or related improvements, equipment and facilities, including, without
limitation, in and under that certain (1) Coso Geothermal Exchange
Agreement dated as of January 11, 1994 among Trustor, CPD and CED, as
heretofore or hereafter amended or modified, and (2) Cotenancy Agreement of
even date herewith among CED, CPD and Trustor, a Memorandum of which will
be recorded in the Official Records concurrently herewith, in each case
together with all renewals, extensions, supplements, options, amendments,
cancellations or terminations thereof (the "Steam Exchange Agreements");
(h) all of Trustor's right, title and interest in and to any (i)
easements, rights-of-way, licenses and entry rights, (ii) gores of land,
(iii) roads, streets, ways, alleys or passages, (iv) interests in land
lying in the bed of any street, road or avenue, whether opened or proposed,
on, near or adjoining the Site or any part thereof, (v) sewer rights, (vi)
air rights, (vii) waters, water courses, water rights and powers, (viii)
profits-a-prendre, minerals, geothermal substances, oil, gas and other
hydrocarbon substances, (ix) exploration, development and production
rights, and (x) all other estates, rights, titles, interests, privileges,
franchises, liberties, tenements, hereditaments, consents, options,
appendages and appurtenances of any nature whatsoever, in any way
belonging, relating or pertaining to or connected with the Site, the Navy
Contract, the Navy I Project, the BLM North Leases, the BLM Rights-of-Way,
the Transmission Line, the Improvements or any other of the Trust Property,
or any part thereof, together with all renewals, extensions, supplements or
amendments thereof;
(i) all leases (including oil, gas, geothermal and other mineral
leases), subleases, franchises, licenses, concessions, permits, power
purchase and other contracts and agreements affecting the use or occupancy
of the Site, the Navy Contract, the Navy I Project, the BLM North
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Leases, the BLM Rights-of-Way, the Transmission Line, the Improvements or
any other of the Trust Property, or any part thereof, now or hereafter
entered into, and any renewals or extensions thereof (hereinafter referred
to as the "Leases"); and the right to receive and apply the rents, issues,
profits, royalties, income, accounts receivable, revenues, deposits,
security deposits, receipts and other benefits of the Trust Property to the
extent of Trustor's interest therein, including, without limitation, the
proceeds of all hydrocarbons or other minerals produced from the Trust
Property, all delay royalties, rentals and bonuses from any oil, gas,
geothermal or other mineral lease, any revenues under any power purchase or
sale contracts, and any amounts received from the U.S. Navy (hereinafter
referred to as the "Rents") to the payment of the Obligations;
(j) all of Trustor's right, title and interest in and to any and all
buildings, structures, improvements or fixtures of any kind, now or
hereafter erected or located on the Site or any part thereof, including,
without limitation, the Navy I Project (the "Improvements");
(k) all facilities, machinery, equipment, apparatus, appliances,
fittings, goods, materials, supplies, and other items and property of every
kind and nature whatsoever owned by Trustor, or in which Trustor now or
hereafter has any right, title or interest, now or hereafter located in or
upon, or used in connection with the present or future development,
operation, occupancy or other utilization (whether temporarily or
permanently) of or activities on, the Site, the Navy I Project, any of the
other Trust Property or any part thereof, whether or not attached to or
installed in any Improvements, and all renewals, replacements and
substitutions thereof and additions thereto, including, without limitation,
any and all (i) wells, including production, injection, test, temperature
gradient and water wells, well casings, wellhead equipment, geothermal
resource gathering, injection and disposal systems, pipelines, pumps,
sumps, test holes, evaporation ponds and other facilities and equipment
used to produce, inject, store, transport or utilize geothermal substances
or condensate, (ii) turbines, generators, dynamos, separators, scrubbers,
demisters, cooling systems and towers, (iii) overhead and underground
electrical transmission, distribution and collector lines and related
systems (including the Transmission Line), switchyards, substations,
transformers, energy storage facilities, conductors, separators, circuit
breakers, interconnection equipment, conduits, footings, towers, poles,
crossarms, guy lines, anchors and wires, (iv) overhead and underground
control, monitoring, communications and radio relay systems and
telecommunications equipment, (v) roads, erosion control facilities, dikes,
signs and fences, (v) heating, ventilating, plumbing, laundry,
incinerating, air conditioning, air cooling, lighting, alarm, call,
mechanical, electrical, water, gas, telephone, utility, wastewater,
treatment, pollution abatement, sprinkler, fire control, extinguishing,
safety protection and other systems, facilities, installations and
apparatus, (vii) sheds, engines, motors, boilers, stokers, pumps, fans,
blowers, switchboards, computers, software, escalators, elevators,
compressors and tanks, (viii) partitions, ducts, shafts, vents, pipes,
radiators, wiring, floor coverings and awnings, (ix) tools, (x) spare
parts, (xi) motor vehicles, (xii) furnishings, furniture and decorations,
(xiii) building, cleaning, maintenance and service equipment, materials,
supplies, goods and property (whether or not covered by any warehouse
receipts or bills of lading or other such documents), (xiv) maps, plans,
specifications, architectural, engineering, construction or shop drawings,
manuals or similar documents, (xv) copyrights, trademarks, trade names and
other intellectual property, and (xvi) any other facilities, machinery,
equipment, apparatus, fittings, goods, materials, supplies, and other items
and property associated with or incidental to any of the foregoing or to
the generation, conversion, storage, switching, metering, step-up, step-
down, transmission, conducting, wheeling, sale or other use or conveyance
of electricity (collectively, the "Equipment"), as well as the right, title
and interest of Trustor in and to any of the Equipment
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<PAGE>
which may be subject to any security agreements (as defined in the Uniform
Commercial Code of the State of California) superior in lien to the lien of
this Deed of Trust;
(l) all awards or payments, including interest thereon, and the right
to receive the same, which may be made with respect to the Trust Property,
whether from state fund sharing, from the exercise of the right of eminent
domain (including any transfer made in lieu of the exercise of said right),
from changes of grade of street, from the U.S. Navy under the Navy
Contract, or for any other injury to or decrease in the value of the Trust
Property now or hereafter located thereon, whether direct or consequential,
which said awards and payments are hereby assigned to Beneficiary, and
Beneficiary is hereby authorized to collect and receive the proceeds
thereof and to give proper receipts and acquittances therefor;
(m) all refunds or rebates of all taxes or charges in lieu of taxes,
assessments, water rates, sewer rents and other charges, including vault
charges and license or permit fees for the use of vaults, chutes and
similar areas on or adjoining the Site, now or hereafter levied or assessed
against the Trust Property (hereinafter referred to as the "Taxes");
(n) all inventory, accounts, books, records and general intangibles
in whatever form and however stored, owned by Trustor, or in which Trustor
now or hereafter has any right, title or interest, now or hereafter located
upon, arising in connection with or concerning the Trust Property;
(o) all proceeds of and any unearned premiums on any insurance
policies now or hereafter covering the Trust Property, including, without
limitation, the right to receive the proceeds of any insurance, judgments
or settlements made in lieu thereof, for damage to the Trust Property or
for any defect in the title to the Trust Property or any part thereof;
(p) the right, in the name and on behalf of Trustor, to appear in and
defend any action or proceeding brought with respect to the Trust Property
and to commence any action or proceeding to protect the interest of
Beneficiary in the Trust Property;
(q) all of Trustor's right, title and interest in and to all plans
and specifications prepared for or relating to the design, development,
construction, management and use of Improvements or Equipment or other
development of the Trust Property (including, without limitation, all
amendments, modifications, supplements, general conditions and addenda
thereof or thereto), and all studies, data and drawings related thereto,
and all contracts and agreements of Trustor relating to the aforesaid plans
and specifications or to the aforesaid studies, data and drawings or to the
design, development, construction, management and use of Improvements, the
Equipment or any of the other Trust Property;
(r) all contracts with property managers, surveyors, real estate
advisors, consultants and brokers, geothermal energy advisors and
consultants, engineers, and other like agents and professionals that relate
to any part of the Trust Property, including without limitation, any
Improvements constructed or to be constructed on the Site or any part
thereof or any Equipment to be placed, installed, used or stored on the
Site or any part thereof, and all maps, reports, surveys, tests and studies
of or relating to any of the Trust Property, owned by Trustor or in which
Trustor has or shall have an interest and now or hereafter in the
possession of Trustor or any such agent or professional;
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<PAGE>
(s) all present and future agreements, permits, licenses,
entitlements and approvals, as well as all modifications, supplements,
extensions and renewals thereof, now existing or hereafter made, in which
Trustor now or hereafter has an interest, relating to the use, development
and/or occupancy of the Site, the Improvements and/or the Equipment;
(t) all the estate, right, title, interest, claim or demand of any
nature whatsoever of Trustor, either in law or in equity, in possession or
expectancy, in and to the Trust Property and in all replacements,
substitutes, renewals, betterments and extensions of and all additions to
any of the Improvements or Equipment, or any part thereof;
(u) all products and proceeds of any of the Trust Property herein
described; and
(v) all bank accounts and trust accounts of Trustor.
This Deed of Trust secures the following obligations which shall heretofore
and hereinafter collectively be referred to as the "Obligations":
(i) The payment of all indebtedness and the performance of all
obligations of Trustor as evidenced in Section 9 of the Indenture entitled
"Guarantees" and as further evidenced by that certain Notation of Guarantee
of even date herewith executed by Trustor, CED and CPD, including, without
limitation, the guarantee of payment of (1) $110,000,000 6.80% Senior
Secured Notes due in 2001 and (2) $303,000,000 9.05% Senior Secured Notes
due in 2009 (collectively, the "Senior Secured Notes") issued by the Issuer
(the "Guarantee");
(ii) The payment of such further sums and/or performance of such
further obligations as Trustor or the then record owner of the Trust
Property or any part thereof may undertake to pay and/or perform for
Beneficiary and its successor or assigns, when such borrowing or obligation
is evidenced by a writing or writings reciting that it or they are secured
by this Deed of Trust;
(iii) The payment of all indebtedness of Trustor owing to a Permitted
Additional Senior Lender; and
(iv) The satisfaction and performance of all other debts, obligations,
covenants, agreements and liabilities of the Issuer or Trustor to Trustee,
Beneficiary or any of the other Secured Parties arising out of, connected
with or related to this Deed of Trust, the Guarantee, any of the Financing
Documents or any other agreement now or hereafter executed by the Issuer or
Trustor, and all amendments, extensions, and renewals of the foregoing
documents, whether now existing or hereafter arising, voluntary or
involuntary, absolute or contingent, liquidated or unliquidated, and
whether or not from time to time decreased or extinguished and later
increased, created, or incurred.
To protect the security of this Deed of Trust, Trustor covenants with and
represents and warrants to Trustee and Beneficiary as follows:
1. Payment of Obligations. Trustor will pay and perform the
----------------------
Obligations at the time and in the manner provided for its payment and
performance in this Deed of Trust, the Guarantee and the other Financing
Documents, as applicable.
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<PAGE>
2. Warranty of Title. Trustor warrants its right, title or interest,
-----------------
as applicable, in and to the Site, the Navy Contract, the Transmission Line, the
Improvements, the Equipment and the balance of the Trust Property and the
validity and priority of the lien of this Deed of Trust and the estate hereof
against the claims and demands of all Persons whomsoever, other than with
respect to Permitted Liens. Trustor also represents and warrants that (i)
Trustor is now, and after giving effect to this Deed of Trust, will be, in a
solvent condition, (ii) the execution and delivery of this Deed of Trust by
Trustor does not constitute a "fraudulent conveyance" within the meaning of
Title 11 of the United States Code (the "Bankruptcy Code") as now constituted or
under any other applicable statute, and (iii) no bankruptcy or insolvency
proceedings are pending or contemplated by or, to the best of Trustor's
knowledge, against Trustor.
3. Notice. Trustor hereby requests that a copy of notice of default
------
and notice of sale be mailed to it at the address set forth below, and such
address is also the mailing address of Trustor, as debtor, under the California
Uniform Commercial Code. Trustor hereby covenants to cure any default within
the time period required by the Financing Documents upon receipt of notice of
such default. Beneficiary's address given below is the address for Beneficiary
under the California Uniform Commercial Code. Any notice, request, demand,
statement, authorization, approval or consent made hereunder shall be deemed
given or furnished (i) when addressed to the party intended to receive the same
at the address of such party set forth below, and delivered at such address or
(ii) three (3) days after the same is deposited in the United States mail as
first class certified mail, return receipt requested, postage prepaid:
If to Trustor:
Coso Finance Partners
c/o New CLOC Company
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Attention: President
If to Trustee:
Chicago Title Insurance Company
2425 West Shaw
Fresno, California 93711
Attention: Trust Department
If to Beneficiary:
U.S. Bank Trust National Association
One California Street, Suite 400
San Francisco, California 94111
Attention: Trust Officer
4. Sale of Trust Property. This Deed of Trust hereby contains more
----------------------
than one power of sale and Beneficiary, in its sole discretion, may conduct one
or multiple foreclosure sales in connection herewith. If this Deed of Trust is
foreclosed, or the power of sale hereunder is exercised, the Trust Property, or
any interest therein, may, at the discretion of Beneficiary, be sold in one or
more parcels or in several interests or portions and in any order or manner.
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5. No Credits on Account of the Obligations. Trustor will not claim
----------------------------------------
or demand or be entitled to any credit or credits on account of the Obligations
for any part of the Taxes assessed against the Trust Property or any part
thereof, and no deduction shall otherwise be made or claimed from the taxable
value of the Trust Property, or any part thereof, by reason of this Deed of
Trust or the Obligations.
6. Offset, Counterclaims and Defenses. Any assignee of this Deed of
----------------------------------
Trust and the Obligations secured hereby shall take the same free and clear of
all offsets, counterclaims or defenses of any nature whatsoever which Trustor
may have against any assignor of this Deed of Trust and the Obligations secured
hereby, and no such offset, counterclaim or defense shall be interposed or
asserted by Trustor in any action or proceeding brought by any such assignee
upon this Deed of Trust or the Obligations secured hereby and any such right to
interpose or assert any such offset, counterclaim or defense in any such action
or proceeding is hereby expressly waived by Trustor.
7. Other Security for the Obligations. Trustor shall observe and
----------------------------------
perform all of the terms, covenants and provisions to be observed or performed
by Trustor contained in this Deed of Trust and in the Financing Documents to
which Trustor shall be a party evidencing, securing or guaranteeing payment of
the Obligations, in whole or in part, or otherwise executed and delivered in
connection with this Deed of Trust or the Financing Documents.
8. Preservation of Trust Property. Trustor shall do any and all
------------------------------
acts which, from the character or use of the Trust Property, may be reasonably
necessary to protect and preserve the lien, the priority of the lien and the
security of Beneficiary granted herein, the specific enumerations herein not
excluding the general. Trustor shall maintain and preserve the Trust Property
in accordance with the requirements of the Indenture. Further, with respect to
the Navy Contract, the BLM North Leases, the BLM Rights-of-Way, Trustor's rights
in and to the Transmission Line and the Transmission Line Property, and the
Steam Exchange Agreements (collectively, the "Primary Rights"), Trustor hereby
agrees as follows, except as otherwise expressly permitted or required in the
Indenture:
(a) not to amend, change, alter, cancel, surrender, release, waive,
supplement, terminate or modify, nor permit the amendment, change, alteration,
cancellation, surrender, release, waiver, supplement, termination, or
modification (each, an "Amendment") of any of the Primary Rights or the estate
or rights created thereby or any interest therein without the prior written
consent of Beneficiary. Consent to one Amendment shall not be deemed to be a
waiver of the right to require consent to other, future or successive
Amendments. Any Amendment, whether oral or in writing, made without the prior
written consent of Beneficiary, shall not be valid or effective;
(b) to make all payments and to keep and perform promptly each and
every covenant, obligation and agreement of the lessee, transferee, grantee,
licensee or holder (as the case may be) in the Primary Rights, not to commit,
suffer or permit any default thereunder and not to take any action or omit to
take any action which would effect or permit the termination or cancellation of
any of the Primary Rights. Trustor shall take all actions necessary to keep the
Primary Rights unimpaired. Trustor shall promptly deliver to Beneficiary copies
of all material notices, demands or complaints received by Trustor from the
United States Navy, the United States Department of the Interior, Bureau of Land
Management (the "BLM"), CPD, CED or any other third party in connection with any
of the Primary Rights, and promptly notify Beneficiary in writing with respect
to any default or alleged default by any party thereto (whether or not a notice
of default has been issued under any of the Primary Rights) and deliver to
Beneficiary within ten (10) business days of Trustor's receipt of any notice of
default a certificate executed by Trustor describing the default, the actions
Trustor intends to take to cure such default, the length of time Trustor expects
to take to cure such default and the status of any actions
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<PAGE>
taken to cure such default. Trustor shall also furnish to Beneficiary such
other information as Beneficiary may reasonably request concerning Trustor's
performance of its covenants, obligations and agreements under or with respect
to the Primary Rights. Beneficiary shall have the option but not the obligation
to cure any such default and to perform any or all of Trustor's obligations
thereunder;
(c) that any subordination of any of the Primary Rights to any fee
mortgage, to any lease, or to any other interest, either orally or in writing,
made without the prior written consent of Beneficiary, shall not be valid or
effective;
(d) that if any of the Primary Rights is terminated prior to the
natural termination of its term by reason of default of Trustor thereunder, and
if, pursuant to any provision of such Primary Rights, or otherwise, Beneficiary
or its designee shall acquire from the United States Navy, the BLM or any other
third party, as the case may be, a new contract, lease or right-of-way in
respect of the Site or any part thereof, then Trustor shall not have any right,
title or interest in or to such new contract, lease or right-of-way or the
estate created thereby; and
(e) that the provisions hereof shall be deemed to be obligations of
Trustor in addition to Trustor's obligations as lessee, grantee, transferee,
licensee or holder, as the case may be, with respect to any similar matters
contained in any of the Primary Rights, and the inclusion herein of any
covenants and agreements relating to similar matters as to which Trustor is
obligated under any of the Primary Rights shall not restrict or limit Trustor's
duties and obligations to keep and perform promptly all of its covenants,
agreements and obligations as lessee, grantee, transferee, licensee or holder,
as the case may be, under the Primary Rights; provided, however, that nothing in
this Deed of Trust shall be construed as requiring the taking of or the
committing to take any action by Trustor or Beneficiary which would cause a
default under any of the Primary Rights.
9. Further Transfer of Trust Property. Except as otherwise
----------------------------------
expressly permitted or required in the Indenture, without the prior written
consent of Beneficiary being first had and obtained, Trustor shall not (a)
execute or deliver any pledge, security agreement, mortgage, deed of trust or
other instrument of hypothecation covering all or any portion of the Trust
Property or any interest therein or (b) sell, contract to sell, lease with
option to purchase, convey, alienate, transfer, sublease or otherwise dispose of
all or any portion of the Trust Property or any interest therein, in each case
whether voluntarily or involuntarily, by operation of law or otherwise. Consent
to one such transaction shall not be deemed to be a waiver of the right to
require consent to future or successive transactions. Beneficiary may grant or
deny such consent in its sole discretion and, if consent should be given, any
such transfer shall be subject to this Deed of Trust, and any such transferee
shall assume all obligations hereunder and agree to be bound by all provisions
contained herein and therein. Such assumption shall not, however, release
Trustor from any liability under this Deed of Trust without the written consent
of Beneficiary.
10. Eminent Domain. In the event that any proceeding or action be
--------------
commenced for the taking of the Trust Property, or any part thereof or interest
therein, for public or quasi-public use under the power of eminent domain,
condemnation or otherwise, or if the same be taken or damaged by reason of any
public improvement or condemnation proceedings, or in any other manner
(collectively, a "Condemnation"), or should Trustor receive any notice or other
information regarding such proceeding, action, taking or damage, Trustor shall
give prompt written notice thereof to Beneficiary. Beneficiary shall be
entitled to give or withhold its consent to any compromise or settlement in
connection with such taking or damage. All compensation, awards, damages,
rights of action and proceeds awarded to Trustor by reason of any such taking or
damage (the "Condemnation Proceeds") are hereby absolutely and unconditionally
assigned to Beneficiary, and Trustor agrees to execute such further assignments
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of the Condemnation Proceeds as Beneficiary or Trustee may require. All such
Condemnation Proceeds shall be applied as provided in the Credit Agreement of
even date herewith between Issuer and Trustor.
11. Assignment of Contracts. In addition to any other grant,
-----------------------
transfer or assignment effectuated hereby, and without in any manner limiting
the generality of the grants given above, Trustor shall assign to Beneficiary,
as security for the Obligations, Trustor's interest in all agreements,
contracts, leases, licenses and permits affecting the Site and Improvements in
any manner whatsoever, such assignments to be made, if so requested by
Beneficiary, by instruments in form satisfactory to Beneficiary; but no such
assignment shall be construed as a consent by Beneficiary to any agreement,
contract, license or permit so assigned, or to impose upon Beneficiary any
obligations with respect thereto.
12. Anti-Merger. There shall be no merger of any of the Primary
-----------
Rights or the estates or interests created thereby (collectively, the "Estate")
with the fee estate in the Site or any part thereof by reason of any of those
interests coming into common ownership, unless Beneficiary consents in writing
thereto. Further, if Trustor acquires any interest in the fee estate to the
Site or any part thereof, then the lien of this Deed of Trust will
simultaneously and without further action become extended to encumber Trustor's
interest in the fee estate in addition to remaining a lien on the Estate, and
Trustor agrees, upon request by Beneficiary and at no cost to Beneficiary, to
execute, acknowledge and deliver to Beneficiary all further instruments and
documents that Beneficiary believes to be appropriate to provide further
evidence of the lien of this Deed of Trust on such fee interest. Where the lien
of this Deed of Trust has been extended to cover any interest of Trustor in the
fee estate, then in the event of the exercise of any power of sale under this
Deed of Trust, Beneficiary will have the right to sell the Estate and the fee
interest of Trustor separately or together at the election of Beneficiary.
13. Documentary Stamps. If at any time the United States of America,
------------------
any state thereof or any governmental subdivision of any such state, shall
require revenue or other stamps to be affixed to the Financing Documents or this
Deed of Trust, or that any taxes be paid in connection with the Financing
Documents or this Deed of Trust, Trustor shall pay for the same, with interest
and penalties thereon, if any.
14. Right of Entry. Beneficiary, may at any reasonable time or times
--------------
make or cause to be made entry upon and inspection of the Trust Property or any
part thereof in person or by agent.
15. Event of Default. The term "Event of Default," whenever used in
----------------
this Deed of Trust, shall mean any one or more of the events of default listed
or otherwise provided in the Indenture or any other Financing Document, subject
to such cure rights as may be expressly set forth in the Indenture or such other
Financing Document (whether any such event shall be voluntary or involuntary or
come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body).
16. Appointment of Receiver. Trustee or Beneficiary, in any action
-----------------------
(or multiple actions) to foreclose this Deed of Trust or exercise the power of
sale granted under this Deed of Trust or upon the actual or threatened waste to
any part of the Trust Property or upon the occurrence of an Event of Default,
shall be at liberty, without notice, to apply for the appointment of a receiver,
and shall be entitled to the appointment of such receiver as a matter of right,
without regard to the value of the Trust Property as security for the
Obligations, or the solvency or insolvency of any Person then liable for the
payment of the Obligations.
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17. Non-Waiver. The failure of Beneficiary to insist upon strict
----------
performance of any term of this Deed of Trust shall not be deemed to be a waiver
of any term of this Deed of Trust. Trustor shall not be relieved of Trustor's
obligation to pay and perform the Obligations at the time and in the manner
provided for its payment in the Financing Documents and this Deed of Trust by
reason of (i) failure to comply with any request(s) of Trustor to take any
action to foreclose this Deed of Trust or otherwise enforce any of the
provisions hereof or of the Financing Documents or any other mortgage, deed of
trust, instrument or document securing or guaranteeing the payment of the
Obligations or a portion thereof, (ii) the release, regardless of consideration,
of the whole or any part of the Trust Property or any other security for the
Obligations, or (iii) any agreement or stipulation between Beneficiary and any
subsequent owner or owners of the Trust Property or other Person extending the
time of payment or otherwise modifying or supplementing the terms of this Deed
of Trust or the Financing Documents evidencing, securing or guaranteeing payment
of the Obligations or any portion thereof, without first having obtained the
consent of Trustor (but without prejudice to the rights of Trustor under the
Financing Documents), and in the latter event, Trustor shall continue to be
obligated to pay and perform the Obligations at the time and in the manner
provided in the Financing Documents and this Deed of Trust, as so extended,
modified and supplemented, unless expressly released and discharged from such
obligation by Beneficiary in writing. Regardless of consideration, and without
the necessity for any notice to or consent by the holder of any subordinate
lien, encumbrance, right, title or interest in or to the Trust Property,
Beneficiary may release any Person at any time liable for the payment of the
Obligations or any portion thereof or all or any part of the security held for
the Obligations and may extend the time of payment or otherwise modify the terms
of the Financing Documents or this Deed of Trust, including, without limitation,
a modification of the interest rate payable on the principal balance of the
Obligations, without in any manner impairing or affecting this Deed of Trust or
the lien thereof or the priority of this Deed of Trust, as so extended and
modified, as security for the Obligations over any such subordinate lien,
encumbrance, right, title or interest. Beneficiary may resort for the payment
of the Obligations to any other security held by Beneficiary in such order and
manner as Beneficiary in its discretion, may elect. Beneficiary may take action
to recover the Obligations, or any portion thereof, or to enforce any covenant
hereof without prejudice to the right of Beneficiary thereafter to foreclose
this Deed of Trust. Beneficiary shall not be limited exclusively to the rights
and remedies herein stated but shall be entitled to every additional right and
remedy now or hereafter afforded by law or equity. The rights of Beneficiary
under this Deed of Trust shall be separate, distinct and cumulative, and none
shall be given effect to the exclusion of the others. No act of Beneficiary
shall be construed as an election to proceed under any one provision herein to
the exclusion of any other provision.
18. Power of Sale. Upon the occurrence and during the continuance of
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an Event of Default, Beneficiary may at any time, at its option and in its sole
discretion, declare the Obligations to be due and payable and the same shall
thereupon become immediately due and payable, including any prepayment charge or
fee payable under the terms of the Financing Documents. Beneficiary may also do
any or all of the following; provided, however, that any of the following
actions shall be undertaken in a commercially reasonable manner and in
accordance with applicable law; and provided, further, that Beneficiary shall
have no obligation to do any of the following:
(a) Either in person or by agent, with or without bringing any action
or proceeding or by a receiver appointed by a court and without regard to the
adequacy of Beneficiary's security, enter upon and take possession of the Trust
Property or any part hereof and do any acts which Beneficiary deems necessary or
desirable to preserve the value, marketability or rentability of the Trust
Property or to increase the income therefrom or to protect the security hereof
and with or without taking possession of any of the Trust Property, sue for or
otherwise collect all Rents and profits including those past due and unpaid, and
apply the same, less costs and expenses of operation and collection including
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attorneys' fees and expenses, upon the Obligations secured hereby with the
remainder, if any, to the Person or Persons legally entitled thereto. The
collection of Rents and profits and the application thereof shall not cure or
waive any Event of Default or notice thereof or invalidate any act done in
response thereto or pursuant to such notice.
(b) Bring an action in any court of competent jurisdiction to
foreclose this instrument or to enforce any of the covenants hereof.
(c) Exercise any or all of the remedies available to a secured party
under the Uniform Commercial Code.
(d) Beneficiary may elect to cause the Trust Property or any part
thereof to be sold under the power of sale herein granted in any manner
permitted by applicable law. In connection with any sale or sales hereunder,
Beneficiary may elect to treat any of the Trust Property which consists of a
right in action or which is property that can be severed from the real property
covered hereby or any improvements thereon without causing structural damage
thereto as if the same were personal property, and dispose of the same in
accordance with applicable law, separate and apart from the sale of real
property. Any sale of any personal property hereunder shall be conducted in any
manner permitted by Section 9501 or any other applicable sections of the
California Uniform Commercial Code. Where the Trust Property consists of real
and personal property or fixtures, whether or not such personal property is
located on or within the real property, Beneficiary may elect in its discretion
to exercise its rights and remedies against any or all of the real property,
personal property, and fixtures in such order and manner as is now or hereafter
permitted by applicable law. Without limiting the generality of the foregoing,
Beneficiary may at its sole and absolute discretion and without regard to the
adequacy of its security elect to proceed against any or all of the real
property, personal property and fixtures in any manner permitted under Section
9501(4)(a) of the California Uniform Commercial Code; and if Beneficiary elects
to proceed in the manner permitted under Section 9501(4)(a)(ii) of the
California Uniform Commercial Code, the power of sale herein granted shall be
exercisable with respect to all or any of the real property and fixtures covered
hereby, as designated by Beneficiary, and the Trustee is hereby authorized and
empowered to conduct any such sale of any real property and fixtures in
accordance with the procedures applicable to real property. Where the Trust
Property consists of real property and personal property, any reinstatement of
the Obligations, following the occurrence of an Event of Default and an election
by Beneficiary to accelerate the maturity of the Obligations, which is made by
Trustor or any other Person permitted to exercise the right of reinstatement
under Section 2924c of the California Civil Code or any successor statute,
shall, in accordance with the terms of California Uniform Commercial Code
Section 9501(4)(c)(iii), not prohibit Beneficiary from conducting a sale or
other disposition of any personal property or fixtures or from otherwise
proceeding against or continuing to proceed against any personal property or
fixtures in any manner permitted by the California Uniform Commercial Code; nor
shall any such reinstatement invalidate, rescind or otherwise affect any sale,
disposition or other proceeding held, conducted or instituted with respect to
any personal property or fixtures prior to such reinstatement. Any sums paid to
Beneficiary in effecting any reinstatement pursuant to Section 2924c of the
California Civil Code shall be applied to the Obligations and to Beneficiary's
and Trustee's reasonable costs and expenses in the manner required by such
Section 2924c. Should Beneficiary elect to sell any of the Trust Property which
is real property or which is personal property or fixtures that Beneficiary has
elected under Section 9501(4)(a)(ii) of the California Uniform Commercial Code
to sell together with real property in accordance with the laws governing a sale
of real property, such notice of default and election to sell shall be given as
may then be required by law. Thereafter, upon the expiration of such time and
the giving of such notice of sale as may then be required by law, at the time
and place specified in the notice of sale, Trustee shall sell such property, or
any portion thereof specified by Beneficiary, at public auction to the highest
bidder for cash in lawful
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money of the United States. Trustee may, and upon request of Beneficiary shall,
from time to time, postpone the sale by public announcement thereof at the time
and place noticed therefor. If the Trust Property consists of several lots,
parcels or interests, Beneficiary may designate the order in which the same
shall be offered for sale or sold. Should Beneficiary desire that more than one
such sale or other disposition be conducted, Beneficiary may, at its option,
cause the same to be conducted simultaneously, or successively on the same day,
or at such different days or times and in such order as Beneficiary may deem to
be in its best interest. Any Person, including Trustor, Trustee or Beneficiary
may purchase at the sale. In the event Beneficiary elects to dispose of the
Trust Property through more than one sale, Trustor agrees to pay the costs and
expenses of each such sale and of any judicial proceedings wherein the same may
be made, including reasonable compensation to Trustee and Beneficiary, their
agents and counsel, and to pay all expenses, liabilities and advances made or
incurred by Trustee in connection with such sale or sales, together with
interest on all such advances made by Trustee at the interest rate then
applicable to the indebtedness to which the Financing Documents apply. Upon any
sale Trustee shall execute and deliver to the purchaser or purchasers a deed or
deeds conveying the property so sold but without any covenant or warranty
whatsoever express or implied, whereupon such purchaser or purchasers shall be
let into immediate possession, and the recitals in any such deed or deeds of
facts such as default, the giving of notice of default and notice of sale, and
other facts affecting the regularity or validity of such sale or disposition,
shall be conclusive proof of the truth of such facts and any such deed or deeds
shall be conclusive against all Persons as to such facts recited therein.
(e) Exercise each of its other rights and remedies under this Deed of
Trust and the other Financing Documents, including, without limitation, any or
all of the following:
(i) exercise the rights of acceleration set forth in the Indenture,
and if the indebtedness is not paid on demand, at Beneficiary's option, (1)
bring suit therefor and demand payment thereof, (2) bring suit under the
Guarantee and/or the Indenture and/or (3) take any and all steps and
institute any and all other proceedings that Beneficiary deems necessary to
enforce the indebtedness and obligations secured hereby and to protect the
lien of this Deed of Trust;
(ii) without assuming liability for the performance of any of
Trustor's obligations hereunder, under the Guarantee or under any Financing
Document, enter and take possession of the Trust Property or any part
thereof, exclude Trustor and all Persons claiming under Trustor whose
claims are junior to this Deed of Trust, wholly or partly therefrom, and
use, operate, manage and control the same either in the name of Trustor or
otherwise as Beneficiary shall deem best, and upon such entry, from time to
time at the expense of Trustor and the Trust Property, make all such
repairs, replacements, alterations, additions or improvements to the Trust
Property or any part thereof as Beneficiary may deem proper and, whether or
not Beneficiary has so entered and taken possession of the Trust Property
or any part thereof, collect and receive all the Rents and apply the same,
to the extent permitted by law, to the payment of all expenses which
Beneficiary may be authorized to make under this Deed of Trust, the
remainder to be applied to the payment of the Obligations until the same
shall have been repaid in full; and if Beneficiary demands or attempts to
take possession of the Trust Property or any portion thereof in the proper
exercise of any rights hereunder, Trustor shall promptly turn over and
deliver complete possession thereto to Beneficiary; and
(iii) personally or by agents, with or without entry, if Beneficiary
shall deem it advisable, proceed to protect and enforce its rights under
this Deed of Trust, by suit for specific performance of any covenant
contained herein or in the Guarantee, in the Indenture or in any Financing
Document or in aid of the execution of any power granted herein or in the
Guarantee,
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in the Indenture or in any Financing Document or for the foreclosure of
this Deed of Trust and the sale for cash of the Trust Property under the
judgment or decree of a court of competent jurisdiction, or for the
exercise of the power of sale granted under this Deed of Trust or for the
enforcement of any other right as Beneficiary shall deem most effectual for
such purpose; provided that in the event of a sale, by foreclosure or
--------
otherwise, of less than all of the Trust Property, this Deed of Trust shall
continue as a lien on, and security interest in, the remaining portion of
the Trust Property and Beneficiary shall not be obligated to sell upon
credit unless Beneficiary shall have expressly consented in writing to a
sale upon credit.
(f) Except as otherwise required by law, apply the net proceeds of any
foreclosure, collection, recovery, receipt, appropriation, realization or sale
of the Trust Property in the order of priority specified in the Indenture. If
all Obligations and any other amounts due under this Deed of Trust have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Trustor if Trustor is lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
(g) Upon any sale or sales made under or by virtue of this section,
whether made under the power of sale or by virtue of judicial proceedings or of
a judgment or decree of foreclosure and sale, Beneficiary may bid for and
acquire the Trust Property or any part thereof. In lieu of paying cash for the
Trust Property, Beneficiary may make settlement for the purchase price by
crediting against the Obligations the sales price of the Trust Property, as
adjusted for the expenses of sale and the costs of the action and any other sums
for which Trustor is obligated to reimburse Trustee or Beneficiary under this
Deed of Trust.
19. Concerning the Trustee. Trustee shall be under no duty to take
----------------------
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being liable,
however, only for willful negligence or misconduct, and hereby waives any
statutory fee and agrees to accept reasonable compensation, in lieu thereof, for
any services rendered by Trustee in accordance with the terms hereof. Trustee
may resign at any time upon giving thirty (30) days' notice to Trustor and to
Beneficiary. Beneficiary may remove Trustee at any time or from time to time
and select a successor trustee. In the event of the death, removal,
resignation, refusal to act, or inability to act of Trustee, or in its sole
discretion for any reason whatsoever, Beneficiary may, without notice and
without specifying any reason therefor and without applying to any court, select
and appoint a successor trustee, by an instrument recorded wherever this Deed of
Trust is recorded, and all powers, rights, duties and authority of Trustee, as
aforesaid, shall thereupon become vested in such successor. Such substitute
trustee shall not be required to give bond for the faithful performance of the
duties of Trustee hereunder unless required by Beneficiary.
20. Trustee's Fees. Trustor shall pay all reasonable costs, fees and
--------------
expenses incurred by Trustee and Trustee's agents and counsel in connection with
the performance by Trustee of Trustee's duties hereunder, and all such costs,
fees and expenses shall be secured by this Deed of Trust.
21. Proceeds of Sale. Subject to the provisions of Section 49 of
----------------
this Deed of Trust, no sale or other disposition of all or any part of the Trust
Property shall be deemed to relieve Trustor of its obligations under this Deed
of Trust, the Guarantee or any other Financing Document except and only to the
extent the proceeds are applied to the payment of the Obligations or such other
obligations.
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If the proceeds of sale, collection or other realization of or upon the Trust
Property are insufficient to cover the costs and expenses of such realization
and the payment in full of the Obligations, Trustor shall remain liable for any
deficiency.
22. Trustor as Tenant Holding Over. In the event of any such
------------------------------
foreclosure or other sale by Beneficiary, Trustor shall be deemed a tenant
holding over and shall forthwith deliver possession to the purchaser or
purchasers at such sale or be summarily dispossessed according to provisions of
law applicable to tenants holding over.
23. Leases. Beneficiary is authorized to subordinate this Deed of
------
Trust to any Leases and to foreclose this Deed of Trust subject to the rights of
any tenants of the Trust Property, if any, and the failure to so subordinate or
to make any such tenants parties to any such foreclosure or other proceedings
and to foreclose their rights will not be, nor be asserted to be by Trustor, a
defense to any proceedings instituted by Beneficiary to collect the Obligations.
24. Discontinuance of Proceedings. In case Beneficiary shall have
-----------------------------
proceeded to enforce any right, power or remedy under this Deed of Trust by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
withdrawn, discontinued or abandoned for any reason, or shall have been
determined adverse to Beneficiary, then in every such case, to the fullest
extent permitted by law, (a) Trustor and Beneficiary shall be restored to their
former positions and rights, (b) all rights, powers and remedies of Beneficiary
shall continue as if no such proceeding had been taken, (c) each and every Event
of Default declared or occurring prior or subsequent to such withdrawal,
discontinuance or abandonment shall be or shall be deemed to be an independent
event of default and (d) neither the Obligations, this Deed of Trust nor the
Guarantee shall be or shall be deemed to have been not reinstated or otherwise
affected by such withdrawal, discontinuance or abandonment; and to the fullest
extent permitted by law, Trustor hereby expressly waives the benefit of any
statute or rule of law now provided or which may hereafter conflict with the
above.
25. No Reinstatement. If an Event of Default shall have occurred and
----------------
be continuing and Beneficiary shall have proceeded to enforce any right, power
or remedy permitted hereunder, then a tender of payment by Trustor or by anyone
on behalf of Trustor of any amount less than the amount necessary to satisfy the
Obligations in full, or the acceptance by Beneficiary of any such payment so
tendered, shall not constitute a reinstatement of this Deed of Trust, the
Guarantee or any other document evidencing, securing or guaranteeing the
Obligations.
26. Trustor's Waiver of Rights. Trustor hereby waives and releases,
--------------------------
to the maximum extent permitted by law, any rights, remedies or defenses which
Trustor might otherwise have (i) under California Code of Civil Procedure
Sections 726, 725a, 580a, 580b and 580d, California Civil Code Sections 2809,
2810, 2819, 2822, 2839, 2845, 2850, 2855, 2899 and 3433, under any anti-
deficiency provision of the Uniform Commercial Code, and under any future
judicial decisions or legislation, which statutes, future judicial decisions
and/or legislation might otherwise limit or condition Beneficiary's exercise of
certain of Beneficiary's rights and remedies in connection with the enforcement
of obligations secured by a lien on real property, including, without
limitation, Beneficiary's lien on the Trust Property or on any property
encumbered by other deeds of trust given to Beneficiary to secure obligations
under the Financing Documents (each, an "Additional Deed of Trust"), (ii) under
any laws now existing or hereafter enacted providing for any appraisal before
sale of a portion of the Trust Property or of the real property security of any
Additional Deed of Trust (the "Additional Deed of Trust Property"), (iii) to all
rights of redemption, valuation, appraisal, stay of execution, notice of
election to mature or any so-called "Moratorium Laws", to declare due the
Obligations, to marshalling in the event of the foreclosure of the liens created
under this Deed of Trust or under any Additional Deed of Trust, or the exercise
of the
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power of sale granted hereunder or thereunder, (iv) pursuant to the defense of
the statute of limitations in any action hereunder or in any action for the
collection or performance of any Obligations secured hereby or any obligations
secured by any Additional Deed of Trust, (v) pursuant to any defense arising
because of Beneficiary's election, in any proceeding instituted under the
Federal Bankruptcy Code, of the application of Section 1111(b)(2) of the Federal
Bankruptcy Code, (vi) pursuant to any defense based upon any borrowing or grant
of a security interest under Section 364 of the Federal Bankruptcy Code, (vii)
under any law limiting remedies, including recovery of a deficiency, under an
obligation secured by a deed of trust on real property and/or a security
agreement on personal property (including, without limitation, the Trust
Property and the Additional Deed of Trust Property) if the real property and/or
personal property is sold under a power of sale contained in the deed of trust,
and all defenses based on any loss whether as a result of any such sale or
otherwise, of Trustor's right to recover any amount from the Issuer, whether by
right of subrogation or otherwise, (viii) under any law to require Beneficiary
to pursue the Issuer or any other Person, any security which Beneficiary may
hold, or any other remedy before proceeding against Trustor, (ix) to all rights
of reimbursement or subrogation, all rights to enforce any remedy that
Beneficiary, the Trustee, the Holders of the Senior Secured Notes or the
Permitted Additional Senior Lenders, if any, may have against the Issuer, or
against the Guarantors as obligors under the Partnership Notes, and all rights
to participate in any security held by Beneficiary until the Obligations have
been paid and the covenants of the Indenture have been performed in full, (x) to
all rights to assert the bankruptcy or insolvency of Issuer as a defense
hereunder or as the basis for rescission hereof, (xi) to all rights under any
law purporting to reduce Trustor's Obligations hereunder if Issuer's obligations
are reduce, (xii) all defenses based on the disability or lack of authority of
Issuer or any Person, the repudiation of the Guarantees or any related Financing
Documents by Issuer or any Person, the failure by Beneficiary, the Trustee, the
Holders of the Senior Secured Notes or any Permitted Additional Senior Lender,
if any, to enforce any claim against Issuer, or the unenforceability in whole or
in part of any Financing Document, (xiii) to all suretyship and guarantor's
defenses generally, (xiv) to all rights to insist upon, plead or in any manner
whatever claim or take the benefit or advantage of, any appraisal, valuation,
stay, extension, marshaling of assets, redemption or similar law, or exemption,
whether now or at any time hereafter in force, which may delay, prevent or
otherwise affect the performance by Trustor of its obligations under, or the
enforcement by Beneficiary of, this Deed of Trust or any Additional Deed of
Trust, (xv) to any requirement on the part of Beneficiary, Trustee, the Holders
of the Senior Secured Notes or any Permitted Additional Senior Lender, if any,
to mitigate the damages resulting from any default (whether hereunder, under any
other Financing Document, under any Additional Deed of Trust or under any other
document or instrument); and (xvi) except as otherwise specifically set forth
herein, all rights of notice and hearing of any kind prior to the exercise of
rights by Beneficiary upon the occurrence and during the continuation of an
Event of Default to repossess with judicial process or to replevy, attach or
levy upon the Trust Property or any Additional Deed of Trust Property. To the
extent permitted by applicable law, Trustor waives the posting of any bond
otherwise required of Beneficiary in connection with any judicial process or
proceeding to obtain possession of, replevy, attach or levy upon the Trust
Property or any Additional Deed of Trust Property, to enforce any judgment or
other security for the Obligations, to enforce any judgment or other court order
entered in favor of Beneficiary, or to enforce by specific performance,
temporary restraining order, preliminary or permanent injunction, this Deed of
Trust, any Additional Deed of Trust or any other agreement or document by which
Trustor or any other Person is bound and which is in whole or in part for the
benefit of Beneficiary, Trustee, the Holders of the Senior Secured Notes or any
Permitted Additional Senior Lender, if any. Trustor further agrees that upon
the occurrence and continuance of any Event of Default, Beneficiary may elect to
nonjudicially or judicially foreclose against any real or personal property
security (including, without limitation, under the Additional Deeds of Trust) it
holds for the Obligations or any part thereof, or to exercise any other remedy
against Issuer, any security or any guarantor, even if the effect of that action
is to deprive Trustor or any other Person of the right to collect reimbursement
from Issuer or any other Person for any sums paid to Beneficiary, Trustee, any
Holder of the Senior
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Secured Notes or any Permitted Additional Senior Lender, if any. To the extent,
if any, which such laws may be applicable, Trustor waives and releases any right
or defense which Trustor might otherwise have under such provisions and under
any other law of any applicable jurisdiction which might limit or restrict the
effectiveness or scope of any of Trustor's waivers or releases hereunder. If
any law referenced in this Section and now in force, of which Trustor, Trustor's
successors or assigns or any other Person might take advantage despite this
Section, shall hereafter be repealed or cease to be in force, such law shall not
thereafter be deemed to preclude the application of this Section. Trustor
warrants and agrees that each of the waivers and consents set forth in this Deed
of Trust is made voluntarily and unconditionally after consultation with outside
legal counsel and with full knowledge of its significance and consequences, with
the understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect the rights which Trustor
otherwise may have against Beneficiary or any other Person or against any
collateral. If, notwithstanding the intent of the parties that the terms of
this Deed of Trust shall control in any and all circumstances, any such waivers
or consents are determined to be unenforceable under applicable law, such
waivers and consents shall be effective to the fullest extent permitted by law.
27. Assignment of Rents. All of the Rents, whether now due, past due
-------------------
or to become due, and including all prepaid rents and security deposits, are
hereby absolutely, presently and unconditionally assigned, transferred, conveyed
and set over to Beneficiary to be applied by Beneficiary in payment of the
Obligations. It is understood and agreed that neither the foregoing assignment
of Rents to Beneficiary nor the exercise by Beneficiary of any of its rights or
remedies under this Deed of Trust shall be deemed to make Beneficiary a
"mortgagee-in-possession" or otherwise responsible or liable in any manner with
respect to the Trust Property or the use, occupancy, enjoyment, or operation of
all or any portion thereof, unless and until Beneficiary, in person or by agent,
assumes actual possession thereof. The appointment of a receiver for the Trust
Property by any court at the request of Beneficiary or by agreement with
Trustor, or the entering into possession of the Trust Property or any part
thereof by such receiver, also shall not be deemed to make Beneficiary a
mortgagee-in-possession or otherwise responsible or liable in any manner with
respect to the Trust Property or the use, occupancy, enjoyment or operation of
all or any portion thereof.
28. Security Agreement.
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(a) This Deed of Trust is intended to be a security agreement
pursuant to the California Uniform Commercial Code for (i) any and all items of
personal property specified above as part of the Trust Property that, under
applicable law, may be subject to a security interest pursuant to the California
Uniform Commercial Code and that are not effectively made part of the Site, and
(ii) any and all items of property specified above as part of the Trust Property
that, under applicable law, constitute fixtures and may be subject to a security
interest under Section 9313 of the California Uniform Commercial Code. Trustor
hereby grants Beneficiary a security interest in said property, and in all
additions thereto, substitutions therefor, and proceeds thereof, for the purpose
of securing the Obligations. For purposes of treating this Deed of Trust as a
security agreement, Beneficiary shall be deemed to be the secured party and
Trustor shall be deemed to be the debtor. In the event of a conflict between
the provisions of this Deed of Trust and that certain Security Agreement dated
of even date herewith between Trustor and Beneficiary (the "Security
Agreement"), with respect to property of the type described in clause (i) above,
the provisions of the Security Agreement shall control.
(b) Trustor maintains places of business in the State of California,
and Trustor will immediately notify Beneficiary in writing of any change in such
places of business.
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(c) At the request of Beneficiary, Trustor shall join Beneficiary in
executing one or more financing statements and continuations and amendments
thereof pursuant to the UCC in form reasonably satisfactory to Beneficiary; and
Trustor will pay the cost of filing the same in all public offices wherever
filing is deemed by Beneficiary to be necessary. In the event Trustor fails to
execute such documents within five (5) business days after request by
Beneficiary, Trustor hereby authorizes Beneficiary to file such financing
statements and irrevocably constitutes and appoints Beneficiary, or any officer
of Beneficiary, as its true and lawful attorney-in-fact to execute the same on
behalf of Trustor.
(d) This Deed of Trust constitutes a financing statement filed as a
fixture filing under UCC (S) 9402(6) in the official records of Inyo County and
Kern County with respect to any and all fixtures included within the term "Trust
Property" and with respect to any goods or other personal property that may now
be or hereafter become such a fixture. This filing shall remain in effect as a
fixture filing until this Deed of Trust is released or satisfied of record or
its effectiveness otherwise terminates as to the Trust Property.
(e) Beneficiary has no responsibility for and does not assume any of,
Trustor's obligations or duties under any agreement or obligation which is part
of the Equipment or any obligation relating to the acquisition, preparation,
custody, use, enforcement or operation of any of the Trust Property.
(f) Trustor and Beneficiary agree that the filing of a financing
statement in the records normally having to do with personal property shall
never be construed as in any way derogating from or impairing this Deed of Trust
or the intention of the parties that everything used in connection with the
production of income from the Trust Property or adapted for use therein or which
is described or reflected in this Deed of Trust is, and at all times and for all
purposes and in all proceedings both legal or equitable shall be regarded as
part of the real estate subject to the lien hereof, irrespective of whether (i)
any such item is physically attached to improvements located on such real
property or (ii) any such item is referred to or reflected in any financing
statement so filed at any time. Similarly, the mention in any such financing
statement of (A) the rights in or to the proceeds of any casualty insurance
policy or (B) any award in eminent domain proceedings for taking or for loss of
value or for cause of action or proceeds thereof in connection with any damage
or injury to the Trust Property or any part thereof shall never be construed as
in any way altering any of the rights of Beneficiary as determined by this
instrument or impugning the priority of Beneficiary's lien granted hereby or by
any other recorded document, but such mention in such financing statement is
declared to be for the protection of Beneficiary in the event any court shall at
any time hold with respect to matters (A) and (B) above that notice of
Beneficiary's priority of interest, to be effective against a particular class
of persons, including, without limitation, the Federal government and any
subdivision or entity of the Federal government, must be filed in the personal
property records or other commercial code records.
29. Further Acts, etc. Trustor shall, at the cost of Trustor, and
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without expense to Beneficiary, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, financing statements, mortgages, deeds of
trust, assignments, notices of assignments, transfers and assurances as
Beneficiary shall from time to time require, for the better assuring, conveying,
assigning, transferring and confirming unto Beneficiary, the property and rights
hereby conveyed or assigned or intended now or hereafter so to be, or which
Trustor may be or may hereafter become bound to convey or assign to Beneficiary,
or for carrying out the intention or facilitating the performance of the terms
of this Deed of Trust or for filing, registering or recording this Deed of Trust
and, on demand, will execute and deliver and hereby authorizes Beneficiary to
execute in the name of Trustor to the extent they may lawfully do so, one or
more financing statements, chattel mortgages or comparable security instruments,
to evidence and perfect more effectively the lien hereof upon the Trust
Property.
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30. Power of Attorney.
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(a) Trustor does hereby make, constitute and appoint Beneficiary its
true and lawful exclusive agent and attorney-in-fact for it, and in its name,
place and stead for the following purposes (collectively, the "Power of
Attorney"):
(i) in connection with or following one or more foreclosures under
this Deed of Trust judicially or by power(s) of sale or otherwise, or at such
time as Trustor shall be a debtor in proceedings under federal or state
bankruptcy law, to (1) apply to the United States Navy or the BLM for assignment
to it of the Navy Contract, the BLM North Leases and/or the BLM Rights-of-Way,
and to approve such assignment on behalf of Trustor and (2) subject to the prior
approval of the United States Navy or the BLM, if applicable, to grant, bargain,
sell, convey and assign Trustor's interest under the Navy Contract, the BLM
North Leases and/or the BLM Rights-of-Way to Beneficiary or to any other Person,
for such price or prices, and on such terms and conditions, as Trustor may deem
proper, and in Trustor's name, to make, execute, acknowledge and deliver a good
and sufficient assignment, or other instrument or instruments necessary to
effect such sale, conveyance or assignment;
(ii) to take all actions and exercise all rights and remedies
available to Trustor as holder of the Navy Contract, the BLM North Leases and/or
the BLM Rights-of-Way, including, without limitation, to (1) cure any defaults
thereunder, (2) make rental, royalty or other payments to the United States Navy
and the BLM, if applicable, on behalf of Trustor and/or (3) act as operator,
appoint another to act as operator or have a receiver appointed to act as
operator thereof; and
(iii) to request, demand, sue for, collect, recover, compromise,
settle and receive all monies that may become due and owing to Trustor by reason
of a sale, conveyance, assignment, taking for public use or other disposition of
Trustor's interest under the Navy Contract, the BLM North Leases and/or the BLM
Rights-of-Way.
(b) Trustor hereby grants to Beneficiary full power and authority to
from time to time appoint a substitute to perform any of the acts that
Beneficiary is by this Power of Attorney authorized to perform, and the right to
revoke such appointment of substitution at any time.
(c) Trustor does hereby give and grant Beneficiary full power and
authority to do and perform all and every act and thing whatsoever requisite,
necessary or appropriate to be done in and about the Site and/or with respect to
Navy Contract, the BLM North Leases and/or the BLM Rights-of-Way as fully to all
interests and purposes as Trustor might or could do if personally present,
hereby ratifying all that Beneficiary shall lawfully do or cause to be done by
virtue of theses presents. The powers and authority hereby conferred upon
Beneficiary shall be applicable to any and all interests in the Navy Contract,
the BLM North Leases and the BLM Rights-of-Way now owned or hereafter acquired
by Trustor. Subject to the terms hereof, Beneficiary is empowered to determine
in its sole discretion the time when, purpose for, and manner in which any power
herein conferred upon it shall be exercised, and the conditions, provisions and
covenants of any instrument or document that may be executed by it pursuant
hereto, and in the acquisition or disposition of the Navy Contract, the BLM
North Leases and/or the BLM Rights-of-Way, Beneficiary shall have exclusive
power to fix the terms thereof. This Power of Attorney is coupled with an
interest and cannot be revoked other than by recordation of a statement of
termination by Beneficiary hereunder.
31. Headings, etc. The headings, titles and captions of various
-------------
Sections of this Deed of Trust are for convenience of reference only and are not
to be construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
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32. Filing of Deed of Trust, etc. Trustor forthwith upon the
----------------------------
execution and delivery of this Deed of Trust and thereafter, from time to time,
will cause this Deed of Trust, and any security instrument creating a lien or
evidencing or perfecting the lien hereof upon the Trust Property, or in the case
of personal property or fixtures, financing statements with respect thereto, and
each instrument of further assurance, to be filed, registered or recorded in
such manner and in such places as may be required by any present or future law
in order to publish notice of and fully to protect, preserve and perfect the
lien hereof upon, and the interest of Beneficiary in the Trust Property.
Trustor will pay all filing, registration or recording fees, and all expenses
incurred by Beneficiary incident to the preparation, execution and
acknowledgment of this Deed of Trust, any deed of trust or any mortgage or deed
of trust supplemental hereto, any security instrument with respect to the Trust
Property, any financing statement with respect to the Trust Property, and any
instrument of further assurance, and all federal, state, county and municipal
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Deed of Trust, any mortgage or deed of
trust supplemental hereto, any security instrument with respect to the Trust
Property or any financing statement, continuation statement or other instrument
of further assurance. Trustor shall hold harmless and indemnify Beneficiary,
its successors and assigns, against any liability incurred by reason of the
imposition of any tax on the making and recording of this Deed of Trust.
33. Usury Laws. This Deed of Trust, the Guarantee and the other
----------
Financing Documents are subject to the express condition that at no time shall
Trustor be obligated or required to pay interest on the principal balance due
under the Financing Documents or otherwise with respect to the Obligations at a
rate which could subject the creditor of the debt evidenced by such instruments
to either civil or criminal liability as a result of being in excess of the
maximum interest rate which Trustor is permitted by law to contract or agree to
pay. If by the terms of this Deed of Trust or the Financing Documents, Trustor
is at any time required or obligated to pay interest on the principal balance
due under any of the Financing Documents at a rate in excess of such maximum
rate, then such rate of interest shall be deemed to be immediately reduced to
such maximum rate and the interest payable shall be computed at such maximum
rate.
34. Recovery of Sums Required to Be Paid. Beneficiary shall have the
------------------------------------
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due, without regard to
whether or not the balance of the Obligations shall be due, and without
prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Trustor existing
at the time such earlier action was commenced.
35. Authority. Trustor, and each of the undersigned acting on behalf
---------
of Trustor, hereby represents, warrants and covenants that it has full power,
authority and legal right to execute this Deed of Trust and to mortgage, give,
grant, bargain, sell, release, pledge, convey, confirm and assign the Trust
Property pursuant to the terms hereof and to keep and observe all of the terms
of this Deed of Trust on Trustor's part to be performed.
36. Invalidity of Certain Provisions. Every provision of this Deed
--------------------------------
of Trust is intended to be severable. In the event any term or provision hereof
is declared to be illegal, invalid or unenforceable for any reason whatsoever by
a court of competent jurisdiction, (i) such term or provision shall be construed
in such a manner as will allow such term or provision to be valid, provided that
such recasting shall be in accordance with the original intention of the
parties, and (ii) such illegality, invalidity or unenforceability shall not
affect the balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable. If the lien of this Deed of
Trust in invalid or unenforceable as to any part of the debt, or if the lien is
invalid or unenforceable as to any part of the Trust Property, the unsecured or
partially unsecured portion of the debt shall be completely paid prior
20
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to the payment of the remaining and secured or partially secured portion of the
debt, and all payments made on the debt, whether voluntary or under foreclosure
or other enforcement action or procedure, shall be considered to have been first
paid on and applied to the full payment of that portion of the debt which is not
secured or fully secured by the lien of this Deed of Trust.
37. Duplicate Originals. This Deed of Trust may be executed in any
-------------------
number of duplicate originals and each such duplicate original shall be deemed
to constitute but one and the same instrument.
38. Waiver of Notice. Trustor shall not be entitled to any notices
----------------
of any nature whatsoever from Beneficiary except with respect to matters for
which this Deed of Trust, the Guarantee or applicable law specifically and
expressly provides for the giving of notice to Trustor, and to the fullest
extent permitted by law Trustor hereby expressly waives the right to receive any
notice from Beneficiary with respect to any matter for which this Deed of Trust,
the Guarantee or applicable law does not specifically and expressly provide for
the giving of notice to Trustor.
39. No Oral Change. This Deed of Trust may only be modified, amended
--------------
or changed by an agreement in writing signed by Trustor and Beneficiary, and may
only be released, discharged or satisfied of record by an instrument in writing
signed by the Trustee or its successors and assigns as directed by Beneficiary.
No waiver of any term, covenant or provision of this Deed of Trust shall be
effective unless given in writing by Beneficiary, and if so given by Beneficiary
shall only be effective in the specific instance in which given. Trustor
acknowledges that this Deed of Trust and the Financing Documents set forth the
entire agreement and understanding of Trustor and Beneficiary with respect to
the matters set forth therein and that no oral or other agreements,
understanding, representations or warranties exist with respect to those matters
other than those set forth in this Deed of Trust and the Financing Documents.
40. Absolute and Unconditional Obligation. Trustor acknowledges that
-------------------------------------
Trustor's obligation to perform and pay the Obligations in accordance with the
provision of this Deed of Trust and the Guarantee is and shall at all times
continue to be absolute and unconditional in all respects, and shall at all
times be valid and enforceable irrespective of any other agreements or
circumstances of any nature whatsoever which might otherwise constitute a
defense to this Deed of Trust or the Guarantee or the obligations of Trustor
thereunder to perform and pay the Obligations or the obligations of any other
Person relating to this Deed of Trust or the Guarantee or the obligations of
Trustor under this Deed of Trust or the Guarantee, and to the fullest extent
permitted by law Trustor absolutely, unconditionally and irrevocably waives any
and all right to assert any defense, setoff, counterclaim or crossclaim of any
nature whatsoever with respect to the obligation of Trustor to perform and pay
the Obligations in accordance with the provisions of this Deed of Trust or the
Guarantee or the obligations of any other Person relating to this Deed of Trust
or the Guarantee or the obligations of Trustor under this Deed of Trust or the
Guarantee, or in any action or proceeding brought by Beneficiary to collect the
Obligations, or any portion thereof, or to enforce, foreclose and realize upon
the lien and security interest created by this Deed of Trust or any other
document or instrument securing performance and repayment of the Obligations, in
whole or in part.
41. No Rights; No Set Off. All sums secured by this Deed of Trust
---------------------
shall be paid in accordance with the Indenture and the Guarantee, as applicable,
without counterclaim, setoff, deduction or defense and without abatement,
suspension, deferment, diminution or reduction, and the obligations and
liabilities of Trustor hereunder shall in no way be released, discharged or
otherwise affected (except as expressly provided herein) by reason of (i) any
claim which Trustor has or might have against Beneficiary, (ii) any default or
failure on the part of Beneficiary to perform or comply with any of the
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terms hereof or (iii) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing and whether or not Trustor shall have notice or
knowledge of any of the foregoing.
42. Action Affecting the Trust Property.
-----------------------------------
(a) Trustor agrees to appear in and contest any action or proceeding
purporting to adversely affect the security hereof or the rights or powers of
Beneficiary, and to pay all costs and expenses of Beneficiary, including costs
of evidence of title and attorneys' fees and expenses, in any such action or
proceeding in which Beneficiary may appear.
(b) Beneficiary shall have the right to appear in and defend any
action or proceeding brought with respect to the Trust Property and to bring any
action or proceeding, in the name and on behalf of Trustor or Beneficiary, which
Beneficiary determines to be necessary or reasonably advisable to be brought to
protect its interest in the Trust Property if (i) Trustor fails to defend or
bring such action or proceeding, as appropriate, in a prompt and diligent
manner, or thereafter fails to proceed with diligence in the defense or
prosecution of the same, or (ii) an Event of Default shall have occurred and be
continuing.
43. Other Actions by Beneficiary. Except as hereinbefore expressly
----------------------------
provided, should Trustor fail to make any payment or do any act as and in the
manner provided in the Guarantee or any Financing Document after the expiration
of any applicable cure or grace period and as a result an Event of Default,
Beneficiary, without obligation so to do and without notice to or demand upon
Trustor and without releasing Trustor from any obligation, may make or do the
same in such manner and to such extent as Beneficiary may deem necessary to
protect the security hereof. In connection therewith (without limiting any
general powers of Beneficiary whether conferred herein or by law), Beneficiary
shall have and is hereby given the right, but not the obligation, (i) to the
fullest extent permitted by law, to make additions, alterations, repairs and
improvements to the Trust Property which it may consider necessary to keep the
Trust Property in good condition and repair and (ii) in exercising such powers,
to pay necessary expenses, including engagement of counsel or other necessary or
desirable consultants. Trustor shall, immediately upon demand therefor by
Beneficiary, pay all reasonable costs and expenses incurred by Beneficiary in
connection with the exercise by Beneficiary of the foregoing rights, including
without limitation, costs of evidence of title, court costs, appraisals, surveys
and attorneys' fees and expenses.
44. Remedies Not Exclusive. Subject to the limitations set forth in
----------------------
Section 49 of this Deed of Trust, Beneficiary shall be entitled to enforce
payment and performance of any indebtedness or obligations secured hereby and to
exercise all rights and powers granted under this Deed of Trust or any other
agreement or any laws now or hereafter in force, notwithstanding some or all of
the said indebtedness and obligations secured hereby may now or hereafter be
otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment
or otherwise. Subject to the limitations set forth in Section 49 of this Deed
of Trust, neither the acceptance of this Deed of Trust nor its enforcement,
whether by court action or pursuant to the power of sale or other powers herein
contained, shall prejudice or in any manner affect Beneficiary's right to
realize upon or enforce any other security now or hereafter held by Beneficiary,
it being agreed that Beneficiary shall be entitled to enforce this Deed of Trust
and any other security now or hereafter held by Beneficiary in such order and
manner as it may in its absolute discretion determine. No remedy herein
conferred upon or reserved to Beneficiary is intended to be exclusive of any
other remedy herein or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute.
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45. Relationship. The relationship of Beneficiary to Trustor
------------
hereunder is strictly and solely that of lender and borrower, and nothing
contained in this Deed of Trust is intended to create, or shall in any event or
under any circumstance be construed as creating, a partnership, joint venture,
tenancy-in-common, joint tenancy or other relationship of any nature whatsoever
between or among Beneficiary and Trustor other than as lender and borrower.
46. Guarantee. This Deed of Trust is subject to all of the terms,
---------
covenants and conditions of the Guarantee and the Financing Documents, which
Guarantee and Financing Documents and all of the terms, covenants and conditions
thereof are by this reference incorporated herein and made a part hereof with
the same force and effect as if set forth at length herein. Trustor shall
observe and perform all of the terms, covenants and conditions of the Financing
Documents on Trustor's part to be observed or performed. All advances made and
all indebtedness arising and accruing under the Guarantee or any Financing
Document from time to time shall be secured hereby.
47. Business Purpose. Trustor hereby stipulates and warrants that
----------------
the loans secured hereby are commercial or business loans and are transacted
solely for the purpose of carrying on or acquiring a business or commercial
enterprise or for a proper business purpose under the laws of the jurisdiction
in which the Trust Property is located.
48. Time of the Essence. TIME IS OF THE ESSENCE with respect to each
-------------------
and every covenant, agreement and obligation of Trustor under this Deed of
Trust.
49. No Recourse. Beneficiary agrees that no officer, director,
-----------
employee or shareholder of Trustor nor any Affiliate of any such party
(collectively, the "Nonrecourse Parties") shall be personally liable for the
performance of any obligation contained in this Deed of Trust. Beneficiary
agrees that its rights shall be limited to proceeding against Trustor and the
security provided or intended to be provided pursuant to the Security Documents,
and that it shall have no right to proceed against the Nonrecourse Parties for
(a) the satisfaction of any monetary obligation of, or enforcement of any
monetary claim against, Trustor, (b) the performance of any obligation, covenant
or agreement arising under this Deed of Trust, or (c) any deficiency judgment
remaining after foreclosure of any property securing the obligations hereunder;
provided, however, that: (A) the foregoing provisions of this Section 49 shall
not constitute a waiver, release or discharge of any of the indebtedness, or of
any of the terms, covenants, conditions or provisions of this agreement or any
Financing Document, and the same shall continue until fully paid, discharged,
observed or performed; (B) the foregoing provisions of this Section 49 shall not
limit or restrict the right of Beneficiary or the holders of the Senior Secured
Notes to name Trustor or any other Person as a defendant in any action or suit
for a judicial foreclosure or for the exercise of any other remedy under or with
respect to this Deed of Trust or any Financing Document, or for injunction or
specific performance, so long as no judgment in the nature of a deficiency
judgment shall be enforced against any Nonrecourse Party, except as set forth in
this Section 49; (C) the foregoing provisions of this Section 49 shall not in
any way limit or restrict any right or remedy of Beneficiary, the holders of the
Senior Secured Notes or the Permitted Additional Senior Lenders, if any (or any
assignee or beneficiary thereof or successor thereto) with respect to, and all
of the Nonrecourse Parties shall remain fully liable to the extent that they
would otherwise be liable for their own actions with respect to, any fraud,
negligence or willful misrepresentation, or misappropriation of any amounts to
be deposited in the Revenue Account, Proceeds or any other earnings, revenues,
rents, issues, profits or proceeds that are subject to the Security Documents
that should or would have been paid as provided herein or paid or delivered to
the Depositary Agent, Beneficiary, the holders of the Senior Secured Notes or
the Permitted Additional Senior Lenders (or any assignee or beneficiary thereof
or successor thereto) towards any payment required under this Deed of Trust or
any Financing Document; (D) the foregoing provisions of this Section 49 shall
not affect or diminish or constitute a waiver, release or discharge of
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<PAGE>
any specific written obligation, covenant or agreement in respect of the Project
made by any of the Nonrecourse Parties or any security granted by the
Nonrecourse Parties as security for the obligations of Trustor or Issuer; and
(E) nothing contained herein shall limit the liability of (i) any Person who is
a party to any Project Document or has issued any certificate or statement in
connection therewith with respect to such liability as may arise by reason of
the terms and conditions of such Project Document, certificate or statement, or
(ii) any Person rendering a legal opinion, in each case under this clause (E)
relating solely to such liability of such Person as may arise under such
referenced instrument, agreement or opinion.
50. Severance of Counterclaims. In the event of foreclosure of this
--------------------------
Deed of Trust, any and all counterclaims filed by Trustor against Beneficiary to
the extent permitted by law, shall be severed by the court having jurisdiction
over the foreclosure action, for all purposes from the basic foreclosure action,
on an ex parte basis and without notice to Trustor. Trustor, by its execution
--------
and delivery hereof, hereby expressly consents and agrees to such severance.
51. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT HEREOF, TRUSTOR
--------------------
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY RIGHT IT
MIGHT HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS DEED OF TRUST, THE GUARANTEE OR
ANY FINANCING DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PERSONS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BENEFICIARY TO ACCEPT DELIVERY OF THIS DEED OF TRUST AND
THE GUARANTEE.
52. GOVERNING LAW. THIS DEED OF TRUST IS GOVERNED BY AND SHALL BE
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
53. Reimbursement; Attorneys' Fees. Trustor shall pay immediately,
------------------------------
without demand, after expenditure, all sums expended or expenses incurred by
Trustee and/or Beneficiary in enforcing the terms of this Deed of Trust,
including, without limitation, all attorneys' fees. As used herein, the terms
"attorneys' fees" or "attorneys' fees and costs" shall mean the fees and
expenses of counsel to Beneficiary, Trustee and the holders of the Senior
Secured Notes, which may include printing, photostating, duplicating and other
expenses, air freight charges, and fees billed for law clerks, paralegals,
librarians and others not admitted to the bar but performing services under the
supervision of an attorney. The terms "attorneys' fees" or "attorneys' fees and
costs" shall also include, without limitation, all such fees and expenses
incurred with respect to appeals, arbitrations and bankruptcy proceedings, and
whether or not any action or proceeding is brought with respect to the matter
for which said fees and expenses were incurred.
54. Shared Draftsmanship. If there is any ambiguity in the terms of
--------------------
this Deed of Trust, the doctrine of construction which holds that the language
of the document shall be construed against its drafter shall not apply, as all
parties have shared in the drafting of this Deed of Trust.
55. No Third Party Beneficiary. This Deed of Trust is for the sole
--------------------------
benefit of Beneficiary, or on behalf of the holders of the Senior Secured Notes,
as applicable, and the Permitted Additional Senior Lenders, and is not for the
benefit of any third party; and no third party shall gain any subrogation rights
against Trustor or in, to or with respect to any portion of the Trust Property
by reason of this Deed of Trust or the provisions hereof.
24
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56. Security Only. This Deed of Trust is granted for security
-------------
purposes only. Accordingly, except as otherwise specifically provided in this
Deed of Trust, Beneficiary shall not enforce Trustor's rights with respect to
the Trust Property until such time as an Event of Default shall have occurred
and be continuing.
57. Release by Beneficiary. Upon the payment and performance in full
----------------------
of the Obligations, the security interest granted hereby shall terminate and all
rights to the Trust Property shall revert to Trustor. Upon any such
termination, Trustee shall, at Trustor's expense, execute and deliver to Trustor
such documents as Trustor shall reasonably request to evidence such termination.
If this Deed of Trust shall be terminated or revoked by operation of law,
Trustor will indemnify and save Trustee harmless from any loss which may be
suffered or incurred by Trustee in acting hereunder prior to the receipt by
Trustee, its successors, transferees or assigns of notice of such termination or
revocation.
58. Assignment of the BLM North Leases. Trustor and Beneficiary
----------------------------------
acknowledge that, as of the date of recordation of this Deed of Trust, the
assignment to Trustor of an undivided one third interest in the BLM North Leases
has not yet been completed. As such, Trustor covenants as follows:
(a) that it will cause such assignment to occur as soon as possible,
in connection with which it will, without limitation, (i) obtain the written
approval of the BLM to such assignment and (ii) cause an Assignment and
Assumption Agreement, in form and substance satisfactory to Beneficiary, to be
recorded in the Official Records of Inyo County, California; and
(b) upon completion of such assignment, if and to the extent so
requested by Beneficiary, it will (i) cause this Deed of Trust to be re-recorded
in the Official Records of Inyo County, California, or cause an amendment to
this Deed of Trust or a new deed of trust (with substantially the same
provisions as this Deed of Trust) to be recorded in the Official Records of Inyo
County, California, in each case in form and substance satisfactory to
Beneficiary, (ii) obtain such endorsement(s) or new title insurance policy or
policies (in form and substance satisfactory to Beneficiary) as Beneficiary may
reasonably request to insure Beneficiary that this Deed of Trust constitutes a
first priority lien on Trustor's undivided one third interest in the BLM North
Leases, subject only to the encumbrances and other matters that affected the BLM
North Leases as of the date of recordation of this Deed of Trust, including any
additional Permitted Liens and intervening taxes or assessments and (iii)
perform such further acts as Beneficiary may reasonably determine are necessary
or appropriate to carry out and accomplish the intent of this Section, and
promptly execute and deliver and, if appropriate, acknowledge and cause to be
recorded, any such additional documents, instruments and certificates as
Beneficiary may reasonably request in connection with such assignment and/or the
transfer of any related real or personal property.
59. Consent To Assignment. By executing this Deed of Trust, Trustor
---------------------
irrevocably and unconditionally consents to: (a) Beneficiary (or its assignee or
designee, and/or any receiver) curing any default under the BLM North Leases or
the BLM Rights-of-Way and acting as operator thereof for that purpose (although
Beneficiary shall not be under any obligation to undertake or complete any such
cure) and (b) assignment to Beneficiary of all of its right, title and interest
in and under the BLM North Leases and the BLM Rights-of-Way in the event of a
default under this Deed of Trust, the Guarantee or any of the other Financing
Documents or foreclosure under this Deed of Trust or any of the other Security
Documents; and Trustor acknowledges and agrees that (i) no further consents,
approvals or signatures shall be required from Trustor in order to effectuate
the transfer to Beneficiary of Trustor's right, title and interest in the BLM
North Leases and/or the BLM Rights-of-Way or any thereof and (ii) the BLM may
rely upon this consent.
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60. Regarding Beneficiary.
---------------------
(a) Beneficiary shall be afforded all of the rights, powers,
protections, immunities and indemnities set forth in that certain Security
Agreement, dated as of the date hereof, between Trustor and Beneficiary, as if
the same were specifically set forth herein.
(b) Trustor hereby agrees to indemnify and hold harmless Beneficiary
and its directors, officers, agents and employees from and against any and all
claims, demands, losses, penalties, liabilities, costs, damages, injuries and
expenses, including, without limitation, reasonable attorneys' fees and
expenses, suffered or sustained by Beneficiary, either directly or indirectly,
relating to or arising out of any Environmental Law (as hereinafter defined),
including, without limitation, any judgment, award, settlement, attorneys' fees
and expenses and other costs or expenses incurred in connection with the defense
of any actual or threatened action, proceeding or claim. As used herein, the
term "Environmental Law" shall mean any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or health or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment, including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
(c) The obligations of Trustor hereunder shall survive the termination
and release of this Deed of Trust or the earlier resignation or removal of
Beneficiary as trustee under the Indenture.
61. No Waiver. By accepting payment of any sum secured hereby after
---------
its due date or in an amount less than the sum due, Beneficiary does not waive
its rights to require prompt payment when due of all other sums so secured.
62. The CLC Deed of Trust. Trustor acknowledges that concurrently
---------------------
herewith Beneficiary is receiving a Deed of Trust, Assignment of Rents, Fixture
Filing and Security Agreement from Coso Land Company, a California general
partnership (the "CLC Deed of Trust"), which CLC Deed of Trust affects certain
of the Trust Property. Trustor unconditionally and irrevocably agrees that the
lien of this Deed of Trust shall at all times be and remain senior to the lien
of the CLC Deed of Trust. Further, Trustor agrees that any partial or full
release or reconveyance of the CLC Deed of Trust will not cause or create any
loss of priority of this Deed of Trust or any impairment of the lien of this
Deed of Trust. Conversely, in the event that the CLC Deed of Trust remains a
lien against the BLM North Leases, BLM Lease CACA-11401 and/or any other portion
of the Trust Property after an interest in said leases is assigned to Trustor,
then Trustor (i) hereby assumes and agrees to perform all of the obligations of
the trustor under the CLC Deed of Trust and (ii) reaffirms the subordination of
(and hereby unconditionally, irrevocably and at all times subordinates) the lien
of the CLC Deed of Trust to the lien of this Deed of Trust.
[Remainder of page intentionally left blank; signatures on next page]
26
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IN WITNESS WHEREOF, Trustor has duly executed this Deed of Trust as of the day
and year first above written.
TRUSTOR: COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
27
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Consent by CED and CPD:
- ----------------------
As of the day and year first above written, CED and CPD each hereby
consents to CFP entering into this Deed of Trust. CED and CPD each specifically
agrees that this Deed of Trust or the other Financing Documents may, among other
things, assign or delegate to Beneficiary rights to cure defaults under the
Indenture, to exercise voting rights and other rights to manage or control the
Issuer, to substitute itself in place of CFP under the Steam Exchange
Agreements, to act as Trustor's attorney-in-fact, to foreclose on the Trust
Property or to exercise any other rights hereunder or under the other Financing
Documents. CED and CPD each agrees that it will recognize and accept such
assignment and delegation and the exercise of such rights by Beneficiary in
connection with this Deed of Trust.
CED: COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher McCallion
-------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
CPD: COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
28
<PAGE>
ACKNOWLEDGMENT
STATE OF New York )
--------------------
)
COUNTY OF New York )
--------------------
On May 28 , 1999, before me, [name of notary]
------------------ ------------------------------------
Notary Public, personally appeared Christopher T. McCallion personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity(ies), and that by his signature(s)
on the instrument the person(s), or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ signature of notary
- ------------------------------------------------------
Notary/Public
<PAGE>
EXHIBIT A
Description of the Navy I Land
------------------------------
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY OF
INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
THE SOUTHWEST QUARTER OF THE SOUTHWEST QUARTER OF SECTION 4; THE SOUTH HALF OF
THE SOUTH HALF OF SECTION 5; THE SOUTH HALF OF THE SOUTHEAST QUARTER AND THE
SOUTHEAST QUARTER OF THE SOUTHWEST QUARTER OF SECTION 6; THE EAST HALF OF
SECTION 7; ALL OF SECTION 8; AND ALL OF SECTION 9; ALL LOCATED IN TOWNSHIP 22
SOUTH, RANGE 39 EAST, MOUNT DIABLO BASE AND MERIDIAN; IN THE COUNTY OF INYO,
STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF.
<PAGE>
EXHIBIT B
Description of the Navy Contract
--------------------------------
THAT CERTAIN CONTRACT NO. N62474-79-C-5382, DATED DECEMBER 6, 1979, BY AND
BETWEEN THE UNITED STATES OF AMERICA ACTING THROUGH THE DEPARTMENT OF THE NAVY
AND CALIFORNIA ENERGY COMPANY, INC., AS MODIFIED, AMENDED, ASSIGNED AND RESTATED
BY CONTRACT MODIFICATION P00004 DATED AS OF OCTOBER 19, 1983, A MEMORANDUM OF
WHICH WAS RECORDED ON MARCH 12, 1986 AS INSTRUMENT NO. 86-1043 OF OFFICIAL
RECORDS OF INYO COUNTY, CALIFORNIA, INCLUDING ALL MODIFICATIONS, AMENDMENTS AND
ASSIGNMENTS THERETO AND THEREOF MADE BEFORE THE EFFECTIVE DATE OF THIS DEED OF
TRUST AND ANY PERMITTED MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND
THEREOF MADE AFTER THE EFFECTIVE DATE OF THIS DEED OF TRUST.
<PAGE>
EXHIBIT C
Description of the BLM North Lease Premises and the BLM North Leases
--------------------------------------------------------------------
LEASE CACA-11383:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11383) APPROVED ON
NOVEMBER 1, 1983 BY THE BLM AND ISSUED TO THE LOS ANGELES DEPARTMENT OF
WATER AND POWER, A CERTIFIED COPY OF WHICH WAS RECORDED ON OCTOBER 8, 1993
AS INSTRUMENT NO. 93-4604 OF OFFICIAL RECORDS, INCLUDING ALL MODIFICATIONS,
AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE BEFORE THE EFFECTIVE
DATE OF THIS DEED OF TRUST AND ANY PERMITTED MODIFICATIONS, AMENDMENTS AND
ASSIGNMENTS THERETO AND THEREOF MADE AFTER THE EFFECTIVE DATE OF THIS DEED
OF TRUST, WHICH LEASE AFFECTS THAT CERTAIN REAL PROPERTY LOCATED IN AN
UNINCORPORATED AREA OF THE COUNTY OF INYO, STATE OF CALIFORNIA, DESCRIBED
AS FOLLOWS:
PARCEL 1:
--------
ALL OF SECTION 32; THE NORTH HALF OF SECTION 33; THE NORTH HALF OF THE
SOUTH HALF OF SECTION 33; THE SOUTH HALF OF THE SOUTHWEST QUARTER OF
SECTION 33; AND THE SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER OF
SECTION 33, ALL IN TOWNSHIP 21 SOUTH, RANGE 39 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 2:
--------
LOTS 2, 3 AND 4 OF SECTION 4; LOTS 1 TO 4 INCLUSIVE OF SECTION 5; THE
SOUTH HALF OF THE NORTH HALF OF SECTION 5; AND THE NORTH HALF OF THE
SOUTH HALF OF SECTION 5, ALL IN TOWNSHIP 22 SOUTH, RANGE 39 EAST,
MOUNT DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
Exhibit "C"
Page 1 of 4
<PAGE>
LEASE CACA-11384:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11384) APPROVED BY
THE BLM ON FEBRUARY 1, 1982 AND ISSUED TO THE LOS ANGELES DEPARTMENT OF
WATER AND POWER, WHICH LEASE WAS RECORDED ON OCTOBER 8, 1993 AS INSTRUMENT
NO. 93-4605 OF OFFICIAL RECORDS, INCLUDING ALL MODIFICATIONS, AMENDMENTS
AND ASSIGNMENTS THERETO AND THEREOF MADE BEFORE THE EFFECTIVE DATE OF THIS
DEED OF TRUST AND ANY PERMITTED MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS
THERETO AND THEREOF MADE AFTER THE EFFECTIVE DATE OF THIS DEED OF TRUST,
WHICH LEASE AFFECTS THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED
AREA OF THE COUNTY OF INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL 1:
--------
THE EAST HALF OF SECTION 11; ALL OF SECTIONS 12 AND 13; AND THE EAST
HALF OF SECTION 14, ALL IN TOWNSHIP 22 SOUTH, RANGE 38 EAST, MOUNT
DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING
TO THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 2:
--------
LOTS 1 TO 4, INCLUSIVE OF SECTION 7; THE EAST HALF OF THE WEST HALF OF
SECTION 7; LOTS 1 TO 4, INCLUSIVE OF SECTION 18; AND THE EAST HALF OF
THE WEST HALF OF SECTION 18, ALL IN TOWNSHIP 22 SOUTH, RANGE 39 EAST,
MOUNT DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA,
ACCORDING TO THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
LEASE CACA-11385:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11385) APPROVED BY
THE BLM ON FEBRUARY 1, 1982 AND ISSUED TO THE LOS ANGELES DEPARTMENT OF
WATER AND POWER, WHICH LEASE WAS RECORDED
Exhibit "C"
Page 2 of 4
<PAGE>
ON OCTOBER 8, 1993 AS INSTRUMENT NO. 93-4606 OF OFFICIAL RECORDS, INCLUDING
ALL MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE
BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY PERMITTED
MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE AFTER
THE EFFECTIVE DATE OF THIS DEED OF TRUST, WHICH LEASE AFFECTS THAT CERTAIN
REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY OF INYO,
STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL 1:
--------
ALL OF SECTION 36, TOWNSHIP 21 SOUTH, RANGE 38 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 2:
--------
LOTS 1 TO 4 INCLUSIVE, THE SOUTH HALF OF THE NORTH HALF, AND THE SOUTH
HALF OF SECTION 1, TOWNSHIP 22 SOUTH, RANGE 38 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 3:
--------
LOTS 1 TO 4 INCLUSIVE, THE EAST HALF, AND THE EAST HALF OF THE WEST
HALF OF SECTION 31, TOWNSHIP 21 SOUTH, RANGE 39 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
Exhibit "C"
Page 3 of 4
<PAGE>
PARCEL 4:
--------
LOTS 1 TO 7 INCLUSIVE, THE SOUTH HALF OF THE NORTHEAST QUARTER, THE
SOUTHEAST QUARTER OF THE NORTHWEST QUARTER, THE NORTHEAST QUARTER OF
THE SOUTHWEST QUARTER, AND THE NORTH HALF OF THE SOUTHEAST QUARTER OF
SECTION 6, TOWNSHIP 22 SOUTH, RANGE 39 EAST, MOUNT DIABLO MERIDIAN, IN
THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL
PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
Exhibit "C"
Page 4 of 4
<PAGE>
EXHIBIT D
Description of the BLM Right-of-Way Premises and the BLM Rights-of-Way
----------------------------------------------------------------------
RIGHT-OF-WAY CACA-13510:
THAT CERTAIN UNRECORDED RIGHT-OF-WAY GRANT (SERIAL NO. CACA-13510) APPROVED
BY THE BLM ON APRIL 12, 1984 AND ISSUED TO CALIFORNIA ENERGY COMPANY, INC.,
INCLUDING ALL MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF
MADE BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY PERMITTED
MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE AFTER
THE EFFECTIVE DATE OF THIS DEED OF TRUST, WHICH RIGHT-OF-WAY GRANT AFFECTS
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY
OF INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
TOWNSHIP 21 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 36,
E1/2 OF THE SE1/4;
TOWNSHIP 22 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 1,
NW1/4 OF THE SW1/4; LOTS 1 AND 2 OF THE NE1/4; AND LOT 1 OF THE NW1/4;
AND
TOWNSHIP 21 SOUTH, RANGE 38 EAST, MT. DIABLO MERIDIAN: SECTION 31,
LOTS 9-12, 16; SECTION 32, LOTS 1-3,5,6 AND 8; AND SECTION 33, S1/2 OF
THE S1/2.
RIGHT-OF-WAY CACA-18885:
THAT CERTAIN UNRECORDED RIGHT-OF-WAY GRANT (SERIAL NO. CACA-18885) APPROVED
BY THE BLM ON MAY 7, 1986 AND ISSUED TO CALIFORNIA ENERGY COMPANY, INC.,
INCLUDING ALL MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF
MADE BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY PERMITTED
MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE AFTER
THE EFFECTIVE DATE OF THIS DEED OF TRUST, WHICH RIGHT-OF-WAY GRANT AFFECTS
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY
OF INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
TOWNSHIP 22 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 1, LOTS
1 & 2 IN NE1/4, LOT 1 IN NW1/4, AND NW1/4SW1/4;
TOWNSHIP 21 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 36,
SE1/4SE1/4;
TOWNSHIP 21 SOUTH, RANGE 38 EAST, MT. DIABLO MERIDIAN: SECTION 31,
LOTS 13-16; SECTION 32, LOTS 1-5, 8; SECTION 33, S1/2NE1/4,
NE1/4SW1/4, S1/2SW1/4, N1/2SE1/4; SECTION 34, N1/2SW1/4, SE1/4SW1/4
AND SW1/4SE1/4.
<PAGE>
EXHIBIT "E"
Description of the Transmission Line Property
---------------------------------------------
THAT CERTAIN REAL PROPERTY LOCATED IN UNINCORPORATED AREAS OF THE COUNTIES OF
INYO AND KERN, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
THE COSO-INYOKERN 115 KV TRANSMISSION LINE BEGINS AT SURVEY STATION 0+00 AT THE
INYOKERN SUBSTATION IN THE SE 1/4, SE 1/4 OF SECTION 20, T26S, R39E, IN KERN
COUNTY, CALIFORNIA AND GOES NORTHERLY APPROXIMATELY 28.3 MILES ENDING AT SURVEY
STATION 1505+03.87 AT COSO GEOTHERMAL PLANT NO. 1 SWITCHYARD IN SW 1/4, NW 1/4
OF SECTION 8, T22S, R39E IN INYO COUNTY, CALIFORNIA.
THE RIGHT-OF-WAY FOR THE TRANSMISSION LINE IS A STRIP OF LAND 200 FEET WIDE OF
WHICH 65 FEET OF THIS RIGHT-OF-WAY IS LOCATED TO THE LEFT (WESTERLY) OF THE
TRANSMISSION LINE CENTERLINE AND 135 FEET IS LOCATED TO THE RIGHT (EASTERLY) OF
THE TRANSMISSION CENTERLINE.
THE TRANSMISSION LINE CENTERLINE IS DESCRIBED AS FOLLOWS:
SECTIONS 20, 17 (7 of record), 8, 5 & 6 OF TOWNSHIP 26 SOUTH, RANGE 39 EAST
---------------------------------------------------------------------------
BEGINNING AT SURVEY STATION 0+00, WHICH IS LOCATED ON THE NORTH BOUNDARY FENCE
LINE OF THE INYOKERN SUB-STATION AND IS 400 FEET WEST AND 320 FEET NORTH OF THE
SE CORNER OF SECTION 20, T26S, R39E. THENCE, FROM STATION 0+00,
N21(degrees)11'57"W A DISTANCE OF 255.00 FEET TO AN ANGLE POINT AT STATION
2+55.00; THENCE N17(degrees)40'18"W A DISTANCE OF 21,637 FEET TO THE LELITER
ROAD CROSSING AT STATION 218+92 WHICH IS A POINT ON THE NORTH BOUNDARY OF
SECTION 6, T26S, R39E AND IS 1410 FEET WEST OF THE NE CORNER OF SECTION 6, T26S,
R39E.
SECTIONS 31, 30 & 19 OF TOWNSHIP 25 SOUTH, RANGE 39 EAST
--------------------------------------------------------
THENCE FROM STATION 218+92, N17(degrees)40'18"W A DISTANCE OF 13,228 FEET TO
STATION 351+20 WHICH IS A POINT ON THE WEST BOUNDARY OF SECTION 19, T25S, R39E
AND IS 1960 FEET NORTH OF THE SW CORNER OF SECTION 19, T25S, R39E.
SECTIONS 24, 13, 12, 1 & 2 OF TOWNSHIP 25 SOUTH, RANGE 38 EAST
--------------------------------------------------------------
THENCE, FROM STATION 351+20, N17(degrees)40'18"W A DISTANCE OF 20,165 FEET TO
SURVEY STATION 552+85 WHICH IS A POINT ON THE KERN AND INYO COUNTY LINE AND ON
THE NORTH BOUNDARY OF SECTION 2, T25S, R38E AND IS 540 FEET WEST OF THE NE
CORNER OF SECTION 2, T25S, R38E.
SECTIONS 35, 34, 27, 22, 15, 10 & 3 OF TOWNSHIP 24 SOUTH, RANGE 38 EAST
-----------------------------------------------------------------------
THENCE, FROM STATION 552+85, N17(degrees)40'18"(degrees)W A DISTANCE OF 980.65
FEET TO AN ANGLE POINT AT STATION 562+65.65; THENCE N00(degrees)32'59"E A
DISTANCE OF 1849.86 FEET
Exhibit "E"
Page 1 of 2
<PAGE>
TO AN ANGLE POINT AT STATION 581+15.51; THENCE N18(degrees)55'43"W A DISTANCE OF
8200.72 FEET TO AN ANGLE POINT AT STATION 663+16.23; THENCE N17(degrees)49'44"W
A DISTANCE OF 6843.04 FEET TO AN ANGLE POINT AT STATION 731+59.27; THENCE
N09(degrees)26'36"E A DISTANCE OF 13,280.99 FEET TO AN ANGLE POINT AT EQUATION
STATION 864+40.26 BACK = 873+79.76 AHEAD; THENCE N07(degrees)43'29"E A DISTANCE
OF 1460 FEET TO SURVEY STATION 888+39.76 WHICH IS A POINT ON THE NORTH BOUNDARY
OF SECTION 3, T24S, R38E AND IS 1680 FEET WEST OF THE NE CORNER OF SECTION 3,
T24S, R38E.
SECTIONS 34, 27, 26, 23, 24, 13, 12 & 1, TOWNSHIP 23 SOUTH, RANGE 38 EAST
-------------------------------------------------------------------------
THENCE FROM STATION 888+39.76, N07(degrees)43'29"E A DISTANCE OF 5111.45 FEET TO
AN ANGLE POINT AT STATION 939+51.21; THENCE N31(degrees)43'12"E A DISTANCE OF
9820.50 FEET TO AN ANGLE POINT AT STATION 1037+71.71; THENCE N31(degrees)14'47"E
A DISTANCE OF 10,758.97 FEET TO AN ANGLE POINT AT STATION 1145+30.68; THENCE
N10(degrees)29'29"W A DISTANCE OF 8780.38 FEET TO SURVEY STATION 1233+11.06
WHICH IS A POINT ON THE NORTH BOUNDARY OF SECTION 1, T23S, R38E AND IS 1600 FEET
WEST OF THE NE CORNER OF SECTION 1, T23S, R38E.
SECTION 36 OF TOWNSHIP 22 SOUTH, RANGE 38 EAST
----------------------------------------------
THENCE FROM STATION 1233+11.06, N10(degrees)29'29"W A DISTANCE OF 1200.00 FEET
TO AN ANGLE POINT AT STATION 1245+11.06; THENCE N43(degrees)08'19"E A DISTANCE
OF 2718.94 FEET TO SURVEY STATION 1272+30 WHICH IS A POINT ON THE EAST BOUNDARY
OF SECTION 36, T22S, R38E AND IS 2180 FEET SOUTH OF THE NE CORNER OF SECTION 36,
T22S, R38E.
SECTION 31, 30, 19, 18, 7 & 8 OF TOWNSHIP 22 SOUTH, RANGE 39 EAST
-----------------------------------------------------------------
THENCE, FROM STATION 1272+30, N43(degrees)08'19"E A DISTANCE OF 1922.34 FEET TO
AN ANGLE POINT AT STATION 1291+52.34; THENCE N06(degrees)45'07"E A DISTANCE OF
12,581.98 FEET TO AN ANGLE POINT AT STATION 1417+34.32; THENCE
N00(degrees)50'59"W A DISTANCE OF 4,017.81 FEET TO AN ANGLE POINT AT STATION
1457+52.13; THENCE N55(degrees)41'23"E A DISTANCE OF 1,152.30 FEET TO AN ANGLE
POINT AT STATION 1469+04.43; THENCE N13(degrees)42'55"E A DISTANCE OF 1,065.66
FEET TO AN ANGLE POINT AT STATION 1479+70.09; THENCE N81(degrees)26'21"E A
DISTANCE OF 1,169.68 FEET TO AN ANGLE POINT AT STATION 1491+39.77; THENCE
N25(degrees)26'31"E A DISTANCE OF 1,135.98 FEET TO AN ANGLE POINT AT STATION
1502+75.75; THENCE N05(degrees)40'26"E A DISTANCE OF 228.12 FEET TO THE END OF
THE COSO-INYOKERN 115 KV TRANSMISSION LINE AT SURVEY STATION 1505+03.87. THIS
ENDING POINT IS LOCATED AT THE COSO GEOTHERMAL PLANT NO. 1 SWITCHYARD IN THE SW
1/4, NW 1/4 OF SECTION 8, T22S, R39E IN INYO COUNTY, CALIFORNIA.
Exhibit "E"
Page 2 of 2
<PAGE>
Exhibit 10.25
RECORDING REQUESTED BY:
WHEN RECORDED RETURN TO:
The Law Offices of David E. Chanover
16776 Bernardo Center Drive
Suite 110B
San Diego, California 92128
Attention: David E. Chanover
- --------------------------------------------------------------------------------
COSO ENERGY DEVELOPERS
(as Trustor)
to
CHICAGO TITLE INSURANCE COMPANY
(as Trustee)
for the use and benefit of
U.S. BANK TRUST NATIONAL ASSOCIATION
(as Beneficiary)
DEED OF TRUST, ASSIGNMENT OF RENTS,
FIXTURE FILING AND SECURITY AGREEMENT
(BLM)
Dated: May 28, 1999
Location: County of Inyo and
County of Kern,
State of California
<PAGE>
DEED OF TRUST, ASSIGNMENT OF RENTS,
FIXTURE FILING AND SECURITY AGREEMENT
(BLM)
THIS DEED OF TRUST, ASSIGNMENT OF RENTS, FIXTURE FILING AND SECURITY
AGREEMENT (BLM) (this "Deed of Trust") is made as of May 28, 1999, by COSO
ENERGY DEVELOPERS, a California general partnership whose address is c/o New
CHIP Company, LLC, 1114 Avenue of the Americas, 41st Floor, New York, New York
10036, as trustor ("Trustor"), to CHICAGO TITLE INSURANCE COMPANY, a Missouri
corporation, whose address is 2425 West Shaw, Fresno, California 93711, as
trustee ("Trustee"), in favor of U.S. Bank Trust National Association, whose
address is One California Street, 4th Floor, San Francisco, California 94111, as
beneficiary ("Beneficiary") not in its individual capacity but solely as trustee
and collateral agent pursuant to the Indenture of even date herewith (the
"Indenture") among Beneficiary, Caithness Coso Funding Corp., as issuer (the
"Issuer"), Trustor, Coso Finance Partners, a California general partnership
("CFP") and Coso Power Developers, a California general partnership ("CPD"), as
guarantors. Unless otherwise defined herein, capitalized terms shall have the
meanings set forth in the Indenture, which is hereby incorporated herein by this
reference.
NOW, THEREFORE, in consideration of, and to secure the payment and
performance of the Obligations (as hereinafter defined) which Obligations may
increase, decrease and increase again from time to time and may be evidenced by
one or more notes, Trustor has given, granted, bargained, sold, alienated,
conveyed, confirmed and assigned, and by these presents does give, grant,
bargain, sell, alienate, convey, confirm and assign unto Trustee, its successors
and assigns, with general warranties of title as provided herein or under Civil
Code Section 1113 (but subject to Permitted Liens), in trust with power of sale
and right of entry and possession forever, for the benefit and security of
Beneficiary as Collateral Agent, all right, title and interest of Trustor in and
to the following property, assets, rights and interests, whether now owned or
hereafter acquired (such property, assets, rights and interests being
collectively referred to herein as the "Trust Property"):
(a) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California, described
in Exhibit A attached hereto and by this reference incorporated herein (the
---------
"BLM Land"), including, without limitation, all of its right, title and
interest in and under that certain geothermal resources lease ("BLM Lease
CACA-11402") described in Exhibit B attached hereto and by this reference
---------
incorporated herein, together with all renewals, extensions, supplements,
amendments, cancellations or terminations thereof and all credits,
deposits, options, privileges and rights thereunder;
(b) all of Trustor's right, title and interest in and to that certain
approximately 80 megawatt geothermal electrical generating facility (and
each unit thereof) commonly known as the BLM facility, together with the
related geothermal resource gathering system, geothermal resource disposal
and injection system, geothermal resource reserves and interconnection
equipment (the "BLM Project");
1
<PAGE>
(c) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California, described
in Exhibit C attached hereto and by this reference incorporated herein (the
---------
"BLM North Lease Premises"), including, without limitation, all of its
right, title and interest in and under those certain geothermal resources
leases (the "BLM North Leases") described in said Exhibit C (as and when
---------
such right, title and interest is transferred to Trustor), together with
all renewals, extensions, supplements, amendments, cancellations or
terminations thereof and all credits, deposits, options, privileges and
rights thereunder;
(d) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California, described
in Exhibit D attached hereto and by this reference incorporated herein (the
---------
"BLM Right-of-Way Premises"), including, without limitation, all of its
right, title and interest in and under those certain right-of-way grants
(the "BLM Rights-of-Way") described in said Exhibit D, together with all
---------
renewals, extensions, supplements, amendments, cancellations or
terminations thereof and all credits, deposits, options, privileges and
rights thereunder;
(e) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California, described
in Exhibit E attached hereto and by this reference incorporated herein (the
---------
"BLM Site License Premises"), including all of its right, title and
interest in and under those certain site licenses (the "BLM Site Licenses")
described in said Exhibit E, together with all renewals, extensions,
---------
supplements, amendments, cancellations or terminations thereof and all
credits, deposits, options, privileges and rights thereunder;
(f) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California,
described in Exhibit F attached hereto and by this reference incorporated
---------
herein (the "BLM Lease CACA-11401 Premises"), including, without
limitation, all of its right, title and interest in and under that certain
geothermal resources lease ("BLM Lease CACA-11401") described in said
Exhibit F (as and when such right, title and interest is transferred to
---------
Trustor), together with all renewals, extensions, supplements, amendments,
cancellations or terminations thereof and all credits, deposits, options,
privileges and rights thereunder;
(g) all of Trustor's right, title and interest in and under any
contracts, agreements and other documents for or relating to (i) the
acquisition, development, possession, use, exchange or disposition of
geothermal resources, steam, condensate, injectate or other fluids and/or
(ii) the ownership or co-ownership (as the case may be) of pipelines, wells
and/or related improvements, equipment and facilities, including, without
limitation, in and under that certain (1) Coso Geothermal Exchange
Agreement dated as of January 11, 1994 among Trustor, CFP and CPD, as
heretofore or hereafter amended or modified and (2) Cotenancy Agreement of
even date herewith among CPD, CFP and Trustor, a Memorandum of which will
be recorded in the Official Records concurrently herewith, in each case
together with all renewals, extensions, supplements, options, amendments,
cancellations or terminations thereof (the "Steam Exchange Agreements");
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(h) all of Trustor's right, title and interest in and to any (i)
easements, rights-of-way, licenses and entry rights, including, without
limitation, all of its right, title and interest in and under that certain
easement (the "BLM Easement") described in Exhibit G attached hereto and by
---------
this reference incorporated herein, together with all renewals, extensions,
supplements, amendments, cancellations or terminations thereof and all
credits, deposits, options, privileges and rights thereunder, (ii) gores of
land, (iii) roads, streets, ways, alleys or passages, (iv) interests in
land lying in the bed of any street, road or avenue, whether opened or
proposed, on, near or adjoining the Site or any part thereof, (v) sewer
rights, (vi) air rights, (vii) waters, water courses, water rights and
powers, (viii) profits-a-prendre, minerals, geothermal substances, oil, gas
and other hydrocarbon substances, (ix) exploration, development and
production rights, and (x) all other estates, rights, titles, interests,
privileges, franchises, liberties, tenements, hereditaments, consents,
options, appendages and appurtenances of any nature whatsoever, in any way
belonging, relating or pertaining to or connected with the Site (defined
below), BLM Lease CACA-11402, the BLM Project, the BLM North Leases, the
BLM Rights-of-Way, the BLM Site Licenses, BLM Lease CACA-11401, the BLM
Easement, the Improvements or any other of the Trust Property, or any part
thereof, together with all renewals, extensions, supplements or amendments
thereof (the BLM Land, the BLM North Lease Premises, the BLM Right-of-Way
Premises, the BLM Site License Premises, the BLM Lease CACA-11401 Premises
and the BLM Easement are collectively referred to herein as the "Site");
(i) all leases (including oil, gas, geothermal and other mineral
leases), subleases, franchises, licenses, concessions, permits, power
purchase and other contracts and agreements affecting the use or occupancy
of the Site, BLM Lease CACA-11402, the BLM Project, the BLM North Leases,
the BLM Rights-of-Way, the BLM Site Licenses, BLM Lease CACA-11401, the
Improvements or any other of the Trust Property, or any part thereof, now
or hereafter entered into, and any renewals or extensions thereof
(hereinafter referred to as the "Leases"); and the right to receive and
apply the rents, issues, profits, royalties, income, accounts receivable,
revenues, deposits, security deposits, receipts and other benefits of the
Trust Property to the extent of Trustor's interest therein, including,
without limitation, the proceeds of all hydrocarbons or other minerals
produced from the Trust Property, all delay royalties, rentals and bonuses
from any oil, gas, geothermal or other mineral lease, any revenues under
any power purchase or sale contracts, and any amounts received from the
United States Department of the Interior, Bureau of Land Management (the
"BLM") (collectively, hereinafter referred to as the "Rents") to the
payment of the Obligations;
(j) all of Trustor's right, title and interest in and to any and all
buildings, structures, improvements or fixtures of any kind, now or
hereafter erected or located on the Site or any part thereof, including,
without limitation, the BLM Project (the "Improvements");
(k) all facilities, machinery, equipment, apparatus, appliances,
fittings, goods, materials, supplies, and other items and property of every
kind and nature whatsoever owned by Trustor, or in which Trustor now or
hereafter has any right, title or interest, now or hereafter located in or
upon, or used in connection with the present or future
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development, operation, occupancy or other utilization (whether temporarily
or permanently) of or activities on, the Site, the BLM Project, any of the
other Trust Property or any part thereof, whether or not attached to or
installed in any Improvements, and all renewals, replacements and
substitutions thereof and additions thereto, including, without limitation,
any and all (i) wells, including production, injection, test, temperature
gradient and water wells, well casings, wellhead equipment, geothermal
resource gathering, injection and disposal systems, pipelines, pumps,
sumps, test holes, evaporation ponds and other facilities and equipment
used to produce, inject, store, transport or utilize geothermal substances
or condensate, (ii) turbines, generators, dynamos, separators, scrubbers,
demisters, cooling systems and towers, (iii) overhead and underground
electrical transmission, distribution and collector lines and related
systems, switchyards, substations, transformers, energy storage facilities,
conductors, separators, circuit breakers, interconnection equipment,
conduits, footings, towers, poles, crossarms, guy lines, anchors and wires,
(iv) overhead and underground control, monitoring, communications and radio
relay systems and telecommunications equipment, (v) roads, erosion control
facilities, dikes, signs and fences, (v) heating, ventilating, plumbing,
laundry, incinerating, air conditioning, air cooling, lighting, alarm,
call, mechanical, electrical, water, gas, telephone, utility, wastewater,
treatment, pollution abatement, sprinkler, fire control, extinguishing,
safety protection and other systems, facilities, installations and
apparatus, (vii) sheds, engines, motors, boilers, stokers, pumps, fans,
blowers, switchboards, computers, software, escalators, elevators,
compressors and tanks, (viii) partitions, ducts, shafts, vents, pipes,
radiators, wiring, floor coverings and awnings, (ix) tools, (x) spare
parts, (xi) motor vehicles, (xii) furnishings, furniture and decorations,
(xiii) building, cleaning, maintenance and service equipment, materials,
supplies, goods and property (whether or not covered by any warehouse
receipts or bills of lading or other such documents), (xiv) maps, plans,
specifications, architectural, engineering, construction or shop drawings,
manuals or similar documents, (xv) copyrights, trademarks, trade names and
other intellectual property and (xvi) any other facilities, machinery,
equipment, apparatus, fittings, goods, materials, supplies, and other items
and property associated with or incidental to any of the foregoing or to
the generation, conversion, storage, switching, metering, step-up, step-
down, transmission, conducting, wheeling, sale or other use or conveyance
of electricity (collectively, the "Equipment"), as well as the right, title
and interest of Trustor in and to any of the Equipment which may be subject
to any security agreements (as defined in the Uniform Commercial Code of
the State of California) superior in lien to the lien of this Deed of
Trust;
(l) all awards or payments, including interest thereon, and the right
to receive the same, which may be made with respect to the Trust Property,
whether from state fund sharing, from the exercise of the right of eminent
domain (including any transfer made in lieu of the exercise of said right),
from changes of grade of street or for any other injury to or decrease in
the value of the Trust Property now or hereafter located thereon, whether
direct or consequential, which said awards and payments are hereby assigned
to Beneficiary, and Beneficiary is hereby authorized to collect and receive
the proceeds thereof and to give proper receipts and acquittances therefor;
4
<PAGE>
(m) all refunds or rebates of all taxes or charges in lieu of taxes,
assessments, water rates, sewer rents and other charges, including vault
charges and license or permit fees for the use of vaults, chutes and
similar areas on or adjoining the Site, now or hereafter levied or assessed
against the Trust Property (hereinafter referred to as the "Taxes");
(n) all inventory, accounts, books, records and general intangibles
in whatever form and however stored, owned by Trustor, or in which Trustor
now or hereafter has any right, title or interest, now or hereafter located
upon, arising in connection with or concerning the Trust Property;
(o) all proceeds of and any unearned premiums on any insurance
policies now or hereafter covering the Trust Property, including, without
limitation, the right to receive the proceeds of any insurance, judgments
or settlements made in lieu thereof, for damage to the Trust Property or
for any defect in the title to the Trust Property or any part thereof;
(p) the right, in the name and on behalf of Trustor, to appear in and
defend any action or proceeding brought with respect to the Trust Property
and to commence any action or proceeding to protect the interest of
Beneficiary in the Trust Property;
(q) all of Trustor's right, title and interest in and to all plans
and specifications prepared for or relating to the design, development,
construction, management and use of Improvements or Equipment or other
development of the Trust Property (including, without limitation, all
amendments, modifications, supplements, general conditions and addenda
thereof or thereto), and all studies, data and drawings related thereto,
and all contracts and agreements of Trustor relating to the aforesaid plans
and specifications or to the aforesaid studies, data and drawings or to the
design, development, construction, management and use of Improvements, the
Equipment or any of the other Trust Property;
(r) all contracts with property managers, surveyors, real estate
advisors, consultants and brokers, geothermal energy advisors and
consultants, engineers, and other like agents and professionals that relate
to any part of the Trust Property, including without limitation, any
Improvements constructed or to be constructed on the Site or any part
thereof or any Equipment to be placed, installed, used or stored on the
Site or any part thereof, and all maps, reports, surveys, tests and studies
of or relating to any of the Trust Property, owned by Trustor or in which
Trustor has or shall have an interest and now or hereafter in the
possession of Trustor or any such agent or professional;
(s) all present and future agreements, permits, licenses,
entitlements and approvals, as well as all modifications, supplements,
extensions and renewals thereof, now existing or hereafter made, in which
Trustor now or hereafter has an interest, relating to the use, development
and/or occupancy of the Site, the Improvements and/or the Equipment;
5
<PAGE>
(t) all the estate, right, title, interest, claim or demand of any
nature whatsoever of Trustor, either in law or in equity, in possession or
expectancy, in and to the Trust Property and in all replacements,
substitutes, renewals, betterments and extensions of and all additions to
any of the Improvements or Equipment, or any part thereof;
(u) all products and proceeds of any of the Trust Property herein
described; and
(v) all bank accounts and trust accounts of Trustor.
This Deed of Trust secures the following obligations which shall heretofore
and hereinafter collectively be referred to as the "Obligations":
(i) The payment of all indebtedness and the performance of all
obligations of Trustor as evidenced in Section 9 of the Indenture entitled
"Guarantees" and as further evidenced by that certain Notation of Guarantee
of even date herewith executed by Trustor, CFP and CPD, including, without
limitation, the guarantee of payment of (1) $110,000,000 6.80% Senior
Secured Notes due in 2001 and (2) $303,000,000 9.05% Senior Secured Notes
due in 2009 (collectively, the "Senior Secured Notes") issued by the Issuer
(the "Guarantee");
(ii) The payment of such further sums and/or performance of such
further obligations as Trustor or the then record owner of the Trust
Property or any part thereof may undertake to pay and/or perform for
Beneficiary and its successor or assigns, when such borrowing or obligation
is evidenced by a writing or writings reciting that it or they are secured
by this Deed of Trust;
(iii) The payment of all indebtedness of Trustor owing to a Permitted
Additional Senior Lender; and
(iv) The satisfaction and performance of all other debts,
obligations, covenants, agreements and liabilities of the Issuer or Trustor
to Trustee, Beneficiary or any of the other Secured Parties arising out of,
connected with or related to this Deed of Trust, the Guarantee, any of the
Financing Documents or any other agreement now or hereafter executed by the
Issuer or Trustor, and all amendments, extensions, and renewals of the
foregoing documents, whether now existing or hereafter arising, voluntary
or involuntary, absolute or contingent, liquidated or unliquidated, and
whether or not from time to time decreased or extinguished and later
increased, created, or incurred.
To protect the security of this Deed of Trust, Trustor covenants with and
represents and warrants to Trustee and Beneficiary as follows:
1. Payment of Obligations. Trustor will pay and perform the
----------------------
Obligations at the time and in the manner provided for its payment and
performance in this Deed of Trust, the Guarantee and the other Financing
Documents, as applicable.
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2. Warranty of Title. Trustor warrants its right, title or interest,
-----------------
as applicable, in and to the Site, BLM Lease CACA-11402, BLM Lease CACA-11401,
the Improvements, the Equipment and the balance of the Trust Property and the
validity and priority of the lien of this Deed of Trust and the estate hereof
against the claims and demands of all Persons whomsoever, other than with
respect to Permitted Liens. Trustor also represents and warrants that (i)
Trustor is now, and after giving effect to this Deed of Trust, will be, in a
solvent condition, (ii) the execution and delivery of this Deed of Trust by
Trustor does not constitute a "fraudulent conveyance" within the meaning of
Title 11 of the United States Code (the "Bankruptcy Code") as now constituted or
under any other applicable statute, and (iii) no bankruptcy or insolvency
proceedings are pending or contemplated by or, to the best of Trustor's
knowledge, against Trustor.
3. Notice. Trustor hereby requests that a copy of notice of default
------
and notice of sale be mailed to it at the address set forth below, and such
address is also the mailing address of Trustor, as debtor, under the California
Uniform Commercial Code. Trustor hereby covenants to cure any default within
the time period required by the Financing Documents upon receipt of notice of
such default. Beneficiary's address given below is the address for Beneficiary
under the California Uniform Commercial Code. Any notice, request, demand,
statement, authorization, approval or consent made hereunder shall be deemed
given or furnished (i) when addressed to the party intended to receive the same
at the address of such party set forth below, and delivered at such address or
(ii) three (3) days after the same is deposited in the United States mail as
first class certified mail, return receipt requested, postage prepaid:
If to Trustor:
Coso Energy Developers
c/o New CHIP Company, LLC
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Attention: President
If to Trustee:
Chicago Title Insurance Company
2425 West Shaw
Fresno, California 93711
Attention: Trust Department
If to Beneficiary:
U.S. Bank Trust National Association
One California Street, Suite 400
San Francisco, California 94111
Attention: Trust Officer
4. Sale of Trust Property. This Deed of Trust hereby contains more
----------------------
than one power of sale and Beneficiary, in its sole discretion, may conduct one
or multiple foreclosure
7
<PAGE>
sales in connection herewith. If this Deed of Trust is foreclosed, or the power
of sale hereunder is exercised, the Trust Property, or any interest therein,
may, at the discretion of Beneficiary, be sold in one or more parcels or in
several interests or portions and in any order or manner.
5. No Credits on Account of the Obligations. Trustor will not claim
----------------------------------------
or demand or be entitled to any credit or credits on account of the Obligations
for any part of the Taxes assessed against the Trust Property or any part
thereof, and no deduction shall otherwise be made or claimed from the taxable
value of the Trust Property, or any part thereof, by reason of this Deed of
Trust or the Obligations.
6. Offset, Counterclaims and Defenses. Any assignee of this Deed of
----------------------------------
Trust and the Obligations secured hereby shall take the same free and clear of
all offsets, counterclaims or defenses of any nature whatsoever which Trustor
may have against any assignor of this Deed of Trust and the Obligations secured
hereby, and no such offset, counterclaim or defense shall be interposed or
asserted by Trustor in any action or proceeding brought by any such assignee
upon this Deed of Trust or the Obligations secured hereby and any such right to
interpose or assert any such offset, counterclaim or defense in any such action
or proceeding is hereby expressly waived by Trustor.
7. Other Security for the Obligations. Trustor shall observe and
----------------------------------
perform all of the terms, covenants and provisions to be observed or performed
by Trustor contained in this Deed of Trust and in the Financing Documents to
which Trustor shall be a party evidencing, securing or guaranteeing payment of
the Obligations, in whole or in part, or otherwise executed and delivered in
connection with this Deed of Trust or the Financing Documents.
8. Preservation of Trust Property. Trustor shall do any and all
------------------------------
acts which, from the character or use of the Trust Property, may be reasonably
necessary to protect and preserve the lien, the priority of the lien and the
security of Beneficiary granted herein, the specific enumerations herein not
excluding the general. Trustor shall maintain and preserve the Trust Property
in accordance with the requirements of the Indenture. Further, with respect to
BLM Lease CACA-11402, the BLM North Leases, the BLM Rights-of-Way, the BLM Site
Licenses, BLM Lease CACA-11401, the BLM Easement and Trustor's rights in and to
the Steam Exchange Agreements (collectively, the "Primary Rights"), Trustor
hereby agrees as follows, except as otherwise expressly permitted or required in
the Indenture:
(a) not to amend, change, alter, cancel, surrender, release, waive,
supplement, terminate or modify, nor permit the amendment, change, alteration,
cancellation, surrender, release, waiver, supplement, termination, or
modification (each, an "Amendment") of any of the Primary Rights or the estate
or rights created thereby or any interest therein without the prior written
consent of Beneficiary. Consent to one Amendment shall not be deemed to be a
waiver of the right to require consent to other, future or successive
Amendments. Any Amendment, whether oral or in writing, made without the prior
written consent of Beneficiary, shall not be valid or effective;
(b) to make all payments and to keep and perform promptly each and
every covenant, obligation and agreement of the lessee, transferee, grantee,
licensee or holder (as the case may be) in the Primary Rights, not to commit,
suffer or permit any default thereunder and
8
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not to take any action or omit to take any action which would effect or permit
the termination or cancellation of any of the Primary Rights. Trustor shall
take all actions necessary to keep the Primary Rights unimpaired. Trustor shall
promptly deliver to Beneficiary copies of all material notices, demands or
complaints received by Trustor from the BLM, CFP, CPD or any other third party
in connection with any of the Primary Rights, and promptly notify Beneficiary in
writing with respect to any default or alleged default by any party thereto
(whether or not a notice of default has been issued under any of the Primary
Rights) and deliver to Beneficiary within ten (10) business days of Trustor's
receipt of any notice of default a certificate executed by Trustor describing
the default, the actions Trustor intends to take to cure such default, the
length of time Trustor expects to take to cure such default and the status of
any actions taken to cure such default. Trustor shall also furnish to
Beneficiary such other information as Beneficiary may reasonably request
concerning Trustor's performance of its covenants, obligations and agreements
under or with respect to the Primary Rights. Beneficiary shall have the option
but not the obligation to cure any such default and to perform any or all of
Trustor's obligations thereunder;
(c) that any subordination of any of the Primary Rights to any fee
mortgage, to any lease, or to any other interest, either orally or in writing,
made without the prior written consent of Beneficiary, shall not be valid or
effective;
(d) that if any of the Primary Rights is terminated prior to the
natural termination of its term by reason of default of Trustor thereunder, and
if, pursuant to any provision of such Primary Rights, or otherwise, Beneficiary
or its designee shall acquire from the BLM or any other third party, as the case
may be, a new contract, lease or right-of-way in respect of the Site or any part
thereof, then Trustor shall not have any right, title or interest in or to such
new contract, lease or right-of-way or the estate created thereby; and
(e) that the provisions hereof shall be deemed to be obligations of
Trustor in addition to Trustor's obligations as lessee, grantee, transferee,
licensee or holder, as the case may be, with respect to any similar matters
contained in any of the Primary Rights, and the inclusion herein of any
covenants and agreements relating to similar matters as to which Trustor is
obligated under any of the Primary Rights shall not restrict or limit Trustor's
duties and obligations to keep and perform promptly all of its covenants,
agreements and obligations as lessee, grantee, transferee, licensee or holder,
as the case may be, under the Primary Rights; provided, however, that nothing in
this Deed of Trust shall be construed as requiring the taking of or the
committing to take any action by Trustor or Beneficiary which would cause a
default under any of the Primary Rights.
9. Further Transfer of Trust Property. Except as otherwise
----------------------------------
expressly permitted or required in the Indenture, without the prior written
consent of Beneficiary being first had and obtained, Trustor shall not (a)
execute or deliver any pledge, security agreement, mortgage, deed of trust or
other instrument of hypothecation covering all or any portion of the Trust
Property or any interest therein or (b) sell, contract to sell, lease with
option to purchase, convey, alienate, transfer, sublease or otherwise dispose of
all or any portion of the Trust Property or any interest therein, in each case
whether voluntarily or involuntarily, by operation of law or otherwise. Consent
to one such transaction shall not be deemed to be a waiver of the right to
require consent to future or successive transactions. Beneficiary may grant or
deny such
9
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consent in its sole discretion and, if consent should be given, any such
transfer shall be subject to this Deed of Trust, and any such transferee shall
assume all obligations hereunder and agree to be bound by all provisions
contained herein and therein. Such assumption shall not, however, release
Trustor from any liability under this Deed of Trust without the written consent
of Beneficiary.
10. Eminent Domain. In the event that any proceeding or action be
--------------
commenced for the taking of the Trust Property, or any part thereof or interest
therein, for public or quasi-public use under the power of eminent domain,
condemnation or otherwise, or if the same be taken or damaged by reason of any
public improvement or condemnation proceedings, or in any other manner
(collectively, a "Condemnation"), or should Trustor receive any notice or other
information regarding such proceeding, action, taking or damage, Trustor shall
give prompt written notice thereof to Beneficiary. Beneficiary shall be
entitled to give or withhold its consent to any compromise or settlement in
connection with such taking or damage. All compensation, awards, damages,
rights of action and proceeds awarded to Trustor by reason of any such taking or
damage (the "Condemnation Proceeds") are hereby absolutely and unconditionally
assigned to Beneficiary, and Trustor agrees to execute such further assignments
of the Condemnation Proceeds as Beneficiary or Trustee may require. All such
Condemnation Proceeds shall be applied as provided in the Credit Agreement of
even date herewith between Issuer and Trustor.
11. Assignment of Contracts. In addition to any other grant,
-----------------------
transfer or assignment effectuated hereby, and without in any manner limiting
the generality of the grants given above, Trustor shall assign to Beneficiary,
as security for the Obligations, Trustor's interest in all agreements,
contracts, leases, licenses and permits affecting the Site and Improvements in
any manner whatsoever, such assignments to be made, if so requested by
Beneficiary, by instruments in form satisfactory to Beneficiary; but no such
assignment shall be construed as a consent by Beneficiary to any agreement,
contract, license or permit so assigned, or to impose upon Beneficiary any
obligations with respect thereto.
12. Anti-Merger. There shall be no merger of any of the Primary
-----------
Rights or the estates or interests created thereby (collectively, the "Estate")
with the fee estate in the Site or any part thereof by reason of any of those
interests coming into common ownership, unless Beneficiary consents in writing
thereto. Further, if Trustor acquires any interest in the fee estate to the
Site or any part thereof, then the lien of this Deed of Trust will
simultaneously and without further action become extended to encumber Trustor's
interest in the fee estate in addition to remaining a lien on the Estate, and
Trustor agrees, upon request by Beneficiary and at no cost to Beneficiary, to
execute, acknowledge and deliver to Beneficiary all further instruments and
documents that Beneficiary believes to be appropriate to provide further
evidence of the lien of this Deed of Trust on such fee interest. Where the lien
of this Deed of Trust has been extended to cover any interest of Trustor in the
fee estate, then in the event of the exercise of any power of sale under this
Deed of Trust, Beneficiary will have the right to sell the Estate and the fee
interest of Trustor separately or together at the election of Beneficiary.
13. Documentary Stamps. If at any time the United States of America,
------------------
any state thereof or any governmental subdivision of any such state, shall
require revenue or other stamps to be affixed to the Financing Documents or this
Deed of Trust, or that any taxes be paid
10
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in connection with the Financing Documents or this Deed of Trust, Trustor shall
pay for the same, with interest and penalties thereon, if any.
14. Right of Entry. Beneficiary, may at any reasonable time or times
--------------
make or cause to be made entry upon and inspection of the Trust Property or any
part thereof in person or by agent.
15. Event of Default. The term "Event of Default," whenever used in
----------------
this Deed of Trust, shall mean any one or more of the events of default listed
or otherwise provided in the Indenture or any other Financing Document, subject
to such cure rights as may be expressly set forth in the Indenture or such other
Financing Document (whether any such event shall be voluntary or involuntary or
come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body).
16. Appointment of Receiver. Trustee or Beneficiary, in any action
-----------------------
(or multiple actions) to foreclose this Deed of Trust or exercise the power of
sale granted under this Deed of Trust or upon the actual or threatened waste to
any part of the Trust Property or upon the occurrence of an Event of Default,
shall be at liberty, without notice, to apply for the appointment of a receiver,
and shall be entitled to the appointment of such receiver as a matter of right,
without regard to the value of the Trust Property as security for the
Obligations, or the solvency or insolvency of any Person then liable for the
payment of the Obligations.
17. Non-Waiver. The failure of Beneficiary to insist upon strict
----------
performance of any term of this Deed of Trust shall not be deemed to be a waiver
of any term of this Deed of Trust. Trustor shall not be relieved of Trustor's
obligation to pay and perform the Obligations at the time and in the manner
provided for its payment in the Financing Documents and this Deed of Trust by
reason of (i) failure to comply with any request(s) of Trustor to take any
action to foreclose this Deed of Trust or otherwise enforce any of the
provisions hereof or of the Financing Documents or any other mortgage, deed of
trust, instrument or document securing or guaranteeing the payment of the
Obligations or a portion thereof, (ii) the release, regardless of consideration,
of the whole or any part of the Trust Property or any other security for the
Obligations, or (iii) any agreement or stipulation between Beneficiary and any
subsequent owner or owners of the Trust Property or other Person extending the
time of payment or otherwise modifying or supplementing the terms of this Deed
of Trust or the Financing Documents evidencing, securing or guaranteeing payment
of the Obligations or any portion thereof, without first having obtained the
consent of Trustor (but without prejudice to the rights of Trustor under the
Financing Documents), and in the latter event, Trustor shall continue to be
obligated to pay and perform the Obligations at the time and in the manner
provided in the Financing Documents and this Deed of Trust, as so extended,
modified and supplemented, unless expressly released and discharged from such
obligation by Beneficiary in writing. Regardless of consideration, and without
the necessity for any notice to or consent by the holder of any subordinate
lien, encumbrance, right, title or interest in or to the Trust Property,
Beneficiary may release any Person at any time liable for the payment of the
Obligations or any portion thereof or all or any part of the security held for
the Obligations and may extend the time of payment or otherwise modify the terms
of the Financing Documents or this Deed of Trust, including, without limitation,
a modification of the interest rate payable on the principal balance of the
Obligations, without in
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any manner impairing or affecting this Deed of Trust or the lien thereof or the
priority of this Deed of Trust, as so extended and modified, as security for the
Obligations over any such subordinate lien, encumbrance, right, title or
interest. Beneficiary may resort for the payment of the Obligations to any
other security held by Beneficiary in such order and manner as Beneficiary in
its discretion, may elect. Beneficiary may take action to recover the
Obligations, or any portion thereof, or to enforce any covenant hereof without
prejudice to the right of Beneficiary thereafter to foreclose this Deed of
Trust. Beneficiary shall not be limited exclusively to the rights and remedies
herein stated but shall be entitled to every additional right and remedy now or
hereafter afforded by law or equity. The rights of Beneficiary under this Deed
of Trust shall be separate, distinct and cumulative, and none shall be given
effect to the exclusion of the others. No act of Beneficiary shall be construed
as an election to proceed under any one provision herein to the exclusion of any
other provision.
18. Power of Sale. Upon the occurrence and during the continuance of
-------------
an Event of Default, Beneficiary may at any time, at its option and in its sole
discretion, declare the Obligations to be due and payable and the same shall
thereupon become immediately due and payable, including any prepayment charge or
fee payable under the terms of the Financing Documents. Beneficiary may also do
any or all of the following; provided, however, that any of the following
actions shall be undertaken in a commercially reasonable manner and in
accordance with applicable law; and provided, further, that Beneficiary shall
have no obligation to do any of the following:
(a) Either in person or by agent, with or without bringing any action
or proceeding or by a receiver appointed by a court and without regard to the
adequacy of Beneficiary's security, enter upon and take possession of the Trust
Property or any part hereof and do any acts which Beneficiary deems necessary or
desirable to preserve the value, marketability or rentability of the Trust
Property or to increase the income therefrom or to protect the security hereof
and with or without taking possession of any of the Trust Property, sue for or
otherwise collect all Rents and profits including those past due and unpaid, and
apply the same, less costs and expenses of operation and collection including
attorneys' fees and expenses, upon the Obligations secured hereby with the
remainder, if any, to the Person or Persons legally entitled thereto. The
collection of Rents and profits and the application thereof shall not cure or
waive any Event of Default or notice thereof or invalidate any act done in
response thereto or pursuant to such notice.
(b) Bring an action in any court of competent jurisdiction to
foreclose this instrument or to enforce any of the covenants hereof.
(c) Exercise any or all of the remedies available to a secured party
under the Uniform Commercial Code.
(d) Beneficiary may elect to cause the Trust Property or any part
thereof to be sold under the power of sale herein granted in any manner
permitted by applicable law. In connection with any sale or sales hereunder,
Beneficiary may elect to treat any of the Trust Property which consists of a
right in action or which is property that can be severed from the real property
covered hereby or any improvements thereon without causing structural damage
thereto as if the same were personal property, and dispose of the same in
accordance with applicable
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law, separate and apart from the sale of real property. Any sale of any
personal property hereunder shall be conducted in any manner permitted by
Section 9501 or any other applicable sections of the California Uniform
Commercial Code. Where the Trust Property consists of real and personal
property or fixtures, whether or not such personal property is located on or
within the real property, Beneficiary may elect in its discretion to exercise
its rights and remedies against any or all of the real property, personal
property, and fixtures in such order and manner as is now or hereafter permitted
by applicable law. Without limiting the generality of the foregoing,
Beneficiary may at its sole and absolute discretion and without regard to the
adequacy of its security elect to proceed against any or all of the real
property, personal property and fixtures in any manner permitted under Section
9501(4)(a) of the California Uniform Commercial Code; and if Beneficiary elects
to proceed in the manner permitted under Section 9501(4)(a)(ii) of the
California Uniform Commercial Code, the power of sale herein granted shall be
exercisable with respect to all or any of the real property and fixtures covered
hereby, as designated by Beneficiary, and the Trustee is hereby authorized and
empowered to conduct any such sale of any real property and fixtures in
accordance with the procedures applicable to real property. Where the Trust
Property consists of real property and personal property, any reinstatement of
the Obligations, following the occurrence of an Event of Default and an election
by Beneficiary to accelerate the maturity of the Obligations, which is made by
Trustor or any other Person permitted to exercise the right of reinstatement
under Section 2924c of the California Civil Code or any successor statute,
shall, in accordance with the terms of California Uniform Commercial Code
Section 9501(4)(c)(iii), not prohibit Beneficiary from conducting a sale or
other disposition of any personal property or fixtures or from otherwise
proceeding against or continuing to proceed against any personal property or
fixtures in any manner permitted by the California Uniform Commercial Code; nor
shall any such reinstatement invalidate, rescind or otherwise affect any sale,
disposition or other proceeding held, conducted or instituted with respect to
any personal property or fixtures prior to such reinstatement. Any sums paid to
Beneficiary in effecting any reinstatement pursuant to Section 2924c of the
California Civil Code shall be applied to the Obligations and to Beneficiary's
and Trustee's reasonable costs and expenses in the manner required by such
Section 2924c. Should Beneficiary elect to sell any of the Trust Property which
is real property or which is personal property or fixtures that Beneficiary has
elected under Section 9501(4)(a)(ii) of the California Uniform Commercial Code
to sell together with real property in accordance with the laws governing a sale
of real property, such notice of default and election to sell shall be given as
may then be required by law. Thereafter, upon the expiration of such time and
the giving of such notice of sale as may then be required by law, at the time
and place specified in the notice of sale, Trustee shall sell such property, or
any portion thereof specified by Beneficiary, at public auction to the highest
bidder for cash in lawful money of the United States. Trustee may, and upon
request of Beneficiary shall, from time to time, postpone the sale by public
announcement thereof at the time and place noticed therefor. If the Trust
Property consists of several lots, parcels or interests, Beneficiary may
designate the order in which the same shall be offered for sale or sold. Should
Beneficiary desire that more than one such sale or other disposition be
conducted, Beneficiary may, at its option, cause the same to be conducted
simultaneously, or successively on the same day, or at such different days or
times and in such order as Beneficiary may deem to be in its best interest. Any
Person, including Trustor, Trustee or Beneficiary may purchase at the sale. In
the event Beneficiary elects to dispose of the Trust Property through more than
one sale, Trustor agrees to pay the costs and expenses of each such sale and of
any judicial proceedings wherein the same may be made, including reasonable
compensation to Trustee and Beneficiary, their
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agents and counsel, and to pay all expenses, liabilities and advances made or
incurred by Trustee in connection with such sale or sales, together with
interest on all such advances made by Trustee at the interest rate then
applicable to the indebtedness to which the Financing Documents apply. Upon any
sale Trustee shall execute and deliver to the purchaser or purchasers a deed or
deeds conveying the property so sold but without any covenant or warranty
whatsoever express or implied, whereupon such purchaser or purchasers shall be
let into immediate possession, and the recitals in any such deed or deeds of
facts such as default, the giving of notice of default and notice of sale, and
other facts affecting the regularity or validity of such sale or disposition,
shall be conclusive proof of the truth of such facts and any such deed or deeds
shall be conclusive against all Persons as to such facts recited therein.
(e) Exercise each of its other rights and remedies under this Deed of
Trust or the other Financing Documents, including, without limitation, any or
all of the following:
(i) exercise the rights of acceleration set forth in the Indenture,
and if the indebtedness is not paid on demand, at Beneficiary's option, (1)
bring suit therefor and demand payment thereof, (2) bring suit under the
Guarantee and/or the Indenture and/or (3) take any and all steps and
institute any and all other proceedings that Beneficiary deems necessary to
enforce the indebtedness and obligations secured hereby and to protect the
lien of this Deed of Trust;
(ii) without assuming liability for the performance of any of
Trustor's obligations hereunder, under the Guarantee or under any Financing
Document, enter and take possession of the Trust Property or any part
thereof, exclude Trustor and all Persons claiming under Trustor whose
claims are junior to this Deed of Trust, wholly or partly therefrom, and
use, operate, manage and control the same either in the name of Trustor or
otherwise as Beneficiary shall deem best, and upon such entry, from time to
time at the expense of Trustor and the Trust Property, make all such
repairs, replacements, alterations, additions or improvements to the Trust
Property or any part thereof as Beneficiary may deem proper and, whether or
not Beneficiary has so entered and taken possession of the Trust Property
or any part thereof, collect and receive all the Rents and apply the same,
to the extent permitted by law, to the payment of all expenses which
Beneficiary may be authorized to make under this Deed of Trust, the
remainder to be applied to the payment of the Obligations until the same
shall have been repaid in full; and if Beneficiary demands or attempts to
take possession of the Trust Property or any portion thereof in the proper
exercise of any rights hereunder, Trustor shall promptly turn over and
deliver complete possession thereto to Beneficiary; and
(iii) personally or by agents, with or without entry, if Beneficiary
shall deem it advisable, proceed to protect and enforce its rights under
this Deed of Trust, by suit for specific performance of any covenant
contained herein or in the Guarantee, in the Indenture or in any Financing
Document or in aid of the execution of any power granted herein or in the
Guarantee, in the Indenture or in any Financing Document, or for the
foreclosure of this Deed of Trust and the sale for cash of the Trust
Property under the judgment or decree of a court of competent jurisdiction,
or for the exercise of the power of sale granted under this Deed of Trust
or for the enforcement of any other right as Beneficiary shall deem most
effectual for such purpose; provided that in the event of a
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sale, by foreclosure or otherwise, of less than all of the Trust Property,
this Deed of Trust shall continue as a lien on, and security interest in,
the remaining portion of the Trust Property and Beneficiary shall not be
obligated to sell upon credit unless Beneficiary shall have expressly
consented in writing to a sale upon credit.
(f) Except as otherwise required by law, apply the net proceeds of any
foreclosure, collection, recovery, receipt, appropriation, realization or sale
of the Trust Property in the order of priority specified in the Indenture. If
all Obligations and any other amounts due under this Deed of Trust have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Trustor if Trustor is lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
(g) Upon any sale or sales made under or by virtue of this section,
whether made under the power of sale or by virtue of judicial proceedings or of
a judgment or decree of foreclosure and sale, Beneficiary may bid for and
acquire the Trust Property or any part thereof. In lieu of paying cash for the
Trust Property, Beneficiary may make settlement for the purchase price by
crediting against the Obligations the sales price of the Trust Property, as
adjusted for the expenses of sale and the costs of the action and any other sums
for which Trustor is obligated to reimburse Trustee or Beneficiary under this
Deed of Trust.
19. Concerning the Trustee. Trustee shall be under no duty to take
----------------------
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being liable,
however, only for willful negligence or misconduct, and hereby waives any
statutory fee and agrees to accept reasonable compensation, in lieu thereof, for
any services rendered by Trustee in accordance with the terms hereof. Trustee
may resign at any time upon giving thirty (30) days' notice to Trustor and to
Beneficiary. Beneficiary may remove Trustee at any time or from time to time
and select a successor trustee. In the event of the death, removal,
resignation, refusal to act, or inability to act of Trustee, or in its sole
discretion for any reason whatsoever, Beneficiary may, without notice and
without specifying any reason therefor and without applying to any court, select
and appoint a successor trustee, by an instrument recorded wherever this Deed of
Trust is recorded, and all powers, rights, duties and authority of Trustee, as
aforesaid, shall thereupon become vested in such successor. Such substitute
trustee shall not be required to give bond for the faithful performance of the
duties of Trustee hereunder unless required by Beneficiary.
20. Trustee's Fees. Trustor shall pay all reasonable costs, fees and
--------------
expenses incurred by Trustee and Trustee's agents and counsel in connection with
the performance by Trustee of Trustee's duties hereunder, and all such costs,
fees and expenses shall be secured by this Deed of Trust.
21. Proceeds of Sale. Subject to the provisions of Section 49 of
----------------
this Deed of Trust, no sale or other disposition of all or any part of the Trust
Property shall be deemed to relieve Trustor of its obligations under this Deed
of Trust, the Guarantee or any other Financing Document except and only to the
extent the proceeds are applied to the payment of the
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Obligations or such other obligations. If the proceeds of sale, collection or
other realization of or upon the Trust Property are insufficient to cover the
costs and expenses of such realization and the payment in full of the
Obligations, Trustor shall remain liable for any deficiency.
22. Trustor as Tenant Holding Over. In the event of any such
------------------------------
foreclosure or other sale by Beneficiary, Trustor shall be deemed a tenant
holding over and shall forthwith deliver possession to the purchaser or
purchasers at such sale or be summarily dispossessed according to provisions of
law applicable to tenants holding over.
23. Leases. Beneficiary is authorized to subordinate this Deed of
------
Trust to any Leases and to foreclose this Deed of Trust subject to the rights of
any tenants of the Trust Property, if any, and the failure to so subordinate or
to make any such tenants parties to any such foreclosure or other proceedings
and to foreclose their rights will not be, nor be asserted to be by Trustor, a
defense to any proceedings instituted by Beneficiary to collect the Obligations.
24. Discontinuance of Proceedings. In case Beneficiary shall have
-----------------------------
proceeded to enforce any right, power or remedy under this Deed of Trust by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
withdrawn, discontinued or abandoned for any reason, or shall have been
determined adverse to Beneficiary, then in every such case, to the fullest
extent permitted by law, (a) Trustor and Beneficiary shall be restored to their
former positions and rights, (b) all rights, powers and remedies of Beneficiary
shall continue as if no such proceeding had been taken, (c) each and every Event
of Default declared or occurring prior or subsequent to such withdrawal,
discontinuance or abandonment shall be or shall be deemed to be an independent
event of default and (d) neither the Obligations, this Deed of Trust nor the
Guarantee shall be or shall be deemed to have been not reinstated or otherwise
affected by such withdrawal, discontinuance or abandonment; and to the fullest
extent permitted by law, Trustor hereby expressly waives the benefit of any
statute or rule of law now provided or which may hereafter conflict with the
above.
25. No Reinstatement. If an Event of Default shall have occurred and
----------------
be continuing and Beneficiary shall have proceeded to enforce any right, power
or remedy permitted hereunder, then a tender of payment by Trustor or by anyone
on behalf of Trustor of any amount less than the amount necessary to satisfy the
Obligations in full, or the acceptance by Beneficiary of any such payment so
tendered, shall not constitute a reinstatement of this Deed of Trust, the
Guarantee or any other document evidencing, securing or guaranteeing the
Obligations.
26. Trustor's Waiver of Rights. Trustor hereby waives and releases,
--------------------------
to the maximum extent permitted by law, any rights, remedies or defenses which
Trustor might otherwise have (i) under California Code of Civil Procedure
Sections 726, 725a, 580a, 580b and 580d, California Civil Code Sections 2809,
2810, 2819, 2822, 2839, 2845, 2850, 2855, 2899 and 3433, under any anti-
deficiency provision of the Uniform Commercial Code, and under any future
judicial decisions or legislation, which statutes, future judicial decisions
and/or legislation might otherwise limit or condition Beneficiary's exercise of
certain of Beneficiary's rights and remedies in connection with the enforcement
of obligations secured by a lien on real property, including, without
limitation, Beneficiary's lien on the Trust Property or on any property
encumbered by
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other deeds of trust given to Beneficiary to secure obligations under the
Financing Documents (each, an "Additional Deed of Trust"), (ii) under any laws
now existing or hereafter enacted providing for any appraisal before sale of a
portion of the Trust Property or of the real property security of any Additional
Deed of Trust (the "Additional Deed of Trust Property"), (iii) to all rights of
redemption, valuation, appraisal, stay of execution, notice of election to
mature or any so-called "Moratorium Laws", to declare due the Obligations, to
marshalling in the event of the foreclosure of the liens created under this Deed
of Trust or under any Additional Deed of Trust, or the exercise of the power of
sale granted hereunder or thereunder, (iv) pursuant to the defense of the
statute of limitations in any action hereunder or in any action for the
collection or performance of any Obligations secured hereby or any obligations
secured by any Additional Deed of Trust, (v) pursuant to any defense arising
because of Beneficiary's election, in any proceeding instituted under the
Federal Bankruptcy Code, of the application of Section 1111(b)(2) of the Federal
Bankruptcy Code, (vi) pursuant to any defense based upon any borrowing or grant
of a security interest under Section 364 of the Federal Bankruptcy Code, (vii)
under any law limiting remedies, including recovery of a deficiency, under an
obligation secured by a deed of trust on real property and/or a security
agreement on personal property (including, without limitation, the Trust
Property and the Additional Deed of Trust Property) if the real property and/or
personal property is sold under a power of sale contained in the deed of trust,
and all defenses based on any loss whether as a result of any such sale or
otherwise, of Trustor's right to recover any amount from the Issuer, whether by
right of subrogation or otherwise, (viii) under any law to require Beneficiary
to pursue the Issuer or any other Person, any security which Beneficiary may
hold, or any other remedy before proceeding against Trustor, (ix) to all rights
of reimbursement or subrogation, all rights to enforce any remedy that
Beneficiary, the Trustee, the Holders of the Senior Secured Notes or the
Permitted Additional Senior Lenders, if any, may have against the Issuer, or
against the Guarantors as obligors under the Partnership Notes, and all rights
to participate in any security held by Beneficiary until the Obligations have
been paid and the covenants of the Indenture have been performed in full, (x) to
all rights to assert the bankruptcy or insolvency of Issuer as a defense
hereunder or as the basis for rescission hereof, (xi) to all rights under any
law purporting to reduce Trustor's Obligations hereunder if Issuer's obligations
are reduced, (xii) all defenses based on the disability or lack of authority of
Issuer or any Person, the repudiation of the Guarantees or any related Financing
Documents by Issuer or any Person, the failure by Beneficiary, the Trustee, the
Holders of the Senior Secured Notes or any Permitted Additional Senior Lender,
if any, to enforce any claim against Issuer, or the unenforceability in whole or
in part of any Financing Document, (xiii) to all suretyship and guarantor's
defenses generally, (xiv) to all rights to insist upon, plead or in any manner
whatever claim or take the benefit or advantage of, any appraisal, valuation,
stay, extension, marshaling of assets, redemption or similar law, or exemption,
whether now or at any time hereafter in force, which may delay, prevent or
otherwise affect the performance by Trustor of its obligations under, or the
enforcement by Beneficiary of, this Deed of Trust or any Additional Deed of
Trust, (xv) to any requirement on the part of Beneficiary, Trustee, the Holders
of the Senior Secured Notes or any Permitted Additional Senior Lender, if any,
to mitigate the damages resulting from any default (whether hereunder, under any
other Financing Document, under any Additional Deed of Trust or under any other
document or instrument); and (xvi) except as otherwise specifically set forth
herein, all rights of notice and hearing of any kind prior to the exercise of
rights by Beneficiary upon the occurrence and during the continuation of an
Event of Default to repossess with judicial process or to replevy, attach or
levy upon the Trust Property or any Additional Deed of Trust Property. To the
extent
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<PAGE>
permitted by applicable law, Trustor waives the posting of any bond otherwise
required of Beneficiary in connection with any judicial process or proceeding to
obtain possession of, replevy, attach or levy upon the Trust Property or any
Additional Deed of Trust Property, to enforce any judgment or other security for
the Obligations, to enforce any judgment or other court order entered in favor
of Beneficiary, or to enforce by specific performance, temporary restraining
order, preliminary or permanent injunction, this Deed of Trust, any Additional
Deed of Trust or any other agreement or document by which Trustor or any other
Person is bound and which is in whole or in part for the benefit of Beneficiary,
Trustee, the Holders of the Senior Secured Notes or any Permitted Additional
Senior Lender, if any. Trustor further agrees that upon the occurrence and
continuance of any Event of Default, Beneficiary may elect to nonjudicially or
judicially foreclose against any real or personal property security (including,
without limitation, under the Additional Deeds of Trust) it holds for the
Obligations or any part thereof, or to exercise any other remedy against Issuer,
any security or any guarantor, even if the effect of that action is to deprive
Trustor or any other Person of the right to collect reimbursement from Issuer or
any other Person for any sums paid to Beneficiary, Trustee, any Holder of the
Senior Secured Notes or any Permitted Additional Senior Lender, if any. To the
extent, if any, which such laws may be applicable, Trustor waives and releases
any right or defense which Trustor might otherwise have under such provisions
and under any other law of any applicable jurisdiction which might limit or
restrict the effectiveness or scope of any of Trustor's waivers or releases
hereunder. If any law referenced in this Section and now in force, of which
Trustor, Trustor's successors or assigns or any other Person might take
advantage despite this Section, shall hereafter be repealed or cease to be in
force, such law shall not thereafter be deemed to preclude the application of
this Section. Trustor warrants and agrees that each of the waivers and consents
set forth in this Deed of Trust is made voluntarily and unconditionally after
consultation with outside legal counsel and with full knowledge of its
significance and consequences, with the understanding that events giving rise to
any defense or right waived may diminish, destroy or otherwise adversely affect
the rights which Trustor otherwise may have against Beneficiary or any other
Person or against any collateral. If, notwithstanding the intent of the parties
that the terms of this Deed of Trust shall control in any and all circumstances,
any such waivers or consents are determined to be unenforceable under applicable
law, such waivers and consents shall be effective to the fullest extent
permitted by law.
27. Assignment of Rents. All of the Rents, whether now due, past due
-------------------
or to become due, and including all prepaid rents and security deposits, are
hereby absolutely, presently and unconditionally assigned, transferred, conveyed
and set over to Beneficiary to be applied by Beneficiary in payment of the
Obligations. It is understood and agreed that neither the foregoing assignment
of Rents to Beneficiary nor the exercise by Beneficiary of any of its rights or
remedies under this Deed of Trust shall be deemed to make Beneficiary a
"mortgagee-in-possession" or otherwise responsible or liable in any manner with
respect to the Trust Property or the use, occupancy, enjoyment, or operation of
all or any portion thereof, unless and until Beneficiary, in person or by agent,
assumes actual possession thereof. The appointment of a receiver for the Trust
Property by any court at the request of Beneficiary or by agreement with
Trustor, or the entering into possession of the Trust Property or any part
thereof by such receiver, also shall not be deemed to make Beneficiary a
mortgagee-in-possession or otherwise responsible or liable in any manner with
respect to the Trust Property or the use, occupancy, enjoyment or operation of
all or any portion thereof.
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28. Security Agreement.
------------------
(a) This Deed of Trust is intended to be a security agreement
pursuant to the California Uniform Commercial Code for (i) any and all items of
personal property specified above as part of the Trust Property that, under
applicable law, may be subject to a security interest pursuant to the California
Uniform Commercial Code and that are not effectively made part of the Site, and
(ii) any and all items of property specified above as part of the Trust Property
that, under applicable law, constitute fixtures and may be subject to a security
interest under Section 9313 of the California Uniform Commercial Code. Trustor
hereby grants Beneficiary a security interest in said property, and in all
additions thereto, substitutions therefor, and proceeds thereof, for the purpose
of securing the Obligations. For purposes of treating this Deed of Trust as a
security agreement, Beneficiary shall be deemed to be the secured party and
Trustor shall be deemed to be the debtor. In the event of a conflict between
the provisions of this Deed of Trust and that certain Security Agreement dated
of even date herewith between Trustor and Beneficiary (the "Security
Agreement"), with respect to property of the type described in clause (i) above,
the provisions of the Security Agreement shall control.
(b) Trustor maintains places of business in the State of California,
and Trustor will immediately notify Beneficiary in writing of any change in such
places of business.
(c) At the request of Beneficiary, Trustor shall join Beneficiary in
executing one or more financing statements and continuations and amendments
thereof pursuant to the UCC in form reasonably satisfactory to Beneficiary; and
Trustor will pay the cost of filing the same in all public offices wherever
filing is deemed by Beneficiary to be necessary. In the event Trustor fails to
execute such documents within five (5) business days after request by
Beneficiary, Trustor hereby authorizes Beneficiary to file such financing
statements and irrevocably constitutes and appoints Beneficiary, or any officer
of Beneficiary, as its true and lawful attorney-in-fact to execute the same on
behalf of Trustor.
(d) This Deed of Trust constitutes a financing statement filed as a
fixture filing under UCC (S) 9402(6) in the official records of Inyo County and
Kern County with respect to any and all fixtures included within the term "Trust
Property" and with respect to any goods or other personal property that may now
be or hereafter become such a fixture. This filing shall remain in effect as a
fixture filing until this Deed of Trust is released or satisfied of record or
its effectiveness otherwise terminates as to the Trust Property.
(e) Beneficiary has no responsibility for and does not assume any of,
Trustor's obligations or duties under any agreement or obligation which is part
of the Equipment or any obligation relating to the acquisition, preparation,
custody, use, enforcement or operation of any of the Trust Property.
(f) Trustor and Beneficiary agree that the filing of a financing
statement in the records normally having to do with personal property shall
never be construed as in any way derogating from or impairing this Deed of Trust
or the intention of the parties that everything used in connection with the
production of income from the Trust Property or adapted for use therein or which
is described or reflected in this Deed of Trust is, and at all times and for all
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purposes and in all proceedings both legal or equitable shall be regarded as
part of the real estate subject to the lien hereof, irrespective of whether (i)
any such item is physically attached to improvements located on such real
property or (ii) any such item is referred to or reflected in any financing
statement so filed at any time. Similarly, the mention in any such financing
statement of (A) the rights in or to the proceeds of any casualty insurance
policy or (B) any award in eminent domain proceedings for taking or for loss of
value or for cause of action or proceeds thereof in connection with any damage
or injury to the Trust Property or any part thereof shall never be construed as
in any way altering any of the rights of Beneficiary as determined by this
instrument or impugning the priority of Beneficiary's lien granted hereby or by
any other recorded document, but such mention in such financing statement is
declared to be for the protection of Beneficiary in the event any court shall at
any time hold with respect to matters (A) and (B) above that notice of
Beneficiary's priority of interest, to be effective against a particular class
of persons, including, without limitation, the Federal government and any
subdivision or entity of the Federal government, must be filed in the personal
property records or other commercial code records.
29. Further Acts, etc. Trustor shall, at the cost of Trustor, and
-----------------
without expense to Beneficiary, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, financing statements, mortgages, deeds of
trust, assignments, notices of assignments, transfers and assurances as
Beneficiary shall from time to time require, for the better assuring, conveying,
assigning, transferring and confirming unto Beneficiary, the property and rights
hereby conveyed or assigned or intended now or hereafter so to be, or which
Trustor may be or may hereafter become bound to convey or assign to Beneficiary,
or for carrying out the intention or facilitating the performance of the terms
of this Deed of Trust or for filing, registering or recording this Deed of Trust
and, on demand, will execute and deliver and hereby authorizes Beneficiary to
execute in the name of Trustor to the extent they may lawfully do so, one or
more financing statements, chattel mortgages or comparable security instruments,
to evidence and perfect more effectively the lien hereof upon the Trust
Property.
30. Power of Attorney.
-----------------
(a) Trustor does hereby make, constitute and appoint Beneficiary its
true and lawful exclusive agent and attorney-in-fact for it, and in its name,
place and stead for the following purposes (collectively, the "Power of
Attorney"):
(i) in connection with or following one or more foreclosures under
this Deed of Trust judicially or by power(s) of sale or otherwise, or at such
time as Trustor shall be a debtor in proceedings under federal or state
bankruptcy law, to (1) apply to the BLM for assignment to it of BLM Lease CACA-
11402, the BLM North Leases, the BLM Rights-of-Way, the BLM Site Licenses and/or
BLM Lease CACA-11401, and to approve such assignment on behalf of Trustor and
(2) subject to the prior approval of the BLM, if applicable, to grant, bargain,
sell, convey and assign Trustor's interest under BLM Lease CACA-11402, the BLM
North Leases, the BLM Rights-of-Way, the BLM Site Licenses and/or BLM Lease
CACA-11401 to Beneficiary or to any other Person, for such price or prices, and
on such terms and conditions, as Trustor may deem proper, and in Trustor's name,
to make, execute, acknowledge and deliver a good and sufficient assignment, or
other instrument or instruments necessary to effect such sale, conveyance or
assignment;
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(ii) to take all actions and exercise all rights and remedies
available to Trustor as holder of BLM Lease CACA-11402, the BLM North Leases,
the BLM Rights-of-Way, the BLM Site Licenses and/or BLM Lease CACA-11401,
including, without limitation, to (1) cure any defaults thereunder, (2) make
rental, royalty or other payments to the BLM on behalf of Trustor and/or (3) act
as operator, appoint another to act as operator or have a receiver appointed to
act as operator thereof; and
(iii) to request, demand, sue for, collect, recover, compromise,
settle and receive all monies that may become due and owing to Trustor by reason
of a sale, conveyance, assignment, taking for public use or other disposition of
Trustor's interest under BLM Lease CACA-11402, the BLM North Leases, the BLM
Rights-of-Way, the BLM Site Licenses and/or BLM Lease CACA-11401.
(b) Trustor hereby grants to Beneficiary full power and authority to
from time to time appoint a substitute to perform any of the acts that
Beneficiary is by this Power of Attorney authorized to perform, and the right to
revoke such appointment of substitution at any time.
(c) Trustor does hereby give and grant Beneficiary full power and
authority to do and perform all and every act and thing whatsoever requisite,
necessary or appropriate to be done in and about the Site and/or with respect to
BLM Lease CACA-11402, the BLM North Leases, the BLM Rights-of-Way, the BLM Site
Licenses and/or BLM Lease CACA-11401 as fully to all interests and purposes as
Trustor might or could do if personally present, hereby ratifying all that
Beneficiary shall lawfully do or cause to be done by virtue of theses presents.
The powers and authority hereby conferred upon Beneficiary shall be applicable
to any and all interests in BLM Lease CACA-11402, the BLM North Leases, the BLM
Rights-of-Way, the BLM Site Licenses and BLM Lease CACA-11401 now owned or
hereafter acquired by Trustor. Subject to the terms hereof, Beneficiary is
empowered to determine in its sole discretion the time when, purpose for, and
manner in which any power herein conferred upon it shall be exercised, and the
conditions, provisions and covenants of any instrument or document that may be
executed by it pursuant hereto, and in the acquisition or disposition of BLM
Lease CACA-11402, the BLM North Leases, the BLM Rights-of-Way, the BLM Site
Licenses and/or BLM Lease CACA-11401, Beneficiary shall have exclusive power to
fix the terms thereof. This Power of Attorney is coupled with an interest and
cannot be revoked other than by recordation of a statement of termination by
Beneficiary hereunder.
31. Headings, etc. The headings, titles and captions of various
-------------
Sections of this Deed of Trust are for convenience of reference only and are not
to be construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
32. Filing of Deed of Trust, etc. Trustor forthwith upon the
----------------------------
execution and delivery of this Deed of Trust and thereafter, from time to time,
will cause this Deed of Trust, and any security instrument creating a lien or
evidencing or perfecting the lien hereof upon the Trust Property, or in the case
of personal property or fixtures, financing statements with respect thereto, and
each instrument of further assurance, to be filed, registered or recorded in
such manner and in such places as may be required by any present or future law
in order to publish notice of and fully to protect, preserve and perfect the
lien hereof upon, and the interest of
21
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Beneficiary in the Trust Property. Trustor will pay all filing, registration or
recording fees, and all expenses incurred by Beneficiary incident to the
preparation, execution and acknowledgment of this Deed of Trust, any deed of
trust or any mortgage or deed of trust supplemental hereto, any security
instrument with respect to the Trust Property, any financing statement with
respect to the Trust Property, and any instrument of further assurance, and all
federal, state, county and municipal taxes, duties, imposts, assessments and
charges arising out of or in connection with the execution and delivery of this
Deed of Trust, any mortgage or deed of trust supplemental hereto, any security
instrument with respect to the Trust Property or any financing statement,
continuation statement or other instrument of further assurance. Trustor shall
hold harmless and indemnify Beneficiary, its successors and assigns, against any
liability incurred by reason of the imposition of any tax on the making and
recording of this Deed of Trust.
33. Usury Laws. This Deed of Trust, the Guarantee and the other
----------
Financing Documents are subject to the express condition that at no time shall
Trustor be obligated or required to pay interest on the principal balance due
under the Financing Documents or otherwise with respect to the Obligations at a
rate which could subject the creditor of the debt evidenced by such instruments
to either civil or criminal liability as a result of being in excess of the
maximum interest rate which Trustor is permitted by law to contract or agree to
pay. If by the terms of this Deed of Trust or the Financing Documents, Trustor
is at any time required or obligated to pay interest on the principal balance
due under any of the Financing Documents at a rate in excess of such maximum
rate, then such rate of interest shall be deemed to be immediately reduced to
such maximum rate and the interest payable shall be computed at such maximum
rate.
34. Recovery of Sums Required to Be Paid. Beneficiary shall have the
------------------------------------
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due, without regard to
whether or not the balance of the Obligations shall be due, and without
prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Trustor existing
at the time such earlier action was commenced.
35. Authority. Trustor, and each of the undersigned acting on behalf
---------
of Trustor, hereby represents, warrants and covenants that it has full power,
authority and legal right to execute this Deed of Trust and to mortgage, give,
grant, bargain, sell, release, pledge, convey, confirm and assign the Trust
Property pursuant to the terms hereof and to keep and observe all of the terms
of this Deed of Trust on Trustor's part to be performed.
36. Invalidity of Certain Provisions. Every provision of this Deed
--------------------------------
of Trust is intended to be severable. In the event any term or provision hereof
is declared to be illegal, invalid or unenforceable for any reason whatsoever by
a court of competent jurisdiction, (i) such term or provision shall be construed
in such a manner as will allow such term or provision to be valid, provided that
such recasting shall be in accordance with the original intention of the
parties, and (ii) such illegality, invalidity or unenforceability shall not
affect the balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable. If the lien of this Deed of
Trust in invalid or unenforceable as to any part of the debt, or if the lien is
invalid or unenforceable as to any part of the Trust Property, the unsecured or
partially unsecured portion of the debt shall be completely paid prior to the
payment of the remaining and
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secured or partially secured portion of the debt, and all payments made on the
debt, whether voluntary or under foreclosure or other enforcement action or
procedure, shall be considered to have been first paid on and applied to the
full payment of that portion of the debt which is not secured or fully secured
by the lien of this Deed of Trust.
37. Duplicate Originals. This Deed of Trust may be executed in any
-------------------
number of duplicate originals and each such duplicate original shall be deemed
to constitute but one and the same instrument.
38. Waiver of Notice. Trustor shall not be entitled to any notices
----------------
of any nature whatsoever from Beneficiary except with respect to matters for
which this Deed of Trust, the Guarantee or applicable law specifically and
expressly provides for the giving of notice to Trustor, and to the fullest
extent permitted by law Trustor hereby expressly waives the right to receive any
notice from Beneficiary with respect to any matter for which this Deed of Trust,
the Guarantee or applicable law does not specifically and expressly provide for
the giving of notice to Trustor.
39. No Oral Change. This Deed of Trust may only be modified, amended
--------------
or changed by an agreement in writing signed by Trustor and Beneficiary, and may
only be released, discharged or satisfied of record by an instrument in writing
signed by the Trustee or its successors and assigns as directed by Beneficiary.
No waiver of any term, covenant or provision of this Deed of Trust shall be
effective unless given in writing by Beneficiary, and if so given by Beneficiary
shall only be effective in the specific instance in which given. Trustor
acknowledges that this Deed of Trust and the Financing Documents set forth the
entire agreement and understanding of Trustor and Beneficiary with respect to
the matters set forth therein and that no oral or other agreements,
understanding, representations or warranties exist with respect to those matters
other than those set forth in this Deed of Trust and the Financing Documents.
40. Absolute and Unconditional Obligation. Trustor acknowledges that
-------------------------------------
Trustor's obligation to perform and pay the Obligations in accordance with the
provision of this Deed of Trust and the Guarantee is and shall at all times
continue to be absolute and unconditional in all respects, and shall at all
times be valid and enforceable irrespective of any other agreements or
circumstances of any nature whatsoever which might otherwise constitute a
defense to this Deed of Trust or the Guarantee or the obligations of Trustor
thereunder to perform and pay the Obligations or the obligations of any other
Person relating to this Deed of Trust or the Guarantee or the obligations of
Trustor under this Deed of Trust or the Guarantee, and to the fullest extent
permitted by law Trustor absolutely, unconditionally and irrevocably waives any
and all right to assert any defense, setoff, counterclaim or crossclaim of any
nature whatsoever with respect to the obligation of Trustor to perform and pay
the Obligations in accordance with the provisions of this Deed of Trust or the
Guarantee or the obligations of any other Person relating to this Deed of Trust
or the Guarantee or the obligations of Trustor under this Deed of Trust or the
Guarantee, or in any action or proceeding brought by Beneficiary to collect the
Obligations, or any portion thereof, or to enforce, foreclose and realize upon
the lien and security interest created by this Deed of Trust or any other
document or instrument securing performance and repayment of the Obligations, in
whole or in part.
23
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41. No Rights; No Set Off. All sums secured by this Deed of Trust
---------------------
shall be paid in accordance with the Indenture, as applicable, without
counterclaim, setoff, deduction or defense and without abatement, suspension,
deferment, diminution or reduction, and the obligations and liabilities of
Trustor hereunder shall in no way be released, discharged or otherwise affected
(except as expressly provided herein) by reason of (i) any claim which Trustor
has or might have against Beneficiary, (ii) any default or failure on the part
of Beneficiary to perform or comply with any of the terms hereof or (iii) any
other occurrence whatsoever, whether similar or dissimilar to the foregoing and
whether or not Trustor shall have notice or knowledge of any of the foregoing.
42. Action Affecting the Trust Property.
-----------------------------------
(a) Trustor agrees to appear in and contest any action or proceeding
purporting to adversely affect the security hereof or the rights or powers of
Beneficiary, and to pay all costs and expenses of Beneficiary, including costs
of evidence of title and attorneys' fees and expenses, in any such action or
proceeding in which Beneficiary may appear.
(b) Beneficiary shall have the right to appear in and defend any
action or proceeding brought with respect to the Trust Property and to bring any
action or proceeding, in the name and on behalf of Trustor or Beneficiary, which
Beneficiary determines to be necessary or reasonably advisable to be brought to
protect its interest in the Trust Property if (i) Trustor fails to defend or
bring such action or proceeding, as appropriate, in a prompt and diligent
manner, or thereafter fails to proceed with diligence in the defense or
prosecution of the same, or (ii) an Event of Default shall have occurred and be
continuing.
43. Other Actions by Beneficiary. Except as hereinbefore expressly
----------------------------
provided, should Trustor fail to make any payment or do any act as and in the
manner provided in the Guarantee or any Financing Document after the expiration
of any applicable cure or grace period and as a result an Event of Default,
Beneficiary, without obligation so to do and without notice to or demand upon
Trustor and without releasing Trustor from any obligation, may make or do the
same in such manner and to such extent as Beneficiary may deem necessary to
protect the security hereof. In connection therewith (without limiting any
general powers of Beneficiary whether conferred herein or by law), Beneficiary
shall have and is hereby given the right, but not the obligation, (i) to the
fullest extent permitted by law, to make additions, alterations, repairs and
improvements to the Trust Property which it may consider necessary to keep the
Trust Property in good condition and repair and (ii) in exercising such powers,
to pay necessary expenses, including engagement of counsel or other necessary or
desirable consultants. Trustor shall, immediately upon demand therefor by
Beneficiary, pay all reasonable costs and expenses incurred by Beneficiary in
connection with the exercise by Beneficiary of the foregoing rights, including
without limitation, costs of evidence of title, court costs, appraisals, surveys
and attorneys' fees and expenses.
44. Remedies Not Exclusive. Subject to the limitations set forth in
----------------------
Section 49 of this Deed of Trust, Beneficiary shall be entitled to enforce
payment and performance of any indebtedness or obligations secured hereby and to
exercise all rights and powers granted under this Deed of Trust or any other
agreement or any laws now or hereafter in force, notwithstanding some or all of
the said indebtedness and obligations secured hereby may now or hereafter be
24
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otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment
or otherwise. Subject to the limitations set forth in Section 49 of this Deed
of Trust, neither the acceptance of this Deed of Trust nor its enforcement,
whether by court action or pursuant to the power of sale or other powers herein
contained, shall prejudice or in any manner affect Beneficiary's right to
realize upon or enforce any other security now or hereafter held by Beneficiary,
it being agreed that Beneficiary shall be entitled to enforce this Deed of Trust
and any other security now or hereafter held by Beneficiary in such order and
manner as it may in its absolute discretion determine. No remedy herein
conferred upon or reserved to Beneficiary is intended to be exclusive of any
other remedy herein or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute.
45. Relationship. The relationship of Beneficiary to Trustor
------------
hereunder is strictly and solely that of lender and borrower, and nothing
contained in this Deed of Trust is intended to create, or shall in any event or
under any circumstance be construed as creating, a partnership, joint venture,
tenancy-in-common, joint tenancy or other relationship of any nature whatsoever
between or among Beneficiary and Trustor other than as lender and borrower.
46. Guarantee. This Deed of Trust is subject to all of the terms,
---------
covenants and conditions of the Guarantee and the Financing Documents, which
Guarantee and Financing Documents and all of the terms, covenants and conditions
thereof are by this reference incorporated herein and made a part hereof with
the same force and effect as if set forth at length herein. Trustor shall
observe and perform all of the terms, covenants and conditions of the Financing
Documents on Trustor's part to be observed or performed. All advances made and
all indebtedness arising and accruing under the Guarantee or any Financing
Document from time to time shall be secured hereby.
47. Business Purpose. Trustor hereby stipulates and warrants that
----------------
the loans secured hereby are commercial or business loans and are transacted
solely for the purpose of carrying on or acquiring a business or commercial
enterprise or for a proper business purpose under the laws of the jurisdiction
in which the Trust Property is located.
48. Time of the Essence. TIME IS OF THE ESSENCE with respect to each
-------------------
and every covenant, agreement and obligation of Trustor under this Deed of
Trust.
49. No Recourse. Beneficiary agrees that no officer, director,
-----------
employee or shareholder of Trustor nor any Affiliate of any such party
(collectively, the "Nonrecourse Parties") shall be personally liable for the
performance of any obligation contained in this Deed of Trust. Beneficiary
agrees that its rights shall be limited to proceeding against Trustor and the
security provided or intended to be provided pursuant to the Security Documents,
and that it shall have no right to proceed against the Nonrecourse Parties for
(a) the satisfaction of any monetary obligation of, or enforcement of any
monetary claim against, Trustor, (b) the performance of any obligation, covenant
or agreement arising under this Deed of Trust, or (c) any deficiency judgment
remaining after foreclosure of any property securing the obligations hereunder;
provided, however, that: (A) the foregoing provisions of this Section 49 shall
not constitute a waiver, release or discharge of any of the indebtedness, or of
any of the terms, covenants, conditions or provisions of this agreement or any
Financing Document, and the same shall
25
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continue until fully paid, discharged, observed or performed; (B) the foregoing
provisions of this Section 49 shall not limit or restrict the right of
Beneficiary or the holders of the Senior Secured Notes to name Trustor or any
other Person as a defendant in any action or suit for a judicial foreclosure or
for the exercise of any other remedy under or with respect to this Deed of Trust
or any Financing Document, or for injunction or specific performance, so long as
no judgment in the nature of a deficiency judgment shall be enforced against any
Nonrecourse Party, except as set forth in this Section 49; (C) the foregoing
provisions of this Section 49 shall not in any way limit or restrict any right
or remedy of Beneficiary, the holders of the Senior Secured Notes or the
Permitted Additional Senior Lenders, if any (or any assignee or beneficiary
thereof or successor thereto) with respect to, and all of the Nonrecourse
Parties shall remain fully liable to the extent that they would otherwise be
liable for their own actions with respect to, any fraud, negligence or willful
misrepresentation, or misappropriation of any amounts to be deposited in the
Revenue Account, Proceeds or any other earnings, revenues, rents, issues,
profits or proceeds that are subject to the Security Documents that should or
would have been paid as provided herein or paid or delivered to the Depositary
Agent, Beneficiary, the holders of the Senior Secured Notes or the Permitted
Additional Senior Lenders, if any (or any assignee or beneficiary thereof or
successor thereto) towards any payment required under this Deed of Trust or any
Financing Document; (D) the foregoing provisions of this Section 49 shall not
affect or diminish or constitute a waiver, release or discharge of any specific
written obligation, covenant or agreement in respect of the Project made by any
of the Nonrecourse Parties or any security granted by the Nonrecourse Parties as
security for the obligations of Trustor or Issuer; and (E) nothing contained
herein shall limit the liability of (i) any Person who is a party to any Project
Document or has issued any certificate or statement in connection therewith with
respect to such liability as may arise by reason of the terms and conditions of
such Project Document, certificate or statement, or (ii) any Person rendering a
legal opinion, in each case under this clause (E) relating solely to such
liability of such Person as may arise under such referenced instrument,
agreement or opinion.
50. Severance of Counterclaims. In the event of foreclosure of this
--------------------------
Deed of Trust, any and all counterclaims filed by Trustor against Beneficiary to
the extent permitted by law, shall be severed by the court having jurisdiction
over the foreclosure action, for all purposes from the basic foreclosure action,
on an ex parte basis and without notice to Trustor. Trustor, by its execution
--------
and delivery hereof, hereby expressly consents and agrees to such severance.
51. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT HEREOF, TRUSTOR
--------------------
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY RIGHT IT
MIGHT HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS DEED OF TRUST, THE GUARANTEE OR
ANY FINANCING DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PERSONS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BENEFICIARY TO ACCEPT DELIVERY OF THIS DEED OF TRUST AND
THE GUARANTEE.
52. GOVERNING LAW. THIS DEED OF TRUST IS GOVERNED BY AND SHALL BE
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
26
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53. Reimbursement; Attorneys' Fees. Trustor shall pay immediately,
------------------------------
without demand, after expenditure, all sums expended or expenses incurred by
Trustee and/or Beneficiary in enforcing the terms of this Deed of Trust,
including, without limitation, all attorneys' fees. As used herein, the terms
"attorneys' fees" or "attorneys' fees and costs" shall mean the fees and
expenses of counsel to Beneficiary, Trustee and the holders of the Senior
Secured Notes, which may include printing, photostating, duplicating and other
expenses, air freight charges, and fees billed for law clerks, paralegals,
librarians and others not admitted to the bar but performing services under the
supervision of an attorney. The terms "attorneys' fees" or "attorneys' fees and
costs" shall also include, without limitation, all such fees and expenses
incurred with respect to appeals, arbitrations and bankruptcy proceedings, and
whether or not any action or proceeding is brought with respect to the matter
for which said fees and expenses were incurred.
54. Shared Draftsmanship. If there is any ambiguity in the terms of
--------------------
this Deed of Trust, the doctrine of construction which holds that the language
of the document shall be construed against its drafter shall not apply, as all
parties have shared in the drafting of this Deed of Trust.
55. No Third Party Beneficiary. This Deed of Trust is for the sole
--------------------------
benefit of Beneficiary, or on behalf of the holders of the Senior Secured Notes,
as applicable, and the Permitted Additional Senior Lenders, if any, and is not
for the benefit of any third party; and no third party shall gain any
subrogation rights against Trustor or in, to or with respect to any portion of
the Trust Property by reason of this Deed of Trust or the provisions hereof.
56. Security Only. This Deed of Trust is granted for security
-------------
purposes only. Accordingly, except as otherwise specifically provided in this
Deed of Trust, Beneficiary shall not enforce Trustor's rights with respect to
the Trust Property until such time as an Event of Default shall have occurred
and be continuing.
57. Release by Beneficiary. Upon the payment and performance in full
----------------------
of the Obligations, the security interest granted hereby shall terminate and all
rights to the Trust Property shall revert to Trustor. Upon any such
termination, Trustee shall, at Trustor's expense, execute and deliver to Trustor
such documents as Trustor shall reasonably request to evidence such termination.
If this Deed of Trust shall be terminated or revoked by operation of law,
Trustor will indemnify and save Trustee harmless from any loss which may be
suffered or incurred by Trustee in acting hereunder prior to the receipt by
Trustee, its successors, transferees or assigns of notice of such termination or
revocation.
58. Assignment of the BLM North Leases. Trustor and Beneficiary
----------------------------------
acknowledge that, as of the date of recordation of this Deed of Trust, the
assignment to Trustor of (i) BLM Lease CACA-11401 and (ii) an undivided one
third interest in the BLM North Leases, has not yet been completed. As such,
Trustor covenants as follows:
(a) that it will cause such assignments to occur as soon as possible,
in connection with which it will, without limitation, (i) obtain the written
approval of the BLM to such assignments and (ii) cause one or more Assignment
and Assumption Agreements, in form and
27
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substance satisfactory to Beneficiary, to be recorded in the Official Records of
Inyo County, California; and
(b) upon completion of such assignments, if and to the extent so
requested by Beneficiary, it will (i) cause this Deed of Trust to be re-recorded
in the Official Records of Inyo County, California, or cause an amendment to
this Deed of Trust or a new deed of trust (with substantially the same
provisions as this Deed of Trust) to be recorded in the Official Records of Inyo
County, California, in each case in form and substance satisfactory to
Beneficiary, (ii) obtain such endorsement(s) or new title insurance policy or
policies (in form and substance satisfactory to Beneficiary) as Beneficiary may
reasonably request to insure Beneficiary that this Deed of Trust constitutes a
first priority lien on BLM Lease CACA-11401 and on Trustor's undivided one third
interest in the BLM North Leases, subject only to the encumbrances and other
matters that affected BLM Lease CACA-11401 and the BLM North Leases, as
applicable, as of the date of recordation of this Deed of Trust, including any
additional Permitted Liens and intervening taxes or assessments and (iii)
perform such further acts as Beneficiary may reasonably determine are necessary
or appropriate to carry out and accomplish the intent of this Section, and
promptly execute and deliver and, if appropriate, acknowledge and cause to be
recorded, any such additional documents, instruments and certificates as
Beneficiary may reasonably request in connection with such assignment and/or the
transfer of any related real or personal property.
59. Consent To Assignment. By executing this Deed of Trust, Trustor
---------------------
irrevocably and unconditionally consents to: (a) Beneficiary (or its assignee or
designee, and/or any receiver) curing any default under the BLM Site Licenses,
BLM Lease CACA-11401, the BLM North Leases or the BLM Rights-of-Way and acting
as operator thereof for that purpose (although Beneficiary shall not be under
any obligation to undertake or complete any such cure) and (b) assignment to
Beneficiary of all of its right, title and interest in and under the BLM Site
Licenses, BLM Lease CACA-11401, the BLM North Leases and the BLM Rights-of-Way
in the event of a default under this Deed of Trust, the Guarantee or any of the
other Financing Documents or foreclosure under this Deed of Trust or any of the
other Security Documents; and Trustor acknowledges and agrees that (i) no
further consents, approvals or signatures shall be required from Trustor in
order to effectuate the transfer to Beneficiary of Trustor's right, title and
interest in the BLM Site Licenses, BLM Lease CACA-11401, the BLM North Leases
and/or the BLM Rights-of-Way or any thereof and (ii) the BLM may rely upon this
consent.
60. Regarding Beneficiary.
---------------------
(a) Beneficiary shall be afforded all of the rights, powers,
protections, immunities and indemnities set forth in that certain Security
Agreement, dated as of the date hereof, between Trustor and Beneficiary, as if
the same were specifically set forth herein.
(b) Trustor hereby agrees to indemnify and hold harmless Beneficiary
and its directors, officers, agents and employees from and against any and all
claims, demands, losses, penalties, liabilities, costs, damages, injuries and
expenses, including, without limitation, reasonable attorneys' fees and
expenses, suffered or sustained by Beneficiary, either directly or indirectly,
relating to or arising out of any Environmental Law (as hereinafter defined),
including, without limitation, any judgment, award, settlement, attorneys' fees
and expenses and
28
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other costs or expenses incurred in connection with the defense of any actual or
threatened action, proceeding or claim. As used herein, the term "Environmental
Law" shall mean any and all federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders, decrees, permits,
concessions, grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or health or to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes into the environment,
including, without limitation, ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.
(c) The obligations of Trustor hereunder shall survive the termination
and release of this Deed of Trust or the earlier resignation or removal of
Beneficiary as trustee under the Indenture.
61. No Waiver. By accepting payment of any sum secured hereby after
---------
its due date or in an amount less than the sum due, Beneficiary does not waive
its rights to require prompt payment when due of all other sums so secured.
62. The CLC Deed of Trust. Trustor acknowledges that concurrently
---------------------
herewith Beneficiary is receiving a Deed of Trust, Assignment of Rents, Fixture
Filing and Security Agreement from Coso Land Company, a California general
partnership (the "CLC Deed of Trust"), which CLC Deed of Trust affects certain
of the Trust Property. Trustor unconditionally and irrevocably agrees that the
lien of this Deed of Trust shall at all times be and remain senior to the lien
of the CLC Deed of Trust. Further, Trustor agrees that any partial or full
release or reconveyance of the CLC Deed of Trust will not cause or create any
loss of priority of this Deed of Trust or any impairment of the lien of this
Deed of Trust. Conversely, in the event that the CLC Deed of Trust remains a
lien against the BLM North Leases, BLM Lease CACA-11401 and/or any other portion
of the Trust Property after an interest in said leases is assigned to Trustor,
then Trustor (i) hereby assumes and agrees to perform all of the obligations of
the trustor under the CLC Deed of Trust and (ii) reaffirms the subordination of
(and hereby unconditionally, irrevocably and at all times subordinates) the lien
of the CLC Deed of Trust to the lien of this Deed of Trust.
[Remainder of page intentionally left blank; signatures on next page]
29
<PAGE>
IN WITNESS WHEREOF, Trustor has duly executed this Deed of Trust as of the
day and year first above written.
TRUSTOR: COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
30
<PAGE>
Consent by CPD and CFP:
- ----------------------
As of the day and year first above written, CPD and CFP each hereby
consents to CED entering into this Deed of Trust. CPD and CFP each specifically
agrees that this Deed of Trust or the other Financing Documents may, among other
things, assign or delegate to Beneficiary rights to cure defaults under the
Indenture, to exercise voting rights and other rights to manage or control the
Issuer, to substitute itself in place of CED under the Steam Exchange
Agreements, to act as Trustor's attorney-in-fact, to foreclose on the Trust
Property or to exercise any other rights hereunder or under the other Financing
Documents. CPD and CFP each agrees that it will recognize and accept such
assignment and delegation and the exercise of such rights by Beneficiary in
connection with this Deed of Trust.
CPD: COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
CFP: COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
31
<PAGE>
ACKNOWLEDGMENTS
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
On May 28, 1999, before me, [name of notary]
------------------------------------------------
Notary Public, personally appeared Christopher T. McCallion, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature(s) on
the instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ signature of notary
- ------------------------------------------------------
Notary Public
<PAGE>
EXHIBIT A
Description of the BLM Land
---------------------------
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY OF
INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
LOTS 1 THROUGH 4 INCLUSIVE OF SECTION 19; THE EAST HALF OF SECTION 19; AND THE
EAST HALF OF THE WEST HALF OF SECTION 19; ALL OF SECTIONS 20 AND 29; LOTS 1
THROUGH 4 INCLUSIVE OF SECTION 30; THE EAST HALF OF SECTION 30; AND THE EAST
HALF OF THE WEST HALF OF SECTION 30, ALL IN TOWNSHIP 22 SOUTH, RANGE 39 EAST,
MOUNT DIABLO BASE AND MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA,
ACCORDING TO THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS AND HELIUM IN SAID LAND AND THE
RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL, HYDROCARBON GAS AND
HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED GEOTHERMAL RESOURCES PRODUCED FROM
SAID LAND, (30 U.S.C.A. 1025).
<PAGE>
EXHIBIT B
Description of BLM Lease CACA-11402
-----------------------------------
THAT CERTAIN OFFER TO LEASE AND LEASE FOR GEOTHERMAL RESOURCES BETWEEN THE
BUREAU OF LAND MANAGEMENT OF THE UNITED STATES DEPARTMENT OF THE INTERIOR ACTING
THROUGH THE CHIEF OF THE LEASEHOLD MINERALS SECTION ("BLM") AND CALIFORNIA
ENERGY COMPANY, INC. DATED APRIL 29, 1985 AND EFFECTIVE AS OF MAY 1, 1985
(SERIAL NO. CACA-11402), A CERTIFIED COPY OF WHICH WAS RECORDED ON MAY 9, 1988
AS INSTRUMENT NO. 88-2092 OF OFFICIAL RECORDS OF INYO COUNTY, CALIFORNIA,
INCLUDING ALL MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE
BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY PERMITTED MODIFICATIONS,
AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE AFTER THE EFFECTIVE DATE OF
THIS DEED OF TRUST.
<PAGE>
EXHIBIT C
Description of the BLM North Lease Premises and the BLM North Leases
--------------------------------------------------------------------
LEASE CACA-11383:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11383) APPROVED ON
NOVEMBER 1, 1983 BY THE BLM AND ISSUED TO THE LOS ANGELES DEPARTMENT OF
WATER AND POWER, A CERTIFIED COPY OF WHICH WAS RECORDED ON OCTOBER 8, 1993
AS INSTRUMENT NO. 93-4604 OF OFFICIAL RECORDS, INCLUDING ALL MODIFICATIONS,
AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE BEFORE THE EFFECTIVE
DATE OF THIS DEED OF TRUST AND ANY PERMITTED MODIFICATIONS, AMENDMENTS AND
ASSIGNMENTS THERETO AND THEREOF MADE AFTER THE EFFECTIVE DATE OF THIS DEED
OF TRUST, WHICH LEASE AFFECTS THAT CERTAIN REAL PROPERTY LOCATED IN AN
UNINCORPORATED AREA OF THE COUNTY OF INYO, STATE OF CALIFORNIA, DESCRIBED
AS FOLLOWS:
PARCEL 1:
--------
ALL OF SECTION 32; THE NORTH HALF OF SECTION 33; THE NORTH HALF OF THE
SOUTH HALF OF SECTION 33; THE SOUTH HALF OF THE SOUTHWEST QUARTER OF
SECTION 33; AND THE SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER OF
SECTION 33, ALL IN TOWNSHIP 21 SOUTH, RANGE 39 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 2:
--------
LOTS 2, 3 AND 4 OF SECTION 4; LOTS 1 TO 4 INCLUSIVE OF SECTION 5; THE
SOUTH HALF OF THE NORTH HALF OF SECTION 5; AND THE NORTH HALF OF THE
SOUTH HALF OF SECTION 5, ALL IN TOWNSHIP 22 SOUTH, RANGE 39 EAST,
MOUNT DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
Exhibit "C"
Page 1 of 4
<PAGE>
LEASE CACA-11384:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11384) APPROVED BY
THE BLM ON FEBRUARY 1, 1982 AND ISSUED TO THE LOS ANGELES DEPARTMENT OF
WATER AND POWER, WHICH LEASE WAS RECORDED ON OCTOBER 8, 1993 AS INSTRUMENT
NO. 93-4605 OF OFFICIAL RECORDS, INCLUDING ALL MODIFICATIONS, AMENDMENTS
AND ASSIGNMENTS THERETO AND THEREOF MADE BEFORE THE EFFECTIVE DATE OF THIS
DEED OF TRUST AND ANY PERMITTED MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS
THERETO AND THEREOF MADE AFTER THE EFFECTIVE DATE OF THIS DEED OF TRUST,
WHICH LEASE AFFECTS THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED
AREA OF THE COUNTY OF INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL 1:
--------
THE EAST HALF OF SECTION 11; ALL OF SECTIONS 12 AND 13; AND THE EAST
HALF OF SECTION 14, ALL IN TOWNSHIP 22 SOUTH, RANGE 38 EAST, MOUNT
DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING
TO THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 2:
--------
LOTS 1 TO 4, INCLUSIVE OF SECTION 7; THE EAST HALF OF THE WEST HALF OF
SECTION 7; LOTS 1 TO 4, INCLUSIVE OF SECTION 18; AND THE EAST HALF OF
THE WEST HALF OF SECTION 18, ALL IN TOWNSHIP 22 SOUTH, RANGE 39 EAST,
MOUNT DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA,
ACCORDING TO THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
LEASE CACA-11385:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11385) APPROVED BY
THE BLM ON FEBRUARY 1, 1982 AND ISSUED TO THE LOS ANGELES DEPARTMENT OF
WATER AND POWER, WHICH LEASE WAS RECORDED ON OCTOBER 8, 1993 AS INSTRUMENT
NO. 93-4606 OF OFFICIAL RECORDS, INCLUDING ALL MODIFICATIONS, AMENDMENTS
AND ASSIGNMENTS THERETO
Exhibit "C"
Page 2 of 4
<PAGE>
AND THEREOF MADE BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY
PERMITTED MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF
MADE AFTER THE EFFECTIVE DATE OF THIS DEED OF TRUST, WHICH LEASE AFFECTS
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY
OF INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL 1:
--------
ALL OF SECTION 36, TOWNSHIP 21 SOUTH, RANGE 38 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 2:
--------
LOTS 1 TO 4 INCLUSIVE, THE SOUTH HALF OF THE NORTH HALF, AND THE SOUTH
HALF OF SECTION 1, TOWNSHIP 22 SOUTH, RANGE 38 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 3:
--------
LOTS 1 TO 4 INCLUSIVE, THE EAST HALF, AND THE EAST HALF OF THE WEST
HALF OF SECTION 31, TOWNSHIP 21 SOUTH, RANGE 39 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
Exhibit "C"
Page 3 of 4
<PAGE>
PARCEL 4:
--------
LOTS 1 TO 7 INCLUSIVE, THE SOUTH HALF OF THE NORTHEAST QUARTER, THE
SOUTHEAST QUARTER OF THE NORTHWEST QUARTER, THE NORTHEAST QUARTER OF
THE SOUTHWEST QUARTER, AND THE NORTH HALF OF THE SOUTHEAST QUARTER OF
SECTION 6, TOWNSHIP 22 SOUTH, RANGE 39 EAST, MOUNT DIABLO MERIDIAN, IN
THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL
PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
Exhibit "C"
Page 4 of 4
<PAGE>
EXHIBIT D
Description of the BLM Right-of-Way Premises and the BLM Rights-of-Way
----------------------------------------------------------------------
RIGHT-OF-WAY CACA-13510:
THAT CERTAIN UNRECORDED RIGHT-OF-WAY GRANT (SERIAL NO. CACA-13510) APPROVED
BY THE BLM ON APRIL 12, 1984 AND ISSUED TO CALIFORNIA ENERGY COMPANY, INC.,
INCLUDING ALL MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF
MADE BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY PERMITTED
MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE AFTER
THE EFFECTIVE DATE OF THIS DEED OF TRUST, WHICH RIGHT-OF-WAY GRANT AFFECTS
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY
OF INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
TOWNSHIP 21 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 36,
E1/2 OF THE SE1/4;
TOWNSHIP 22 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 1,
NW1/4 OF THE SW1/4; LOTS 1 AND 2 OF THE NE1/4; AND LOT 1 OF THE NW1/4;
AND
TOWNSHIP 21 SOUTH, RANGE 38 EAST, MT. DIABLO MERIDIAN: SECTION 31,
LOTS 9-12, 16; SECTION 32, LOTS 1-3,5,6 AND 8; AND SECTION 33, S1/2 OF
THE S1/2.
RIGHT-OF-WAY CACA-18885:
THAT CERTAIN UNRECORDED RIGHT-OF-WAY GRANT (SERIAL NO. CACA-18885) APPROVED
BY THE BLM ON MAY 7, 1986 AND ISSUED TO CALIFORNIA ENERGY COMPANY, INC.,
INCLUDING ALL MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF
MADE BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY PERMITTED
MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE AFTER
THE EFFECTIVE DATE OF THIS DEED OF TRUST, WHICH RIGHT-OF-WAY GRANT AFFECTS
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY
OF INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
TOWNSHIP 22 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 1, LOTS
1 & 2 IN NE1/4, LOT 1 IN NW1/4, AND NW1/4SW1/4;
TOWNSHIP 21 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 36,
SE1/4SE1/4;
TOWNSHIP 21 SOUTH, RANGE 38 EAST, MT. DIABLO MERIDIAN: SECTION 31,
LOTS 13-16; SECTION 32, LOTS 1-5, 8; SECTION 33, S1/2NE1/4,
NE1/4SW1/4, S1/2SW1/4, N1/2SE1/4; SECTION 34, N1/2SW1/4, SE1/4SW1/4
AND SW1/4SE1/4.
<PAGE>
EXHIBIT E
Description of the BLM Site Licenses
------------------------------------
SITE LICENSE CACA-22512:
THAT CERTAIN UNRECORDED LICENSE FOR ELECTRIC POWER PLANT SITE UTILIZING
GEOTHERMAL RESOURCES (SERIAL NO. CACA-22512) BETWEEN THE UNITED STATES OF
AMERICA, ACTING THROUGH THE BUREAU OF LAND MANAGEMENT, LICENSOR, AND COSO ENERGY
DEVELOPERS, A CALIFORNIA GENERAL PARTNERSHIP, LICENSEE, DATED MARCH 8, 1989,
INCLUDING ALL MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE
BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY PERMITTED MODIFICATIONS,
AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE AFTER THE EFFECTIVE DATE OF
THIS DEED OF TRUST, WHICH SITE LICENSE AFFECTS THAT CERTAIN REAL PROPERTY
LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY OF INYO, STATE OF CALIFORNIA,
DESCRIBED AS FOLLOWS:
A PARCEL OF LAND WITHIN GEOTHERMAL RESOURCES LEASE CACA 11402, KNOWN AS
NWC-2, SITUATED WITHIN SECTION 20, TOWNSHIP 22 SOUTH, RANGE 39 EAST, MOUNT
DIABLO MERIDIAN, INYO COUNTY, PARTICULARLY DESCRIBED AS:
BEGINNING AT THE NORTHWEST CORNER OF SAID PARCEL FROM WHICH THE NORTHWEST
CORNER OF SAID SECTION 20 BEARS N. 36 20' 17" W. A DISTANCE OF 4,318.64
FEET, THENCE EAST 800.00 FEET; THENCE SOUTH 800.00 FEET; THENCE WEST 800.00
FEET; THENCE NORTH 800.00 FEET TO THE POINT OF BEGINNING, CONTAINING 14.69
ACRES, MORE OR LESS.
SITE LICENSE CACA-25690:
THAT CERTAIN UNRECORDED LICENSE FOR ELECTRIC POWER PLANT SITE UTILIZING
GEOTHERMAL RESOURCES (SERIAL NO. CACA-25690) BETWEEN THE UNITED STATES OF
AMERICA, ACTING THROUGH THE BUREAU OF LAND MANAGEMENT, LICENSOR, AND COSO ENERGY
DEVELOPERS, A CALIFORNIA GENERAL PARTNERSHIP, LICENSEE, DATED (BY DECISION)
DECEMBER 29, 1989, INCLUDING ALL MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS
THERETO AND THEREOF MADE BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY
PERMITTED MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE
AFTER THE EFFECTIVE DATE OF THIS DEED OF TRUST, WHICH SITE LICENSE AFFECTS THAT
CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY OF INYO,
STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
A PARCEL OF LAND, KNOWN AS NWC-1 ("BLM UNIT 9 POWER PLANT SITE")
SITUATED WITHIN SECTION 19, TOWNSHIP 22 SOUTH, RANGE 39 EAST, MOUNT DIABLO
Exhibit "E"
Page 1 of 2
<PAGE>
MERIDIAN, INYO COUNTY, CALIFORNIA, LOCATED WITHIN THE CHINA LAKE NAVAL WEAPONS
CENTER ON FEDERAL GEOTHERMAL LEASE NO. CACA 11402, AND BEING MORE PARTICULARLY
DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHEAST CORNER OF SAID PARCEL FROM WHICH THE NORTHEAST
CORNER OF SAID SECTION 19 BEARS N 57(degrees) 39' 08" E A DISTANCE OF
3,772.56 FEET, THENCE SOUTH 800.00 FEET; THENCE WEST 800.00 FEET; THENCE
NORTH 800.00 FEET; THENCE EAST 800.00 FEET TO THE POINT OF BEGINNING,
CONTAINING 14.69 ACRES, MORE OR LESS.
Exhibit "E"
Page 2 of 2
<PAGE>
EXHIBIT F
Description of BLM Lease CACA-11401
-----------------------------------
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11401) DATED DECEMBER
7, 1981 AND EFFECTIVE AS OF JANUARY 1, 1982 BY AND BETWEEN THE UNITED STATES
DEPARTMENT OF THE INTERIOR, BUREAU OF LAND MANAGEMENT, ACTING THROUGH THE CHIEF
OF LEASEABLE MINERALS SECTION, AS LESSOR, AND CALIFORNIA ENERGY COMPANY, INC.,
AS LESSEE, A CERTIFIED COPY OF WHICH GEOTHERMAL RESOURCES LEASE WAS RECORDED ON
JULY 25, 1983, AS INSTRUMENT NO. 83-2943 IN THE OFFICIAL RECORDS OF INYO COUNTY,
CALIFORNIA, INCLUDING ALL MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND
THEREOF MADE BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY PERMITTED
MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE AFTER THE
EFFECTIVE DATE OF THIS DEED OF TRUST, WHICH GEOTHERMAL RESOURCES LEASE AFFECTS
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY OF
INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
ALL OF SECTION 21; THE WEST 1/2 OF SECTION 22; THE NORTH 1/2 OF SECTION
28 AND THE SOUTHWEST 1/4 OF SECTION 28, ALL IN TOWNSHIP 22 SOUTH, RANGE 39
EAST, MOUNT DIABLO BASE AND MERIDIAN, IN THE COUNTY OF INYO, STATE OF
CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS AND HELIUM IN SAID LAND AND
THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL, HYDROCARBON
GAS AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED GEOTHERMAL RESOURCES
PRODUCED FROM SAID LAND, (30 U.S.C.A. 1025).
<PAGE>
EXHIBIT G
Description of the BLM Easement
-------------------------------
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTIES OF
INYO AND KERN, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL 1:
- ---------
AN EASEMENT FOR THE NONEXCLUSIVE RIGHTS OF ACCESS, INGRESS AND EGRESS FOR THE
PURPOSE OF CONSTRUCTION, REPAIR, MAINTENANCE, UTILIZATION AND OPERATION OF A
TRANSMISSION LINE AS RESERVED IN DOCUMENT RECORDED ON JULY 31, 1989 AS
INSTRUMENT NO. 89-5086 OF OFFICIAL RECORDS ACROSS AND OVER THE FOLLOWING
DESCRIBED PROPERTY:
ALL OF SECTIONS 16 AND 17, AND THE EAST HALF OF SECTION 18, ALL IN TOWNSHIP 22
SOUTH, RANGE 39 EAST, MOUNT DIABLO BASE AND MERIDIAN, IN THE COUNTY OF INYO,
STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF.
PARCEL 2:
- ---------
AN EASEMENT FOR THE CONSTRUCTION, REPAIR, MAINTENANCE, UTILIZATION AND OPERATION
OF A TRANSMISSION LINE AS RESERVED IN DOCUMENT RECORDED ON JULY 31, 1989 AS
INSTRUMENT NO. 89-5086 OF OFFICIAL RECORDS, AS TO THAT PORTION OF THE FOLLOWING
DESCRIBED PROPERTY LYING WITHIN ALL OF SECTIONS 16 AND 17, AND THE EAST HALF OF
SECTION 18, ALL IN TOWNSHIP 22 SOUTH, RANGE 39 EAST, MOUNT DIABLO BASE AND
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL
PLAT THEREOF AND AN EASEMENT FOR THE CONSTRUCTION, REPAIR, MAINTENANCE,
UTILIZATION AND OPERATION OF A TRANSMISSION LINE AND FOR THE NON-EXCLUSIVE
RIGHTS OF ACCESS, INGRESS AND EGRESS AS RESERVED IN DOCUMENT RECORDED JULY 31,
1989 AS INSTRUMENT NO. 89-5087 OF OFFICIAL RECORDS, OVER AND ACROSS THE
FOLLOWING DESCRIBED PROPERTY:
PARCEL A:
PARCEL A OF THE COSO-INYOKERN TRANSMISSION LINE CORRIDOR BEGINS AT SURVEY
STATION 0+00 AT THE INYOKERN SUBSTATION IN THE SE1/4, SE1/4 OF SECTION 20, T26S,
R39E, IN KERN COUNTY, CALIFORNIA AND GOES NORTHERLY APPROXIMATELY 27 MILES
ENDING AT SURVEY STATION 1380+00 NWC/BLM GEOTHERMAL PLANT NO. 1 SWITCHYARD IN
SE1/4, NW1/4 OF SECTION 19, T22S, R39E IN INYO COUNTY, CALIFORNIA.
THE CORRIDOR FOR THE TRANSMISSION LINE IS THE EASTERN PORTION OF A COMMON
CORRIDOR WHICH IS A STRIP OF LAND 200 FEET WIDE OF WHICH 65 FEET OF THIS
CORRIDOR IS LOCATED TO THE LEFT (WESTERLY) OF THE 115 KV TRANSMISSION
Exhibit "G"
Page 1 of 4
<PAGE>
LINE CENTERLINE AND 135 FEET IS LOCATED TO THE RIGHT (EASTERLY) OF THE 115 KV
TRANSMISSION LINE CENTERLINE FROM STATION 0+00 TO STATION 731+59.27. FROM
STATION 731+59.27 TO STATION 1245+11.06, THE CORRIDOR IS A STRIP OF LAND 250
FEET WIDE OF WHICH 100 FEET IS LOCATED TO THE LEFT (WESTERLY) AND 150 FEET IS
LOCATED TO THE RIGHT (EASTERLY) OF THE 115 KV TRANSMISSION LINE CENTERLINE.
FROM STATION 1245+11.06 TO STATION 1291+52.54, THE CORRIDOR IS A STRIP OF LAND
300 FEET WIDE OF WHICH 100 FEET OF THIS CORRIDOR IS LOCATED TO THE LEFT
(WESTERLY) AND 200 FEET IS LOCATED TO THE RIGHT (EASTERLY) OF THE 115 KV
TRANSMISSION LINE CENTERLINE. FROM STATION 1291+52.54 TO STATION 1380+00 THE
CORRIDOR IS A STRIP OF LAND 250 FEET WIDE OF WHICH 100 FEET IS LOCATED TO THE
LEFT (WESTERLY) AND 150 FEET IS LOCATED TO THE RIGHT (EASTERLY) OF THE 115 KV
TRANSMISSION LINE CENTERLINE.
THE TRANSMISSION CORRIDOR CENTERLINE IS DESCRIBED AS FOLLOWS:
SECTIONS 20, 17 (7 of record), 8, 5, AND 6 OF TOWNSHIP 26 SOUTH, RANGE 39 EAST
- ------------------------------------------------------------------------------
BEGINNING AT SURVEY STATION 0+00, WHICH IS LOCATED ON THE NORTH BOUNDARY FENCE
LINE OF THE INYOKERN SUBSTATION AND IS 400 FEET WEST, MORE OR LESS, AND 320 FEET
NORTH, MORE OR LESS, OF THE SE CORNER OF SECTION 20, T26S, R39E. THENCE, FROM
STATION 0+00, N21(degrees)11'57"W A DISTANCE OF 255.00 FEET TO AN ANGLE POINT AT
STATION 2+55.00; THENCE N17(degrees)40'18"W A DISTANCE OF 21,637 FEET, MORE OR
LESS, TO THE LELITER ROAD CROSSING AT STATION 218+92 WHICH IS A POINT ON THE
NORTH BOUNDARY OF SECTION 6, T26S, R39E AND 1410 FEET WEST, MORE OR LESS, OF THE
NE CORNER OF SECTION 6, T26S, R39E.
SECTIONS 31, 30 AND 19 OF TOWNSHIP 25 SOUTH, RANGE 39 EAST
----------------------------------------------------------
THENCE, FROM STATION 218+92, N17(degrees)40'18"W A DISTANCE OF 13,228 FEET TO
STATION 351+20 WHICH IS A POINT ON THE WEST BOUNDARY OF SECTION 19, T25S, R39E
AND IS 1960 FEET NORTH, MORE OR LESS, OF THE SW CORNER OF SECTION 19, T25S,
R39E.
SECTIONS 24, 13, 12, 1 AND 2 OF TOWNSHIP 25 SOUTH, RANGE 38 EAST
----------------------------------------------------------------
THENCE, FROM STATION 351+20, N17(degrees)40'18"W A DISTANCE OF 20,165 FEET, TO
SURVEY STATION 552+85 WHICH IS A POINT ON THE KERN AND INYO COUNTY LINE AND ON
THE NORTH BOUNDARY OF SECTION 2, T25S, R38E AND IS 540 FEET WEST, MORE OR LESS,
OF THE NE CORNER OF SECTION 2, T25S, R38E.
SECTIONS 35, 34, 27, 22, 15, 10 AND 3 OF TOWNSHIP 24 SOUTH, RANGE 38 EAST
-------------------------------------------------------------------------
THENCE, FROM STATION 552+85, N17(degrees)40'18"W A DISTANCE OF 980.65 FEET TO AN
ANGLE POINT AT STATION 562+65.65; THENCE, N00(degrees)32'59"E A DISTANCE OF
1849.86 FEET TO AN ANGLE POINT AT STATION 581+15.51; THENCE N18(degrees)55'43"W
A DISTANCE OF 8200.72 FEET TO AN ANGLE POINT AT STATION 663+16.23; THENCE
N17(degrees)49'44"W A DISTANCE OF 6844.77 FEET TO AN ANGLE POINT AT STATION
731+59.27; THENCE N09(degrees)26'36"E A DISTANCE OF 13,279.45 FEET TO AN ANGLE
POINT AT EQUATION STATION
Exhibit "G"
Page 2 of 4
<PAGE>
864+40.45 BACK AND 873+76 AHEAD; THENCE N07(degrees)43'29"E A DISTANCE OF 1460
FEET TO SURVEY STATION 888+39.76 WHICH IS A POINT ON THE NORTH BOUNDARY OF
SECTION 3, T24S, R38E AND IS 1680 FEET WEST, MORE OR LESS, OF THE NE CORNER OF
SECTION 3, T24S, R38E.
SECTIONS 34, 27, 26, 23, 24, 13, 12 AND 1 OF TOWNSHIP 23 SOUTH, RANGE 38 EAST
-----------------------------------------------------------------------------
THENCE, FROM STATION 888+39.76, N07(degrees)43'29"E A DISTANCE OF 5111.45 FEET
TO AN ANGLE POINT AT STATION 939+51.21; THENCE N31(degree)43'12"E A DISTANCE OF
9820.50 FEET TO AN ANGLE POINT AT STATION 1037+71.71; THENCE N31(degrees)14'47"E
A DISTANCE OF 10,758.97 FEET TO AN ANGLE POINT AT STATION 1145+30.68; THENCE
N10(degrees)29'29"W A DISTANCE OF 8780.38 FEET TO SURVEY STATION 1233+11.06
WHICH IS A POINT ON THE NORTH BOUNDARY OF SECTION 1, T23S, R38E AND IS 1600 FEET
WEST, MORE OR LESS, OF THE NE CORNER OF SECTION 1, T23S, R38E.
SECTION 36 OF TOWNSHIP 22 SOUTH, RANGE 38 EAST
----------------------------------------------
THENCE, FROM STATION 1233+11.06, N10(degrees)29'29"W A DISTANCE OF 1200.00 FEET
TO AN ANGLE POINT AT STATION 1245+11.06; THENCE N43(degrees)08'19"E A DISTANCE
OF 2718.94 FEET TO SURVEY STATION 1272+30 WHICH IS A POINT ON THE EAST BOUNDARY
OF SECTION 36, T22S, R38E AND IS 2180 FEET SOUTH, MORE OR LESS, OF THE NE CORNER
OF SECTION 36, T22S, R38E.
SECTIONS 31, 30 AND 19 OF TOWNSHIP 22 SOUTH, RANGE 39 EAST
----------------------------------------------------------
THENCE, FROM STATION 1272+30, N43(degrees)08'19"E A DISTANCE OF 1922.34 FEET TO
AN ANGLE POINT AT STATION 1291+52.34; THENCE N06(degrees)45'07"E A DISTANCE OF
8634.99 FEET TO THE END OF PARCEL A OF THE COSO-INYOKERN TRANSMISSION LINE
CORRIDOR AT SURVEY STATION 1380+00. THIS POINT IS LOCATED AT THE NWC-BLM
GEOTHERMAL PLANT NO. 1 SWITCHYARD IN THE SE1/4, NW1/4 OF SECTION 19, T22S, R39E
IN INYO COUNTY, CALIFORNIA.
PARCEL B:
PARCEL B OF THE COSO-INYOKERN 230 KV TRANSMISSION LINE CORRIDOR BEGINS AT
STATION 0+00 AT BLM (WEST) GEOTHERMAL PLANT NO. 1 SWITCHYARD IN THE SE1/4, NW1/4
OF SECTION 19, T22S, R39E IN INYO COUNTY, CALIFORNIA AND EXTENDS TO STATION
77+57.20 BLM (EAST) GEOTHERMAL PLANT NO. 2 SWITCHYARD IN THE S1/2 OF SECTION 20,
T22S, R39E.
THIS PORTION OF THE CORRIDOR IS A STRIP OF LAND 100 FEET WIDE OF WHICH 50 FEET
OF THIS CORRIDOR IS LOCATED LEFT (NORTHERLY) AND 50 FEET IS LOCATED RIGHT
(SOUTHERLY) OF CENTERLINE OF THE CORRIDOR.
THE TRANSMISSION CENTERLINE IS DESCRIBED AS FOLLOWS:
Exhibit "G"
Page 3 of 4
<PAGE>
SECTIONS 19 AND 20 OF TOWNSHIP 22 SOUTH, RANGE 39 EAST
------------------------------------------------------
BEGINNING AT SURVEY STATION 0+00, BLM (WEST) GEOTHERMAL PLANT NO. 1 SWITCHYARD,
WHICH IS LOCATED AT S52(degrees)W 4035 FEET, MORE OR LESS, FROM THE NE CORNER OF
SECTION 19, T22S, R39E; THENCE N83(degrees)00'00"E, A DISTANCE OF 350.00 FEET TO
AN ANGLE POINT AT STATION 3+50.00; THENCE N42(degrees)55'19"E A DISTANCE OF
469.21 FEET TO AN ANGLE POINT AT STATION 8+19.21; THENCE N84(degrees)34'06"E, A
DISTANCE OF 1148.23 FEET TO AN ANGLE POINT AT STATION 19+67.44; THENCE
N72(degrees)42'43"E A DISTANCE OF 1445.45 FEET TO AN ANGLE POINT AT EQUATION
STATION 34+12.89 BACK AND 34+12.04 AHEAD; THENCE S53(degrees)05'47"E A DISTANCE
OF 2075.45 FEET TO AN ANGLE POINT AT STATION 54+87.49; THENCE
S08(degrees)59'02"E A DISTANCE OF 1301.63 FEET TO AN ANGLE POINT AT STATION
67+89.12; THENCE S42(degrees)29'52"E A DISTANCE OF 468.25 FEET TO AN ANGLE POINT
AT STATION 72+57.37; THENCE N47(degrees)49'10"E A DISTANCE OF 359.83 FEET TO AN
ANGLE POINT AT STATION 76+17.20; THENCE N76(degrees)15'19"E A DISTANCE OF 140.00
FEET TO THE A-FRAME STRUCTURE AT STATION 77+57.20. THIS POINT IS LOCATED AT BLM
(EAST) GEOTHERMAL PLANT NO. 2 SWITCHYARD, S32(degrees)W 5080 FEET, PLUS OR
MINUS, FROM THE NE CORNER OF SECTION 20, T22S, R39E IN INYO COUNTY, CALIFORNIA
AND IS THE END OF PARCEL B COSO-INYOKERN TRANSMISSION LINE CORRIDOR.
PARCEL C:
PARCEL C OF THE COSO-INYOKERN 230 KV TRANSMISSION LINE CORRIDOR BEGINS AT
STATION 0+00 AT BLM (EAST) GEOTHERMAL PLANT NO. 2 SWITCHYARD IN THE S1/2 OF
SECTION 20, T22S, R39E IN INYO COUNTY, CALIFORNIA AND EXTENDS TO STATION
70+58.51 NAVY II GEOTHERMAL PLANT SWITCHYARD IN SECTION 17, T22S, R39E.
THIS PORTION OF THE CORRIDOR IS A STRIP OF LAND 100 FEET WIDE OF WHICH 50 FEET
OF THIS CORRIDOR IS LOCATED LEFT (WESTERLY) AND 50 FEET IS LOCATED RIGHT
(EASTERLY) OF CENTERLINE OF THE CORRIDOR.
THE TRANSMISSION CENTERLINE IS DESCRIBED AS FOLLOWS:
SECTIONS 17 AND 20 OF TOWNSHIP 22 SOUTH, RANGE 39 EAST
------------------------------------------------------
BEGINNING AT SURVEY STATION 0+00, BLM (EAST) GEOTHERMAL PLANT NO. 2 SWITCHYARD,
WHICH IS LOCATED S32(degrees) W 5040 FEET, MORE OR LESS, FROM THE NE CORNER OF
SECTION 20, T22S, R39E; THENCE N76(degrees)58'47"W, A DISTANCE OF 76.36 FEET TO
AN ANGLE POINT AT STATION 0+76.36; THENCE N06(degrees)46'21"W, A DISTANCE OF
2483.33 FEET TO AN ANGLE POINT AT STATION 25+59.52; THENCE N19(degrees)32'09"E,
A DISTANCE OF 2513.26 FEET TO AN ANGLE POINT AT STATION 50+72.82; THENCE
N63(degrees)57'16"W, A DISTANCE OF 1169.08 FEET TO AN ANGLE POINT AT STATION
62+41.90; THENCE N18(degrees)16'46"W, A DISTANCE OF 394.50 FEET TO AN ANGLE
POINT AT STATION 66+36.40; THENCE N37(degrees)00'00"E, A DISTANCE OF 422.11 FEET
TO THE A-FRAME STRUCTURE AT STATION 70+58.51. THIS POINT IS LOCATED AT NAVY II
GEOTHERMAL PLANT SWITCHYARD, S42(degrees)W 4580 FEET, PLUS OR MINUS, FROM THE NE
CORNER OF SECTION 17, T22S, R39E IN INYO COUNTY, CALIFORNIA AND IS THE END OF
PARCEL C COSO-INYOKERN TRANSMISSION LINE CORRIDOR.
Exhibit "G"
Page 4 of 4
<PAGE>
Exhibit 10.26
RECORDING REQUESTED BY:
WHEN RECORDED RETURN TO:
The Law Offices of David E. Chanover
16776 Bernardo Center Drive
Suite 110B
San Diego, California 92128
Attention: David E. Chanover
- --------------------------------------------------------------------------------
COSO POWER DEVELOPERS
(as Trustor)
to
CHICAGO TITLE INSURANCE COMPANY
(as Trustee)
for the use and benefit of
U.S. BANK TRUST NATIONAL ASSOCIATION
(as Beneficiary)
DEED OF TRUST, ASSIGNMENT OF RENTS,
FIXTURE FILING AND SECURITY AGREEMENT
(NAVY II)
Dated: May 28, 1999
Location: County of Inyo and
County of Kern,
State of California
<PAGE>
DEED OF TRUST, ASSIGNMENT OF RENTS,
FIXTURE FILING AND SECURITY AGREEMENT
(NAVY II)
THIS DEED OF TRUST, ASSIGNMENT OF RENTS, FIXTURE FILING AND SECURITY
AGREEMENT (NAVY II) (this "Deed of Trust") is made as of May 28, 1999, by COSO
POWER DEVELOPERS, a California general partnership whose address is c/o New CTC
Company, 1114 Avenue of the Americas, 41st Floor, New York, New York 10036, as
trustor ("Trustor"), to CHICAGO TITLE INSURANCE COMPANY, a Missouri corporation,
whose address is 2425 West Shaw, Fresno, California 93711, as trustee
("Trustee"), in favor of U.S. Bank Trust National Association, whose address is
One California Street, 4th Floor, San Francisco, California 94111, as
beneficiary ("Beneficiary") not in its individual capacity but solely as trustee
and collateral agent pursuant to the Indenture of even date herewith (the
"Indenture") among Beneficiary, Caithness Coso Funding Corp., as issuer (the
"Issuer"), Trustor, Coso Finance Partners, a California general partnership
("CFP") and Coso Energy Developers, a California general partnership ("CED"), as
guarantors. Unless otherwise defined herein, capitalized terms shall have the
meanings set forth in the Indenture, which is hereby incorporated herein by this
reference.
NOW, THEREFORE, in consideration of, and to secure the payment and
performance of the Obligations (as hereinafter defined) which Obligations may
increase, decrease and increase again from time to time and may be evidenced by
one or more notes, Trustor has given, granted, bargained, sold, alienated,
conveyed, confirmed and assigned, and by these presents does give, grant,
bargain, sell, alienate, convey, confirm and assign unto Trustee, its successors
and assigns, with general warranties of title as provided herein or under Civil
Code Section 1113 (but subject to Permitted Liens), in trust with power of sale
and right of entry and possession forever, for the benefit and security of
Beneficiary as Collateral Agent, all right, title and interest of Trustor in and
to the following property, assets, rights and interests, whether now owned or
hereafter acquired (such property, assets, rights and interests being
collectively referred to herein as the "Trust Property"):
(a) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California, described
in Exhibit A attached hereto and by this reference incorporated herein (the
---------
"Navy II Land");
(b) all of Trustor's right, title and interest in and under that
certain agreement described in Exhibit B attached hereto (the "Navy
---------
Contract"), together with all renewals, extensions, supplements,
amendments, cancellations or terminations thereof and all credits,
deposits, options, privileges and rights thereunder;
(c) all of Trustor's right, title and interest in and to that certain
approximately 80 megawatt geothermal electrical generating facility (and
each unit thereof) commonly known as Navy II, together with the related
geothermal resource gathering system, geothermal resource disposal and
injection system, geothermal resource reserves and interconnection
equipment (the "Navy II Project");
2
<PAGE>
(d) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California, described
in Exhibit C attached hereto and by this reference incorporated herein (the
---------
"BLM North Lease Premises"), including, without limitation, all of its
right, title and interest in and under those certain geothermal resources
leases (the "BLM North Leases") described in said Exhibit C (as and when
---------
such right, title and interest is transferred to Trustor), together with
all renewals, extensions, supplements, amendments, cancellations or
terminations thereof and all credits, deposits, options, privileges and
rights thereunder;
(e) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California, described
in Exhibit D attached hereto and by this reference incorporated herein (the
---------
"BLM Right-of-Way Premises"), including, without limitation, all of its
right, title and interest in and under those certain right-of-way grants
(the "BLM Rights-of-Way") described in said Exhibit D, together with all
---------
renewals, extensions, supplements, amendments, cancellations or
terminations thereof and all credits, deposits, options, privileges and
rights thereunder;
(f) all of Trustor's right, title and interest in and under any
contracts, agreements and other documents for or relating to (i) the
acquisition, development, possession, use, exchange or disposition of
geothermal resources, steam, condensate, injectate or other fluids and/or
(ii) the ownership or co-ownership (as the case may be) of pipelines, wells
and/or related improvements, equipment and facilities, including, without
limitation, in and under that certain (1) Coso Geothermal Exchange
Agreement dated as of January 11, 1994 among Trustor, CFP and CED, as
heretofore or hereafter amended or modified and (2) Cotenancy Agreement of
even date herewith among CED, CFP and Trustor, a Memorandum of which will
be recorded in the Official Records concurrently herewith, in each case
together with all renewals, extensions, supplements, options, amendments,
cancellations or terminations thereof (the "Steam Exchange Agreements");
(g) all of Trustor's right, title and interest in and to any (i)
easements, rights-of-way, licenses and entry rights, including, without
limitation, all of its right, title and interest in and under that certain
easement (the "Navy II Easement") described in Exhibit E attached hereto
---------
and by this reference incorporated herein, together with all renewals,
extensions, supplements, amendments, cancellations or terminations thereof
and all credits, deposits, options, privileges and rights thereunder, (ii)
gores of land, (iii) roads, streets, ways, alleys or passages, (iv)
interests in land lying in the bed of any street, road or avenue, whether
opened or proposed, on, near or adjoining the Site or any part thereof, (v)
sewer rights, (vi) air rights, (vii) waters, water courses, water rights
and powers, (viii) profits-a-prendre, minerals, geothermal substances, oil,
gas and other hydrocarbon substances, (ix) exploration, development and
production rights, and (x) all other estates, rights, titles, interests,
privileges, franchises, liberties, tenements, hereditaments, consents,
options, appendages and appurtenances of any nature whatsoever, in any way
belonging, relating or pertaining to or connected with the Site, the Navy
Contract, the Navy II Project, the BLM North Leases, the BLM Rights-of-Way,
the Navy II Easement, the Improvements or any other of the Trust Property,
or any part thereof, together with all renewals, extensions, supplements or
amendments thereof (the
3
<PAGE>
Navy II Land, the BLM North Lease Premises, the BLM Right-of-Way Premises
and the Navy II Easement are collectively referred to herein as the
"Site");
(h) all leases (including oil, gas, geothermal and other mineral
leases), subleases, franchises, licenses, concessions, permits, power
purchase and other contracts and agreements affecting the use or occupancy
of the Site, the Navy Contract, the Navy II Project, the BLM North Leases,
the BLM Rights-of-Way, the Navy II Easement, the Improvements or any other
of the Trust Property, or any part thereof, now or hereafter entered into,
and any renewals or extensions thereof (hereinafter referred to as the
"Leases"); and the right to receive and apply the rents, issues, profits,
royalties, income, accounts receivable, revenues, deposits, security
deposits, receipts and other benefits of the Trust Property to the extent
of Trustor's interest therein, including, without limitation, the proceeds
of all hydrocarbons or other minerals produced from the Trust Property, all
delay royalties, rentals and bonuses from any oil, gas, geothermal or other
mineral lease, any revenues under any power purchase or sale contracts, and
any amounts received from the United States Navy (collectively, hereinafter
referred to as the "Rents") to the payment of the Obligations;
(i) all of Trustor's right, title and interest in and to any and all
buildings, structures, improvements or fixtures of any kind, now or
hereafter erected or located on the Site or any part thereof, including,
without limitation, the Navy II Project (the "Improvements");
(j) all facilities, machinery, equipment, apparatus, appliances,
fittings, goods, materials, supplies, and other items and property of every
kind and nature whatsoever owned by Trustor, or in which Trustor now or
hereafter has any right, title or interest, now or hereafter located in or
upon, or used in connection with the present or future development,
operation, occupancy or other utilization (whether temporarily or
permanently) of or activities on, the Site, the Navy II Project, any of the
other Trust Property or any part thereof, whether or not attached to or
installed in any Improvements, and all renewals, replacements and
substitutions thereof and additions thereto, including, without limitation,
any and all (i) wells, including production, injection, test, temperature
gradient and water wells, well casings, wellhead equipment, geothermal
resource gathering, injection and disposal systems, pipelines, pumps,
sumps, test holes, evaporation ponds and other facilities and equipment
used to produce, inject, store, transport or utilize geothermal substances
or condensate, (ii) turbines, generators, dynamos, separators, scrubbers,
demisters, cooling systems and towers, (iii) overhead and underground
electrical transmission, distribution and collector lines and related
systems, switchyards, substations, transformers, energy storage facilities,
conductors, separators, circuit breakers, interconnection equipment,
conduits, footings, towers, poles, crossarms, guy lines, anchors and wires,
(iv) overhead and underground control, monitoring, communications and radio
relay systems and telecommunications equipment, (v) roads, erosion control
facilities, dikes, signs and fences, (v) heating, ventilating, plumbing,
laundry, incinerating, air conditioning, air cooling, lighting, alarm,
call, mechanical, electrical, water, gas, telephone, utility, wastewater,
treatment, pollution abatement, sprinkler, fire control, extinguishing,
safety protection and other systems, facilities, installations and
apparatus, (vii) sheds, engines, motors, boilers, stokers,
4
<PAGE>
pumps, fans, blowers, switchboards, computers, software, escalators,
elevators, compressors and tanks, (viii) partitions, ducts, shafts, vents,
pipes, radiators, wiring, floor coverings and awnings, (ix) tools, (x)
spare parts, (xi) motor vehicles, (xii) furnishings, furniture and
decorations, (xiii) building, cleaning, maintenance and service equipment,
materials, supplies, goods and property (whether or not covered by any
warehouse receipts or bills of lading or other such documents), (xiv) maps,
plans, specifications, architectural, engineering, construction or shop
drawings, manuals or similar documents, (xv) copyrights, trademarks, trade
names and other intellectual property, and (xvi) any other facilities,
machinery, equipment, apparatus, fittings, goods, materials, supplies, and
other items and property associated with or incidental to any of the
foregoing or to the generation, conversion, storage, switching, metering,
step-up, step-down, transmission, conducting, wheeling, sale or other use
or conveyance of electricity (collectively, the "Equipment"), as well as
the right, title and interest of Trustor in and to any of the Equipment
which may be subject to any security agreements (as defined in the Uniform
Commercial Code of the State of California) superior in lien to the lien of
this Deed of Trust;
(k) all awards or payments, including interest thereon, and the right
to receive the same, which may be made with respect to the Trust Property,
whether from state fund sharing, from the exercise of the right of eminent
domain (including any transfer made in lieu of the exercise of said right),
from changes of grade of street, from the United States Navy under the Navy
Contract, or for any other injury to or decrease in the value of the Trust
Property now or hereafter located thereon, whether direct or consequential,
which said awards and payments are hereby assigned to Beneficiary, and
Beneficiary is hereby authorized to collect and receive the proceeds
thereof and to give proper receipts and acquittances therefor;
(l) all refunds or rebates of all taxes or charges in lieu of taxes,
assessments, water rates, sewer rents and other charges, including vault
charges and license or permit fees for the use of vaults, chutes and
similar areas on or adjoining the Site, now or hereafter levied or assessed
against the Trust Property (hereinafter referred to as the "Taxes");
(m) all inventory, accounts, books, records and general intangibles
in whatever form and however stored, owned by Trustor, or in which Trustor
now or hereafter has any right, title or interest, now or hereafter located
upon, arising in connection with or concerning the Trust Property;
(n) all proceeds of and any unearned premiums on any insurance
policies now or hereafter covering the Trust Property, including, without
limitation, the right to receive the proceeds of any insurance, judgments
or settlements made in lieu thereof, for damage to the Trust Property or
for any defect in the title to the Trust Property or any part thereof;
(o) the right, in the name and on behalf of Trustor, to appear in and
defend any action or proceeding brought with respect to the Trust Property
and to commence any action or proceeding to protect the interest of
Beneficiary in the Trust Property;
5
<PAGE>
(p) all of Trustor's right, title and interest in and to all plans
and specifications prepared for or relating to the design, development,
construction, management and use of Improvements or Equipment or other
development of the Trust Property (including, without limitation, all
amendments, modifications, supplements, general conditions and addenda
thereof or thereto), and all studies, data and drawings related thereto,
and all contracts and agreements of Trustor relating to the aforesaid plans
and specifications or to the aforesaid studies, data and drawings or to the
design, development, construction, management and use of Improvements, the
Equipment or any of the other Trust Property;
(q) all contracts with property managers, surveyors, real estate
advisors, consultants and brokers, geothermal energy advisors and
consultants, engineers, and other like agents and professionals that relate
to any part of the Trust Property, including without limitation, any
Improvements constructed or to be constructed on the Site or any part
thereof or any Equipment to be placed, installed, used or stored on the
Site or any part thereof, and all maps, reports, surveys, tests and studies
of or relating to any of the Trust Property, owned by Trustor or in which
Trustor has or shall have an interest and now or hereafter in the
possession of Trustor or any such agent or professional;
(r) all present and future agreements, permits, licenses,
entitlements and approvals, as well as all modifications, supplements,
extensions and renewals thereof, now existing or hereafter made, in which
Trustor now or hereafter has an interest, relating to the use, development
and/or occupancy of the Site, the Improvements and/or the Equipment;
(s) all the estate, right, title, interest, claim or demand of any
nature whatsoever of Trustor, either in law or in equity, in possession or
expectancy, in and to the Trust Property and in all replacements,
substitutes, renewals, betterments and extensions of and all additions to
any of the Improvements or Equipment, or any part thereof;
(t) all products and proceeds of any of the Trust Property herein
described; and
(u) all bank accounts and trust accounts of Trustor.
This Deed of Trust secures the following obligations which shall heretofore
and hereinafter collectively be referred to as the "Obligations":
(i) The payment of all indebtedness and the performance of all
obligations of Trustor as evidenced in Section 9 of the Indenture entitled
"Guarantees" and as further evidenced by that certain Notation of Guarantee
of even date herewith executed by Trustor, CED and CFP, including, without
limitation, the guarantee of payment of (1) $110,000,000 6.80% Senior
Secured Notes due in 2001 and (2) $303,000,000 9.05% Senior Secured Notes
due in 2009 (collectively, the "Senior Secured Notes") issued by the Issuer
(the "Guarantee");
6
<PAGE>
(ii) The payment of such further sums and/or performance of such
further obligations as Trustor or the then record owner of the Trust
Property or any part thereof may undertake to pay and/or perform for Beneficiary
and its successor or assigns, when such borrowing or obligation is evidenced by
a writing or writings reciting that it or they are secured by this Deed of
Trust;
(iii) The payment of all indebtedness of Trustor owing to a Permitted
Additional Senior Lender; and
(iv) The satisfaction and performance of all other debts, obligations,
covenants, agreements and liabilities of the Issuer or Trustor to
Trustee, Beneficiary or any of the other Secured Parties arising out of,
connected with or related to this Deed of Trust, the Guarantee, any of the
Financing Documents or any other agreement now or hereafter executed by the
Issuer or Trustor, and all amendments, extensions, and renewals of the
foregoing documents, whether now existing or hereafter arising, voluntary
or involuntary, absolute or contingent, liquidated or unliquidated, and
whether or not from time to time decreased or extinguished and later
increased, created, or incurred.
To protect the security of this Deed of Trust, Trustor covenants with and
represents and warrants to Trustee and Beneficiary as follows:
1. Payment of Obligations. Trustor will pay and perform the
----------------------
Obligations at the time and in the manner provided for its payment and
performance in this Deed of Trust, the Guarantee and the other Financing
Documents, as applicable.
2. Warranty of Title. Trustor warrants its right, title or
-----------------
interest, as applicable, in and to the Site, the Navy Contract, the
Improvements, the Equipment and the balance of the Trust Property and the
validity and priority of the lien of this Deed of Trust and the estate hereof
against the claims and demands of all Persons whomsoever, other than with
respect to Permitted Liens. Trustor also represents and warrants that (i)
Trustor is now, and after giving effect to this Deed of Trust, will be, in a
solvent condition, (ii) the execution and delivery of this Deed of Trust by
Trustor does not constitute a "fraudulent conveyance" within the meaning of
Title 11 of the United States Code (the "Bankruptcy Code") as now constituted or
under any other applicable statute, and (iii) no bankruptcy or insolvency
proceedings are pending or contemplated by or, to the best of Trustor's
knowledge, against Trustor.
3. Notice. Trustor hereby requests that a copy of notice of default
------
and notice of sale be mailed to it at the address set forth below, and such
address is also the mailing address of Trustor, as debtor, under the California
Uniform Commercial Code. Trustor hereby covenants to cure any default within
the time period required by the Financing Documents upon receipt of notice of
such default. Beneficiary's address given below is the address for Beneficiary
under the California Uniform Commercial Code. Any notice, request, demand,
statement, authorization, approval or consent made hereunder shall be deemed
given or furnished (i) when addressed to the party intended to receive the same
at the address of such party set forth below, and delivered at such address or
(ii) three (3) days after the same is deposited in the United States mail as
first class certified mail, return receipt requested, postage prepaid:
7
<PAGE>
If to Trustor:
Coso Power Developers
c/o New CTC Company
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Attention: President
If to Trustee:
Chicago Title Insurance Company
2425 West Shaw
Fresno, California 93711
Attention: Trust Department
If to Beneficiary:
U.S. Bank Trust National Association
One California Street, Suite 400
San Francisco, California 94111
Attention: Trust Officer
4. Sale of Trust Property. This Deed of Trust hereby contains more
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than one power of sale and Beneficiary, in its sole discretion, may conduct one
or multiple foreclosure sales in connection herewith. If this Deed of Trust is
foreclosed, or the power of sale hereunder is exercised, the Trust Property, or
any interest therein, may, at the discretion of Beneficiary, be sold in one or
more parcels or in several interests or portions and in any order or manner.
5. No Credits on Account of the Obligations. Trustor will not claim
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or demand or be entitled to any credit or credits on account of the Obligations
for any part of the Taxes assessed against the Trust Property or any part
thereof, and no deduction shall otherwise be made or claimed from the taxable
value of the Trust Property, or any part thereof, by reason of this Deed of
Trust or the Obligations.
6. Offset, Counterclaims and Defenses. Any assignee of this Deed of
----------------------------------
Trust and the Obligations secured hereby shall take the same free and clear of
all offsets, counterclaims or defenses of any nature whatsoever which Trustor
may have against any assignor of this Deed of Trust and the Obligations secured
hereby, and no such offset, counterclaim or defense shall be interposed or
asserted by Trustor in any action or proceeding brought by any such assignee
upon this Deed of Trust or the Obligations secured hereby and any such right to
interpose or assert any such offset, counterclaim or defense in any such action
or proceeding is hereby expressly waived by Trustor.
7. Other Security for the Obligations. Trustor shall observe and
----------------------------------
perform all of the terms, covenants and provisions to be observed or performed
by Trustor contained in this Deed of Trust and in the Financing Documents to
which Trustor shall be a party evidencing,
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securing or guaranteeing payment of the Obligations, in whole or in part, or
otherwise executed and delivered in connection with this Deed of Trust or the
Financing Documents.
8. Preservation of Trust Property. Trustor shall do any and all
------------------------------
acts which, from the character or use of the Trust Property, may be reasonably
necessary to protect and preserve the lien, the priority of the lien and the
security of Beneficiary granted herein, the specific enumerations herein not
excluding the general. Trustor shall maintain and preserve the Trust Property
in accordance with the requirements of the Indenture. Further, with respect to
the Navy Contract, the BLM North Leases, the BLM Rights-of-Way, the Navy II
Easement and Trustor's rights in and to the Steam Exchange Agreements
(collectively, the "Primary Rights"), Trustor hereby agrees as follows, except
as otherwise expressly permitted or required in the Indenture:
(a) not to amend, change, alter, cancel, surrender, release, waive,
supplement, terminate or modify, nor permit the amendment, change, alteration,
cancellation, surrender, release, waiver, supplement, termination, or
modification (each, an "Amendment") of any of the Primary Rights or the estate
or rights created thereby or any interest therein without the prior written
consent of Beneficiary. Consent to one Amendment shall not be deemed to be a
waiver of the right to require consent to other, future or successive
Amendments. Any Amendment, whether oral or in writing, made without the prior
written consent of Beneficiary, shall not be valid or effective;
(b) to make all payments and to keep and perform promptly each and
every covenant, obligation and agreement of the lessee, transferee, grantee,
licensee or holder (as the case may be) in the Primary Rights, not to commit,
suffer or permit any default thereunder and not to take any action or omit to
take any action which would effect or permit the termination or cancellation of
any of the Primary Rights. Trustor shall take all actions necessary to keep the
Primary Rights unimpaired. Trustor shall promptly deliver to Beneficiary copies
of all material notices, demands or complaints received by Trustor from the
United States Navy, the United States Department of the Interior, Bureau of Land
Management (the "BLM"), CFP, CED or any other third party in connection with any
of the Primary Rights, and promptly notify Beneficiary in writing with respect
to any default or alleged default by any party thereto (whether or not a notice
of default has been issued under any of the Primary Rights) and deliver to
Beneficiary within ten (10) business days of Trustor's receipt of any notice of
default a certificate executed by Trustor describing the default, the actions
Trustor intends to take to cure such default, the length of time Trustor expects
to take to cure such default and the status of any actions taken to cure such
default. Trustor shall also furnish to Beneficiary such other information as
Beneficiary may reasonably request concerning Trustor's performance of its
covenants, obligations and agreements under or with respect to the Primary
Rights. Beneficiary shall have the option but not the obligation to cure any
such default and to perform any or all of Trustor's obligations thereunder;
(c) that any subordination of any of the Primary Rights to any fee
mortgage, to any lease, or to any other interest, either orally or in writing,
made without the prior written consent of Beneficiary, shall not be valid or
effective;
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(d) that if any of the Primary Rights is terminated prior to the
natural termination of its term by reason of default of Trustor thereunder, and
if, pursuant to any provision of such Primary Rights, or otherwise, Beneficiary
or its designee shall acquire from the United States Navy, the BLM or any other
third party, as the case may be, a new contract, lease or right-of-way in
respect of the Site or any part thereof, then Trustor shall not have any right,
title or interest in or to such new contract, lease or right-of-way or the
estate created thereby; and
(e) that the provisions hereof shall be deemed to be obligations of
Trustor in addition to Trustor's obligations as lessee, grantee, transferee,
licensee or holder, as the case may be, with respect to any similar matters
contained in any of the Primary Rights, and the inclusion herein of any
covenants and agreements relating to similar matters as to which Trustor is
obligated under any of the Primary Rights shall not restrict or limit Trustor's
duties and obligations to keep and perform promptly all of its covenants,
agreements and obligations as lessee, grantee, transferee, licensee or holder,
as the case may be, under the Primary Rights; provided, however, that nothing in
this Deed of Trust shall be construed as requiring the taking of or the
committing to take any action by Trustor or Beneficiary which would cause a
default under any of the Primary Rights.
9. Further Transfer of Trust Property. Except as otherwise
----------------------------------
expressly permitted or required in the Indenture, without the prior written
consent of Beneficiary being first had and obtained, Trustor shall not (a)
execute or deliver any pledge, security agreement, mortgage, deed of trust or
other instrument of hypothecation covering all or any portion of the Trust
Property or any interest therein or (b) sell, contract to sell, lease with
option to purchase, convey, alienate, transfer, sublease or otherwise dispose of
all or any portion of the Trust Property or any interest therein, in each case
whether voluntarily or involuntarily, by operation of law or otherwise. Consent
to one such transaction shall not be deemed to be a waiver of the right to
require consent to future or successive transactions. Beneficiary may grant or
deny such consent in its sole discretion and, if consent should be given, any
such transfer shall be subject to this Deed of Trust, and any such transferee
shall assume all obligations hereunder and agree to be bound by all provisions
contained herein and therein. Such assumption shall not, however, release
Trustor from any liability under this Deed of Trust without the written consent
of Beneficiary.
10. Eminent Domain. In the event that any proceeding or action be
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commenced for the taking of the Trust Property, or any part thereof or interest
therein, for public or quasi-public use under the power of eminent domain,
condemnation or otherwise, or if the same be taken or damaged by reason of any
public improvement or condemnation proceedings, or in any other manner
(collectively, a "Condemnation"), or should Trustor receive any notice or other
information regarding such proceeding, action, taking or damage, Trustor shall
give prompt written notice thereof to Beneficiary. Beneficiary shall be
entitled to give or withhold its consent to any compromise or settlement in
connection with such taking or damage. All compensation, awards, damages,
rights of action and proceeds awarded to Trustor by reason of any such taking or
damage (the "Condemnation Proceeds") are hereby absolutely and unconditionally
assigned to Beneficiary, and Trustor agrees to execute such further assignments
of the Condemnation Proceeds as Beneficiary or Trustee may require. All such
Condemnation
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Proceeds shall be applied as provided in the Credit Agreement of even date
herewith between Issuer and Trustor.
11. Assignment of Contracts. In addition to any other grant,
-----------------------
transfer or assignment effectuated hereby, and without in any manner limiting
the generality of the grants given above, Trustor shall assign to Beneficiary,
as security for the Obligations, Trustor's interest in all agreements,
contracts, leases, licenses and permits affecting the Site and Improvements in
any manner whatsoever, such assignments to be made, if so requested by
Beneficiary, by instruments in form satisfactory to Beneficiary; but no such
assignment shall be construed as a consent by Beneficiary to any agreement,
contract, license or permit so assigned, or to impose upon Beneficiary any
obligations with respect thereto.
12. Anti-Merger. There shall be no merger of any of the Primary
-----------
Rights or the estates or interests created thereby (collectively, the "Estate")
with the fee estate in the Site or any part thereof by reason of any of those
interests coming into common ownership, unless Beneficiary consents in writing
thereto. Further, if Trustor acquires any interest in the fee estate to the
Site or any part thereof, then the lien of this Deed of Trust will
simultaneously and without further action become extended to encumber Trustor's
interest in the fee estate in addition to remaining a lien on the Estate, and
Trustor agrees, upon request by Beneficiary and at no cost to Beneficiary, to
execute, acknowledge and deliver to Beneficiary all further instruments and
documents that Beneficiary believes to be appropriate to provide further
evidence of the lien of this Deed of Trust on such fee interest. Where the lien
of this Deed of Trust has been extended to cover any interest of Trustor in the
fee estate, then in the event of the exercise of any power of sale under this
Deed of Trust, Beneficiary will have the right to sell the Estate and the fee
interest of Trustor separately or together at the election of Beneficiary.
13. Documentary Stamps. If at any time the United States of America,
------------------
any state thereof or any governmental subdivision of any such state, shall
require revenue or other stamps to be affixed to the Financing Documents or this
Deed of Trust, or that any taxes be paid in connection with the Financing
Documents or this Deed of Trust, Trustor shall pay for the same, with interest
and penalties thereon, if any.
14. Right of Entry. Beneficiary, may at any reasonable time or times
--------------
make or cause to be made entry upon and inspection of the Trust Property or any
part thereof in person or by agent.
15. Event of Default. The term "Event of Default," whenever used in
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this Deed of Trust, shall mean any one or more of the events of default listed
or otherwise provided in the Indenture or any other Financing Document, subject
to such cure rights as may be expressly set forth in the Indenture or such other
Financing Document (whether any such event shall be voluntary or involuntary or
come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body).
16. Appointment of Receiver. Trustee or Beneficiary, in any action
-----------------------
(or multiple actions) to foreclose this Deed of Trust or exercise the power of
sale granted under this Deed of Trust or upon the actual or threatened waste to
any part of the Trust Property or upon the
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<PAGE>
occurrence of an Event of Default, shall be at liberty, without notice, to apply
for the appointment of a receiver, and shall be entitled to the appointment of
such receiver as a matter of right, without regard to the value of the Trust
Property as security for the Obligations, or the solvency or insolvency of any
Person then liable for the payment of the Obligations.
17. Non-Waiver. The failure of Beneficiary to insist upon strict
----------
performance of any term of this Deed of Trust shall not be deemed to be a waiver
of any term of this Deed of Trust. Trustor shall not be relieved of Trustor's
obligation to pay and perform the Obligations at the time and in the manner
provided for its payment in the Financing Documents and this Deed of Trust by
reason of (i) failure to comply with any request(s) of Trustor to take any
action to foreclose this Deed of Trust or otherwise enforce any of the
provisions hereof or of the Financing Documents or any other mortgage, deed of
trust, instrument or document securing or guaranteeing the payment of the
Obligations or a portion thereof, (ii) the release, regardless of consideration,
of the whole or any part of the Trust Property or any other security for the
Obligations, or (iii) any agreement or stipulation between Beneficiary and any
subsequent owner or owners of the Trust Property or other Person extending the
time of payment or otherwise modifying or supplementing the terms of this Deed
of Trust or the Financing Documents evidencing, securing or guaranteeing payment
of the Obligations or any portion thereof, without first having obtained the
consent of Trustor (but without prejudice to the rights of Trustor under the
Financing Documents), and in the latter event, Trustor shall continue to be
obligated to pay and perform the Obligations at the time and in the manner
provided in the Financing Documents and this Deed of Trust, as so extended,
modified and supplemented, unless expressly released and discharged from such
obligation by Beneficiary in writing. Regardless of consideration, and without
the necessity for any notice to or consent by the holder of any subordinate
lien, encumbrance, right, title or interest in or to the Trust Property,
Beneficiary may release any Person at any time liable for the payment of the
Obligations or any portion thereof or all or any part of the security held for
the Obligations and may extend the time of payment or otherwise modify the terms
of the Financing Documents or this Deed of Trust, including, without limitation,
a modification of the interest rate payable on the principal balance of the
Obligations, without in any manner impairing or affecting this Deed of Trust or
the lien thereof or the priority of this Deed of Trust, as so extended and
modified, as security for the Obligations over any such subordinate lien,
encumbrance, right, title or interest. Beneficiary may resort for the payment
of the Obligations to any other security held by Beneficiary in such order and
manner as Beneficiary in its discretion, may elect. Beneficiary may take action
to recover the Obligations, or any portion thereof, or to enforce any covenant
hereof without prejudice to the right of Beneficiary thereafter to foreclose
this Deed of Trust. Beneficiary shall not be limited exclusively to the rights
and remedies herein stated but shall be entitled to every additional right and
remedy now or hereafter afforded by law or equity. The rights of Beneficiary
under this Deed of Trust shall be separate, distinct and cumulative, and none
shall be given effect to the exclusion of the others. No act of Beneficiary
shall be construed as an election to proceed under any one provision herein to
the exclusion of any other provision.
18. Power of Sale. Upon the occurrence and during the continuance of
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an Event of Default, Beneficiary may at any time, at its option and in its sole
discretion, declare the Obligations to be due and payable and the same shall
thereupon become immediately due and payable, including any prepayment charge or
fee payable under the terms of the Financing Documents. Beneficiary may also do
any or all of the following; provided, however, that any of
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the following actions shall be undertaken in a commercially reasonable manner
and in accordance with applicable law; and provided, further, that Beneficiary
shall have no obligation to do any of the following:
(a) Either in person or by agent, with or without bringing any action
or proceeding or by a receiver appointed by a court and without regard to the
adequacy of Beneficiary's security, enter upon and take possession of the Trust
Property or any part hereof and do any acts which Beneficiary deems necessary or
desirable to preserve the value, marketability or rentability of the Trust
Property or to increase the income therefrom or to protect the security hereof
and with or without taking possession of any of the Trust Property, sue for or
otherwise collect all Rents and profits including those past due and unpaid, and
apply the same, less costs and expenses of operation and collection including
attorneys' fees and expenses, upon the Obligations secured hereby with the
remainder, if any, to the Person or Persons legally entitled thereto. The
collection of Rents and profits and the application thereof shall not cure or
waive any Event of Default or notice thereof or invalidate any act done in
response thereto or pursuant to such notice.
(b) Bring an action in any court of competent jurisdiction to
foreclose this instrument or to enforce any of the covenants hereof.
(c) Exercise any or all of the remedies available to a secured party
under the Uniform Commercial Code.
(d) Beneficiary may elect to cause the Trust Property or any part
thereof to be sold under the power of sale herein granted in any manner
permitted by applicable law. In connection with any sale or sales hereunder,
Beneficiary may elect to treat any of the Trust Property which consists of a
right in action or which is property that can be severed from the real property
covered hereby or any improvements thereon without causing structural damage
thereto as if the same were personal property, and dispose of the same in
accordance with applicable law, separate and apart from the sale of real
property. Any sale of any personal property hereunder shall be conducted in any
manner permitted by Section 9501 or any other applicable sections of the
California Uniform Commercial Code. Where the Trust Property consists of real
and personal property or fixtures, whether or not such personal property is
located on or within the real property, Beneficiary may elect in its discretion
to exercise its rights and remedies against any or all of the real property,
personal property, and fixtures in such order and manner as is now or hereafter
permitted by applicable law. Without limiting the generality of the foregoing,
Beneficiary may at its sole and absolute discretion and without regard to the
adequacy of its security elect to proceed against any or all of the real
property, personal property and fixtures in any manner permitted under Section
9501(4)(a) of the California Uniform Commercial Code; and if Beneficiary elects
to proceed in the manner permitted under Section 9501(4)(a)(ii) of the
California Uniform Commercial Code, the power of sale herein granted shall be
exercisable with respect to all or any of the real property and fixtures covered
hereby, as designated by Beneficiary, and the Trustee is hereby authorized and
empowered to conduct any such sale of any real property and fixtures in
accordance with the procedures applicable to real property. Where the Trust
Property consists of real property and personal property, any reinstatement of
the Obligations, following the occurrence of an Event of Default and an election
by Beneficiary to accelerate the maturity of the Obligations, which is made by
Trustor or any
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other Person or entity permitted to exercise the right of reinstatement under
Section 2924c of the California Civil Code or any successor statute, shall, in
accordance with the terms of California Uniform Commercial Code Section
9501(4)(c)(iii), not prohibit Beneficiary from conducting a sale or other
disposition of any personal property or fixtures or from otherwise proceeding
against or continuing to proceed against any personal property or fixtures in
any manner permitted by the California Uniform Commercial Code; nor shall any
such reinstatement invalidate, rescind or otherwise affect any sale, disposition
or other proceeding held, conducted or instituted with respect to any personal
property or fixtures prior to such reinstatement. Any sums paid to Beneficiary
in effecting any reinstatement pursuant to Section 2924c of the California Civil
Code shall be applied to the Obligations and to Beneficiary's and Trustee's
reasonable costs and expenses in the manner required by such Section 2924c.
Should Beneficiary elect to sell any of the Trust Property which is real
property or which is personal property or fixtures that Beneficiary has elected
under Section 9501(4)(a)(ii) of the California Uniform Commercial Code to sell
together with real property in accordance with the laws governing a sale of real
property, such notice of default and election to sell shall be given as may then
be required by law. Thereafter, upon the expiration of such time and the giving
of such notice of sale as may then be required by law, at the time and place
specified in the notice of sale, Trustee shall sell such property, or any
portion thereof specified by Beneficiary, at public auction to the highest
bidder for cash in lawful money of the United States. Trustee may, and upon
request of Beneficiary shall, from time to time, postpone the sale by public
announcement thereof at the time and place noticed therefor. If the Trust
Property consists of several lots, parcels or interests, Beneficiary may
designate the order in which the same shall be offered for sale or sold. Should
Beneficiary desire that more than one such sale or other disposition be
conducted, Beneficiary may, at its option, cause the same to be conducted
simultaneously, or successively on the same day, or at such different days or
times and in such order as Beneficiary may deem to be in its best interest. Any
Person, including Trustor, Trustee or Beneficiary may purchase at the sale. In
the event Beneficiary elects to dispose of the Trust Property through more than
one sale, Trustor agrees to pay the costs and expenses of each such sale and of
any judicial proceedings wherein the same may be made, including reasonable
compensation to Trustee and Beneficiary, their agents and counsel, and to pay
all expenses, liabilities and advances made or incurred by Trustee in connection
with such sale or sales, together with interest on all such advances made by
Trustee at the interest rate then applicable to the indebtedness to which the
Financing Documents apply. Upon any sale Trustee shall execute and deliver to
the purchaser or purchasers a deed or deeds conveying the property so sold but
without any covenant or warranty whatsoever express or implied, whereupon such
purchaser or purchasers shall be let into immediate possession, and the recitals
in any such deed or deeds of facts such as default, the giving of notice of
default and notice of sale, and other facts affecting the regularity or validity
of such sale or disposition, shall be conclusive proof of the truth of such
facts and any such deed or deeds shall be conclusive against all Persons as to
such facts recited therein.
(e) Exercise each of its other rights and remedies under this Deed of
Trust or the other Financing Documents, including, without limitation, any or
all of the following:
(i) exercise the rights of acceleration set forth in the Indenture,
and if the indebtedness is not paid on demand, at Beneficiary's option, (1)
bring suit therefor and demand payment thereof, (2) bring suit under the
Guarantee and/or the Indenture and/or
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(3) take any and all steps and institute any and all other proceedings that
Beneficiary deems necessary to enforce the indebtedness and obligations
secured hereby and to protect the lien of this Deed of Trust;
(ii) without assuming liability for the performance of any of
Trustor's obligations hereunder, under the Guarantee or under any Financing
Document, enter and take possession of the Trust Property or any part
thereof, exclude Trustor and all Persons claiming under Trustor whose
claims are junior to this Deed of Trust, wholly or partly therefrom, and
use, operate, manage and control the same either in the name of Trustor or
otherwise as Beneficiary shall deem best, and upon such entry, from time to
time at the expense of Trustor and the Trust Property, make all such
repairs, replacements, alterations, additions or improvements to the Trust
Property or any part thereof as Beneficiary may deem proper and, whether or
not Beneficiary has so entered and taken possession of the Trust Property
or any part thereof, collect and receive all the Rents and apply the same,
to the extent permitted by law, to the payment of all expenses which
Beneficiary may be authorized to make under this Deed of Trust, the
remainder to be applied to the payment of the Obligations until the same
shall have been repaid in full; and if Beneficiary demands or attempts to
take possession of the Trust Property or any portion thereof in the proper
exercise of any rights hereunder, Trustor shall promptly turn over and
deliver complete possession thereto to Beneficiary; and
(iii) personally or by agents, with or without entry, if Beneficiary
shall deem it advisable, proceed to protect and enforce its rights under
this Deed of Trust, by suit for specific performance of any covenant
contained herein or in the Guarantee, in the Indenture or in any Financing
Document or in aid of the execution of any power granted herein or in the
Guarantee, in the Indenture or in any Financing Document, or for the
foreclosure of this Deed of Trust and the sale for cash of the Trust
Property under the judgment or decree of a court of competent jurisdiction,
or for the exercise of the power of sale granted under this Deed of Trust
or for the enforcement of any other right as Beneficiary shall deem most
effectual for such purpose; provided that in the event of a sale, by
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foreclosure or otherwise, of less than all of the Trust Property, this Deed
of Trust shall continue as a lien on, and security interest in, the
remaining portion of the Trust Property and Beneficiary shall not be
obligated to sell upon credit unless Beneficiary shall have expressly
consented in writing to a sale upon credit.
(f) Except as otherwise required by law, apply the net proceeds of any
foreclosure, collection, recovery, receipt, appropriation, realization or sale
of the Trust Property in the order of priority specified in the Indenture. If
all Obligations and any other amounts due under this Deed of Trust have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Trustor if Trustor is lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
(g) Upon any sale or sales made under or by virtue of this section,
whether made under the power of sale or by virtue of judicial proceedings or of
a judgment or decree of foreclosure and sale, Beneficiary may bid for and
acquire the Trust Property or any part thereof. In lieu of paying cash for the
Trust Property, Beneficiary may make settlement for the purchase price by
crediting against the Obligations the sales price of the Trust Property, as
adjusted for
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the expenses of sale and the costs of the action and any other sums for which
Trustor is obligated to reimburse Trustee or Beneficiary under this Deed of
Trust.
19. Concerning the Trustee. Trustee shall be under no duty to take
----------------------
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being liable,
however, only for willful negligence or misconduct, and hereby waives any
statutory fee and agrees to accept reasonable compensation, in lieu thereof, for
any services rendered by Trustee in accordance with the terms hereof. Trustee
may resign at any time upon giving thirty (30) days' notice to Trustor and to
Beneficiary. Beneficiary may remove Trustee at any time or from time to time
and select a successor trustee. In the event of the death, removal,
resignation, refusal to act, or inability to act of Trustee, or in its sole
discretion for any reason whatsoever, Beneficiary may, without notice and
without specifying any reason therefor and without applying to any court, select
and appoint a successor trustee, by an instrument recorded wherever this Deed of
Trust is recorded, and all powers, rights, duties and authority of Trustee, as
aforesaid, shall thereupon become vested in such successor. Such substitute
trustee shall not be required to give bond for the faithful performance of the
duties of Trustee hereunder unless required by Beneficiary.
20. Trustee's Fees. Trustor shall pay all reasonable costs, fees and
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expenses incurred by Trustee and Trustee's agents and counsel in connection with
the performance by Trustee of Trustee's duties hereunder, and all such costs,
fees and expenses shall be secured by this Deed of Trust.
21. Proceeds of Sale. Subject to the provisions of Section 49 of
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this Deed of Trust, no sale or other disposition of all or any part of the Trust
Property shall be deemed to relieve Trustor of its obligations under this Deed
of Trust, the Guarantee or any other Financing Document except and only to the
extent the proceeds are applied to the payment of the Obligations or such other
obligations. If the proceeds of sale, collection or other realization of or
upon the Trust Property are insufficient to cover the costs and expenses of such
realization and the payment in full of the Obligations, Trustor shall remain
liable for any deficiency.
22. Trustor as Tenant Holding Over. In the event of any such
------------------------------
foreclosure or other sale by Beneficiary, Trustor shall be deemed a tenant
holding over and shall forthwith deliver possession to the purchaser or
purchasers at such sale or be summarily dispossessed according to provisions of
law applicable to tenants holding over.
23. Leases. Beneficiary is authorized to subordinate this Deed of
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Trust to any Leases and to foreclose this Deed of Trust subject to the rights of
any tenants of the Trust Property, if any, and the failure to so subordinate or
to make any such tenants parties to any such foreclosure or other proceedings
and to foreclose their rights will not be, nor be asserted to be by Trustor, a
defense to any proceedings instituted by Beneficiary to collect the Obligations.
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24. Discontinuance of Proceedings. In case Beneficiary shall have
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proceeded to enforce any right, power or remedy under this Deed of Trust by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
withdrawn, discontinued or abandoned for any reason, or shall have been
determined adverse to Beneficiary, then in every such case, to the fullest
extent permitted by law, (a) Trustor and Beneficiary shall be restored to their
former positions and rights, (b) all rights, powers and remedies of Beneficiary
shall continue as if no such proceeding had been taken, (c) each and every Event
of Default declared or occurring prior or subsequent to such withdrawal,
discontinuance or abandonment shall be or shall be deemed to be an independent
event of default and (d) neither the Obligations, this Deed of Trust nor the
Guarantee shall be or shall be deemed to have been not reinstated or otherwise
affected by such withdrawal, discontinuance or abandonment; and to the fullest
extent permitted by law, Trustor hereby expressly waives the benefit of any
statute or rule of law now provided or which may hereafter conflict with the
above.
25. No Reinstatement. If an Event of Default shall have occurred and
----------------
be continuing and Beneficiary shall have proceeded to enforce any right, power
or remedy permitted hereunder, then a tender of payment by Trustor or by anyone
on behalf of Trustor of any amount less than the amount necessary to satisfy the
Obligations in full, or the acceptance by Beneficiary of any such payment so
tendered, shall not constitute a reinstatement of this Deed of Trust, the
Guarantee or any other document evidencing, securing or guaranteeing the
Obligations.
26. Trustor's Waiver of Rights. Trustor hereby waives and releases,
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to the maximum extent permitted by law, any rights, remedies or defenses which
Trustor might otherwise have (i) under California Code of Civil Procedure
Sections 726, 725a, 580a, 580b and 580d, California Civil Code Sections 2809,
2810, 2819, 2822, 2839, 2845, 2850, 2855, 2899 and 3433, under any anti-
deficiency provision of the Uniform Commercial Code, and under any future
judicial decisions or legislation, which statutes, future judicial decisions
and/or legislation might otherwise limit or condition Beneficiary's exercise of
certain of Beneficiary's rights and remedies in connection with the enforcement
of obligations secured by a lien on real property, including, without
limitation, Beneficiary's lien on the Trust Property or on any property
encumbered by other deeds of trust given to Beneficiary to secure obligations
under the Financing Documents (each, an "Additional Deed of Trust"), (ii) under
any laws now existing or hereafter enacted providing for any appraisal before
sale of a portion of the Trust Property or of the real property security of any
Additional Deed of Trust (the "Additional Deed of Trust Property"), (iii) to all
rights of redemption, valuation, appraisal, stay of execution, notice of
election to mature or any so-called "Moratorium Laws", to declare due the
Obligations, to marshalling in the event of the foreclosure of the liens created
under this Deed of Trust or under any Additional Deed of Trust, or the exercise
of the power of sale granted hereunder or thereunder, (iv) pursuant to the
defense of the statute of limitations in any action hereunder or in any action
for the collection or performance of any Obligations secured hereby or any
obligations secured by any Additional Deed of Trust, (v) pursuant to any defense
arising because of Beneficiary's election, in any proceeding instituted under
the Federal Bankruptcy Code, of the application of Section 1111(b)(2) of the
Federal Bankruptcy Code, (vi) pursuant to any defense based upon any borrowing
or grant of a security interest under Section 364 of the Federal Bankruptcy
Code, (vii) under any law limiting remedies, including recovery of a deficiency,
under an obligation secured by a deed of trust on real property and/or a
security agreement on personal property (including,
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without limitation, the Trust Property and the Additional Deed of Trust
Property) if the real property and/or personal property is sold under a power of
sale contained in the deed of trust, and all defenses based on any loss whether
as a result of any such sale or otherwise, of Trustor's right to recover any
amount from the Issuer, whether by right of subrogation or otherwise, (viii)
under any law to require Beneficiary to pursue the Issuer or any other Person,
any security which Beneficiary may hold, or any other remedy before proceeding
against Trustor, (ix) to all rights of reimbursement or subrogation, all rights
to enforce any remedy that Beneficiary, the Trustee, the Holders of the Senior
Secured Notes or the Permitted Additional Senior Lenders, if any, may have
against the Issuer, or against the Guarantors as obligors under the Partnership
Notes, and all rights to participate in any security held by Beneficiary until
the Obligations have been paid and the covenants of the Indenture have been
performed in full, (x) to all rights to assert the bankruptcy or insolvency of
Issuer as a defense hereunder or as the basis for rescission hereof, (xi) to all
rights under any law purporting to reduce Trustor's Obligations hereunder if
Issuer's obligations are reduced, (xii) all defenses based on the disability or
lack of authority of Issuer or any Person, the repudiation of the Guarantees or
any related Financing Documents by Issuer or any Person, the failure by
Beneficiary, the Trustee, the Holders of the Senior Secured Notes or any
Permitted Additional Senior Lender, if any, to enforce any claim against Issuer,
or the unenforceability in whole or in part of any Financing Document, (xiii) to
all suretyship and guarantor's defenses generally, (xiv) to all rights to insist
upon, plead or in any manner whatever claim or take the benefit or advantage of,
any appraisal, valuation, stay, extension, marshaling of assets, redemption or
similar law, or exemption, whether now or at any time hereafter in force, which
may delay, prevent or otherwise affect the performance by Trustor of its
obligations under, or the enforcement by Beneficiary of, this Deed of Trust or
any Additional Deed of Trust, (xv) to any requirement on the part of
Beneficiary, Trustee, the Holders of the Senior Secured Notes or any Permitted
Additional Senior Lender, if any, to mitigate the damages resulting from any
default (whether hereunder, under any other Financing Document, under any
Additional Deed of Trust or under any other document or instrument); and (xvi)
except as otherwise specifically set forth herein, all rights of notice and
hearing of any kind prior to the exercise of rights by Beneficiary upon the
occurrence and during the continuation of an Event of Default to repossess with
judicial process or to replevy, attach or levy upon the Trust Property or any
Additional Deed of Trust Property. To the extent permitted by applicable law,
Trustor waives the posting of any bond otherwise required of Beneficiary in
connection with any judicial process or proceeding to obtain possession of,
replevy, attach or levy upon the Trust Property or any Additional Deed of Trust
Property, to enforce any judgment or other security for the Obligations, to
enforce any judgment or other court order entered in favor of Beneficiary, or to
enforce by specific performance, temporary restraining order, preliminary or
permanent injunction, this Deed of Trust, any Additional Deed of Trust or any
other agreement or document by which Trustor or any other Person is bound and
which is in whole or in part for the benefit of Beneficiary, Trustee, the
Holders of the Senior Secured Notes or any Permitted Additional Senior Lender,
if any. Trustor further agrees that upon the occurrence and continuance of any
Event of Default, Beneficiary may elect to nonjudicially or judicially foreclose
against any real or personal property security (including, without limitation,
under the Additional Deeds of Trust) it holds for the Obligations or any part
thereof, or to exercise any other remedy against Issuer, any security or any
guarantor, even if the effect of that action is to deprive Trustor or any other
Person of the right to collect reimbursement from Issuer or any other Person for
any sums paid to Beneficiary, Trustee, any Holder of the Senior Secured Notes or
any Permitted Additional Senior Lender, if any. To the
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extent, if any, which such laws may be applicable, Trustor waives and releases
any right or defense which Trustor might otherwise have under such provisions
and under any other law of any applicable jurisdiction which might limit or
restrict the effectiveness or scope of any of Trustor's waivers or releases
hereunder. If any law referenced in this Section and now in force, of which
Trustor, Trustor's successors or assigns or any other Person might take
advantage despite this Section, shall hereafter be repealed or cease to be in
force, such law shall not thereafter be deemed to preclude the application of
this Section. Trustor warrants and agrees that each of the waivers and consents
set forth in this Deed of Trust is made voluntarily and unconditionally after
consultation with outside legal counsel and with full knowledge of its
significance and consequences, with the understanding that events giving rise to
any defense or right waived may diminish, destroy or otherwise adversely affect
the rights which Trustor otherwise may have against Beneficiary or any other
Person or against any collateral. If, notwithstanding the intent of the parties
that the terms of this Deed of Trust shall control in any and all circumstances,
any such waivers or consents are determined to be unenforceable under applicable
law, such waivers and consents shall be effective to the fullest extent
permitted by law.
27. Assignment of Rents. All of the Rents, whether now due, past due
-------------------
or to become due, and including all prepaid rents and security deposits, are
hereby absolutely, presently and unconditionally assigned, transferred, conveyed
and set over to Beneficiary to be applied by Beneficiary in payment of the
Obligations. It is understood and agreed that neither the foregoing assignment
of Rents to Beneficiary nor the exercise by Beneficiary of any of its rights or
remedies under this Deed of Trust shall be deemed to make Beneficiary a
"mortgagee-in-possession" or otherwise responsible or liable in any manner with
respect to the Trust Property or the use, occupancy, enjoyment, or operation of
all or any portion thereof, unless and until Beneficiary, in person or by agent,
assumes actual possession thereof. The appointment of a receiver for the Trust
Property by any court at the request of Beneficiary or by agreement with
Trustor, or the entering into possession of the Trust Property or any part
thereof by such receiver, also shall not be deemed to make Beneficiary a
mortgagee-in-possession or otherwise responsible or liable in any manner with
respect to the Trust Property or the use, occupancy, enjoyment or operation of
all or any portion thereof.
28. Security Agreement.
------------------
(a) This Deed of Trust is intended to be a security agreement
pursuant to the California Uniform Commercial Code for (i) any and all items of
personal property specified above as part of the Trust Property that, under
applicable law, may be subject to a security interest pursuant to the California
Uniform Commercial Code and that are not effectively made part of the Site, and
(ii) any and all items of property specified above as part of the Trust Property
that, under applicable law, constitute fixtures and may be subject to a security
interest under Section 9313 of the California Uniform Commercial Code. Trustor
hereby grants Beneficiary a security interest in said property, and in all
additions thereto, substitutions therefor, and proceeds thereof, for the purpose
of securing the Obligations. For purposes of treating this Deed of Trust as a
security agreement, Beneficiary shall be deemed to be the secured party and
Trustor shall be deemed to be the debtor. In the event of a conflict between
the provisions of this Deed of Trust and that certain Security Agreement dated
of even date herewith between Trustor and Beneficiary (the "Security
Agreement"), with respect to property of the type described
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in clause (i) above, the provisions of the Security Agreement shall control.
(b) Trustor maintains places of business in the State of California,
and Trustor will immediately notify Beneficiary in writing of any change in such
places of business.
(c) At the request of Beneficiary, Trustor shall join Beneficiary in
executing one or more financing statements and continuations and amendments
thereof pursuant to the UCC in form reasonably satisfactory to Beneficiary; and
Trustor will pay the cost of filing the same in all public offices wherever
filing is deemed by Beneficiary to be necessary. In the event Trustor fails to
execute such documents within five (5) business days after request by
Beneficiary, Trustor hereby authorizes Beneficiary to file such financing
statements and irrevocably constitutes and appoints Beneficiary, or any officer
of Beneficiary, as its true and lawful attorney-in-fact to execute the same on
behalf of Trustor.
(d) This Deed of Trust constitutes a financing statement filed as a
fixture filing under UCC (S) 9402(6) in the official records of Inyo County and
Kern County with respect to any and all fixtures included within the term "Trust
Property" and with respect to any goods or other personal property that may now
be or hereafter become such a fixture. This filing shall remain in effect as a
fixture filing until this Deed of Trust is released or satisfied of record or
its effectiveness otherwise terminates as to the Trust Property.
(e) Beneficiary has no responsibility for and does not assume any of,
Trustor's obligations or duties under any agreement or obligation which is part
of the Equipment or any obligation relating to the acquisition, preparation,
custody, use, enforcement or operation of any of the Trust Property.
(f) Trustor and Beneficiary agree that the filing of a financing
statement in the records normally having to do with personal property shall
never be construed as in any way derogating from or impairing this Deed of Trust
or the intention of the parties that everything used in connection with the
production of income from the Trust Property or adapted for use therein or which
is described or reflected in this Deed of Trust is, and at all times and for all
purposes and in all proceedings both legal or equitable shall be regarded as
part of the real estate subject to the lien hereof, irrespective of whether (i)
any such item is physically attached to improvements located on such real
property or (ii) any such item is referred to or reflected in any financing
statement so filed at any time. Similarly, the mention in any such financing
statement of (A) the rights in or to the proceeds of any casualty insurance
policy or (B) any award in eminent domain proceedings for taking or for loss of
value or for cause of action or proceeds thereof in connection with any damage
or injury to the Trust Property or any part thereof shall never be construed as
in any way altering any of the rights of Beneficiary as determined by this
instrument or impugning the priority of Beneficiary's lien granted hereby or by
any other recorded document, but such mention in such financing statement is
declared to be for the protection of Beneficiary in the event any court shall at
any time hold with respect to matters (A) and (B) above that notice of
Beneficiary's priority of interest, to be effective against a particular class
of persons, including, without limitation, the Federal government and any
subdivision or entity of the Federal government, must be filed in the personal
property records or other commercial code records.
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29. Further Acts, etc. Trustor shall, at the cost of Trustor, and
-----------------
without expense to Beneficiary, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, financing statements, mortgages, deeds of
trust, assignments, notices of assignments, transfers and assurances as
Beneficiary shall from time to time require, for the better assuring, conveying,
assigning, transferring and confirming unto Beneficiary, the property and rights
hereby conveyed or assigned or intended now or hereafter so to be, or which
Trustor may be or may hereafter become bound to convey or assign to Beneficiary,
or for carrying out the intention or facilitating the performance of the terms
of this Deed of Trust or for filing, registering or recording this Deed of Trust
and, on demand, will execute and deliver and hereby authorizes Beneficiary to
execute in the name of Trustor to the extent they may lawfully do so, one or
more financing statements, chattel mortgages or comparable security instruments,
to evidence and perfect more effectively the lien hereof upon the Trust
Property.
30. Power of Attorney.
-----------------
(a) Trustor does hereby make, constitute and appoint Beneficiary its
true and lawful exclusive agent and attorney-in-fact for it, and in its name,
place and stead for the following purposes (collectively, the "Power of
Attorney"):
(i) in connection with or following one or more foreclosures under
this Deed of Trust judicially or by power(s) of sale or otherwise, or at such
time as Trustor shall be a debtor in proceedings under federal or state
bankruptcy law, to (1) apply to the United States Navy or the BLM for assignment
to it of the Navy Contract, the BLM North Leases and/or the BLM Rights-of-Way,
and to approve such assignments on behalf of Trustor and (2) subject to the
prior approval of the United States Navy or the BLM, if applicable, to grant,
bargain, sell, convey and assign Trustor's interest under the Navy Contract, the
BLM North Leases and/or the BLM Rights-of-Way to Beneficiary or to any other
Person, for such price or prices, and on such terms and conditions, as Trustor
may deem proper, and in Trustor's name, to make, execute, acknowledge and
deliver a good and sufficient assignment, or other instrument or instruments
necessary to effect such sale, conveyance or assignment;
(ii) to take all actions and exercise all rights and remedies
available to Trustor as holder of the Navy Contract, the BLM North Leases and/or
the BLM Rights-of-Way. including, without limitation, to (1) cure any defaults
thereunder, (2) make rental, royalty or other payments to the BLM and the United
States Navy, if applicable, on behalf of Trustor and/or (3) act as operator,
appoint another to act as operator or have a receiver appointed to act as
operator thereof; and
(iii) to request, demand, sue for, collect, recover, compromise,
settle and receive all monies that may become due and owing to Trustor by reason
of a sale, conveyance, assignment, taking for public use or other disposition of
Trustor's interest under the Navy Contract, the BLM North Leases and/or the BLM
Rights-of-Way.
(b) Trustor hereby grants to Beneficiary full power and authority
from time to time to appoint a substitute to perform any of the acts that
Beneficiary is by this Power of Attorney authorized to perform, and the right to
revoke such appointment of substitution at any time.
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(c) Trustor does hereby give and grant Beneficiary full power and
authority to do and perform all and every act and thing whatsoever requisite,
necessary or appropriate to be done in and about the Site and/or with respect to
the Navy Contract, the BLM North Leases and/or the BLM Rights-of-Way as fully to
all interests and purposes as Trustor might or could do if personally present,
hereby ratifying all that Beneficiary shall lawfully do or cause to be done by
virtue of theses presents. The powers and authority hereby conferred upon
Beneficiary shall be applicable to any and all interests in the Navy Contract,
the BLM North Leases and the BLM Rights-of-Way now owned or hereafter acquired
by Trustor. Subject to the terms hereof, Beneficiary is empowered to determine
in its sole discretion the time when, purpose for, and manner in which any power
herein conferred upon it shall be exercised, and the conditions, provisions and
covenants of any instrument or document that may be executed by it pursuant
hereto, and in the acquisition or disposition of the Navy Contract, the BLM
North Leases and/or the BLM Rights-of-Way, Beneficiary shall have exclusive
power to fix the terms thereof. This Power of Attorney is coupled with an
interest and cannot be revoked other than by recordation of a statement of
termination by Beneficiary hereunder.
31. Headings, etc. The headings, titles and captions of various
-------------
Sections of this Deed of Trust are for convenience of reference only and are not
to be construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
32. Filing of Deed of Trust, etc. Trustor forthwith upon the
----------------------------
execution and delivery of this Deed of Trust and thereafter, from time to time,
will cause this Deed of Trust, and any security instrument creating a lien or
evidencing or perfecting the lien hereof upon the Trust Property, or in the case
of personal property or fixtures, financing statements with respect thereto, and
each instrument of further assurance, to be filed, registered or recorded in
such manner and in such places as may be required by any present or future law
in order to publish notice of and fully to protect, preserve and perfect the
lien hereof upon, and the interest of Beneficiary in the Trust Property.
Trustor will pay all filing, registration or recording fees, and all expenses
incurred by Beneficiary incident to the preparation, execution and
acknowledgment of this Deed of Trust, any deed of trust or any mortgage or deed
of trust supplemental hereto, any security instrument with respect to the Trust
Property, any financing statement with respect to the Trust Property, and any
instrument of further assurance, and all federal, state, county and municipal
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Deed of Trust, any mortgage or deed of
trust supplemental hereto, any security instrument with respect to the Trust
Property or any financing statement, continuation statement or other instrument
of further assurance. Trustor shall hold harmless and indemnify Beneficiary,
its successors and assigns, against any liability incurred by reason of the
imposition of any tax on the making and recording of this Deed of Trust.
33. Usury Laws. This Deed of Trust, the Guarantee and the other
----------
Financing Documents are subject to the express condition that at no time shall
Trustor be obligated or required to pay interest on the principal balance due
under the Financing Documents or otherwise with respect to the Obligations at a
rate which could subject the creditor of the debt evidenced by such instruments
to either civil or criminal liability as a result of being in excess of the
maximum interest rate which Trustor is permitted by law to contract or agree to
pay. If by the terms of this Deed of Trust or the Financing Documents, Trustor
is at any time required or obligated to pay interest on the principal balance
due under any of the Financing Documents
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at a rate in excess of such maximum rate, then such rate of interest shall be
deemed to be immediately reduced to such maximum rate and the interest payable
shall be computed at such maximum rate.
34. Recovery of Sums Required to Be Paid. Beneficiary shall have the
------------------------------------
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due, without regard to
whether or not the balance of the Obligations shall be due, and without
prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Trustor existing
at the time such earlier action was commenced.
35. Authority. Trustor, and each of the undersigned acting on behalf
---------
of Trustor, hereby represents, warrants and covenants that it has full power,
authority and legal right to execute this Deed of Trust and to mortgage, give,
grant, bargain, sell, release, pledge, convey, confirm and assign the Trust
Property pursuant to the terms hereof and to keep and observe all of the terms
of this Deed of Trust on Trustor's part to be performed.
36. Invalidity of Certain Provisions. Every provision of this Deed
--------------------------------
of Trust is intended to be severable. In the event any term or provision hereof
is declared to be illegal, invalid or unenforceable for any reason whatsoever by
a court of competent jurisdiction, (i) such term or provision shall be construed
in such a manner as will allow such term or provision to be valid, provided that
such recasting shall be in accordance with the original intention of the
parties, and (ii) such illegality, invalidity or unenforceability shall not
affect the balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable. If the lien of this Deed of
Trust in invalid or unenforceable as to any part of the debt, or if the lien is
invalid or unenforceable as to any part of the Trust Property, the unsecured or
partially unsecured portion of the debt shall be completely paid prior to the
payment of the remaining and secured or partially secured portion of the debt,
and all payments made on the debt, whether voluntary or under foreclosure or
other enforcement action or procedure, shall be considered to have been first
paid on and applied to the full payment of that portion of the debt which is not
secured or fully secured by the lien of this Deed of Trust.
37. Duplicate Originals. This Deed of Trust may be executed in any
-------------------
number of duplicate originals and each such duplicate original shall be deemed
to constitute but one and the same instrument.
38. Waiver of Notice. Trustor shall not be entitled to any notices
----------------
of any nature whatsoever from Beneficiary except with respect to matters for
which this Deed of Trust, the Guarantee or applicable law specifically and
expressly provides for the giving of notice to Trustor, and to the fullest
extent permitted by law Trustor hereby expressly waives the right to receive any
notice from Beneficiary with respect to any matter for which this Deed of Trust,
the Guarantee or applicable law does not specifically and expressly provide for
the giving of notice to Trustor.
39. No Oral Change. This Deed of Trust may only be modified, amended
--------------
or changed by an agreement in writing signed by Trustor and Beneficiary, and may
only be released, discharged or satisfied of record by an instrument in writing
signed by the Trustee or
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<PAGE>
its successors and assigns as directed by Beneficiary. No waiver of any term,
covenant or provision of this Deed of Trust shall be effective unless given in
writing by Beneficiary, and if so given by Beneficiary shall only be effective
in the specific instance in which given. Trustor acknowledges that this Deed of
Trust and the Financing Documents set forth the entire agreement and
understanding of Trustor and Beneficiary with respect to the matters set forth
therein and that no oral or other agreements, understanding, representations or
warranties exist with respect to those matters other than those set forth in
this Deed of Trust and the Financing Documents.
40. Absolute and Unconditional Obligation. Trustor acknowledges that
-------------------------------------
Trustor's obligation to perform and pay the Obligations in accordance with the
provision of this Deed of Trust and the Guarantee is and shall at all times
continue to be absolute and unconditional in all respects, and shall at all
times be valid and enforceable irrespective of any other agreements or
circumstances of any nature whatsoever which might otherwise constitute a
defense to this Deed of Trust or the Guarantee or the obligations of Trustor
thereunder to perform and pay the Obligations or the obligations of any other
Person relating to this Deed of Trust or the Guarantee or the obligations of
Trustor under this Deed of Trust or the Guarantee, and to the fullest extent
permitted by law Trustor absolutely, unconditionally and irrevocably waives any
and all right to assert any defense, setoff, counterclaim or crossclaim of any
nature whatsoever with respect to the obligation of Trustor to perform and pay
the Obligations in accordance with the provisions of this Deed of Trust or the
Guarantee or the obligations of any other Person relating to this Deed of Trust
or the Guarantee or the obligations of Trustor under this Deed of Trust or the
Guarantee, or in any action or proceeding brought by Beneficiary to collect the
Obligations, or any portion thereof, or to enforce, foreclose and realize upon
the lien and security interest created by this Deed of Trust or any other
document or instrument securing performance and repayment of the Obligations, in
whole or in part.
41. No Rights; No Set Off. All sums secured by this Deed of Trust
---------------------
shall be paid in accordance with the Indenture and the Guarantee, as applicable,
without counterclaim, setoff, deduction or defense and without abatement,
suspension, deferment, diminution or reduction, and the obligations and
liabilities of Trustor hereunder shall in no way be released, discharged or
otherwise affected (except as expressly provided herein) by reason of (i) any
claim which Trustor has or might have against Beneficiary, (ii) any default or
failure on the part of Beneficiary to perform or comply with any of the terms
hereof or (iii) any other occurrence whatsoever, whether similar or dissimilar
to the foregoing and whether or not Trustor shall have notice or knowledge of
any of the foregoing.
42. Action Affecting the Trust Property.
-----------------------------------
(a) Trustor agrees to appear in and contest any action or proceeding
purporting to adversely affect the security hereof or the rights or powers of
Beneficiary, and to pay all costs and expenses of Beneficiary, including costs
of evidence of title and attorneys' fees and expenses, in any such action or
proceeding in which Beneficiary may appear.
(b) Beneficiary shall have the right to appear in and defend any
action or proceeding brought with respect to the Trust Property and to bring any
action or proceeding, in the name and on behalf of Trustor or Beneficiary, which
Beneficiary determines to be necessary
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<PAGE>
or reasonably advisable to be brought to protect its interest in the Trust
Property if (i) Trustor fails to defend or bring such action or proceeding, as
appropriate, in a prompt and diligent manner, or thereafter fails to proceed
with diligence in the defense or prosecution of the same, or (ii) an Event of
Default shall have occurred and be continuing.
43. Other Actions by Beneficiary. Except as hereinbefore expressly
----------------------------
provided, should Trustor fail to make any payment or do any act as and in the
manner provided in the Guarantee or any Financing Document after the expiration
of any applicable cure or grace period and as a result an Event of Default,
Beneficiary, without obligation so to do and without notice to or demand upon
Trustor and without releasing Trustor from any obligation, may make or do the
same in such manner and to such extent as Beneficiary may deem necessary to
protect the security hereof. In connection therewith (without limiting any
general powers of Beneficiary whether conferred herein or by law), Beneficiary
shall have and is hereby given the right, but not the obligation, (i) to the
fullest extent permitted by law, to make additions, alterations, repairs and
improvements to the Trust Property which it may consider necessary to keep the
Trust Property in good condition and repair and (ii) in exercising such powers,
to pay necessary expenses, including engagement of counsel or other necessary or
desirable consultants. Trustor shall, immediately upon demand therefor by
Beneficiary, pay all reasonable costs and expenses incurred by Beneficiary in
connection with the exercise by Beneficiary of the foregoing rights, including
without limitation, costs of evidence of title, court costs, appraisals, surveys
and attorneys' fees and expenses.
44. Remedies Not Exclusive. Subject to the limitations set forth in
----------------------
Section 49 of this Deed of Trust, Beneficiary shall be entitled to enforce
payment and performance of any indebtedness or obligations secured hereby and to
exercise all rights and powers granted under this Deed of Trust or any other
agreement or any laws now or hereafter in force, notwithstanding some or all of
the said indebtedness and obligations secured hereby may now or hereafter be
otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment
or otherwise. Subject to the limitations set forth in Section 49 of this Deed
of Trust, neither the acceptance of this Deed of Trust nor its enforcement,
whether by court action or pursuant to the power of sale or other powers herein
contained, shall prejudice or in any manner affect Beneficiary's right to
realize upon or enforce any other security now or hereafter held by Beneficiary,
it being agreed that Beneficiary shall be entitled to enforce this Deed of Trust
and any other security now or hereafter held by Beneficiary in such order and
manner as it may in its absolute discretion determine. No remedy herein
conferred upon or reserved to Beneficiary is intended to be exclusive of any
other remedy herein or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute.
45. Relationship. The relationship of Beneficiary to Trustor
------------
hereunder is strictly and solely that of lender and borrower, and nothing
contained in this Deed of Trust is intended to create, or shall in any event or
under any circumstance be construed as creating, a partnership, joint venture,
tenancy-in-common, joint tenancy or other relationship of any nature whatsoever
between or among Beneficiary and Trustor other than as lender and borrower.
46. Guarantee. This Deed of Trust is subject to all of the terms,
---------
covenants and conditions of the Guarantee and the Financing Documents, which
Guarantee and Financing
25
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Documents and all of the terms, covenants and conditions thereof are by this
reference incorporated herein and made a part hereof with the same force and
effect as if set forth at length herein. Trustor shall observe and perform all
of the terms, covenants and conditions of the Financing Documents on Trustor's
part to be observed or performed. All advances made and all indebtedness
arising and accruing under the Guarantee or any Financing Document from time to
time shall be secured hereby.
47. Business Purpose. Trustor hereby stipulates and warrants that
----------------
the loans secured hereby are commercial or business loans and are transacted
solely for the purpose of carrying on or acquiring a business or commercial
enterprise or for a proper business purpose under the laws of the jurisdiction
in which the Trust Property is located.
48. Time of the Essence. TIME IS OF THE ESSENCE with respect to each
-------------------
and every covenant, agreement and obligation of Trustor under this Deed of
Trust.
49. No Recourse. Beneficiary agrees that no officer, director,
-----------
employee or shareholder of Trustor nor any Affiliate of any such party
(collectively, the "Nonrecourse Parties") shall be personally liable for the
performance of any obligation contained in this Deed of Trust. Beneficiary
agrees that its rights shall be limited to proceeding against Trustor and the
security provided or intended to be provided pursuant to the Security Documents,
and that it shall have no right to proceed against the Nonrecourse Parties for
(a) the satisfaction of any monetary obligation of, or enforcement of any
monetary claim against, Trustor, (b) the performance of any obligation, covenant
or agreement arising under this Deed of Trust, or (c) any deficiency judgment
remaining after foreclosure of any property securing the obligations hereunder;
provided, however, that: (A) the foregoing provisions of this Section 49 shall
not constitute a waiver, release or discharge of any of the indebtedness, or of
any of the terms, covenants, conditions or provisions of this agreement or any
Financing Document, and the same shall continue until fully paid, discharged,
observed or performed; (B) the foregoing provisions of this Section 49 shall not
limit or restrict the right of Beneficiary or the holders of the Senior Secured
Notes to name Trustor or any other Person as a defendant in any action or suit
for a judicial foreclosure or for the exercise of any other remedy under or with
respect to this Deed of Trust or any Financing Document, or for injunction or
specific performance, so long as no judgment in the nature of a deficiency
judgment shall be enforced against any Nonrecourse Party, except as set forth in
this Section 49; (C) the foregoing provisions of this Section 49 shall not in
any way limit or restrict any right or remedy of Beneficiary, the holders of the
Senior Secured Notes or the Permitted Additional Senior Lenders, if any (or any
assignee or beneficiary thereof or successor thereto) with respect to, and all
of the Nonrecourse Parties shall remain fully liable to the extent that they
would otherwise be liable for their own actions with respect to, any fraud,
negligence or willful misrepresentation, or misappropriation of any amounts to
be deposited in the Revenue Account, Proceeds or any other earnings, revenues,
rents, issues, profits or proceeds that are subject to the Security Documents
that should or would have been paid as provided herein or paid or delivered to
the Depositary Agent, Beneficiary, the holders of the Senior Secured Notes or
the Permitted Additional Senior Lenders (or any assignee or beneficiary thereof
or successor thereto) towards any payment required under this Deed of Trust or
any Financing Document; (D) the foregoing provisions of this Section 49 shall
not affect or diminish or constitute a waiver, release or discharge of any
specific written obligation, covenant or agreement in respect of the Project
made by any of the Nonrecourse Parties or any security
26
<PAGE>
granted by the Nonrecourse Parties as security for the obligations of Trustor or
Issuer; and (E) nothing contained herein shall limit the liability of (i) any
Person who is a party to any Project Document or has issued any certificate or
statement in connection therewith with respect to such liability as may arise by
reason of the terms and conditions of such Project Document, certificate or
statement, or (ii) any Person rendering a legal opinion, in each case under this
clause (E) relating solely to such liability of such Person as may arise under
such referenced instrument, agreement or opinion.
50. Severance of Counterclaims. In the event of foreclosure of this
--------------------------
Deed of Trust, any and all counterclaims filed by Trustor against Beneficiary to
the extent permitted by law, shall be severed by the court having jurisdiction
over the foreclosure action, for all purposes from the basic foreclosure action,
on an ex parte basis and without notice to Trustor. Trustor, by its execution
--------
and delivery hereof, hereby expressly consents and agrees to such severance.
51. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT HEREOF, TRUSTOR
--------------------
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY RIGHT IT
MIGHT HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS DEED OF TRUST, THE GUARANTEE OR
ANY FINANCING DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PERSONS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BENEFICIARY TO ACCEPT DELIVERY OF THIS DEED OF TRUST AND
THE GUARANTEE.
52. GOVERNING LAW. THIS DEED OF TRUST IS GOVERNED BY AND SHALL BE
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
53. Reimbursement; Attorneys' Fees. Trustor shall pay immediately,
------------------------------
without demand, after expenditure, all sums expended or expenses incurred by
Trustee and/or Beneficiary in enforcing the terms of this Deed of Trust,
including, without limitation, all attorneys' fees. As used herein, the terms
"attorneys' fees" or "attorneys' fees and costs" shall mean the fees and
expenses of counsel to Beneficiary, Trustee and the holders of the Senior
Secured Notes, which may include printing, photostating, duplicating and other
expenses, air freight charges, and fees billed for law clerks, paralegals,
librarians and others not admitted to the bar but performing services under the
supervision of an attorney. The terms "attorneys' fees" or "attorneys' fees and
costs" shall also include, without limitation, all such fees and expenses
incurred with respect to appeals, arbitrations and bankruptcy proceedings, and
whether or not any action or proceeding is brought with respect to the matter
for which said fees and expenses were incurred.
54. Shared Draftsmanship. If there is any ambiguity in the terms of
--------------------
this Deed of Trust, the doctrine of construction which holds that the language
of the document shall be construed against its drafter shall not apply, as all
parties have shared in the drafting of this Deed of Trust.
27
<PAGE>
55. No Third Party Beneficiary. This Deed of Trust is for the sole
--------------------------
benefit of Beneficiary, or on behalf of the holders of the Senior Secured Notes,
as applicable, and the Permitted Additional Senior Lenders, and is not for the
benefit of any third party; and no third party shall gain any subrogation rights
against Trustor or in, to or with respect to any portion of the Trust Property
by reason of this Deed of Trust or the provisions hereof.
56. Security Only. This Deed of Trust is granted for security
-------------
purposes only. Accordingly, except as otherwise specifically provided in this
Deed of Trust, Beneficiary shall not enforce Trustor's rights with respect to
the Trust Property until such time as an Event of Default shall have occurred
and be continuing.
57. Release by Beneficiary. Upon the payment and performance in full
----------------------
of the Obligations, the security interest granted hereby shall terminate and all
rights to the Trust Property shall revert to Trustor. Upon any such
termination, Trustee shall, at Trustor's expense, execute and deliver to Trustor
such documents as Trustor shall reasonably request to evidence such termination.
If this Deed of Trust shall be terminated or revoked by operation of law,
Trustor will indemnify and save Trustee harmless from any loss which may be
suffered or incurred by Trustee in acting hereunder prior to the receipt by
Trustee, its successors, transferees or assigns of notice of such termination or
revocation.
58. Assignment of the BLM North Leases. Trustor and Beneficiary
----------------------------------
acknowledge that, as of the date of recordation of this Deed of Trust, the
assignment to Trustor of an undivided one third interest in the BLM North Leases
has not yet been completed. As such, Trustor covenants as follows:
(a) that it will cause such assignment to occur as soon as possible,
in connection with which it will, without limitation, (i) obtain the written
approval of the BLM to such assignment and (ii) cause an Assignment and
Assumption Agreement, in form and substance satisfactory to Beneficiary, to be
recorded in the Official Records of Inyo County, California; and
(b) upon completion of such assignment, if and to the extent so
requested by Beneficiary, it will (i) cause this Deed of Trust to be re-recorded
in the Official Records of Inyo County, California, or cause an amendment to
this Deed of Trust or a new deed of trust (with substantially the same
provisions as this Deed of Trust) to be recorded in the Official Records of Inyo
County, California, in each case in form and substance satisfactory to
Beneficiary, (ii) obtain such endorsement(s) or new title insurance policy or
policies (in form and substance satisfactory to Beneficiary) as Beneficiary may
reasonably request to insure Beneficiary that this Deed of Trust constitutes a
first priority lien on Trustor's undivided one third interest in the BLM North
Leases, subject only to the encumbrances and other matters that affected the BLM
North Leases as of the date of recordation of this Deed of Trust, including any
Permitted Liens and intervening taxes or assessments, (iii) perform such further
acts as Beneficiary may reasonably determine are necessary or appropriate to
carry out and accomplish the intent of this Section, and promptly execute and
deliver and, if appropriate, acknowledge and cause to be recorded, any such
additional documents, instruments and certificates as Beneficiary may reasonably
request in connection with such assignment and/or the transfer of any related
real or personal property.
28
<PAGE>
59. Consent To Assignment. By executing this Deed of Trust, Trustor
---------------------
irrevocably and unconditionally consents to: (a) Beneficiary (or its assignee or
designee, and/or any receiver) curing any default under the BLM North Leases or
the BLM Rights-of-Way and acting as operator thereof for that purpose (although
Beneficiary shall not be under any obligation to undertake or complete any such
cure) and (b) assignment to Beneficiary of all of its right, title and interest
in and under the BLM North Leases and the BLM Rights-of-Way in the event of a
default under this Deed of Trust, the Guarantee or any of the other Financing
Documents or foreclosure under this Deed of Trust or any of the other Security
Documents; and Trustor acknowledges and agrees that (i) no further consents,
approvals or signatures shall be required from Trustor in order to effectuate
the transfer to Beneficiary of Trustor's right, title and interest in the BLM
North Leases and/or the BLM Rights-of-Way or any thereof and (ii) the BLM may
rely upon this consent.
60. Regarding Beneficiary.
---------------------
(a) Beneficiary shall be afforded all of the rights, powers,
protections, immunities and indemnities set forth in that certain Security
Agreement, dated as of the date hereof, between Trustor and Beneficiary, as if
the same were specifically set forth herein.
(b) Trustor hereby agrees to indemnify and hold harmless Beneficiary
and its directors, officers, agents and employees from and against any and all
claims, demands, losses, penalties, liabilities, costs, damages, injuries and
expenses, including, without limitation, reasonable attorneys' fees and
expenses, suffered or sustained by Beneficiary, either directly or indirectly,
relating to or arising out of any Environmental Law (as hereinafter defined),
including, without limitation, any judgment, award, settlement, attorneys' fees
and expenses and other costs or expenses incurred in connection with the defense
of any actual or threatened action, proceeding or claim. As used herein, the
term "Environmental Law" shall mean any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or health or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment, including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
(c) The obligations of Trustor hereunder shall survive the termination
and release of this Deed of Trust or the earlier resignation or removal of
Beneficiary as trustee under the Indenture.
61. No Waiver. By accepting payment of any sum secured hereby after
---------
its due date or in an amount less than the sum due, Beneficiary does not waive
its rights to require prompt payment when due of all other sums so secured.
62. The CLC Deed of Trust. Trustor acknowledges that concurrently
---------------------
herewith Beneficiary is receiving a Deed of Trust, Assignment of Rents, Fixture
Filing and Security Agreement from Coso Land Company, a California general
partnership (the "CLC Deed of
29
<PAGE>
Trust"), which CLC Deed of Trust affects certain of the Trust Property. Trustor
unconditionally and irrevocably agrees that the lien of this Deed of Trust shall
at all times be and remain senior to the lien of the CLC Deed of Trust.
Further, Trustor agrees that any partial or full release or reconveyance of the
CLC Deed of Trust will not cause or create any loss of priority of this Deed of
Trust or any impairment of the lien of this Deed of Trust. Conversely, in the
event that the CLC Deed of Trust remains a lien against the BLM North Leases,
BLM Lease CACA-11401 and/or any other portion of the Trust Property after an
interest in said leases is assigned to Trustor, then Trustor (i) hereby assumes
and agrees to perform all of the obligations of the trustor under the CLC Deed
of Trust and (ii) reaffirms the subordination of (and hereby unconditionally,
irrevocably and at all times subordinates) the lien of the CLC Deed of Trust to
the lien of this Deed of Trust.
[Remainder of page intentionally left blank; signatures on next page]
30
<PAGE>
IN WITNESS WHEREOF, Trustor has duly executed this Deed of Trust as of the day
and year first above written.
TRUSTOR: COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
31
<PAGE>
CONSENT BY CED AND CFP:
- ------------------------
As of the day and year first above written, CED and CFP each hereby
consents to CPD entering into this Deed of Trust. CED and CFP each specifically
agrees that this Deed of Trust or the other Financing Documents may, among other
things, assign or delegate to Beneficiary rights to cure defaults under the
Indenture, to exercise voting rights and other rights to manage or control the
Issuer, to substitute itself in place of CPD under the Steam Exchange
Agreements, to act as Trustor's attorney-in-fact, to foreclose on the Trust
Property or to exercise any other rights hereunder or under the other Financing
Documents. CED and CFP each agrees that it will recognize and accept such
assignment and delegation and the exercise of such rights by Beneficiary in
connection with this Deed of Trust.
CED: COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
CFP: COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
32
<PAGE>
ACKNOWLEDGMENT
STATE OF New York )
------------------
)
COUNTY OF New York )
------------------
On May 28 , 1999, before me, [name of notary]
------------------ ------------------------------------
Notary Public, personally appeared Christopher T. McCallion personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature(s) on
the instrument the person(s), or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ signature of notary
- ------------------------------------------------------
Notary/Public
<PAGE>
EXHIBIT A
Description of the Navy II Land
-------------------------------
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY OF
INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
ALL OF SECTIONS 16 AND 17, AND THE EAST HALF OF SECTION 18, ALL IN TOWNSHIP 22
SOUTH, RANGE 39 EAST, MOUNT DIABLO BASE AND MERIDIAN, IN THE COUNTY OF INYO,
STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF.
<PAGE>
EXHIBIT B
Description of the Navy Contract
--------------------------------
THAT CERTAIN CONTRACT NO. N62474-79-C-5382, DATED DECEMBER 6, 1979, BY AND
BETWEEN THE UNITED STATES OF AMERICA ACTING THROUGH THE DEPARTMENT OF THE NAVY
AND CALIFORNIA ENERGY COMPANY, INC., AS MODIFIED, AMENDED, ,ASSIGNED AND
RESTATED BY CONTRACT MODIFICATION P00004 DATED AS OF OCTOBER 19, 1983, A
MEMORANDUM OF WHICH WAS RECORDED ON MARCH 12, 1986 AS INSTRUMENT NO. 86-1043 OF
OFFICIAL RECORDS OF INYO COUNTY, CALIFORNIA, INCLUDING ALL MODIFICATIONS,
AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE BEFORE THE EFFECTIVE DATE OF
THIS DEED OF TRUST AND ANY PERMITTED MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS
THERETO AND THEREOF MADE AFTER THE EFFECTIVE DATE OF THIS DEED OF TRUST.
<PAGE>
EXHIBIT C
Description of the BLM North Lease Premises and the BLM North Leases
--------------------------------------------------------------------
LEASE CACA-11383:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11383) APPROVED ON
NOVEMBER 1, 1983 BY THE BLM AND ISSUED TO THE LOS ANGELES DEPARTMENT OF
WATER AND POWER, A CERTIFIED COPY OF WHICH WAS RECORDED ON OCTOBER 8, 1993
AS INSTRUMENT NO. 93-4604 OF OFFICIAL RECORDS, INCLUDING ALL MODIFICATIONS,
AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE BEFORE THE EFFECTIVE
DATE OF THIS DEED OF TRUST AND ANY PERMITTED MODIFICATIONS, AMENDMENTS AND
ASSIGNMENTS THERETO AND THEREOF MADE AFTER THE EFFECTIVE DATE OF THIS DEED
OF TRUST, WHICH LEASE AFFECTS THAT CERTAIN REAL PROPERTY LOCATED IN AN
UNINCORPORATED AREA OF THE COUNTY OF INYO, STATE OF CALIFORNIA, DESCRIBED
AS FOLLOWS:
PARCEL 1:
--------
ALL OF SECTION 32; THE NORTH HALF OF SECTION 33; THE NORTH HALF OF THE
SOUTH HALF OF SECTION 33; THE SOUTH HALF OF THE SOUTHWEST QUARTER OF
SECTION 33; AND THE SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER OF
SECTION 33, ALL IN TOWNSHIP 21 SOUTH, RANGE 39 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 2:
--------
LOTS 2, 3 AND 4 OF SECTION 4; LOTS 1 TO 4 INCLUSIVE OF SECTION 5; THE
SOUTH HALF OF THE NORTH HALF OF SECTION 5; AND THE NORTH HALF OF THE
SOUTH HALF OF SECTION 5, ALL IN TOWNSHIP 22 SOUTH, RANGE 39 EAST,
MOUNT DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
Exhibit "C"
Page 1 of 4
<PAGE>
LEASE CACA-11384:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11384) APPROVED BY
THE BLM ON FEBRUARY 1, 1982 AND ISSUED TO THE LOS ANGELES DEPARTMENT OF
WATER AND POWER, WHICH LEASE WAS RECORDED ON OCTOBER 8, 1993 AS INSTRUMENT
NO. 93-4605 OF OFFICIAL RECORDS, INCLUDING ALL MODIFICATIONS, AMENDMENTS
AND ASSIGNMENTS THERETO AND THEREOF MADE BEFORE THE EFFECTIVE DATE OF THIS
DEED OF TRUST AND ANY PERMITTED MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS
THERETO AND THEREOF MADE AFTER THE EFFECTIVE DATE OF THIS DEED OF TRUST,
WHICH LEASE AFFECTS THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED
AREA OF THE COUNTY OF INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL 1:
--------
THE EAST HALF OF SECTION 11; ALL OF SECTIONS 12 AND 13; AND THE EAST
HALF OF SECTION 14, ALL IN TOWNSHIP 22 SOUTH, RANGE 38 EAST, MOUNT
DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING
TO THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 2:
--------
LOTS 1 TO 4, INCLUSIVE OF SECTION 7; THE EAST HALF OF THE WEST HALF OF
SECTION 7; LOTS 1 TO 4, INCLUSIVE OF SECTION 18; AND THE EAST HALF OF
THE WEST HALF OF SECTION 18, ALL IN TOWNSHIP 22 SOUTH, RANGE 39 EAST,
MOUNT DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA,
ACCORDING TO THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
LEASE CACA-11385:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11385) APPROVED BY
THE BLM ON FEBRUARY 1, 1982 AND ISSUED TO THE LOS ANGELES DEPARTMENT OF
WATER AND POWER, WHICH LEASE WAS RECORDED ON OCTOBER 8, 1993 AS INSTRUMENT
NO. 93-4606 OF OFFICIAL RECORDS, INCLUDING ALL MODIFICATIONS, AMENDMENTS
AND ASSIGNMENTS THERETO
Exhibit "C"
Page 2 of 4
<PAGE>
AND THEREOF MADE BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY
PERMITTED MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF
MADE AFTER THE EFFECTIVE DATE OF THIS DEED OF TRUST, WHICH LEASE AFFECTS
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY
OF INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL 1:
--------
ALL OF SECTION 36, TOWNSHIP 21 SOUTH, RANGE 38 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 2:
--------
LOTS 1 TO 4 INCLUSIVE, THE SOUTH HALF OF THE NORTH HALF, AND THE SOUTH
HALF OF SECTION 1, TOWNSHIP 22 SOUTH, RANGE 38 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 3:
--------
LOTS 1 TO 4 INCLUSIVE, THE EAST HALF, AND THE EAST HALF OF THE WEST
HALF OF SECTION 31, TOWNSHIP 21 SOUTH, RANGE 39 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
Exhibit "C"
Page 3 of 4
<PAGE>
PARCEL 4:
--------
LOTS 1 TO 7 INCLUSIVE, THE SOUTH HALF OF THE NORTHEAST QUARTER, THE
SOUTHEAST QUARTER OF THE NORTHWEST QUARTER, THE NORTHEAST QUARTER OF
THE SOUTHWEST QUARTER, AND THE NORTH HALF OF THE SOUTHEAST QUARTER OF
SECTION 6, TOWNSHIP 22 SOUTH, RANGE 39 EAST, MOUNT DIABLO MERIDIAN, IN
THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL
PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
Exhibit "C"
Page 4 of 4
<PAGE>
EXHIBIT D
Description of the BLM Right-of-Way Premises and the BLM Rights-of-Way
----------------------------------------------------------------------
RIGHT-OF-WAY CACA-13510:
THAT CERTAIN UNRECORDED RIGHT-OF-WAY GRANT (SERIAL NO. CACA-13510) APPROVED
BY THE BLM ON APRIL 12, 1984 AND ISSUED TO CALIFORNIA ENERGY COMPANY, INC.,
INCLUDING ALL MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF
MADE BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY PERMITTED
MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE AFTER
THE EFFECTIVE DATE OF THIS DEED OF TRUST, WHICH RIGHT-OF-WAY GRANT AFFECTS
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY
OF INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
TOWNSHIP 21 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 36,
E1/2 OF THE SE1/4;
TOWNSHIP 22 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 1,
NW1/4 OF THE SW1/4; LOTS 1 AND 2 OF THE NE1/4; AND LOT 1 OF THE NW1/4;
AND
TOWNSHIP 21 SOUTH, RANGE 38 EAST, MT. DIABLO MERIDIAN: SECTION 31,
LOTS 9-12, 16; SECTION 32, LOTS 1-3,5,6 AND 8; AND SECTION 33, S1/2 OF
THE S1/2.
RIGHT-OF-WAY CACA-18885:
THAT CERTAIN UNRECORDED RIGHT-OF-WAY GRANT (SERIAL NO. CACA-18885) APPROVED
BY THE BLM ON MAY 7, 1986 AND ISSUED TO CALIFORNIA ENERGY COMPANY, INC.,
INCLUDING ALL MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF
MADE BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY PERMITTED
MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE AFTER
THE EFFECTIVE DATE OF THIS DEED OF TRUST, WHICH RIGHT-OF-WAY GRANT AFFECTS
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY
OF INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
TOWNSHIP 22 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 1, LOTS
1 & 2 IN NE1/4, LOT 1 IN NW1/4, AND NW1/4SW1/4;
TOWNSHIP 21 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 36,
SE1/4SE1/4;
TOWNSHIP 21 SOUTH, RANGE 38 EAST, MT. DIABLO MERIDIAN: SECTION 31,
LOTS 13-16; SECTION 32, LOTS 1-5, 8; SECTION 33, S1/2NE1/4,
NE1/4SW1/4, S1/2SW1/4, N1/2SE1/4; SECTION 34, N1/2SW1/4, SE1/4SW1/4
AND SW1/4SE1/4.
<PAGE>
EXHIBIT E
Description of the Navy II Easement
-----------------------------------
THAT CERTAIN REAL PROPERTY LOCATED IN UNINCORPORATED AREAS OF THE COUNTIES OF
INYO AND KERN, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
AN EASEMENT FOR THE CONSTRUCTION, REPAIR, MAINTENANCE, UTILIZATION AND OPERATION
OF A TRANSMISSION LINE AND FOR THE NON-EXCLUSIVE RIGHTS OF ACCESS, INGRESS AND
EGRESS AS RESERVED IN DOCUMENT RECORDED JULY 31, 1989 AS INSTRUMENT NO. 89-5088
OF OFFICIAL RECORDS, OVER AND ACROSS THE FOLLOWING DESCRIBED PROPERTY:
PARCEL A:
- ---------
PARCEL A OF THE COSO-INYOKERN TRANSMISSION LINE CORRIDOR BEGINS AT SURVEY
STATION 0+00 AT THE INYOKERN SUBSTATION IN THE SE1/4, SE1/4 OF SECTION 20, T26S,
R39E, IN KERN COUNTY, CALIFORNIA AND GOES NORTHERLY APPROXIMATELY 27 MILES
ENDING AT SURVEY STATION 1380+00 NWC/BLM GEOTHERMAL PLANT NO. 1 SWITCHYARD IN
SE1/4, NW1/4 OF SECTION 19, T22S, R39E IN INYO COUNTY, CALIFORNIA.
THE CORRIDOR FOR THE TRANSMISSION LINE IS THE EASTERN PORTION OF A COMMON
CORRIDOR WHICH IS A STRIP OF LAND 200 FEET WIDE OF WHICH 65 FEET OF THIS
CORRIDOR IS LOCATED TO THE LEFT (WESTERLY) OF THE 115 KV TRANSMISSION LINE
CENTERLINE AND 135 FEET IS LOCATED TO THE RIGHT (EASTERLY) OF THE 115 KV
TRANSMISSION LINE CENTERLINE FROM STATION 0+00 TO STATION 731+59.27. FROM
STATION 731+59.27 TO STATION 1245+11.06, THE CORRIDOR IS A STRIP OF LAND 250
FEET WIDE OF WHICH 100 FEET IS LOCATED TO THE LEFT (WESTERLY) AND 150 FEET IS
LOCATED TO THE RIGHT (EASTERLY) OF THE 115 KV TRANSMISSION LINE CENTERLINE.
FROM STATION 1245+11.06 TO STATION 1291+52.54, THE CORRIDOR IS A STRIP OF LAND
300 FEET WIDE OF WHICH 100 FEET OF THIS CORRIDOR IS LOCATED TO THE LEFT
(WESTERLY) AND 200 FEET IS LOCATED TO THE RIGHT (EASTERLY) OF THE 115 KV
TRANSMISSION LINE CENTERLINE. FROM STATION 1291+52.54 TO STATION 1380+00 THE
CORRIDOR IS A STRIP OF LAND 250 FEET WIDE OF WHICH 100 FEET IS LOCATED TO THE
LEFT (WESTERLY) AND 150 FEET IS LOCATED TO THE RIGHT (EASTERLY) OF THE 115 KV
TRANSMISSION LINE CENTERLINE.
THE TRANSMISSION CORRIDOR CENTERLINE IS DESCRIBED AS FOLLOWS:
SECTIONS 20, 17 (7 of record), 8, 5, AND 6 OF TOWNSHIP 26 SOUTH, RANGE 39 EAST
------------------------------------------------------------------------------
BEGINNING AT SURVEY STATION 0+00, WHICH IS LOCATED ON THE NORTH BOUNDARY FENCE
LINE OF THE INYOKERN SUBSTATION AND IS 400 FEET WEST, MORE OR LESS, AND 320 FEET
NORTH, MORE OR LESS, OF THE SE CORNER OF SECTION 20, T26S, R39E. THENCE, FROM
STATION 0+00, N21(degress)11'57"W A DISTANCE OF 255.00 FEET TO AN ANGLE POINT AT
STATION 2+55.00; THENCE N17(degress)40'18"W A DISTANCE OF 21,637 FEET, MORE OR
LESS, TO THE LELITER ROAD CROSSING AT STATION 218+92 WHICH IS A
Exhibit "E"
Page 1 of 4
<PAGE>
POINT ON THE NORTH BOUNDARY OF SECTION 6, T26S, R39E AND 1410 FEET WEST, MORE OR
LESS, OF THE NE CORNER OF SECTION 6, T26S, R39E.
SECTIONS 31, 30 AND 19 OF TOWNSHIP 25 SOUTH, RANGE 39 EAST
----------------------------------------------------------
THENCE, FROM STATION 218+92, N17(degress)40'18"W A DISTANCE OF 13,228 FEET TO
STATION 351+20 WHICH IS A POINT ON THE WEST BOUNDARY OF SECTION 19, T25S, R39E
AND IS 1960 FEET NORTH, MORE OR LESS, OF THE SW CORNER OF SECTION 19, T25S,
R39E.
SECTIONS 24, 13, 12, 1 AND 2 OF TOWNSHIP 25 SOUTH, RANGE 38 EAST
----------------------------------------------------------------
THENCE, FROM STATION 351+20, N1740'18"W A DISTANCE OF 20,165 FEET, TO SURVEY
STATION 552+85 WHICH IS A POINT ON THE KERN AND INYO COUNTY LINE AND ON THE
NORTH BOUNDARY OF SECTION 2, T25S, R38E AND IS 540 FEET WEST, MORE OR LESS, OF
THE NE CORNER OF SECTION 2, T25S, R38E.
SECTIONS 35, 34, 27, 22, 15, 10 AND 3 OF TOWNSHIP 24 SOUTH, RANGE 38 EAST
-------------------------------------------------------------------------
THENCE, FROM STATION 552+85, N17(degress)40'18"W A DISTANCE OF 980.65 FEET TO AN
ANGLE POINT AT STATION 562+65.65; THENCE, N00(degress)32'59"E A DISTANCE OF
1849.86 FEET TO AN ANGLE POINT AT STATION 581+15.51; THENCE N18(degress)55'43"W
A DISTANCE OF 8200.72 FEET TO AN ANGLE POINT AT STATION 663+16.23; THENCE
N17(degress)49'44"W A DISTANCE OF 6844.77 FEET TO AN ANGLE POINT AT STATION
731+59.27; THENCE N09(degress)26'36"E A DISTANCE OF 13,279.45 FEET TO AN ANGLE
POINT AT EQUATION STATION 864+40.45 BACK AND 873+76 AHEAD; THENCE
N07(degress)43'29"E A DISTANCE OF 1460 FEET TO SURVEY STATION 888+39.76 WHICH IS
A POINT ON THE NORTH BOUNDARY OF SECTION 3, T24S, R38E AND IS 1680 FEET WEST,
MORE OR LESS, OF THE NE CORNER OF SECTION 3, T24S, R38E.
SECTIONS 34, 27, 26, 23, 24, 13, 12 AND 1 OF TOWNSHIP 23 SOUTH, RANGE 38 EAST
-----------------------------------------------------------------------------
THENCE, FROM STATION 888+39.76, N07(degress)43'29"E A DISTANCE OF 5111.45 FEET
TO AN ANGLE POINT AT STATION 939+51.21; THENCE N31(degress)43'12"E A DISTANCE OF
9820.50 FEET TO AN ANGLE POINT AT STATION 1037+71.71; THENCE N31(degress)14'47"E
A DISTANCE OF 10,758.97 FEET TO AN ANGLE POINT AT STATION 1145+30.68; THENCE
N10(degress)29'29"W A DISTANCE OF 8780.38 FEET TO SURVEY STATION 1233+11.06
WHICH IS A POINT ON THE NORTH BOUNDARY OF SECTION 1, T23S, R38E AND IS 1600 FEET
WEST, MORE OR LESS, OF THE NE CORNER OF SECTION 1, T23S, R38E.
SECTION 36 OF TOWNSHIP 22 SOUTH, RANGE 38 EAST
----------------------------------------------
THENCE, FROM STATION 1233+11.06, N10(degress)29'29"W A DISTANCE OF 1200.00 FEET
TO AN ANGLE POINT AT STATION 1245+11.06; THENCE N43(degress)08'19"E A DISTANCE
OF 2718.94 FEET TO SURVEY STATION 1272+30 WHICH IS A POINT ON THE EAST BOUNDARY
OF SECTION 36, T22S, R38E AND IS 2180 FEET SOUTH, MORE OR LESS, OF THE NE CORNER
OF SECTION 36, T22S, R38E.
Exhibit "E"
Page 2 of 4
<PAGE>
SECTIONS 31, 30 AND 19 OF TOWNSHIP 22 SOUTH,
--------------------------------------------
RANGE 39 EAST
- -------------
THENCE, FROM STATION 1272+30, N43(degress)08'19"E A DISTANCE OF 1922.34 FEET TO
AN ANGLE POINT AT STATION 1291+52.34; THENCE N06(degress)45'07"E A DISTANCE OF
8634.99 FEET TO THE END OF PARCEL A OF THE COSO-INYOKERN TRANSMISSION LINE
CORRIDOR AT SURVEY STATION 1380+00. THIS POINT IS LOCATED AT THE NWC-BLM
GEOTHERMAL PLANT NO. 1 SWITCHYARD IN THE SE1/4, NW1/4 OF SECTION 19, T22S, R39E
IN INYO COUNTY, CALIFORNIA.
PARCEL B:
PARCEL B OF THE COSO-INYOKERN 230 KV TRANSMISSION LINE CORRIDOR BEGINS AT
STATION 0+00 AT BLM (WEST) GEOTHERMAL PLANT NO. 1 SWITCHYARD IN THE SE1/4, NW1/4
OF SECTION 19, T22S, R39E IN INYO COUNTY, CALIFORNIA AND EXTENDS TO STATION
77+57.20 BLM (EAST) GEOTHERMAL PLANT NO. 2 SWITCHYARD IN THE S1/2 OF SECTION 20,
T22S, R39E.
THIS PORTION OF THE CORRIDOR IS A STRIP OF LAND 100 FEET WIDE OF WHICH 50 FEET
OF THIS CORRIDOR IS LOCATED LEFT (NORTHERLY) AND 50 FEET IS LOCATED RIGHT
(SOUTHERLY) OF CENTERLINE OF THE CORRIDOR.
THE TRANSMISSION CENTERLINE IS DESCRIBED AS FOLLOWS:
SECTIONS 19 AND 20 OF TOWNSHIP 22 SOUTH, RANGE 39 EAST
------------------------------------------------------
BEGINNING AT SURVEY STATION 0+00, BLM (WEST) GEOTHERMAL PLANT NO. 1 SWITCHYARD,
WHICH IS LOCATED AT S52(degress)W 4035 FEET, MORE OR LESS, FROM THE NE CORNER OF
SECTION 19, T22S, R39E; THENCE N83(degress)00'00"E, A DISTANCE OF 350.00 FEET TO
AN ANGLE POINT AT STATION 3+50.00; THENCE N42(degress)55'19"E A DISTANCE OF
469.21 FEET TO AN ANGLE POINT AT STATION 8+19.21; THENCE N84(degress)34'06"E, A
DISTANCE OF 1148.23 FEET TO AN ANGLE POINT AT STATION 19+67.44; THENCE
N72(degress)42'43"E A DISTANCE OF 1445.45 FEET TO AN ANGLE POINT AT EQUATION
STATION 34+12.89 BACK AND 34+12.04 AHEAD; THENCE S53(degress)05'47"E A DISTANCE
OF 2075.45 FEET TO AN ANGLE POINT AT STATION 54+87.49; THENCE
S08(degress)59'02"E A DISTANCE OF 1301.63 FEET TO AN ANGLE POINT AT STATION
67+89.12; THENCE S42(degress)29'52"E A DISTANCE OF 468.25 FEET TO AN ANGLE POINT
AT STATION 72+57.37; THENCE N47(degress)49'10"E A DISTANCE OF 359.83 FEET TO AN
ANGLE POINT AT STATION 76+17.20; THENCE N76(degress)15'19"E A DISTANCE OF 140.00
FEET TO THE A-FRAME STRUCTURE AT STATION 77+57.20. THIS POINT IS LOCATED AT BLM
(EAST) GEOTHERMAL PLANT NO. 2 SWITCHYARD, S32(degress)W 5080 FEET, PLUS OR
MINUS, FROM THE NE CORNER OF SECTION 20, T22S, R39E IN INYO COUNTY, CALIFORNIA
AND IS THE END OF PARCEL B COSO-INYOKERN TRANSMISSION LINE CORRIDOR.
Exhibit "E"
Page 3 of 4
<PAGE>
PARCEL C:
PARCEL C OF THE COSO-INYOKERN 230 KV TRANSMISSION LINE CORRIDOR BEGINS AT
STATION 0+00 AT BLM (EAST) GEOTHERMAL PLANT NO. 2 SWITCHYARD IN THE S1/2 OF
SECTION 20, T22S, R39E IN INYO COUNTY, CALIFORNIA AND EXTENDS TO STATION
70+58.51 NAVY II GEOTHERMAL PLANT SWITCHYARD IN SECTION 17, T22S, R39E.
THIS PORTION OF THE CORRIDOR IS A STRIP OF LAND 100 FEET WIDE OF WHICH 50 FEET
OF THIS CORRIDOR IS LOCATED LEFT (WESTERLY) AND 50 FEET IS LOCATED RIGHT
(EASTERLY) OF CENTERLINE OF THE CORRIDOR.
THE TRANSMISSION CENTERLINE IS DESCRIBED AS FOLLOWS:
SECTIONS 17 AND 20 OF TOWNSHIP 22 SOUTH, RANGE 39 EAST
------------------------------------------------------
BEGINNING AT SURVEY STATION 0+00, BLM (EAST) GEOTHERMAL PLANT NO. 2 SWITCHYARD,
WHICH IS LOCATED S32(degress) W 5040 FEET, MORE OR LESS, FROM THE NE CORNER OF
SECTION 20, T22S, R39E; THENCE N76(degress)58'47"W, A DISTANCE OF 76.36 FEET TO
AN ANGLE POINT AT STATION 0+76.36; THENCE N06(degress)46'21"W, A DISTANCE OF
2483.33 FEET TO AN ANGLE POINT AT STATION 25+59.52; THENCE N19(degress)32'09"E,
A DISTANCE OF 2513.26 FEET TO AN ANGLE POINT AT STATION 50+72.82; THENCE
N63(degress)57'16"W, A DISTANCE OF 1169.08 FEET TO AN ANGLE POINT AT STATION
62+41.90; THENCE N18(degress)16'46"W, A DISTANCE OF 394.50 FEET TO AN ANGLE
POINT AT STATION 66+36.40; THENCE N37(degress)00'00"E, A DISTANCE OF 422.11 FEET
TO THE A-FRAME STRUCTURE AT STATION 70+58.51. THIS POINT IS LOCATED AT NAVY II
GEOTHERMAL PLANT SWITCHYARD, S42(degress)W 4580 FEET, PLUS OR MINUS, FROM THE NE
CORNER OF SECTION 17, T22S, R39E IN INYO COUNTY, CALIFORNIA AND IS THE END OF
PARCEL C COSO-INYOKERN TRANSMISSION LINE CORRIDOR.
Exhibit "E"
Page 4 of 4
<PAGE>
Exhibit 10.27
RECORDING REQUESTED BY:
WHEN RECORDED RETURN TO:
The Law Offices of David E. Chanover
16776 Bernardo Center Drive
Suite 110B
San Diego, California 92128
Attention: David E. Chanover
- --------------------------------------------------------------------------------
COSO TRANSMISSION LINE PARTNERS
(as Trustor)
to
CHICAGO TITLE INSURANCE COMPANY
(as Trustee)
for the use and benefit of
U.S. BANK TRUST NATIONAL ASSOCIATION
(as Beneficiary)
DEED OF TRUST, ASSIGNMENT OF RENTS,
FIXTURE FILING AND SECURITY AGREEMENT
(CTLP)
Dated: May 28, 1999
Location: County of Inyo
and County of Kern,
State of California
<PAGE>
DEED OF TRUST, ASSIGNMENT OF RENTS,
FIXTURE FILING AND SECURITY AGREEMENT
(CTLP)
THIS DEED OF TRUST, ASSIGNMENT OF RENTS, FIXTURE FILING AND SECURITY
AGREEMENT (CTLP) (this "Deed of Trust") is made as of May 28, 1999, by COSO
TRANSMISSION LINE PARTNERS, a California general partnership whose address is
c/o Caithness Energy, L.L.C., 1114 Avenue of the Americas, 41st Floor, New York,
New York 10036, as trustor ("Trustor"), to CHICAGO TITLE INSURANCE COMPANY, a
Missouri corporation, whose address is 2425 West Shaw, Fresno, California 93711,
as trustee ("Trustee"), in favor of U.S. Bank Trust National Association, whose
address is One California Street, 4th Floor, San Francisco, California 94111, as
beneficiary ("Beneficiary") not in its individual capacity but solely as trustee
and collateral agent pursuant to the Indenture of even date herewith (the
"Indenture") among Beneficiary, Caithness Coso Funding Corp., as issuer (the
"Issuer"), Coso Energy Developers, ("CED"), Coso Finance Partners, a California
general partnership ("CFP") and Coso Power Developers, a California general
partnership ("CPD"), as guarantors. Unless otherwise defined herein,
capitalized terms shall have the meanings set forth in the Indenture, which is
hereby incorporated herein by this reference.
This Deed of Trust is given as additional security for the obligations of
the Issuer, CED, CPD and CFP under the Indenture, the Guarantees and the other
Financing Documents.
NOW, THEREFORE, in consideration of, and to secure the payment and
performance of the Obligations (as hereinafter defined) which Obligations may
increase, decrease and increase again from time to time and may be evidenced by
one or more notes, Trustor has given, granted, bargained, sold, alienated,
conveyed, confirmed and assigned, and by these presents does give, grant,
bargain, sell, alienate, convey, confirm and assign unto Trustee, its successors
and assigns, with general warranties of title as provided herein or under Civil
Code Section 1113 (but subject to Permitted Liens), in trust with power of sale
and right of entry and possession forever, for the benefit and security of
Beneficiary as Collateral Agent, all right, title and interest of Trustor in and
to the following property, assets, rights and interests, whether now owned or
hereafter acquired (such property, assets, rights and interests being
collectively referred to herein as the "Trust Property"):
(a) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California and in the
County of Kern, State of California, described in Exhibit A attached hereto
---------
and by this reference incorporated herein (the "Transmission Line
Property"), and all of Trustor's right, title and interest in and to that
certain 230KV electric transmission line (and related improvements,
equipment and facilities) located on the Transmission Line Property (the
"Transmission Line");
(b) all of Trustor's right, title and interest in and under that
certain agreement described in Exhibit B attached hereto and by this
---------
reference incorporated herein (the "Navy Contract"), together with all
renewals, extensions, supplements, amendments, cancellations or
terminations thereof and all credits, deposits, options, privileges and
rights thereunder;
2
<PAGE>
(c) all of Trustor's right, title and interest in and to any (i)
easements, rights-of-way, licenses and entry rights, (ii) gores of land,
(iii) roads, streets, ways, alleys or passages, (iv) interests in land
lying in the bed of any street, road or avenue, whether opened or proposed,
on, near or adjoining the Transmission Line Property or any part thereof,
(v) sewer rights, (vi) air rights, (vii) waters, water courses, water
rights and powers, (viii) profits-a-prendre, minerals, geothermal
substances, oil, gas and other hydrocarbon substances, (ix) exploration,
development and production rights, and (x) all other estates, rights,
titles, interests, privileges, franchises, liberties, tenements,
hereditaments, consents, options, appendages and appurtenances of any
nature whatsoever, in any way belonging, relating or pertaining to or
connected with the Transmission Line Property, the Navy Contract, the
Improvements or any other of the Trust Property, or any part thereof,
together with all renewals, extensions, supplements or amendments thereof;
(d) all leases (including oil, gas, geothermal and other mineral
leases), subleases, franchises, licenses, concessions, permits, power
purchase and other contracts and agreements affecting the use or occupancy
of the Transmission Line Property, the Navy Contract, the Improvements or
any other of the Trust Property, or any part thereof, now or hereafter
entered into, and any renewals or extensions thereof (hereinafter referred
to as the "Leases"); and the right to receive and apply the rents, issues,
profits, royalties, income, accounts receivable, revenues, deposits,
security deposits, receipts and other benefits of the Trust Property to the
extent of Trustor's interest therein, including, without limitation, the
proceeds of all hydrocarbons or other minerals produced from the Trust
Property, all delay royalties, rentals and bonuses from any oil, gas,
geothermal or other mineral lease, any revenues under any power purchase or
sale contracts and any amounts received from the U.S. Navy (collectively,
hereinafter referred to as the "Rents") to the payment of the Obligations;
(e) all of Trustor's right, title and interest in and to any and all
buildings, structures, improvements or fixtures of any kind, now or
hereafter erected or located on the Transmission Line Property or any part
thereof (the "Improvements");
(f) all facilities, machinery, equipment, apparatus, appliances,
fittings, goods, materials, supplies, and other items and property of every
kind and nature whatsoever owned by Trustor, or in which Trustor now or
hereafter has any right, title or interest, now or hereafter located in or
upon, or used in connection with the present or future development,
operation, occupancy or other utilization (whether temporarily or
permanently) of or activities on, the Transmission Line Property, any of
the other Trust Property or any part thereof, whether or not attached to or
installed in any Improvements, and all renewals, replacements and
substitutions thereof and additions thereto, including, without limitation,
any and all (i) wells, including production, injection, test, temperature
gradient and water wells, well casings, wellhead equipment, geothermal
resource gathering, injection and disposal systems, pipelines, pumps,
sumps, test holes, evaporation ponds and other facilities and equipment
used to produce, inject, store, transport or utilize geothermal substances
or condensate, (ii) overhead and underground electrical transmission,
distribution and collector lines and related systems, switchyards,
substations, transformers, energy storage facilities, conductors,
separators, circuit
3
<PAGE>
breakers, interconnection equipment, conduits, footings, towers, poles,
crossarms, guy lines, anchors and wires, (iii) overhead and underground
control, monitoring, communications and radio relay systems and
telecommunications equipment, (iv) roads, erosion control facilities,
dikes, signs and fences, (v) maps, plans, specifications, architectural,
engineering, construction or shop drawings, manuals or similar documents
and (vi) any other facilities, machinery, equipment, apparatus, fittings,
goods, materials, supplies, and other items and property associated with or
incidental to any of the foregoing or to the generation, conversion,
storage, switching, metering, step-up, step-down, transmission, conducting,
wheeling, sale or other use or conveyance of electricity (collectively, the
"Equipment"), as well as the right, title and interest of Trustor in and to
any of the Equipment which may be subject to any security agreements (as
defined in the Uniform Commercial Code of the State of California) superior
in lien to the lien of this Deed of Trust;
(g) all awards or payments, including interest thereon, and the right
to receive the same, which may be made with respect to the Trust Property,
whether from state fund sharing, from the exercise of the right of eminent
domain (including any transfer made in lieu of the exercise of said right),
from changes of grade of street or for any other injury to or decrease in
the value of the Trust Property now or hereafter located thereon, whether
direct or consequential, which said awards and payments are hereby assigned
to Beneficiary, and Beneficiary is hereby authorized to collect and receive
the proceeds thereof and to give proper receipts and acquittances therefor;
(h) all refunds or rebates of all taxes or charges in lieu of taxes,
assessments, water rates, sewer rents and other charges, including vault
charges and license or permit fees for the use of vaults, chutes and
similar areas on or adjoining the Transmission Line Property, now or
hereafter levied or assessed against the Trust Property (hereinafter
referred to as the "Taxes");
(i) all inventory, accounts, books, records and general intangibles
in whatever form and however stored, owned by Trustor, or in which Trustor
now or hereafter has any right, title or interest, now or hereafter located
upon, arising in connection with or concerning the Trust Property;
(j) all proceeds of and any unearned premiums on any insurance
policies now or hereafter covering the Trust Property, including, without
limitation, the right to receive the proceeds of any insurance, judgments
or settlements made in lieu thereof, for damage to the Trust Property or
for any defect in the title to the Trust Property or any part thereof;
(k) the right, in the name and on behalf of Trustor, to appear in and
defend any action or proceeding brought with respect to the Trust Property
and to commence any action or proceeding to protect the interest of
Beneficiary in the Trust Property;
(l) all of Trustor's right, title and interest in and to all plans
and specifications prepared for or relating to the design, development,
construction, management and use of Improvements or Equipment or other
development of the Trust Property (including,
4
<PAGE>
without limitation, all amendments, modifications, supplements, general
conditions and addenda thereof or thereto), and all studies, data and
drawings related thereto, and all contracts and agreements of Trustor
relating to the aforesaid plans and specifications or to the aforesaid
studies, data and drawings or to the design, development, construction,
management and use of Improvements, the Equipment or any of the other Trust
Property;
(m) all contracts with property managers, surveyors, real estate
advisors, consultants and brokers, geothermal energy advisors and
consultants, engineers, and other like agents and professionals that relate
to any part of the Trust Property, including without limitation, any
Improvements constructed or to be constructed on the Transmission Line
Property or any part thereof or any Equipment to be placed, installed, used
or stored on the Transmission Line Property or any part thereof, and all
maps, reports, surveys, tests and studies of or relating to any of the
Trust Property, owned by Trustor or in which Trustor has or shall have an
interest and now or hereafter in the possession of Trustor or any such
agent or professional;
(n) all present and future agreements, permits, licenses,
entitlements and approvals, as well as all modifications, supplements,
extensions and renewals thereof, now existing or hereafter made, in which
Trustor now or hereafter has an interest, relating to the use, development
and/or occupancy of the Transmission Line Property, the Improvements and/or
the Equipment;
(o) all the estate, right, title, interest, claim or demand of any
nature whatsoever of Trustor, either in law or in equity, in possession or
expectancy, in and to the Trust Property and in all replacements,
substitutes, renewals, betterments and extensions of and all additions to
any of the Improvements or Equipment, or any part thereof; and
(p) all products and proceeds of any of the Trust Property herein
described.
This Deed of Trust secures the following obligations which shall heretofore
and hereinafter collectively be referred to as the "Obligations":
(i) The payment of all indebtedness and the performance of all
obligations of CED, CPD and CFP as evidenced in Section 9 of the Indenture
entitled "Guarantees" and as further evidenced by that certain Notation of
Guarantee of even date herewith executed by CED, CPD and CFP, including,
without limitation, the guarantee of payment of (1) $110,000,000 6.80%
Senior Secured Notes due in 2001 and (2) $303,000,000 9.05% Senior Secured
Notes due in 2009 (collectively, the "Senior Secured Notes") issued by the
Issuer (the "Guarantees"); and
(ii) The satisfaction and performance of all other debts, obligations,
covenants, agreements and liabilities of Trustor to Trustee, Beneficiary
or any of the other Secured Parties or of CED, CPD, CFP or the Issuer to
Trustee, Beneficiary or any of the other Secured Parties, arising out of,
connected with or related to this Deed of Trust, the Guarantees, any of the
Financing Documents or any other agreement now or hereafter
5
<PAGE>
executed by CED, CPD, CFP, the Issuer or Trustor, and all amendments,
extensions, and renewals of the foregoing documents, whether now existing
or hereafter arising, voluntary or involuntary, absolute or contingent,
liquidated or unliquidated, and whether or not from time to time decreased
or extinguished and later increased, created, or incurred.
To protect the security of this Deed of Trust, Trustor covenants with and
represents and warrants to Trustee and Beneficiary as follows:
1. Warranty of Title. Trustor warrants its right, title or
-----------------
interest, as applicable, in and to the Transmission Line Property, the
Transmission Line, the Navy Contract, the Improvements, the Equipment and the
balance of the Trust Property and the validity and priority of the lien of this
Deed of Trust and the estate hereof against the claims and demands of all
Persons whomsoever, other than with respect to Permitted Liens. Trustor also
represents and warrants that (i) Trustor is now, and after giving effect to this
Deed of Trust, will be, in a solvent condition, (ii) the execution and delivery
of this Deed of Trust by Trustor does not constitute a "fraudulent conveyance"
within the meaning of Title 11 of the United States Code (the "Bankruptcy Code")
as now constituted or under any other applicable statute, and (iii) no
bankruptcy or insolvency proceedings are pending or contemplated by or, to the
best of Trustor's knowledge, against Trustor.
2. Notice. Trustor hereby requests that a copy of notice of default
------
and notice of sale be mailed to it at the address set forth below, and such
address is also the mailing address of Trustor, as debtor, under the California
Uniform Commercial Code. Trustor hereby covenants to cure any default within
the time period required of the Issuer under the Financing Documents upon
receipt of notice of such default. Beneficiary's address given below is the
address for Beneficiary under the California Uniform Commercial Code. Any
notice, request, demand, statement, authorization, approval or consent made
hereunder shall be deemed given or furnished (i) when addressed to the party
intended to receive the same at the address of such party set forth below, and
delivered at such address or (ii) three (3) days after the same is deposited in
the United States mail as first class certified mail, return receipt requested,
postage prepaid:
If to Trustor:
Coso Transmission Line Partners
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Attention: President
If to Trustee:
Chicago Title Insurance Company
2425 West Shaw
Fresno, California 93711
Attention: Trust Department
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If to Beneficiary:
U.S. Bank Trust National Association
One California Street, Suite 400
San Francisco, California 94111
Attention: Trust Officer
3. Sale of Trust Property. This Deed of Trust hereby contains more
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than one power of sale and Beneficiary, in its sole discretion, may conduct one
or multiple foreclosure sales in connection herewith. If this Deed of Trust is
foreclosed, or the power of sale hereunder is exercised, the Trust Property, or
any interest therein, may, at the discretion of Beneficiary, be sold in one or
more parcels or in several interests or portions and in any order or manner.
4. No Credits on Account of the Obligations. Trustor will not claim
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or demand or be entitled to any credit or credits on account of the Obligations
for any part of the Taxes assessed against the Trust Property or any part
thereof, and no deduction shall otherwise be made or claimed from the taxable
value of the Trust Property, or any part thereof, by reason of this Deed of
Trust or the Obligations.
5. Offset, Counterclaims and Defenses. Any assignee of this Deed of
----------------------------------
Trust and the Obligations secured hereby shall take the same free and clear of
all offsets, counterclaims or defenses of any nature whatsoever which Trustor
may have against any assignor of this Deed of Trust and the Obligations secured
hereby, and no such offset, counterclaim or defense shall be interposed or
asserted by Trustor in any action or proceeding brought by any such assignee
upon this Deed of Trust or the Obligations secured hereby and any such right to
interpose or assert any such offset, counterclaim or defense in any such action
or proceeding is hereby expressly waived by Trustor.
6. Other Security for the Obligations. Trustor shall observe and
----------------------------------
perform all of the terms, covenants and provisions to be observed or performed
by Trustor contained in this Deed of Trust or otherwise executed and delivered
in connection with this Deed of Trust.
7. Preservation of Trust Property. Trustor shall do any and all
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acts which, from the character or use of the Trust Property, may be reasonably
necessary to protect and preserve the lien, the priority of the lien and the
security of Beneficiary granted herein, the specific enumerations herein not
excluding the general. Trustor shall maintain and preserve the Trust Property
in accordance with the requirements of the Indenture. Further, with respect to
the Navy Contract, Trustor hereby agrees as follows:
(a) not to amend, change, alter, cancel, surrender, release, waive,
supplement, terminate or modify, nor permit the amendment, change, alteration,
cancellation, surrender, release, waiver, supplement, termination, or
modification (each, an "Amendment") of the Navy Contract or the estate or rights
created thereby or any interest therein without the prior written consent of
Beneficiary. Consent to one Amendment shall not be deemed to be a waiver of the
right to require consent to other, future or successive Amendments. Any
Amendment, whether oral or in writing, made without the prior written consent of
Beneficiary, shall not be valid or effective;
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(b) to make all payments and to keep and perform promptly each and
every covenant, obligation and agreement of the lessee, transferee, grantee,
licensee or holder (as the case may be) in the Navy Contract, not to commit,
suffer or permit any default thereunder and not to take any action or omit to
take any action which would effect or permit the termination or cancellation of
the Navy Contract. Trustor shall take all actions necessary to keep the rights
under the Navy Contract unimpaired. Trustor shall promptly deliver to
Beneficiary copies of all material notices, demands or complaints received by
Trustor from the U.S. Navy, CED, CFP, CPD or any other third party in connection
with the Navy Contract, and promptly notify Beneficiary in writing with respect
to any default or alleged default by any party thereto (whether or not a notice
of default has been issued under the Navy Contract) and deliver to Beneficiary
within ten (10) business days of Trustor's receipt of any notice of default a
certificate executed by Trustor describing the default, the actions Trustor
intends to take to cure such default, the length of time Trustor expects to take
to cure such default and the status of any actions taken to cure such default.
Trustor shall also furnish to Beneficiary such other information as Beneficiary
may reasonably request concerning Trustor's performance of its covenants,
obligations and agreements under or with respect to the Navy Contract.
Beneficiary shall have the option but not the obligation to cure any such
default and to perform any or all of Trustor's obligations thereunder;
(c) that any subordination of the Navy Contract to any fee mortgage,
to any lease, or to any other interest, either orally or in writing, made
without the prior written consent of Beneficiary, shall not be valid or
effective;
(d) that if the Navy Contract is terminated prior to the natural
termination of its term by reason of default of Trustor thereunder, and if,
pursuant to any provision of the Navy Contract, or otherwise, Beneficiary or its
designee shall acquire from the U.S. Navy or any other third party, as the case
may be, a new contract, lease or right-of-way, then Trustor shall not have any
right, title or interest in or to such new contract, lease or right-of-way or
the estate created thereby; and
(e) that the provisions hereof shall be deemed to be obligations of
Trustor in addition to Trustor's obligations as lessee, grantee, transferee,
licensee or holder, as the case may be, with respect to any similar matters
contained in the Navy Contract, and the inclusion herein of any covenants and
agreements relating to similar matters as to which Trustor is obligated under
the Navy Contract shall not restrict or limit Trustor's duties and obligations
to keep and perform promptly all of its covenants, agreements and obligations as
lessee, grantee, transferee, licensee or holder, as the case may be, under the
Navy Contract; provided, however, that nothing in this Deed of Trust shall be
construed as requiring the taking of or the committing to take any action by
Trustor or Beneficiary which would cause a default under the Navy Contract.
8. Further Transfer of Trust Property. Without the prior written
----------------------------------
consent of Beneficiary being first had and obtained, Trustor shall not (a)
execute or deliver any pledge, security agreement, mortgage, deed of trust or
other instrument of hypothecation covering all or any portion of the Trust
Property or any interest therein or (b) sell, contract to sell, lease with
option to purchase, convey, alienate, transfer, sublease or otherwise dispose of
all or any portion of the Trust Property or any interest therein, in each case
whether voluntarily or involuntarily, by
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operation of law or otherwise. Consent to one such transaction shall not be
deemed to be a waiver of the right to require consent to future or successive
transactions. Beneficiary may grant or deny such consent in its sole discretion
and, if consent should be given, any such transfer shall be subject to this Deed
of Trust, and any such transferee shall assume all obligations hereunder and
agree to be bound by all provisions contained herein and therein. Such
assumption shall not, however, release Trustor from any liability under this
Deed of Trust without the written consent of Beneficiary.
9. Eminent Domain. In the event that any proceeding or action be
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commenced for the taking of the Trust Property, or any part thereof or interest
therein, for public or quasi-public use under the power of eminent domain,
condemnation or otherwise, or if the same be taken or damaged by reason of any
public improvement or condemnation proceedings, or in any other manner
(collectively, a "Condemnation"), or should Trustor receive any notice or other
information regarding such proceeding, action, taking or damage, Trustor shall
give prompt written notice thereof to Beneficiary. Beneficiary shall be
entitled to give or withhold its consent to any compromise or settlement in
connection with such taking or damage. All compensation, awards, damages,
rights of action and proceeds awarded to Trustor by reason of any such taking or
damage (the "Condemnation Proceeds") are hereby absolutely and unconditionally
assigned to Beneficiary, and Trustor agrees to execute such further assignments
of the Condemnation Proceeds as Beneficiary or Trustee may require. All such
Condemnation Proceeds shall be applied as provided in the Credit Agreements.
10. Assignment of Contracts. In addition to any other grant,
-----------------------
transfer or assignment effectuated hereby, and without in any manner limiting
the generality of the grants given above, Trustor shall assign to Beneficiary,
as security for the Obligations, Trustor's interest in all agreements,
contracts, leases, licenses and permits affecting the Transmission Line Property
and Improvements in any manner whatsoever, such assignments to be made, if so
requested by Beneficiary, by instruments in form satisfactory to Beneficiary;
but no such assignment shall be construed as a consent by Beneficiary to any
agreement, contract, license or permit so assigned, or to impose upon
Beneficiary any obligations with respect thereto.
11. Anti-Merger. There shall be no merger of the Navy Contract or
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the estates or interests created thereby (collectively, the "Estate") with the
fee estate in the Transmission Line Property or any part thereof by reason of
any of those interests coming into common ownership, unless Beneficiary consents
in writing thereto. Further, if Trustor acquires any interest in the fee estate
to the Transmission Line Property or any part thereof, then the lien of this
Deed of Trust will simultaneously and without further action become extended to
encumber Trustor's interest in the fee estate in addition to remaining a lien on
the Estate, and Trustor agrees, upon request by Beneficiary and at no cost to
Beneficiary, to execute, acknowledge and deliver to Beneficiary all further
instruments and documents that Beneficiary believes to be appropriate to provide
further evidence of the lien of this Deed of Trust on such fee interest. Where
the lien of this Deed of Trust has been extended to cover any interest of
Trustor in the fee estate, then in the event of the exercise of any power of
sale under this Deed of Trust, Beneficiary will have the right to sell the
Estate and the fee interest of Trustor separately or together at the election of
Beneficiary.
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12. Documentary Stamps. If at any time the United States of America,
------------------
any state thereof or any governmental subdivision of any such state, shall
require revenue or other stamps to be affixed to this Deed of Trust, or that any
taxes be paid in connection with this Deed of Trust, Trustor shall pay for the
same, with interest and penalties thereon, if any.
13. Right of Entry. Beneficiary, may at any reasonable time or times
--------------
make or cause to be made entry upon and inspection of the Trust Property or any
part thereof in person or by agent.
14. Event of Default. The term "Event of Default," whenever used in
----------------
this Deed of Trust, shall mean:
(a) any one or more of the events of default listed or otherwise
provided in the Indenture, the Guarantees or any of the other Financing
Documents, subject to such cure rights as may be expressly set forth therein
(whether any such event shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body);
(b) any representation or warranty made by Trustor in this Deed of
Trust or any Financing Document or any other representation, warranty or
statement in any certificate, financial statement or other document furnished to
Beneficiary or any other Person proves to have been untrue or misleading in any
material respect as of the time made, confirmed or furnished and the fact, event
or circumstance that gave rise to such inaccuracy has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect and that fact,
event or circumstance continues uncured for thirty (30) or more days from the
date Trustor receives notice thereof from Beneficiary; provided that, if Trustor
commences and diligently pursues efforts to cure such fact, event or
circumstance within such 30-day period and delivers written notice to
Beneficiary thereof, Trustor may continue to effect such cure, and such
misrepresentation shall not be deemed an "Event of Default" for an additional
sixty (60) days so long as Trustor is diligently pursuing such cure;
(c) any failure to perform or observe any of the covenants or
agreements set forth in Section 46 hereof;
(d) except for the Events of Default described in Section 14(c)
hereof, any failure by Trustor to perform or observe any covenant or agreement
contained in this Deed of Trust, and such failure continues uncured for thirty
(30) or more days from the date Trustor receives notice thereof from
Beneficiary; provided that if Trustor commences and diligently pursues efforts
to cure such default within such 30-day period, Trustor may continue to effect
such cure of the default and such default will not be deemed an "Event of
Default" for an additional ninety (90) days so long as Trustor is diligently
pursuing such cure;
(e) any admission in writing by Trustor of its inability, or general
inability to pay its debts as the debts become due or the execution of a general
assignment for the benefit of creditors;
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(f) commencement by Trustor of any case, proceeding or other action
seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of its or its debts under any applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, adjustment, insolvency,
reorganization or similar laws affecting the rights or remedies of creditors
generally, as in effect from time to time ("Debtor Relief Law");
(g) Trustor, in any involuntary case, proceeding or other action
commenced against it which seeks to have an order for relief (injunctive or
otherwise) entered against it, as debtor, or seeks reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under any
Debtor Relief Law, (i) fails to obtain a dismissal of such case, proceeding or
other action within ninety (90) days of its commencement, or (ii) converts the
case from one chapter of the Bankruptcy Reform Act of 1978 , as amended, to
another chapter, or (iii) is the subject of any order for relief; or
(h) Trustor has a trustee, receiver, custodian or other official
appointed for or take possession of all or any part of its property or has any
court take jurisdiction of any of its property, which action remains undismissed
for a period of ninety (90) days.
15. Appointment of Receiver. Trustee or Beneficiary, in any action
-----------------------
(or multiple actions) to foreclose this Deed of Trust or exercise the power of
sale granted under this Deed of Trust or upon the actual or threatened waste to
any part of the Trust Property or upon the occurrence of an Event of Default,
shall be at liberty, without notice, to apply for the appointment of a receiver,
and shall be entitled to the appointment of such receiver as a matter of right,
without regard to the value of the Trust Property as security for the
Obligations, or the solvency or insolvency of any Person then liable for the
payment of the Obligations.
16. Non-Waiver. The failure of Beneficiary to insist upon strict
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performance of any term of this Deed of Trust shall not be deemed to be a waiver
of any term of this Deed of Trust. Trustor shall not be relieved of Trustor's
obligation to pay and perform the Obligations at the time and in the manner
provided for in this Deed of Trust by reason of (i) failure to comply with any
request(s) of Trustor to take any action to foreclose this Deed of Trust or
otherwise enforce any of the provisions hereof, of the Financing Documents or of
any other mortgage, deed of trust, instrument or document securing or
guaranteeing the payment of the Obligations or a portion thereof, (ii) the
release, regardless of consideration, of the whole or any part of the Trust
Property or any other security for the Obligations, or (iii) any agreement or
stipulation between Beneficiary and any subsequent owner or owners of the Trust
Property or other Person extending the time of payment or otherwise modifying or
supplementing the terms of this Deed of Trust or the Financing Documents
evidencing, securing or guaranteeing payment of the Obligations or any portion
thereof, without first having obtained the consent of Trustor. Regardless of
consideration, and without the necessity for any notice to or consent by the
holder of any subordinate lien, encumbrance, right, title or interest in or to
the Trust Property, Beneficiary may release any Person at any time liable for
the payment of the Obligations or any portion thereof or all or any part of the
security held for the Obligations and may extend the time of payment or
otherwise modify the terms of the Financing Documents or this Deed of Trust,
including, without limitation, a modification of the interest rate payable on
the principal balance of the Obligations, without in any manner impairing or
affecting this Deed of Trust or the lien thereof or the priority of this Deed of
Trust, as so extended and modified, as security for the
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<PAGE>
Obligations over any such subordinate lien, encumbrance, right, title or
interest. Beneficiary may resort for the payment of the Obligations to any
other security held by Beneficiary in such order and manner as Beneficiary in
its discretion, may elect. Beneficiary may take action to recover the
Obligations, or any portion thereof, or to enforce any covenant hereof without
prejudice to the right of Beneficiary thereafter to foreclose this Deed of
Trust. Beneficiary shall not be limited exclusively to the rights and remedies
herein stated but shall be entitled to every additional right and remedy now or
hereafter afforded by law or equity. The rights of Beneficiary under this Deed
of Trust shall be separate, distinct and cumulative, and none shall be given
effect to the exclusion of the others. No act of Beneficiary shall be construed
as an election to proceed under any one provision herein to the exclusion of any
other provision.
17. Power of Sale. Upon the occurrence and during the continuance of
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an Event of Default, Beneficiary may at any time, at its option and in its sole
discretion, declare the Obligations to be due and payable and the same shall
thereupon become immediately due and payable. Beneficiary may also do any or
all of the following; provided, however, that any of the following actions shall
be undertaken in a commercially reasonable manner and in accordance with
applicable law; and provided, further, that Beneficiary shall have no obligation
to do any of the following:
(a) Either in person or by agent, with or without bringing any action
or proceeding or by a receiver appointed by a court and without regard to the
adequacy of Beneficiary's security, enter upon and take possession of the Trust
Property or any part hereof and do any acts which Beneficiary deems necessary or
desirable to preserve the value, marketability or rentability of the Trust
Property or to increase the income therefrom or to protect the security hereof
and with or without taking possession of any of the Trust Property, sue for or
otherwise collect all Rents and profits including those past due and unpaid, and
apply the same, less costs and expenses of operation and collection including
attorneys' fees and expenses, upon the Obligations secured hereby with the
remainder, if any, to the Person or Persons legally entitled thereto. The
collection of Rents and profits and the application thereof shall not cure or
waive any Event of Default or notice thereof or invalidate any act done in
response thereto or pursuant to such notice.
(b) Bring an action in any court of competent jurisdiction to
foreclose this instrument or to enforce any of the covenants hereof.
(c) Exercise any or all of the remedies available to a secured party
under the Uniform Commercial Code.
(d) Beneficiary may elect to cause the Trust Property or any part
thereof to be sold under the power of sale herein granted in any manner
permitted by applicable law. In connection with any sale or sales hereunder,
Beneficiary may elect to treat any of the Trust Property which consists of a
right in action or which is property that can be severed from the real property
covered hereby or any improvements thereon without causing structural damage
thereto as if the same were personal property, and dispose of the same in
accordance with applicable law, separate and apart from the sale of real
property. Any sale of any personal property hereunder shall be conducted in any
manner permitted by Section 9501 or any other applicable sections of the
California Uniform Commercial Code. Where the Trust Property consists of real
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and personal property or fixtures, whether or not such personal property is
located on or within the real property, Beneficiary may elect in its discretion
to exercise its rights and remedies against any or all of the real property,
personal property, and fixtures in such order and manner as is now or hereafter
permitted by applicable law. Without limiting the generality of the foregoing,
Beneficiary may at its sole and absolute discretion and without regard to the
adequacy of its security elect to proceed against any or all of the real
property, personal property and fixtures in any manner permitted under Section
9501(4)(a) of the California Uniform Commercial Code; and if Beneficiary elects
to proceed in the manner permitted under Section 9501(4)(a)(ii) of the
California Uniform Commercial Code, the power of sale herein granted shall be
exercisable with respect to all or any of the real property and fixtures covered
hereby, as designated by Beneficiary, and the Trustee is hereby authorized and
empowered to conduct any such sale of any real property and fixtures in
accordance with the procedures applicable to real property. Where the Trust
Property consists of real property and personal property, any reinstatement of
the Obligations, following the occurrence of an Event of Default and an election
by Beneficiary to accelerate the maturity of the Obligations, which is made by
Trustor or any other Person permitted to exercise the right of reinstatement
under Section 2924c of the California Civil Code or any successor statute,
shall, in accordance with the terms of California Uniform Commercial Code
Section 9501(4)(c)(iii), not prohibit Beneficiary from conducting a sale or
other disposition of any personal property or fixtures or from otherwise
proceeding against or continuing to proceed against any personal property or
fixtures in any manner permitted by the California Uniform Commercial Code; nor
shall any such reinstatement invalidate, rescind or otherwise affect any sale,
disposition or other proceeding held, conducted or instituted with respect to
any personal property or fixtures prior to such reinstatement. Any sums paid to
Beneficiary in effecting any reinstatement pursuant to Section 2924c of the
California Civil Code shall be applied to the Obligations and to Beneficiary's
and Trustee's reasonable costs and expenses in the manner required by such
Section 2924c. Should Beneficiary elect to sell any of the Trust Property which
is real property or which is personal property or fixtures that Beneficiary has
elected under Section 9501(4)(a)(ii) of the California Uniform Commercial Code
to sell together with real property in accordance with the laws governing a sale
of real property, such notice of default and election to sell shall be given as
may then be required by law. Thereafter, upon the expiration of such time and
the giving of such notice of sale as may then be required by law, at the time
and place specified in the notice of sale, Trustee shall sell such property, or
any portion thereof specified by Beneficiary, at public auction to the highest
bidder for cash in lawful money of the United States. Trustee may, and upon
request of Beneficiary shall, from time to time, postpone the sale by public
announcement thereof at the time and place noticed therefor. If the Trust
Property consists of several lots, parcels or interests, Beneficiary may
designate the order in which the same shall be offered for sale or sold. Should
Beneficiary desire that more than one such sale or other disposition be
conducted, Beneficiary may, at its option, cause the same to be conducted
simultaneously, or successively on the same day, or at such different days or
times and in such order as Beneficiary may deem to be in its best interest. Any
Person, including Trustor, Trustee or Beneficiary may purchase at the sale. In
the event Beneficiary elects to dispose of the Trust Property through more than
one sale, Trustor agrees to pay the costs and expenses of each such sale and of
any judicial proceedings wherein the same may be made, including reasonable
compensation to Trustee and Beneficiary, their agents and counsel, and to pay
all expenses, liabilities and advances made or incurred by Trustee in connection
with such sale or sales, together with interest on all such advances made by
Trustee at the interest rate then applicable to the indebtedness to which the
Financing
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Documents apply. Upon any sale Trustee shall execute and deliver to the
purchaser or purchasers a deed or deeds conveying the property so sold but
without any covenant or warranty whatsoever express or implied, whereupon such
purchaser or purchasers shall be let into immediate possession, and the recitals
in any such deed or deeds of facts such as default, the giving of notice of
default and notice of sale, and other facts affecting the regularity or validity
of such sale or disposition, shall be conclusive proof of the truth of such
facts and any such deed or deeds shall be conclusive against all Persons as to
such facts recited therein.
(e) Exercise each of its other rights and remedies provided under the
Indenture, the Guarantees, the other Financing Documents or this Deed of Trust,
including, without limitation, any or all of the following:
(i) if the indebtedness is not paid on demand, take any and all steps
and institute any and all other proceedings that Beneficiary deems
necessary to enforce the indebtedness and obligations secured hereby and to
protect the lien of this Deed of Trust;
(ii) without assuming liability for the performance of any of
Trustor's obligations hereunder or under any Financing Document, enter and
take possession of the Trust Property or any part thereof, exclude Trustor
and all Persons claiming under Trustor whose claims are junior to this Deed
of Trust, wholly or partly therefrom, and use, operate, manage and control
the same either in the name of Trustor or otherwise as Beneficiary shall
deem best, and upon such entry, from time to time at the expense of Trustor
and the Trust Property, make all such repairs, replacements, alterations,
additions or improvements to the Trust Property or any part thereof as
Beneficiary may deem proper and, whether or not Beneficiary has so entered
and taken possession of the Trust Property or any part thereof, collect and
receive all the Rents and apply the same, to the extent permitted by law,
to the payment of all expenses which Beneficiary may be authorized to make
under this Deed of Trust, the remainder to be applied to the payment of the
Obligations until the same shall have been repaid in full; and if
Beneficiary demands or attempts to take possession of the Trust Property or
any portion thereof in the proper exercise of any rights hereunder, Trustor
shall promptly turn over and deliver complete possession thereto to
Beneficiary; and
(iii) personally or by agents, with or without entry, if Beneficiary
shall deem it advisable, proceed to protect and enforce its rights under
this Deed of Trust, by suit for specific performance of any covenant
contained herein or in any Financing Document or in aid of the execution of
any power granted herein or in any Financing Document, or for the
foreclosure of this Deed of Trust and the sale for cash of the Trust
Property under the judgment or decree of a court of competent jurisdiction,
or for the exercise of the power of sale granted under this Deed of Trust
or for the enforcement of any other right as Beneficiary shall deem most
effectual for such purpose; provided that in the event of a sale, by
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foreclosure or otherwise, of less than all of the Trust Property, this Deed
of Trust shall continue as a lien on, and security interest in, the
remaining portion of the Trust Property and Beneficiary shall not be
obligated to sell upon credit unless Beneficiary shall have expressly
consented in writing to a sale upon credit.
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(f) Except as otherwise required by law, apply the net proceeds of any
foreclosure, collection, recovery, receipt, appropriation, realization or sale
of the Trust Property in the order of priority specified in the Indenture. If
all Obligations and any other amounts due under this Deed of Trust have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Trustor if Trustor is lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
(g) Upon any sale or sales made under or by virtue of this section,
whether made under the power of sale or by virtue of judicial proceedings or of
a judgment or decree of foreclosure and sale, Beneficiary may bid for and
acquire the Trust Property or any part thereof. In lieu of paying cash for the
Trust Property, Beneficiary may make settlement for the purchase price by
crediting against the Obligations the sales price of the Trust Property, as
adjusted for the expenses of sale and the costs of the action and any other sums
for which Trustor is obligated to reimburse Trustee or Beneficiary under this
Deed of Trust.
18. Concerning the Trustee. Trustee shall be under no duty to take
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any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being liable,
however, only for willful negligence or misconduct, and hereby waives any
statutory fee and agrees to accept reasonable compensation, in lieu thereof, for
any services rendered by Trustee in accordance with the terms hereof. Trustee
may resign at any time upon giving thirty (30) days' notice to Trustor and to
Beneficiary. Beneficiary may remove Trustee at any time or from time to time
and select a successor trustee. In the event of the death, removal,
resignation, refusal to act, or inability to act of Trustee, or in its sole
discretion for any reason whatsoever, Beneficiary may, without notice and
without specifying any reason therefor and without applying to any court, select
and appoint a successor trustee, by an instrument recorded wherever this Deed of
Trust is recorded, and all powers, rights, duties and authority of Trustee, as
aforesaid, shall thereupon become vested in such successor. Such substitute
trustee shall not be required to give bond for the faithful performance of the
duties of Trustee hereunder unless required by Beneficiary.
19. Trustee's Fees. Trustor shall pay all reasonable costs, fees and
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expenses incurred by Trustee and Trustee's agents and counsel in connection with
the performance by Trustee of Trustee's duties hereunder, and all such costs,
fees and expenses shall be secured by this Deed of Trust.
20. Proceeds of Sale. Subject to the provisions of Section 49 of
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this Deed of Trust, no sale or other disposition of all or any part of the Trust
Property shall be deemed to relieve Trustor of its obligations under this Deed
of Trust or any other Financing Document except and only to the extent the
proceeds are applied to the payment of the Obligations or such other
obligations. If the proceeds of sale, collection or other realization of or
upon the Trust Property are insufficient to cover the costs and expenses of such
realization and the payment in full of the Obligations, Trustor shall remain
liable for any deficiency.
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21. Trustor as Tenant Holding Over. In the event of any such
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foreclosure or other sale by Beneficiary, Trustor shall be deemed a tenant
holding over and shall forthwith deliver possession to the purchaser or
purchasers at such sale or be summarily dispossessed according to provisions of
law applicable to tenants holding over.
22. Leases. Beneficiary is authorized to subordinate this Deed of
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Trust to any Leases and to foreclose this Deed of Trust subject to the rights of
any tenants of the Trust Property, if any, and the failure to so subordinate or
to make any such tenants parties to any such foreclosure or other proceedings
and to foreclose their rights will not be, nor be asserted to be by Trustor, a
defense to any proceedings instituted by Beneficiary to collect the Obligations.
23. Discontinuance of Proceedings. In case Beneficiary shall have
-----------------------------
proceeded to enforce any right, power or remedy under this Deed of Trust by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
withdrawn, discontinued or abandoned for any reason, or shall have been
determined adverse to Beneficiary, then in every such case, to the fullest
extent permitted by law, (a) Trustor and Beneficiary shall be restored to their
former positions and rights, (b) all rights, powers and remedies of Beneficiary
shall continue as if no such proceeding had been taken, (c) each and every Event
of Default declared or occurring prior or subsequent to such withdrawal,
discontinuance or abandonment shall be or shall be deemed to be an independent
event of default and (d) neither the Obligations nor this Deed of Trust shall be
or shall be deemed to have been not reinstated or otherwise affected by such
withdrawal, discontinuance or abandonment; and to the fullest extent permitted
by law, Trustor hereby expressly waives the benefit of any statute or rule of
law now provided or which may hereafter conflict with the above.
24. No Reinstatement. If an Event of Default shall have occurred and
----------------
be continuing and Beneficiary shall have proceeded to enforce any right, power
or remedy permitted hereunder, then a tender of payment by Trustor or by anyone
on behalf of Trustor of any amount less than the amount necessary to satisfy the
Obligations in full, or the acceptance by Beneficiary of any such payment so
tendered, shall not constitute a reinstatement of this Deed of Trust or any
other document evidencing, securing or guaranteeing the Obligations.
25. Trustor's Waiver of Rights. Trustor hereby waives and releases,
--------------------------
to the maximum extent permitted by law, any rights, remedies or defenses which
Trustor might otherwise have (i) under California Code of Civil Procedure
Sections 726, 725a, 580a, 580b and 580d, California Civil Code Sections 2809,
2810, 2819, 2822, 2839, 2845, 2850, 2855, 2899 and 3433, under any anti-
deficiency provision of the Uniform Commercial Code, and under any future
judicial decisions or legislation, which statutes, future judicial decisions
and/or legislation might otherwise limit or condition Beneficiary's exercise of
certain of Beneficiary's rights and remedies in connection with the enforcement
of obligations secured by a lien on real property, including, without
limitation, Beneficiary's lien on the Trust Property or on any property
encumbered by other deeds of trust given to Beneficiary to secure obligations
under the Financing Documents (each, an "Additional Deed of Trust"), (ii) under
any laws now existing or hereafter enacted providing for any appraisal before
sale of a portion of the Trust Property or of the real property security of any
Additional Deed of Trust (the "Additional Deed of Trust Property"), (iii) to all
rights of redemption, valuation, appraisal, stay of execution, notice of
election to mature or any so-
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called "Moratorium Laws", to declare due the Obligations, to marshalling in the
event of the foreclosure of the liens created under this Deed of Trust or under
any Additional Deed of Trust, or the exercise of the power of sale granted
hereunder or thereunder, (iv) pursuant to the defense of the statute of
limitations in any action hereunder or in any action for the collection or
performance of any Obligations secured hereby or any obligations secured by any
Additional Deed of Trust, (v) pursuant to any defense arising because of
Beneficiary's election, in any proceeding instituted under the Federal
Bankruptcy Code, of the application of Section 1111(b)(2) of the Federal
Bankruptcy Code, (vi) pursuant to any defense based upon any borrowing or grant
of a security interest under Section 364 of the Federal Bankruptcy Code, (vii)
under any law limiting remedies, including recovery of a deficiency, under an
obligation secured by a deed of trust on real property and/or a security
agreement on personal property (including, without limitation, the Trust
Property and the Additional Deed of Trust Property) if the real property and/or
personal property is sold under a power of sale contained in the deed of trust,
and all defenses based on any loss whether as a result of any such sale or
otherwise, of Trustor's right to recover any amount from the Issuer, whether by
right of subrogation or otherwise, (viii) under any law to require Beneficiary
to pursue the Issuer or any other Person, any security which Beneficiary may
hold, or any other remedy before proceeding against Trustor, (ix) to all rights
of reimbursement or subrogation, all rights to enforce any remedy that
Beneficiary, the Trustee, the Holders of the Senior Secured Notes or the
Permitted Additional Senior Lenders, if any, may have against the Issuer, or
against the Guarantors as obligors under the Partnership Notes, and all rights
to participate in any security held by Beneficiary until the Obligations have
been paid and the covenants of the Indenture have been performed in full, (x) to
all rights to assert the bankruptcy or insolvency of Issuer as a defense
hereunder or as the basis for rescission hereof, (xi) to all rights under any
law purporting to reduce Trustor's Obligations hereunder if Issuer's obligations
are reduced, (xii) all defenses based on the disability or lack of authority of
Issuer or any Person, the repudiation of the Guarantees or any related Financing
Documents by Issuer or any Person, the failure by Beneficiary, the Trustee, the
Holders of the Senior Secured Notes or any Permitted Additional Senior Lender,
if any, to enforce any claim against Issuer, or the unenforceability in whole or
in part of any Financing Document, (xiii) to all suretyship and guarantor's
defenses generally, (xiv) to all rights to insist upon, plead or in any manner
whatever claim or take the benefit or advantage of, any appraisal, valuation,
stay, extension, marshaling of assets, redemption or similar law, or exemption,
whether now or at any time hereafter in force, which may delay, prevent or
otherwise affect the performance by Trustor of its obligations under, or the
enforcement by Beneficiary of, this Deed of Trust or any Additional Deed of
Trust, (xv) to any requirement on the part of Beneficiary, Trustee, the Holders
of the Senior Secured Notes or any Permitted Additional Senior Lender, if any,
to mitigate the damages resulting from any default (whether hereunder, under any
other Financing Document, under any Additional Deed of Trust or under any other
document or instrument); and (xvi) except as otherwise specifically set forth
herein, all rights of notice and hearing of any kind prior to the exercise of
rights by Beneficiary upon the occurrence and during the continuation of an
Event of Default to repossess with judicial process or to replevy, attach or
levy upon the Trust Property or any Additional Deed of Trust Property. To the
extent permitted by applicable law, Trustor waives the posting of any bond
otherwise required of Beneficiary in connection with any judicial process or
proceeding to obtain possession of, replevy, attach or levy upon the Trust
Property or any Additional Deed of Trust Property, to enforce any judgment or
other security for the Obligations, to enforce any judgment or other court order
entered in favor of Beneficiary, or to enforce by specific performance,
temporary
17
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restraining order, preliminary or permanent injunction, this Deed of Trust, any
Additional Deed of Trust or any other agreement or document by which Trustor or
any other Person is bound and which is in whole or in part for the benefit of
Beneficiary, Trustee, the Holders of the Senior Secured Notes or any Permitted
Additional Senior Lender, if any. Trustor further agrees that upon the
occurrence and continuance of any Event of Default, Beneficiary may elect to
nonjudicially or judicially foreclose against any real or personal property
security (including, without limitation, under the Additional Deeds of Trust) it
holds for the Obligations or any part thereof, or to exercise any other remedy
against Issuer, any security or any guarantor, even if the effect of that action
is to deprive Trustor or any other Person of the right to collect reimbursement
from Issuer or any other Person for any sums paid to Beneficiary, Trustee, any
Holder of the Senior Secured Notes or any Permitted Additional Senior Lender, if
any. To the extent, if any, which such laws may be applicable, Trustor waives
and releases any right or defense which Trustor might otherwise have under such
provisions and under any other law of any applicable jurisdiction which might
limit or restrict the effectiveness or scope of any of Trustor's waivers or
releases hereunder. If any law referenced in this Section and now in force, of
which Trustor, Trustor's successors or assigns or any other Person might take
advantage despite this Section, shall hereafter be repealed or cease to be in
force, such law shall not thereafter be deemed to preclude the application of
this Section. Trustor warrants and agrees that each of the waivers and consents
set forth in this Deed of Trust is made voluntarily and unconditionally after
consultation with outside legal counsel and with full knowledge of its
significance and consequences, with the understanding that events giving rise to
any defense or right waived may diminish, destroy or otherwise adversely affect
the rights which Trustor otherwise may have against Beneficiary or any other
Person or against any collateral. If, notwithstanding the intent of the parties
that the terms of this Deed of Trust shall control in any and all circumstances,
any such waivers or consents are determined to be unenforceable under applicable
law, such waivers and consents shall be effective to the fullest extent
permitted by law.
26. Assignment of Rents. All of the Rents, whether now due, past due
-------------------
or to become due, and including all prepaid rents and security deposits, are
hereby absolutely, presently and unconditionally assigned, transferred, conveyed
and set over to Beneficiary to be applied by Beneficiary in payment of the
Obligations. It is understood and agreed that neither the foregoing assignment
of Rents to Beneficiary nor the exercise by Beneficiary of any of its rights or
remedies under this Deed of Trust shall be deemed to make Beneficiary a
"mortgagee-in-possession" or otherwise responsible or liable in any manner with
respect to the Trust Property or the use, occupancy, enjoyment, or operation of
all or any portion thereof, unless and until Beneficiary, in person or by agent,
assumes actual possession thereof. The appointment of a receiver for the Trust
Property by any court at the request of Beneficiary or by agreement with
Trustor, or the entering into possession of the Trust Property or any part
thereof by such receiver, also shall not be deemed to make Beneficiary a
mortgagee-in-possession or otherwise responsible or liable in any manner with
respect to the Trust Property or the use, occupancy, enjoyment or operation of
all or any portion thereof.
27. Security Agreement.
------------------
(a) This Deed of Trust is intended to be a security agreement
pursuant to the California Uniform Commercial Code for (i) any and all items of
personal property specified
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above as part of the Trust Property that, under applicable law, may be subject
to a security interest pursuant to the California Uniform Commercial Code and
that are not effectively made part of the Transmission Line Property, and (ii)
any and all items of property specified above as part of the Trust Property
that, under applicable law, constitute fixtures and may be subject to a security
interest under Section 9313 of the California Uniform Commercial Code. Trustor
hereby grants Beneficiary a security interest in said property, and in all
additions thereto, substitutions therefor, and proceeds thereof, for the purpose
of securing the Obligations. For purposes of treating this Deed of Trust as a
security agreement, Beneficiary shall be deemed to be the secured party and
Trustor shall be deemed to be the debtor.
(b) Trustor maintains places of business in the State of California,
and Trustor will immediately notify Beneficiary in writing of any change in such
places of business.
(c) At the request of Beneficiary, Trustor shall join Beneficiary in
executing one or more financing statements and continuations and amendments
thereof pursuant to the UCC in form reasonably satisfactory to Beneficiary; and
Trustor will pay the cost of filing the same in all public offices wherever
filing is deemed by Beneficiary to be necessary. In the event Trustor fails to
execute such documents within five (5) business days after request by
Beneficiary, Trustor hereby authorizes Beneficiary to file such financing
statements and irrevocably constitutes and appoints Beneficiary, or any officer
of Beneficiary, as its true and lawful attorney-in-fact to execute the same on
behalf of Trustor.
(d) This Deed of Trust constitutes a financing statement filed as a
fixture filing under UCC (S) 9402(6) in the official records of Inyo County and
Kern County with respect to any and all fixtures included within the term "Trust
Property" and with respect to any goods or other personal property that may now
be or hereafter become such a fixture. This filing shall remain in effect as a
fixture filing until this Deed of Trust is released or satisfied of record or
its effectiveness otherwise terminates as to the Trust Property.
(e) Beneficiary has no responsibility for and does not assume any of,
Trustor's obligations or duties under any agreement or obligation which is part
of the Equipment or any obligation relating to the acquisition, preparation,
custody, use, enforcement or operation of any of the Trust Property.
(f) Trustor and Beneficiary agree that the filing of a financing
statement in the records normally having to do with personal property shall
never be construed as in any way derogating from or impairing this Deed of Trust
or the intention of the parties that everything used in connection with the
production of income from the Trust Property or adapted for use therein or which
is described or reflected in this Deed of Trust is, and at all times and for all
purposes and in all proceedings both legal or equitable shall be regarded as
part of the real estate subject to the lien hereof, irrespective of whether (i)
any such item is physically attached to improvements located on such real
property or (ii) any such item is referred to or reflected in any financing
statement so filed at any time. Similarly, the mention in any such financing
statement of (A) the rights in or to the proceeds of any casualty insurance
policy or (B) any award in eminent domain proceedings for taking or for loss of
value or for cause of action or proceeds thereof in connection with any damage
or injury to the Trust Property or any part thereof shall never be construed as
in any way altering any of the rights of Beneficiary as
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determined by this instrument or impugning the priority of Beneficiary's lien
granted hereby or by any other recorded document, but such mention in such
financing statement is declared to be for the protection of Beneficiary in the
event any court shall at any time hold with respect to matters (A) and (B) above
that notice of Beneficiary's priority of interest, to be effective against a
particular class of persons, including, without limitation, the Federal
government and any subdivision or entity of the Federal government, must be
filed in the personal property records or other commercial code records.
28. Further Acts, etc. Trustor shall, at the cost of Trustor, and
-----------------
without expense to Beneficiary, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, financing statements, mortgages, deeds of
trust, assignments, notices of assignments, transfers and assurances as
Beneficiary shall from time to time require, for the better assuring, conveying,
assigning, transferring and confirming unto Beneficiary, the property and rights
hereby conveyed or assigned or intended now or hereafter so to be, or which
Trustor may be or may hereafter become bound to convey or assign to Beneficiary,
or for carrying out the intention or facilitating the performance of the terms
of this Deed of Trust or for filing, registering or recording this Deed of Trust
and, on demand, will execute and deliver and hereby authorizes Beneficiary to
execute in the name of Trustor to the extent they may lawfully do so, one or
more financing statements, chattel mortgages or comparable security instruments,
to evidence and perfect more effectively the lien hereof upon the Trust
Property.
29. Power of Attorney.
-----------------
(a) Trustor does hereby make, constitute and appoint Beneficiary its
true and lawful exclusive agent and attorney-in-fact for it, and in its name,
place and stead for the following purposes (collectively, the "Power of
Attorney"):
(i) in connection with or following one or more foreclosures
under this Deed of Trust judicially or by power(s) of sale or otherwise, or at
such time as Trustor shall be a debtor in proceedings under federal or state
bankruptcy law, to (1) apply to the U.S. Navy for assignment to it of the Navy
Contract and (2) subject to the prior approval of the U.S. Navy, if applicable,
to grant, bargain, sell, convey and assign Trustor's interest under the Navy
Contract to Beneficiary or to any other Person, for such price or prices, and on
such terms and conditions, as Trustor may deem proper, and in Trustor's name, to
make, execute, acknowledge and deliver a good and sufficient assignment, or
other instrument or instruments necessary to effect such sale, conveyance or
assignment;
(ii) to take all actions and exercise all rights and remedies
available to Trustor as holder of the Navy Contract, including, without
limitation, to (1) cure any defaults thereunder, (2) make rental, royalty or
other payments to the U.S. Navy, if applicable, on behalf of Trustor and/or (3)
act as operator, appoint another to act as operator or have a receiver appointed
to act as operator thereof; and
(iii) to request, demand, sue for, collect, recover, compromise,
settle and receive all monies that may become due and owing to Trustor by reason
of a sale, conveyance, assignment, taking for public use or other disposition of
Trustor's interest under the Navy Contract.
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(b) Trustor hereby grants to Beneficiary full power and authority to
from time to time appoint a substitute to perform any of the acts that
Beneficiary is by this Power of Attorney authorized to perform, and the right to
revoke such appointment of substitution at any time.
(c) Trustor does hereby give and grant Beneficiary full power and
authority to do and perform all and every act and thing whatsoever requisite,
necessary or appropriate to be done in and about the Transmission Line Property
and/or with respect to the Navy Contract as fully to all interests and purposes
as Trustor might or could do if personally present, hereby ratifying all that
Beneficiary shall lawfully do or cause to be done by virtue of theses presents.
The powers and authority hereby conferred upon Beneficiary shall be applicable
to any and all interests in the Navy Contract now owned or hereafter acquired by
Trustor. Subject to the terms hereof, Beneficiary is empowered to determine in
its sole discretion the time when, purpose for, and manner in which any power
herein conferred upon it shall be exercised, and the conditions, provisions and
covenants of any instrument or document that may be executed by it pursuant
hereto, and in the acquisition or disposition of the Navy Contract, Beneficiary
shall have exclusive power to fix the terms thereof. This Power of Attorney is
coupled with an interest and cannot be revoked other than by recordation of a
statement of termination by Beneficiary hereunder.
30. Headings, etc. The headings, titles and captions of various
-------------
Sections of this Deed of Trust are for convenience of reference only and are not
to be construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
31. Filing of Deed of Trust, etc. Trustor forthwith upon the
----------------------------
execution and delivery of this Deed of Trust and thereafter, from time to time,
will cause this Deed of Trust, and any security instrument creating a lien or
evidencing or perfecting the lien hereof upon the Trust Property, or in the case
of personal property or fixtures, financing statements with respect thereto, and
each instrument of further assurance, to be filed, registered or recorded in
such manner and in such places as may be required by any present or future law
in order to publish notice of and fully to protect, preserve and perfect the
lien hereof upon, and the interest of Beneficiary in the Trust Property.
Trustor will pay all filing, registration or recording fees, and all expenses
incurred by Beneficiary incident to the preparation, execution and
acknowledgment of this Deed of Trust, any deed of trust or any mortgage or deed
of trust supplemental hereto, any security instrument with respect to the Trust
Property, any financing statement with respect to the Trust Property, and any
instrument of further assurance, and all federal, state, county and municipal
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Deed of Trust, any mortgage or deed of
trust supplemental hereto, any security instrument with respect to the Trust
Property or any financing statement, continuation statement or other instrument
of further assurance. Trustor shall hold harmless and indemnify Beneficiary,
its successors and assigns, against any liability incurred by reason of the
imposition of any tax on the making and recording of this Deed of Trust.
32. Usury Laws. This Deed of Trust and the other Financing Documents
----------
are subject to the express condition that at no time shall Trustor be obligated
or required to pay interest at a rate which could subject the creditor of the
debt to either civil or criminal liability as a result of being in excess of the
maximum interest rate which Trustor is permitted by law to
21
<PAGE>
contract or agree to pay. If by the terms of this Deed of Trust or the
Financing Documents, Trustor is at any time required or obligated to pay
interest at a rate in excess of such maximum rate, then such rate of interest
shall be deemed to be immediately reduced to such maximum rate and the interest
payable shall be computed at such maximum rate.
33. Recovery of Sums Required to Be Paid. Beneficiary shall have the
------------------------------------
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due, without regard to
whether or not the balance of the Obligations shall be due, and without
prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Trustor existing
at the time such earlier action was commenced.
34. Authority. Trustor, and each of the undersigned acting on behalf
---------
of Trustor, hereby represents, warrants and covenants that it has full power,
authority and legal right to execute this Deed of Trust and to mortgage, give,
grant, bargain, sell, release, pledge, convey, confirm and assign the Trust
Property pursuant to the terms hereof and to keep and observe all of the terms
of this Deed of Trust on Trustor's part to be performed.
35. Invalidity of Certain Provisions. Every provision of this Deed
--------------------------------
of Trust is intended to be severable. In the event any term or provision hereof
is declared to be illegal, invalid or unenforceable for any reason whatsoever by
a court of competent jurisdiction, (i) such term or provision shall be construed
in such a manner as will allow such term or provision to be valid, provided that
such recasting shall be in accordance with the original intention of the
parties, and (ii) such illegality, invalidity or unenforceability shall not
affect the balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable. If the lien of this Deed of
Trust in invalid or unenforceable as to any part of the debt, or if the lien is
invalid or unenforceable as to any part of the Trust Property, the unsecured or
partially unsecured portion of the debt shall be completely paid prior to the
payment of the remaining and secured or partially secured portion of the debt,
and all payments made on the debt, whether voluntary or under foreclosure or
other enforcement action or procedure, shall be considered to have been first
paid on and applied to the full payment of that portion of the debt which is not
secured or fully secured by the lien of this Deed of Trust.
36. Duplicate Originals. This Deed of Trust may be executed in any
-------------------
number of duplicate originals and each such duplicate original shall be deemed
to constitute but one and the same instrument.
37. Waiver of Notice. Trustor shall not be entitled to any notices
----------------
of any nature whatsoever from Beneficiary except with respect to matters for
which this Deed of Trust or applicable law specifically and expressly provides
for the giving of notice to Trustor, and to the fullest extent permitted by law
Trustor hereby expressly waives the right to receive any notice from Beneficiary
with respect to any matter for which this Deed of Trust or applicable law does
not specifically and expressly provide for the giving of notice to Trustor.
38. No Oral Change. This Deed of Trust may only be modified, amended
--------------
or changed by an agreement in writing signed by Trustor and Beneficiary, and may
only be released, discharged or satisfied of record by an instrument in writing
signed by the Trustee or
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its successors and assigns as directed by Beneficiary. No waiver of any term,
covenant or provision of this Deed of Trust shall be effective unless given in
writing by Beneficiary, and if so given by Beneficiary shall only be effective
in the specific instance in which given. Trustor acknowledges that this Deed of
Trust sets forth the entire agreement and understanding of Trustor and
Beneficiary with respect to the matters set forth herein and that no oral or
other agreements, understanding, representations or warranties exist with
respect to these matters other than those set forth in this Deed of Trust.
39. Absolute and Unconditional Obligation. Trustor acknowledges that
-------------------------------------
the Issuer's and each Guarantor's respective obligations to perform and pay the
Obligations in accordance with the Financing Documents are and shall at all
times continue to be absolute and unconditional in all respects, and shall at
all times be valid and enforceable irrespective of any other agreements or
circumstances of any nature whatsoever which might otherwise constitute a
defense to the obligations of Trustor under this Deed of Trust, to the
obligations of Issuer or Guarantors to perform and pay the Obligations or to the
obligations of any other Person relating to this Deed of Trust or the Financing
Documents, and to the fullest extent permitted by law Trustor absolutely,
unconditionally and irrevocably waives any and all right to assert any defense,
setoff, counterclaim or crossclaim of any nature whatsoever with respect to the
obligations of Trustor under this Deed of Trust or to the obligations of any
other Person relating to this Deed of Trust or the Financing Documents, or in
any action or proceeding brought by Beneficiary to collect the Obligations, or
any portion thereof, or to enforce, foreclose and realize upon the lien and
security interest created by this Deed of Trust or any other document or
instrument securing performance and repayment of the Obligations, in whole or in
part.
40. No Rights; No Set Off. All sums secured by this Deed of Trust
---------------------
shall be paid in accordance with the Indenture and the Guarantees, as
applicable, without counterclaim, setoff, deduction or defense and without
abatement, suspension, deferment, diminution or reduction, and the obligations
and liabilities of Trustor hereunder shall in no way be released, discharged or
otherwise affected (except as expressly provided herein) by reason of (i) any
claim which Trustor, the Issuer or any Guarantor has or might have against
Beneficiary, (ii) any default or failure on the part of Beneficiary to perform
or comply with any of the terms hereof or (iii) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing and whether or not Trustor shall
have notice or knowledge of any of the foregoing.
41. Action Affecting the Trust Property.
-----------------------------------
(a) Trustor agrees to appear in and contest any action or proceeding
purporting to adversely affect the security hereof or the rights or powers of
Beneficiary, and to pay all costs and expenses of Beneficiary, including costs
of evidence of title and attorneys' fees and expenses, in any such action or
proceeding in which Beneficiary may appear.
(b) Beneficiary shall have the right to appear in and defend any
action or proceeding brought with respect to the Trust Property and to bring any
action or proceeding, in the name and on behalf of Trustor or Beneficiary, which
Beneficiary determines to be necessary or reasonably advisable to be brought to
protect its interest in the Trust Property if (i) Trustor fails to defend or
bring such action or proceeding, as appropriate, in a prompt and diligent
manner, or thereafter fails to proceed with diligence in the defense or
prosecution of the same, or (ii) an Event of Default shall have occurred and be
continuing.
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42. Other Actions by Beneficiary. Except as hereinbefore expressly
----------------------------
provided, should (i) the Guarantors fail to make any payment or do any act as
and in the manner provided in the Guarantees, the Indenture or the other
Financing Documents, (ii) the Issuer fail to make any payment or do any act as
and in the manner provided for in the Indenture of the other Financing Documents
or (iii) Trustor fail to make any payment or do any act as and in the manner
provided in this Deed of Trust, then, after the expiration of any applicable
cure or grace period and as a result an Event of Default, Beneficiary, without
obligation so to do and without notice to or demand upon Trustor and without
releasing Trustor from any obligation, may make or do the same in such manner
and to such extent as Beneficiary may deem necessary to protect the security
hereof. In connection therewith (without limiting any general powers of
Beneficiary whether conferred herein or by law), Beneficiary shall have and is
hereby given the right, but not the obligation, (i) to the fullest extent
permitted by law, to make additions, alterations, repairs and improvements to
the Trust Property which it may consider necessary to keep the Trust Property in
good condition and repair and (ii) in exercising such powers, to pay necessary
expenses, including engagement of counsel or other necessary or desirable
consultants. Trustor shall, immediately upon demand therefor by Beneficiary,
pay all reasonable costs and expenses incurred by Beneficiary in connection with
the exercise by Beneficiary of the foregoing rights, including without
limitation, costs of evidence of title, court costs, appraisals, surveys and
attorneys' fees and expenses.
43. Remedies Not Exclusive. Subject to the limitations set forth in
----------------------
Section 49 of this Deed of Trust, Beneficiary shall be entitled to enforce
payment and performance of any indebtedness or obligations secured hereby and to
exercise all rights and powers granted under this Deed of Trust or any other
agreement or any laws now or hereafter in force, notwithstanding some or all of
the said indebtedness and obligations secured hereby may now or hereafter be
otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment
or otherwise. Subject to the limitations set forth in Section 49 of this Deed
of Trust, neither the acceptance of this Deed of Trust nor its enforcement,
whether by court action or pursuant to the power of sale or other powers herein
contained, shall prejudice or in any manner affect Beneficiary's right to
realize upon or enforce any other security now or hereafter held by Beneficiary,
it being agreed that Beneficiary shall be entitled to enforce this Deed of Trust
and any other security now or hereafter held by Beneficiary in such order and
manner as it may in its absolute discretion determine. No remedy herein
conferred upon or reserved to Beneficiary is intended to be exclusive of any
other remedy herein or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute.
44. Relationship. Nothing contained in this Deed of Trust is
------------
intended to create, or shall in any event or under any circumstance be construed
as creating, a partnership, joint venture, tenancy-in-common, joint tenancy or
other relationship of any nature whatsoever between or among Beneficiary and
Trustor.
45. Indenture and Guarantees. This Deed of Trust is subject to all
------------------------
of the terms, covenants and conditions of the Guarantees, the Indenture and the
other Financing Documents, which Guarantees, Indenture and Financing Documents
and all of the terms, covenants and conditions thereof are by this reference
incorporated herein and made a part hereof with the same force and effect as if
set forth at length herein. All advances made and
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all indebtedness arising and accruing under the Guarantees, the Indenture or any
Financing Document from time to time shall be secured hereby.
46. Additional Covenants.
--------------------
(a) Trustor shall not create, incur or suffer to exist any
Indebtedness. For purposes of this Section 46, "Indebtedness" shall mean, at
any date, without duplication, (i) all obligations of Trustor for borrowed
money, (ii) all obligations of Trustor evidenced by debentures, notes or other
similar instruments (excluding "deposit only" endorsements on checks payable to
the order of Trustor), (iii) all obligations of Trustor to pay the deferred
purchase price of property or services (except accounts payable and similar
obligations arising in the ordinary course of business), (iv) all obligations of
Trustor as lessee under capital leases to the extent required to be capitalized
on the books of Trustor in accordance with GAAP and (v) all obligations of
others of the type referred to in clauses (i) through (iv) above guaranteed by
Trustor, whether or not secured by a lien or other security interest on any
asset of Trustor;
(b) Trustor shall not directly or indirectly create, incur, assume or
suffer to exist any Liens of any kind on any asset now or hereafter acquired,
except Permitted Liens. For purposes of this Section 46, Permitted Liens shall
mean (i) mechanic's, workmen's, materialmen's, supplier's, construction or other
like Liens arising in the ordinary course of business and which have not become
the subject of any foreclosure or other action or proceeding, (ii) servitudes,
easements, rights-of-way, restrictions, minor defects or irregularities in title
and such other encumbrances or charges against real property or interests
therein as are of a nature generally existing with respect to properties of a
similar character and which will not in any material way interfere with the use
thereof and (iii) other Liens incidental to the conduct of Trustor's business or
the ownership of properties and assets which were not incurred in connection
with the borrowing of money or the obtaining of advances or credit (other than
vendor's liens for accounts payable in the ordinary course of business), and
which will not in the aggregate materially impair the use thereof in the
operation of its business.
(c) Trustor shall not contingently or otherwise be or become liable
in connection with any guarantee, except for endorsements and similar
obligations in the ordinary course of business and except as may be created by
this Deed of Trust or any other security given by Trustee to Beneficiary;
(d) Trustor (to the extent that it may lawfully do so) shall not at
any time insist upon, plead or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law wherever enacted, now
or at any time hereafter in force, that may affect the covenants contained in or
the performance of this Deed of Trust; and Trustor (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power granted herein to Beneficiary, but shall
suffer and permit the execution of every such power as though no such law has
been enacted;
(e) Trustor shall pay, prior to delinquency, all material taxes,
assessments and governmental levies except such as are contested in good faith
and by appropriate proceedings and where the failure to effect such payment is
not adverse in any material respect to the Holders of the Senior Secured Notes;
25
<PAGE>
(f) Trustor shall not enter into any transaction of merger or
consolidation, change its form of organization or its business, liquidate, wind-
up or dissolve itself or discontinue its business; and
(g) Trustor shall do or cause to be done all things necessary to
preserve and keep in full force and effect (i) its partnership existence, in
accordance with its respective organizational documents (as the same may be
amended from time to time) and (ii) its rights (charter and statutory), licenses
and franchises.
47. Business Purpose. Trustor hereby stipulates and warrants that
----------------
the loans secured hereby are commercial or business loans and are transacted
solely for the purpose of carrying on or acquiring a business or commercial
enterprise or for a proper business purpose under the laws of the jurisdiction
in which the Trust Property is located.
48. Time of the Essence. TIME IS OF THE ESSENCE with respect to each
-------------------
and every covenant, agreement and obligation of Trustor under this Deed of
Trust.
49. No Recourse. Beneficiary agrees that no officer, director,
-----------
employee or shareholder of Trustor nor any Affiliate of any such party
(collectively, the "Nonrecourse Parties") shall be personally liable for the
performance of any obligation contained in this Deed of Trust. Beneficiary
agrees that its rights shall be limited to proceeding against Trustor and the
security provided or intended to be provided pursuant to the Security Documents,
and that it shall have no right to proceed against the Nonrecourse Parties for
(a) the satisfaction of any monetary obligation of, or enforcement of any
monetary claim against, Trustor, (b) the performance of any obligation, covenant
or agreement arising under this Deed of Trust, or (c) any deficiency judgment
remaining after foreclosure of any property securing the obligations hereunder;
provided, however, that: (A) the foregoing provisions of this Section 49 shall
not constitute a waiver, release or discharge of any of the indebtedness, or of
any of the terms, covenants, conditions or provisions of this agreement or any
Financing Document, and the same shall continue until fully paid, discharged,
observed or performed; (B) the foregoing provisions of this Section 49 shall not
limit or restrict the right of Beneficiary or the holders of the Senior Secured
Notes to name Trustor or any other Person as a defendant in any action or suit
for a judicial foreclosure or for the exercise of any other remedy under or with
respect to this Deed of Trust or any Financing Document, or for injunction or
specific performance, so long as no judgment in the nature of a deficiency
judgment shall be enforced against any Nonrecourse Party, except as set forth in
this Section 49; (C) the foregoing provisions of this Section 49 shall not in
any way limit or restrict any right or remedy of Beneficiary, the holders of the
Senior Secured Notes or the Permitted Additional Senior Lenders, if any (or any
assignee or beneficiary thereof or successor thereto) with respect to, and all
of the Nonrecourse Parties shall remain fully liable to the extent that they
would otherwise be liable for their own actions with respect to, any fraud,
negligence or willful misrepresentation, or misappropriation of any amounts to
be deposited in the Revenue Account, Proceeds or any other earnings, revenues,
rents, issues, profits or proceeds that are subject to the Security Documents
that should or would have been paid as provided herein or paid or delivered to
the Depositary Agent, Beneficiary, the holders of the Senior Secured Notes or
the Permitted Additional Senior Lenders (or any assignee or beneficiary thereof
or successor thereto) towards any payment required under this Deed of Trust or
any Financing Document; (D) the foregoing provisions of this Section 49 shall
not affect or diminish
26
<PAGE>
or constitute a waiver, release or discharge of any specific written obligation,
covenant or agreement in respect of the Project made by any of the Nonrecourse
Parties or any security granted by the Nonrecourse Parties as security for the
obligations of Trustor, the Guarantors or Issuer; and (E) nothing contained
herein shall limit the liability of (i) any Person who is a party to any Project
Document or has issued any certificate or statement in connection therewith with
respect to such liability as may arise by reason of the terms and conditions of
such Project Document, certificate or statement, or (ii) any Person rendering a
legal opinion, in each case under this clause (E) relating solely to such
liability of such Person as may arise under such referenced instrument,
agreement or opinion.
50. Severance of Counterclaims. In the event of foreclosure of this
--------------------------
Deed of Trust, any and all counterclaims filed by Trustor against Beneficiary to
the extent permitted by law, shall be severed by the court having jurisdiction
over the foreclosure action, for all purposes from the basic foreclosure action,
on an ex parte basis and without notice to Trustor. Trustor, by its execution
--------
and delivery hereof, hereby expressly consents and agrees to such severance.
51. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT HEREOF, TRUSTOR
--------------------
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY RIGHT IT
MIGHT HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS DEED OF TRUST OR ANY OF THE
FINANCING DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PERSONS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BENEFICIARY TO ACCEPT DELIVERY OF THIS DEED OF TRUST.
52. GOVERNING LAW. THIS DEED OF TRUST IS GOVERNED BY AND SHALL BE
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
53. Reimbursement; Attorneys' Fees. Trustor shall pay immediately,
------------------------------
without demand, after expenditure, all sums expended or expenses incurred by
Trustee and/or Beneficiary in enforcing the terms of this Deed of Trust,
including, without limitation, all attorneys' fees. As used herein, the terms
"attorneys' fees" or "attorneys' fees and costs" shall mean the fees and
expenses of counsel to Beneficiary, Trustee and the holders of the Senior
Secured Notes, which may include printing, photostating, duplicating and other
expenses, air freight charges, and fees billed for law clerks, paralegals,
librarians and others not admitted to the bar but performing services under the
supervision of an attorney. The terms "attorneys' fees" or "attorneys' fees and
costs" shall also include, without limitation, all such fees and expenses
incurred with respect to appeals, arbitrations and bankruptcy proceedings, and
whether or not any action or proceeding is brought with respect to the matter
for which said fees and expenses were incurred.
54. Shared Draftsmanship. If there is any ambiguity in the terms of
--------------------
this Deed of Trust, the doctrine of construction which holds that the language
of the document shall be construed against its drafter shall not apply, as all
parties have shared in the drafting of this Deed of Trust.
27
<PAGE>
55. No Third Party Beneficiary. This Deed of Trust is for the sole
--------------------------
benefit of Beneficiary, or on behalf of the holders of the Senior Secured Notes,
as applicable, and the Permitted Additional Senior Lenders, and is not for the
benefit of any third party; and no third party shall gain any subrogation rights
against Trustor or in, to or with respect to any portion of the Trust Property
by reason of this Deed of Trust or the provisions hereof.
56. Security Only. This Deed of Trust is granted for security
-------------
purposes only. Accordingly, except as otherwise specifically provided in this
Deed of Trust, Beneficiary shall not enforce Trustor's rights with respect to
the Trust Property until such time as an Event of Default shall have occurred
and be continuing.
57. Release by Beneficiary. Upon the payment and performance in full
----------------------
of the Obligations, the security interest granted hereby shall terminate and all
rights to the Trust Property shall revert to Trustor. Upon any such
termination, Trustee shall, at Trustor's expense, execute and deliver to Trustor
such documents as Trustor shall reasonably request to evidence such termination.
If this Deed of Trust shall be terminated or revoked by operation of law,
Trustor will indemnify and save Trustee harmless from any loss which may be
suffered or incurred by Trustee in acting hereunder prior to the receipt by
Trustee, its successors, transferees or assigns of notice of such termination or
revocation.
58. Regarding Beneficiary.
---------------------
(a) Trustor hereby agrees to indemnify and hold harmless Beneficiary
and its directors, officers, agents and employees from and against any and all
claims, demands, losses, penalties, liabilities, costs, damages, injuries and
expenses, including, without limitation, reasonable attorneys' fees and
expenses, suffered or sustained by Beneficiary, either directly or indirectly,
relating to or arising out of any Environmental Law (as hereinafter defined),
including, without limitation, any judgment, award, settlement, attorneys' fees
and expenses and other costs or expenses incurred in connection with the defense
of any actual or threatened action, proceeding or claim. As used herein, the
term "Environmental Law" shall mean any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or health or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment, including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
(b) The obligations of Trustor hereunder shall survive the
termination and release of this Deed of Trust or the earlier resignation or
removal of Beneficiary as trustee under the Indenture.
59. No Waiver. By accepting payment of any sum secured hereby after
---------
its due date or in an amount less than the sum due, Beneficiary does not waive
its rights to require prompt payment when due of all other sums so secured.
[Remainder of page intentionally left blank; signatures on next page]
28
<PAGE>
IN WITNESS WHEREOF, Trustor has duly executed this Deed of Trust as of the
day and year first above written.
TRUSTOR: COSO TRANSMISSION LINE PARTNERS,
a California general partnership
By: Coso Energy Developers,
a California general partnership,
its General Partner
By: New Chip Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Coso Power Developers,
a California general partnership,
its General Partner
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
29
<PAGE>
ACKNOWLEDGMENT
STATE OF New York )
----------------
)
COUNTY OF New York )
----------------
On May 28 , 1999, before me, [name of notary]
------------------ ------------------------------------
Notary Public, personally appeared Christopher T. McCallion personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature(s) on
the instrument the person(s), or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ signature of notary
- ------------------------------------------------------
Notary/Public
<PAGE>
EXHIBIT A
Description of the Transmission Line Property
---------------------------------------------
THAT CERTAIN REAL PROPERTY LOCATED IN UNINCORPORATED AREAS OF THE COUNTIES OF
INYO AND KERN, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL A:
PARCEL A OF THE COSO-INYOKERN TRANSMISSION LINE CORRIDOR BEGINS AT SURVEY
STATION 0+00 AT THE INYOKERN SUBSTATION IN THE SE1/4, SE1/4 OF SECTION 20, T26S,
R39E, IN KERN COUNTY, CALIFORNIA AND GOES NORTHERLY APPROXIMATELY 27 MILES
ENDING AT SURVEY STATION 1380+00 NWC/BLM GEOTHERMAL PLANT NO. 1 SWITCHYARD IN
SE1/4, NW1/4 OF SECTION 19, T22S, R39E IN INYO COUNTY, CALIFORNIA.
THE CORRIDOR FOR THE TRANSMISSION LINE IS THE EASTERN PORTION OF A COMMON
CORRIDOR WHICH IS A STRIP OF LAND 200 FEET WIDE OF WHICH 65 FEET OF THIS
CORRIDOR IS LOCATED TO THE LEFT (WESTERLY) OF THE 115 KV TRANSMISSION LINE
CENTERLINE AND 135 FEET IS LOCATED TO THE RIGHT (EASTERLY) OF THE 115 KV
TRANSMISSION LINE CENTERLINE FROM STATION 0+00 TO STATION 731+59.27. FROM
STATION 731+59.27 TO STATION 1245+11.06, THE CORRIDOR IS A STRIP OF LAND 250
FEET WIDE OF WHICH 100 FEET IS LOCATED TO THE LEFT (WESTERLY) AND 150 FEET IS
LOCATED TO THE RIGHT (EASTERLY) OF THE 115 KV TRANSMISSION LINE CENTERLINE.
FROM STATION 1245+11.06 TO STATION 1291+52.54, THE CORRIDOR IS A STRIP OF LAND
300 FEET WIDE OF WHICH 100 FEET OF THIS CORRIDOR IS LOCATED TO THE LEFT
(WESTERLY) AND 200 FEET IS LOCATED TO THE RIGHT (EASTERLY) OF THE 115 KV
TRANSMISSION LINE CENTERLINE. FROM STATION 1291+52.54 TO STATION 1380+00 THE
CORRIDOR IS A STRIP OF LAND 250 FEET WIDE OF WHICH 100 FEET IS LOCATED TO THE
LEFT (WESTERLY) AND 150 FEET IS LOCATED TO THE RIGHT (EASTERLY) OF THE 115 KV
TRANSMISSION LINE CENTERLINE.
THE TRANSMISSION CORRIDOR CENTERLINE IS DESCRIBED AS FOLLOWS:
SECTIONS 20, 17 (7 of record), 8, 5, AND 6 OF TOWNSHIP 26 SOUTH, RANGE 39 EAST
- ------------------------------------------------------------------------------
BEGINNING AT SURVEY STATION 0+00, WHICH IS LOCATED ON THE NORTH BOUNDARY FENCE
LINE OF THE INYOKERN SUBSTATION AND IS 400 FEET WEST, MORE OR LESS, AND 320 FEET
NORTH, MORE OR LESS, OF THE SE CORNER OF SECTION 20, T26S, R39E. THENCE, FROM
STATION 0+00, N2111'57"W A DISTANCE OF 255.00 FEET TO AN ANGLE POINT AT STATION
2+55.00; THENCE N1740'18"W A DISTANCE OF 21,637 FEET, MORE OR LESS, TO THE
LELITER ROAD CROSSING AT STATION 218+92 WHICH IS A POINT ON THE NORTH BOUNDARY
OF SECTION 6, T26S, R39E AND 1410 FEET WEST, MORE OR LESS, OF THE NE CORNER OF
SECTION 6, T26S, R39E.
Exhibit "A"
Page 1 of 4
<PAGE>
SECTIONS 31, 30 AND 19 OF TOWNSHIP 25 SOUTH, RANGE 39 EAST
----------------------------------------------------------
THENCE, FROM STATION 218+92, N1740'18"W A DISTANCE OF 13,228 FEET TO STATION
351+20 WHICH IS A POINT ON THE WEST BOUNDARY OF SECTION 19, T25S, R39E AND IS
1960 FEET NORTH, MORE OR LESS, OF THE SW CORNER OF SECTION 19, T25S, R39E.
SECTIONS 24, 13, 12, 1 AND 2 OF TOWNSHIP 25 SOUTH, RANGE 38 EAST
----------------------------------------------------------------
THENCE, FROM STATION 351+20, N1740'18"W A DISTANCE OF 20,165 FEET, TO SURVEY
STATION 552+85 WHICH IS A POINT ON THE KERN AND INYO COUNTY LINE AND ON THE
NORTH BOUNDARY OF SECTION 2, T25S, R38E AND IS 540 FEET WEST, MORE OR LESS, OF
THE NE CORNER OF SECTION 2, T25S, R38E.
SECTIONS 35, 34, 27, 22, 15, 10 AND 3 OF TOWNSHIP 24 SOUTH, RANGE 38 EAST
-------------------------------------------------------------------------
THENCE, FROM STATION 552+85, N1740'18"W A DISTANCE OF 980.65 FEET TO AN ANGLE
POINT AT STATION 562+65.65; THENCE, N0032'59"E A DISTANCE OF 1849.86 FEET TO AN
ANGLE POINT AT STATION 581+15.51; THENCE N1855'43"W A DISTANCE OF 8200.72 FEET
TO AN ANGLE POINT AT STATION 663+16.23; THENCE N1749'44"W A DISTANCE OF 6844.77
FEET TO AN ANGLE POINT AT STATION 731+59.27; THENCE N0926'36"E A DISTANCE OF
13,279.45 FEET TO AN ANGLE POINT AT EQUATION STATION 864+40.45 BACK AND 873+76
AHEAD; THENCE N0743'29"E A DISTANCE OF 1460 FEET TO SURVEY STATION 888+39.76
WHICH IS A POINT ON THE NORTH BOUNDARY OF SECTION 3, T24S, R38E AND IS 1680 FEET
WEST, MORE OR LESS, OF THE NE CORNER OF SECTION 3, T24S, R38E.
SECTIONS 34, 27, 26, 23, 24, 13, 12 AND 1 OF TOWNSHIP 23 SOUTH, RANGE 38 EAST
-----------------------------------------------------------------------------
THENCE, FROM STATION 888+39.76, N0743'29"E A DISTANCE OF 5111.45 FEET TO AN
ANGLE POINT AT STATION 939+51.21; THENCE N3143'12"E A DISTANCE OF 9820.50 FEET
TO AN ANGLE POINT AT STATION 1037+71.71; THENCE N3114'47"E A DISTANCE OF
10,758.97 FEET TO AN ANGLE POINT AT STATION 1145+30.68; THENCE N1029'29"W A
DISTANCE OF 8780.38 FEET TO SURVEY STATION 1233+11.06 WHICH IS A POINT ON THE
NORTH BOUNDARY OF SECTION 1, T23S, R38E AND IS 1600 FEET WEST, MORE OR LESS, OF
THE NE CORNER OF SECTION 1, T23S, R38E.
SECTION 36 OF TOWNSHIP 22 SOUTH, RANGE 38 EAST
----------------------------------------------
THENCE, FROM STATION 1233+11.06, N1029'29"W A DISTANCE OF 1200.00 FEET TO AN
ANGLE POINT AT STATION 1245+11.06; THENCE N4308'19"E A DISTANCE OF 2718.94 FEET
TO SURVEY STATION 1272+30 WHICH IS A POINT ON THE EAST BOUNDARY OF SECTION 36,
T22S, R38E AND IS 2180 FEET SOUTH, MORE OR LESS, OF THE NE CORNER OF SECTION 36,
T22S, R38E.
SECTIONS 31, 30 AND 19 OF TOWNSHIP 22 SOUTH, RANGE 39 EAST
----------------------------------------------------------
Exhibit "A"
Page 2 of 4
<PAGE>
THENCE, FROM STATION 1272+30, N4308'19"E A DISTANCE OF 1922.34 FEET TO AN ANGLE
POINT AT STATION 1291+52.34; THENCE N0645'07"E A DISTANCE OF 8634.99 FEET TO THE
END OF PARCEL A OF THE COSO-INYOKERN TRANSMISSION LINE CORRIDOR AT SURVEY
STATION 1380+00. THIS POINT IS LOCATED AT THE NWC-BLM GEOTHERMAL PLANT NO. 1
SWITCHYARD IN THE SE1/4, NW1/4 OF SECTION 19, T22S, R39E IN INYO COUNTY,
CALIFORNIA.
PARCEL B:
PARCEL B OF THE COSO-INYOKERN 230 KV TRANSMISSION LINE CORRIDOR BEGINS AT
STATION 0+00 AT BLM (WEST) GEOTHERMAL PLANT NO. 1 SWITCHYARD IN THE SE1/4, NW1/4
OF SECTION 19, T22S, R39E IN INYO COUNTY, CALIFORNIA AND EXTENDS TO STATION
77+57.20 BLM (EAST) GEOTHERMAL PLANT NO. 2 SWITCHYARD IN THE S1/2 OF SECTION 20,
T22S, R39E.
THIS PORTION OF THE CORRIDOR IS A STRIP OF LAND 100 FEET WIDE OF WHICH 50 FEET
OF THIS CORRIDOR IS LOCATED LEFT (NORTHERLY) AND 50 FEET IS LOCATED RIGHT
(SOUTHERLY) OF CENTERLINE OF THE CORRIDOR.
THE TRANSMISSION CENTERLINE IS DESCRIBED AS FOLLOWS:
SECTIONS 19 AND 20 OF TOWNSHIP 22 SOUTH, RANGE 39 EAST
------------------------------------------------------
BEGINNING AT SURVEY STATION 0+00, BLM (WEST) GEOTHERMAL PLANT NO. 1 SWITCHYARD,
WHICH IS LOCATED AT S52W 4035 FEET, MORE OR LESS, FROM THE NE CORNER OF SECTION
19, T22S, R39E; THENCE N8300'00"E, A DISTANCE OF 350.00 FEET TO AN ANGLE POINT
AT STATION 3+50.00; THENCE N4255'19"E A DISTANCE OF 469.21 FEET TO AN ANGLE
POINT AT STATION 8+19.21; THENCE N8434'06"E, A DISTANCE OF 1148.23 FEET TO AN
ANGLE POINT AT STATION 19+67.44; THENCE N7242'43"E A DISTANCE OF 1445.45 FEET TO
AN ANGLE POINT AT EQUATION STATION 34+12.89 BACK AND 34+12.04 AHEAD; THENCE
S5305'47"E A DISTANCE OF 2075.45 FEET TO AN ANGLE POINT AT STATION 54+87.49;
THENCE S0859'02"E A DISTANCE OF 1301.63 FEET TO AN ANGLE POINT AT STATION
67+89.12; THENCE S4229'52"E A DISTANCE OF 468.25 FEET TO AN ANGLE POINT AT
STATION 72+57.37; THENCE N4749'10"E A DISTANCE OF 359.83 FEET TO AN ANGLE POINT
AT STATION 76+17.20; THENCE N7615'19"E A DISTANCE OF 140.00 FEET TO THE A-FRAME
STRUCTURE AT STATION 77+57.20. THIS POINT IS LOCATED AT BLM (EAST) GEOTHERMAL
PLANT NO. 2 SWITCHYARD, S32W 5080 FEET, PLUS OR MINUS, FROM THE NE CORNER OF
SECTION 20, T22S, R39E IN INYO COUNTY, CALIFORNIA AND IS THE END OF PARCEL B
COSO-INYOKERN TRANSMISSION LINE CORRIDOR.
PARCEL C:
PARCEL C OF THE COSO-INYOKERN 230 KV TRANSMISSION LINE CORRIDOR BEGINS AT
STATION 0+00 AT BLM (EAST) GEOTHERMAL PLANT NO. 2 SWITCHYARD IN THE S1/2 OF
SECTION 20, T22S, R39E IN INYO COUNTY, CALIFORNIA AND EXTENDS TO STATION
70+58.51 NAVY II GEOTHERMAL PLANT SWITCHYARD IN SECTION 17, T22S, R39E.
Exhibit "A"
Page 3 of 4
<PAGE>
THIS PORTION OF THE CORRIDOR IS A STRIP OF LAND 100 FEET WIDE OF WHICH 50 FEET
OF THIS CORRIDOR IS LOCATED LEFT (WESTERLY) AND 50 FEET IS LOCATED RIGHT
(EASTERLY) OF CENTERLINE OF THE CORRIDOR.
THE TRANSMISSION CENTERLINE IS DESCRIBED AS FOLLOWS:
SECTIONS 17 AND 20 OF TOWNSHIP 22 SOUTH, RANGE 39 EAST
------------------------------------------------------
BEGINNING AT SURVEY STATION 0+00, BLM (EAST) GEOTHERMAL PLANT NO. 2 SWITCHYARD,
WHICH IS LOCATED S32 W 5040 FEET, MORE OR LESS, FROM THE NE CORNER OF SECTION
20, T22S, R39E; THENCE N7658'47"W, A DISTANCE OF 76.36 FEET TO AN ANGLE POINT AT
STATION 0+76.36; THENCE N0646'21"W, A DISTANCE OF 2483.33 FEET TO AN ANGLE POINT
AT STATION 25+59.52; THENCE N1932'09"E, A DISTANCE OF 2513.26 FEET TO AN ANGLE
POINT AT STATION 50+72.82; THENCE N6357'16"W, A DISTANCE OF 1169.08 FEET TO AN
ANGLE POINT AT STATION 62+41.90; THENCE N1816'46"W, A DISTANCE OF 394.50 FEET TO
AN ANGLE POINT AT STATION 66+36.40; THENCE N3700'00"E, A DISTANCE OF 422.11 FEET
TO THE A-FRAME STRUCTURE AT STATION 70+58.51. THIS POINT IS LOCATED AT NAVY II
GEOTHERMAL PLANT SWITCHYARD, S42W 4580 FEET, PLUS OR MINUS, FROM THE NE CORNER
OF SECTION 17, T22S, R39E IN INYO COUNTY, CALIFORNIA AND IS THE END OF PARCEL C
COSO-INYOKERN TRANSMISSION LINE CORRIDOR.
Exhibit "A"
Page 4 of 4
<PAGE>
EXHIBIT B
Description of the Navy Contract
--------------------------------
THAT CERTAIN CONTRACT NO. N62474-79-C-5382, DATED DECEMBER 6, 1979, BY
AND BETWEEN THE UNITED STATES OF AMERICA ACTING THROUGH THE DEPARTMENT OF THE
NAVY AND CALIFORNIA ENERGY COMPANY, INC., AS MODIFIED, AMENDED, ASSIGNED AND
RESTATED BY CONTRACT MODIFICATION P00004 DATED AS OF OCTOBER 19, 1983, A
MEMORANDUM OF WHICH WAS RECORDED ON MARCH 12, 1986 AS INSTRUMENT NO. 86-1043 OF
OFFICIAL RECORDS OF INYO COUNTY, CALIFORNIA, INCLUDING ALL MODIFICATIONS,
AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE BEFORE THE EFFECTIVE DATE OF
THIS DEED OF TRUST AND ANY PERMITTED MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS
THERETO AND THEREOF MADE AFTER THE EFFECTIVE DATE OF THIS DEED OF TRUST.
<PAGE>
Exhibit 10.28
RECORDING REQUESTED BY:
WHEN RECORDED RETURN TO:
The Law Offices of David E. Chanover
16776 Bernardo Center Drive
Suite 110B
San Diego, California 92128
Attention: David E. Chanover
- --------------------------------------------------------------------------------
CHINA LAKE JOINT VENTURE
(as Trustor)
to
CHICAGO TITLE INSURANCE COMPANY
(as Trustee)
for the use and benefit of
U.S. BANK TRUST NATIONAL ASSOCIATION
(as Beneficiary)
DEED OF TRUST, ASSIGNMENT OF RENTS,
FIXTURE FILING AND SECURITY AGREEMENT
(CLJV)
Dated: May 28, 1999
Location: County of Inyo,
State of California
<PAGE>
DEED OF TRUST, ASSIGNMENT OF RENTS,
FIXTURE FILING AND SECURITY AGREEMENT
(CLJV)
THIS DEED OF TRUST, ASSIGNMENT OF RENTS, FIXTURE FILING AND SECURITY
AGREEMENT (CLJV) (this "Deed of Trust") is made as of May 28, 1999, by CHINA
LAKE JOINT VENTURE, a California general partnership whose address is c/o
Caithness Energy, L.L.C., 1114 Avenue of the Americas, 41st Floor, New York, New
York 10036, as trustor ("Trustor"), to CHICAGO TITLE INSURANCE COMPANY, a
Missouri corporation, whose address is 2425 West Shaw, Fresno, California 93711,
as trustee ("Trustee"), in favor of U.S. Bank Trust National Association, whose
address is One California Street, 4th Floor, San Francisco, California 94111, as
beneficiary ("Beneficiary") not in its individual capacity but solely as trustee
and collateral agent pursuant to the Indenture of even date herewith (the
"Indenture") among Beneficiary, Caithness Coso Funding Corp., as issuer (the
"Issuer"), Coso Energy Developers, ("CED"), Coso Finance Partners, a California
general partnership ("CFP") and Coso Power Developers, a California general
partnership ("CPD"), as guarantors. Unless otherwise defined herein,
capitalized terms shall have the meanings set forth in the Indenture, which is
hereby incorporated herein by this reference.
This Deed of Trust is given as additional security for the obligations of
the Issuer, CED, CPD and CFP under the Indenture, the Guarantees and the other
Financing Documents.
NOW, THEREFORE, in consideration of, and to secure the payment and
performance of the Obligations (as hereinafter defined) which Obligations may
increase, decrease and increase again from time to time and may be evidenced by
one or more notes, Trustor has given, granted, bargained, sold, alienated,
conveyed, confirmed and assigned, and by these presents does give, grant,
bargain, sell, alienate, convey, confirm and assign unto Trustee, its successors
and assigns, with general warranties of title as provided herein or under Civil
Code Section 1113 (but subject to Permitted Liens), in trust with power of sale
and right of entry and possession forever, for the benefit and security of
Beneficiary as Collateral Agent, all right, title and interest of Trustor in and
to the following property, assets, rights and interests, whether now owned or
hereafter acquired (such property, assets, rights and interests being
collectively referred to herein as the "Trust Property"):
(a) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California, described
in Exhibit A attached hereto and by this reference incorporated herein (the
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"CLJV Property");
(b) all of Trustor's right, title and interest in and under that
certain agreement described in Exhibit B attached hereto and by this
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reference incorporated herein (the "Navy Contract"), together with all
renewals, extensions, supplements, amendments, cancellations or
terminations thereof and all credits, deposits, options, privileges and
rights thereunder;
(c) all of Trustor's right, title and interest in and under any
contracts, agreements and other documents for or relating to (i) the
acquisition, development, possession, use, exchange or disposition of
geothermal resources, steam, condensate,
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injectate or other fluids and/or (ii) the ownership or co-ownership (as the
case may be) of pipelines, wells and/or related improvements, equipment and
facilities, in any way belonging, relating or pertaining to or connected
with the CLJV Property and/or the Navy Contract, together with all
renewals, extensions, supplements, options, amendments, cancellations or
terminations thereof;
(d) all of Trustor's right, title and interest in and to any (i)
easements, rights-of-way, licenses and entry rights, (ii) gores of land,
(iii) roads, streets, ways, alleys or passages, (iv) interests in land
lying in the bed of any street, road or avenue, whether opened or proposed,
on, near or adjoining the CLJV Property or any part thereof, (v) sewer
rights, (vi) air rights, (vii) waters, water courses, water rights and
powers, (viii) profits-a-prendre, minerals, geothermal substances, oil, gas
and other hydrocarbon substances, (ix) exploration, development and
production rights, and (x) all other estates, rights, titles, interests,
privileges, franchises, liberties, tenements, hereditaments, consents,
options, appendages and appurtenances of any nature whatsoever, in any way
belonging, relating or pertaining to or connected with the CLJV Property,
the Navy Contract, the Improvements or any other of the Trust Property, or
any part thereof, together with all renewals, extensions, supplements or
amendments thereof;
(e) all leases (including oil, gas, geothermal and other mineral
leases), subleases, franchises, licenses, concessions, permits, power
purchase and other contracts and agreements affecting the use or occupancy
of the CLJV Property, the Navy Contract, the Improvements or any other of
the Trust Property, or any part thereof, now or hereafter entered into, and
any renewals or extensions thereof (hereinafter referred to as the
"Leases"); and the right to receive and apply the rents, issues, profits,
royalties, income, accounts receivable, revenues, deposits, security
deposits, receipts and other benefits of the Trust Property to the extent
of Trustor's interest therein, including, without limitation, the proceeds
of all hydrocarbons or other minerals produced from the Trust Property, all
delay royalties, rentals and bonuses from any oil, gas, geothermal or other
mineral lease, any revenues under any power purchase or sale contracts and
any amounts received from the U.S. Navy (collectively, hereinafter referred
to as the "Rents") to the payment of the Obligations;
(f) all of Trustor's right, title and interest in and to any and all
buildings, structures, improvements or fixtures of any kind, now or
hereafter erected or located on the CLJV Property or any part thereof (the
"Improvements");
(g) all facilities, machinery, equipment, apparatus, appliances,
fittings, goods, materials, supplies, and other items and property of every
kind and nature whatsoever owned by Trustor, or in which Trustor now or
hereafter has any right, title or interest, now or hereafter located in or
upon, or used in connection with the present or future development,
operation, occupancy or other utilization (whether temporarily or
permanently) of or activities on, the CLJV Property, any of the other Trust
Property or any part thereof, whether or not attached to or installed in
any Improvements, and all renewals, replacements and substitutions thereof
and additions thereto, including, without limitation, any and all (i)
wells, including production, injection, test, temperature gradient and
water wells, well casings, wellhead equipment, geothermal resource
gathering,
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injection and disposal systems, pipelines, pumps, sumps, test holes,
evaporation ponds and other facilities and equipment used to produce,
inject, store, transport or utilize geothermal substances or condensate,
(ii) overhead and underground electrical transmission, distribution and
collector lines and related systems, switchyards, substations,
transformers, energy storage facilities, conductors, separators, circuit
breakers, interconnection equipment, conduits, footings, towers, poles,
crossarms, guy lines, anchors and wires, (iii) overhead and underground
control, monitoring, communications and radio relay systems and
telecommunications equipment, (iv) roads, erosion control facilities,
dikes, signs and fences, (v) maps, plans, specifications, architectural,
engineering, construction or shop drawings, manuals or similar documents
and (vi) any other facilities, machinery, equipment, apparatus, fittings,
goods, materials, supplies, and other items and property associated with or
incidental to any of the foregoing or to the generation, conversion,
storage, switching, metering, step-up, step-down, transmission, conducting,
wheeling, sale or other use or conveyance of electricity (collectively, the
"Equipment"), as well as the right, title and interest of Trustor in and to
any of the Equipment which may be subject to any security agreements (as
defined in the Uniform Commercial Code of the State of California) superior
in lien to the lien of this Deed of Trust;
(h) all awards or payments, including interest thereon, and the right
to receive the same, which may be made with respect to the Trust Property,
whether from state fund sharing, from the exercise of the right of eminent
domain (including any transfer made in lieu of the exercise of said right),
from changes of grade of street or for any other injury to or decrease in
the value of the Trust Property now or hereafter located thereon, whether
direct or consequential, which said awards and payments are hereby assigned
to Beneficiary, and Beneficiary is hereby authorized to collect and receive
the proceeds thereof and to give proper receipts and acquittances therefor;
(i) all refunds or rebates of all taxes or charges in lieu of taxes,
assessments, water rates, sewer rents and other charges, including vault
charges and license or permit fees for the use of vaults, chutes and
similar areas on or adjoining the CLJV Property, now or hereafter levied or
assessed against the Trust Property (hereinafter referred to as the
"Taxes");
(j) all inventory, accounts, books, records and general intangibles
in whatever form and however stored, owned by Trustor, or in which Trustor
now or hereafter has any right, title or interest, now or hereafter located
upon, arising in connection with or concerning the Trust Property;
(k) all proceeds of and any unearned premiums on any insurance
policies now or hereafter covering the Trust Property, including, without
limitation, the right to receive the proceeds of any insurance, judgments
or settlements made in lieu thereof, for damage to the Trust Property or
for any defect in the title to the Trust Property or any part thereof;
(l) the right, in the name and on behalf of Trustor, to appear in and
defend any action or proceeding brought with respect to the Trust Property
and to commence any action or proceeding to protect the interest of
Beneficiary in the Trust Property;
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(m) all of Trustor's right, title and interest in and to all plans and
specifications prepared for or relating to the design, development,
construction, management and use of Improvements or Equipment or other
development of the Trust Property (including, without limitation, all
amendments, modifications, supplements, general conditions and addenda
thereof or thereto), and all studies, data and drawings related thereto,
and all contracts and agreements of Trustor relating to the aforesaid plans
and specifications or to the aforesaid studies, data and drawings or to the
design, development, construction, management and use of Improvements, the
Equipment or any of the other Trust Property;
(n) all contracts with property managers, surveyors, real estate
advisors, consultants and brokers, geothermal energy advisors and
consultants, engineers, and other like agents and professionals that relate
to any part of the Trust Property, including without limitation, any
Improvements constructed or to be constructed on the CLJV Property or any
part thereof or any Equipment to be placed, installed, used or stored on
the CLJV Property or any part thereof, and all maps, reports, surveys,
tests and studies of or relating to any of the Trust Property, owned by
Trustor or in which Trustor has or shall have an interest and now or
hereafter in the possession of Trustor or any such agent or professional;
(o) all present and future agreements, permits, licenses,
entitlements and approvals, as well as all modifications, supplements,
extensions and renewals thereof, now existing or hereafter made, in which
Trustor now or hereafter has an interest, relating to the use, development
and/or occupancy of the CLJV Property, the Improvements and/or the
Equipment;
(p) all the estate, right, title, interest, claim or demand of any
nature whatsoever of Trustor, either in law or in equity, in possession or
expectancy, in and to the Trust Property and in all replacements,
substitutes, renewals, betterments and extensions of and all additions to
any of the Improvements or Equipment, or any part thereof; and
(q) all products and proceeds of any of the Trust Property herein
described.
This Deed of Trust secures the following obligations which shall heretofore
and hereinafter collectively be referred to as the "Obligations":
(i) The payment of all indebtedness and the performance of all
obligations of CED, CPD and CFP as evidenced in Section 9 of the Indenture
entitled "Guarantees" and as further evidenced by that certain Notation of
Guarantee of even date herewith executed by CED, CPD and CFP, including,
without limitation, the guarantee of payment of (1) $110,000,000 6.80%
Senior Secured Notes due in 2001 and (2) $303,000,000 9.05% Senior Secured
Notes due in 2009 (collectively, the "Senior Secured Notes") issued by the
Issuer (the "Guarantees"); and
(ii) The satisfaction and performance of all other debts, obligations,
covenants, agreements and liabilities of Trustor to Trustee, Beneficiary
or any of the other Secured
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Parties or of CED, CPD, CFP or the Issuer to Trustee, Beneficiary or any of
the other Secured Parties, arising out of, connected with or related to
this Deed of Trust, the Guarantees, any of the Financing Documents or any
other agreement now or hereafter executed by CED, CPD, CFP, the Issuer or
Trustor, and all amendments, extensions, and renewals of the foregoing
documents, whether now existing or hereafter arising, voluntary or
involuntary, absolute or contingent, liquidated or unliquidated, and
whether or not from time to time decreased or extinguished and later
increased, created, or incurred.
To protect the security of this Deed of Trust, Trustor covenants with and
represents and warrants to Trustee and Beneficiary as follows:
1. Warranty of Title. Trustor warrants its right, title or
-----------------
interest, as applicable, in and to the CLJV Property, the Navy Contract, the
Improvements, the Equipment and the balance of the Trust Property and the
validity and priority of the lien of this Deed of Trust and the estate hereof
against the claims and demands of all Persons whomsoever, other than with
respect to Permitted Liens. Trustor also represents and warrants that (i)
Trustor is now, and after giving effect to this Deed of Trust, will be, in a
solvent condition, (ii) the execution and delivery of this Deed of Trust by
Trustor does not constitute a "fraudulent conveyance" within the meaning of
Title 11 of the United States Code (the "Bankruptcy Code") as now constituted or
under any other applicable statute, and (iii) no bankruptcy or insolvency
proceedings are pending or contemplated by or, to the best of Trustor's
knowledge, against Trustor.
2. Notice. Trustor hereby requests that a copy of notice of default
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and notice of sale be mailed to it at the address set forth below, and such
address is also the mailing address of Trustor, as debtor, under the California
Uniform Commercial Code. Trustor hereby covenants to cure any default within
the time period required of the Issuer under the Financing Documents upon
receipt of notice of such default. Beneficiary's address given below is the
address for Beneficiary under the California Uniform Commercial Code. Any
notice, request, demand, statement, authorization, approval or consent made
hereunder shall be deemed given or furnished (i) when addressed to the party
intended to receive the same at the address of such party set forth below, and
delivered at such address or (ii) three (3) days after the same is deposited in
the United States mail as first class certified mail, return receipt requested,
postage prepaid:
If to Trustor:
China Lake Joint Venture
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Attention: President
If to Trustee:
Chicago Title Insurance Company
2425 West Shaw
Fresno, California 93711
Attention: Trust Department
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If to Beneficiary:
U.S. Bank Trust National Association
One California Street, Suite 400
San Francisco, California 94111
Attention: Trust Officer
3. Sale of Trust Property. This Deed of Trust hereby contains more
----------------------
than one power of sale and Beneficiary, in its sole discretion, may conduct one
or multiple foreclosure sales in connection herewith. If this Deed of Trust is
foreclosed, or the power of sale hereunder is exercised, the Trust Property, or
any interest therein, may, at the discretion of Beneficiary, be sold in one or
more parcels or in several interests or portions and in any order or manner.
4. No Credits on Account of the Obligations. Trustor will not claim
----------------------------------------
or demand or be entitled to any credit or credits on account of the Obligations
for any part of the Taxes assessed against the Trust Property or any part
thereof, and no deduction shall otherwise be made or claimed from the taxable
value of the Trust Property, or any part thereof, by reason of this Deed of
Trust or the Obligations.
5. Offset, Counterclaims and Defenses. Any assignee of this Deed of
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Trust and the Obligations secured hereby shall take the same free and clear of
all offsets, counterclaims or defenses of any nature whatsoever which Trustor
may have against any assignor of this Deed of Trust and the Obligations secured
hereby, and no such offset, counterclaim or defense shall be interposed or
asserted by Trustor in any action or proceeding brought by any such assignee
upon this Deed of Trust or the Obligations secured hereby and any such right to
interpose or assert any such offset, counterclaim or defense in any such action
or proceeding is hereby expressly waived by Trustor.
6. Other Security for the Obligations. Trustor shall observe and
----------------------------------
perform all of the terms, covenants and provisions to be observed or performed
by Trustor contained in this Deed of Trust or otherwise executed and delivered
in connection with this Deed of Trust.
7. Preservation of Trust Property. Trustor shall do any and all
------------------------------
acts which, from the character or use of the Trust Property, may be reasonably
necessary to protect and preserve the lien, the priority of the lien and the
security of Beneficiary granted herein, the specific enumerations herein not
excluding the general. Trustor shall maintain and preserve the Trust Property
in accordance with the requirements of the Indenture. Further, with respect to
the Navy Contract (the "Primary Rights"), Trustor hereby agrees as follows:
(a) not to amend, change, alter, cancel, surrender, release, waive,
supplement, terminate or modify, nor permit the amendment, change, alteration,
cancellation, surrender, release, waiver, supplement, termination, or
modification (each, an "Amendment") of the Navy Contract or the estate or rights
created thereby or any interest therein without the prior written consent of
Beneficiary. Consent to one Amendment shall not be deemed to be a waiver of the
right to require consent to other, future or successive Amendments. Any
Amendment, whether oral or in writing, made without the prior written consent of
Beneficiary, shall not be valid or effective;
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(b) to make all payments and to keep and perform promptly each and
every covenant, obligation and agreement of the lessee, transferee, grantee,
licensee or holder (as the case may be) in the Navy Contract, not to commit,
suffer or permit any default thereunder and not to take any action or omit to
take any action which would effect or permit the termination or cancellation of
the Navy Contract. Trustor shall take all actions necessary to keep the rights
under the Navy Contract unimpaired. Trustor shall promptly deliver to
Beneficiary copies of all material notices, demands or complaints received by
Trustor from the U.S. Navy, CED, CFP, CPD or any other third party in connection
with the Navy Contract, and promptly notify Beneficiary in writing with respect
to any default or alleged default by any party thereto (whether or not a notice
of default has been issued under the Navy Contract) and deliver to Beneficiary
within ten (10) business days of Trustor's receipt of any notice of default a
certificate executed by Trustor describing the default, the actions Trustor
intends to take to cure such default, the length of time Trustor expects to take
to cure such default and the status of any actions taken to cure such default.
Trustor shall also furnish to Beneficiary such other information as Beneficiary
may reasonably request concerning Trustor's performance of its covenants,
obligations and agreements under or with respect to the Navy Contract.
Beneficiary shall have the option but not the obligation to cure any such
default and to perform any or all of Trustor's obligations thereunder;
(c) that any subordination of the Navy Contract to any fee mortgage,
to any lease, or to any other interest, either orally or in writing, made
without the prior written consent of Beneficiary, shall not be valid or
effective;
(d) that if the Navy Contract is terminated prior to the natural
termination of its term by reason of default of Trustor thereunder, and if,
pursuant to any provision of the Navy Contract, or otherwise, Beneficiary or its
designee shall acquire from the U.S. Navy or any other third party, as the case
may be, a new contract, lease or right-of-way, then Trustor shall not have any
right, title or interest in or to such new contract, lease or right-of-way or
the estate created thereby; and
(e) that the provisions hereof shall be deemed to be obligations of
Trustor in addition to Trustor's obligations as lessee, grantee, transferee,
licensee or holder, as the case may be, with respect to any similar matters
contained in the Navy Contract, and the inclusion herein of any covenants and
agreements relating to similar matters as to which Trustor is obligated under
the Navy Contract shall not restrict or limit Trustor's duties and obligations
to keep and perform promptly all of its covenants, agreements and obligations as
lessee, grantee, transferee, licensee or holder, as the case may be, under the
Navy Contract; provided, however, that nothing in this Deed of Trust shall be
construed as requiring the taking of or the committing to take any action by
Trustor or Beneficiary which would cause a default under the Navy Contract.
8. Further Transfer of Trust Property. Without the prior written
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consent of Beneficiary being first had and obtained, Trustor shall not (a)
execute or deliver any pledge, security agreement, mortgage, deed of trust or
other instrument of hypothecation covering all or any portion of the Trust
Property or any interest therein or (b) sell, contract to sell, lease with
option to purchase, convey, alienate, transfer, sublease or otherwise dispose of
all or any portion of the Trust Property or any interest therein, in each case
whether voluntarily or involuntarily, by
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operation of law or otherwise. Consent to one such transaction shall not be
deemed to be a waiver of the right to require consent to future or successive
transactions. Beneficiary may grant or deny such consent in its sole discretion
and, if consent should be given, any such transfer shall be subject to this Deed
of Trust, and any such transferee shall assume all obligations hereunder and
agree to be bound by all provisions contained herein and therein. Such
assumption shall not, however, release Trustor from any liability under this
Deed of Trust without the written consent of Beneficiary.
9. Eminent Domain. In the event that any proceeding or action be
--------------
commenced for the taking of the Trust Property, or any part thereof or interest
therein, for public or quasi-public use under the power of eminent domain,
condemnation or otherwise, or if the same be taken or damaged by reason of any
public improvement or condemnation proceedings, or in any other manner
(collectively, a "Condemnation"), or should Trustor receive any notice or other
information regarding such proceeding, action, taking or damage, Trustor shall
give prompt written notice thereof to Beneficiary. Beneficiary shall be
entitled to give or withhold its consent to any compromise or settlement in
connection with such taking or damage. All compensation, awards, damages,
rights of action and proceeds awarded to Trustor by reason of any such taking or
damage (the "Condemnation Proceeds") are hereby absolutely and unconditionally
assigned to Beneficiary, and Trustor agrees to execute such further assignments
of the Condemnation Proceeds as Beneficiary or Trustee may require. All such
Condemnation Proceeds shall be applied as provided in the Credit Agreements.
10. Assignment of Contracts. In addition to any other grant,
-----------------------
transfer or assignment effectuated hereby, and without in any manner limiting
the generality of the grants given above, Trustor shall assign to Beneficiary,
as security for the Obligations, Trustor's interest in all agreements,
contracts, leases, licenses and permits affecting the CLJV Property and the
Improvements in any manner whatsoever, such assignments to be made, if so
requested by Beneficiary, by instruments in form satisfactory to Beneficiary;
but no such assignment shall be construed as a consent by Beneficiary to any
agreement, contract, license or permit so assigned, or to impose upon
Beneficiary any obligations with respect thereto.
11. Anti-Merger. There shall be no merger of the Navy Contract or
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the estates or interests created thereby (collectively, the "Estate") with the
fee estate in the CLJV Property or any part thereof by reason of any of those
interests coming into common ownership, unless Beneficiary consents in writing
thereto. Further, if Trustor acquires any interest in the fee estate to the
CLJV Property or any part thereof, then the lien of this Deed of Trust will
simultaneously and without further action become extended to encumber Trustor's
interest in the fee estate in addition to remaining a lien on the Estate, and
Trustor agrees, upon request by Beneficiary and at no cost to Beneficiary, to
execute, acknowledge and deliver to Beneficiary all further instruments and
documents that Beneficiary believes to be appropriate to provide further
evidence of the lien of this Deed of Trust on such fee interest. Where the lien
of this Deed of Trust has been extended to cover any interest of Trustor in the
fee estate, then in the event of the exercise of any power of sale under this
Deed of Trust, Beneficiary will have the right to sell the Estate and the fee
interest of Trustor separately or together at the election of Beneficiary.
12. Documentary Stamps. If at any time the United States of America,
------------------
any state thereof or any governmental subdivision of any such state, shall
require revenue or other
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stamps to be affixed to this Deed of Trust, or that any taxes be paid in
connection with this Deed of Trust, Trustor shall pay for the same, with
interest and penalties thereon, if any.
13. Right of Entry. Beneficiary, may at any reasonable time or times
--------------
make or cause to be made entry upon and inspection of the Trust Property or any
part thereof in person or by agent.
14. Event of Default. The term "Event of Default," whenever used in
----------------
this Deed of Trust, shall mean:
(a) any one or more of the events of default listed or otherwise
provided in the Indenture, the Guarantees or any of the other Financing
Documents, subject to such cure rights as may be expressly set forth therein
(whether any such event shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body);
(b) any representation or warranty made by Trustor in this Deed of
Trust or any Financing Document or any other representation, warranty or
statement in any certificate, financial statement or other document furnished to
Beneficiary or any other Person proves to have been untrue or misleading in any
material respect as of the time made, confirmed or furnished and the fact, event
or circumstance that gave rise to such inaccuracy has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect and that fact,
event or circumstance continues uncured for thirty (30) or more days from the
date Trustor receives notice thereof from Beneficiary; provided that, if Trustor
commences and diligently pursues efforts to cure such fact, event or
circumstance within such 30-day period and delivers written notice to
Beneficiary thereof, Trustor may continue to effect such cure, and such
misrepresentation shall not be deemed an "Event of Default" for an additional
sixty (60) days so long as Trustor is diligently pursuing such cure;
(c) any failure to perform or observe any of the covenants or
agreements set forth in Section 46 hereof;
(d) except for the Events of Default described in Section 14(c)
hereof, any failure by Trustor to perform or observe any covenant or agreement
contained in this Deed of Trust, and such failure continues uncured for thirty
(30) or more days from the date Trustor receives notice thereof from
Beneficiary; provided that if Trustor commences and diligently pursues efforts
to cure such default within such 30-day period, Trustor may continue to effect
such cure of the default and such default will not be deemed an "Event of
Default" for an additional ninety (90) days so long as Trustor is diligently
pursuing such cure;
(e) any admission in writing by Trustor of its inability, or general
inability to pay its debts as the debts become due or the execution of a general
assignment for the benefit of creditors;
(f) commencement by Trustor of any case, proceeding or other action
seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of its or its debts
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under any applicable liquidation, conservatorship, bankruptcy, moratorium,
arrangement, adjustment, insolvency, reorganization or similar laws affecting
the rights or remedies of creditors generally, as in effect from time to time
("Debtor Relief Law");
(g) Trustor, in any involuntary case, proceeding or other action
commenced against it which seeks to have an order for relief (injunctive or
otherwise) entered against it, as debtor, or seeks reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under any
Debtor Relief Law, (i) fails to obtain a dismissal of such case, proceeding or
other action within ninety (90) days of its commencement, or (ii) converts the
case from one chapter of the Bankruptcy Reform Act of 1978 , as amended, to
another chapter, or (iii) is the subject of any order for relief; or
(h) Trustor has a trustee, receiver, custodian or other official
appointed for or take possession of all or any part of its property or has any
court take jurisdiction of any of its property, which action remains undismissed
for a period of ninety (90) days.
15. Appointment of Receiver. Trustee or Beneficiary, in any action
-----------------------
(or multiple actions) to foreclose this Deed of Trust or exercise the power of
sale granted under this Deed of Trust or upon the actual or threatened waste to
any part of the Trust Property or upon the occurrence of an Event of Default,
shall be at liberty, without notice, to apply for the appointment of a receiver,
and shall be entitled to the appointment of such receiver as a matter of right,
without regard to the value of the Trust Property as security for the
Obligations, or the solvency or insolvency of any Person then liable for the
payment of the Obligations.
16. Non-Waiver. The failure of Beneficiary to insist upon strict
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performance of any term of this Deed of Trust shall not be deemed to be a waiver
of any term of this Deed of Trust. Trustor shall not be relieved of Trustor's
obligation to pay and perform the Obligations at the time and in the manner
provided for in this Deed of Trust by reason of (i) failure to comply with any
request(s) of Trustor to take any action to foreclose this Deed of Trust or
otherwise enforce any of the provisions hereof, of the Financing Documents or of
any other mortgage, deed of trust, instrument or document securing or
guaranteeing the payment of the Obligations or a portion thereof, (ii) the
release, regardless of consideration, of the whole or any part of the Trust
Property or any other security for the Obligations, or (iii) any agreement or
stipulation between Beneficiary and any subsequent owner or owners of the Trust
Property or other Person extending the time of payment or otherwise modifying or
supplementing the terms of this Deed of Trust or the Financing Documents
evidencing, securing or guaranteeing payment of the Obligations or any portion
thereof, without first having obtained the consent of Trustor. Regardless of
consideration, and without the necessity for any notice to or consent by the
holder of any subordinate lien, encumbrance, right, title or interest in or to
the Trust Property, Beneficiary may release any Person at any time liable for
the payment of the Obligations or any portion thereof or all or any part of the
security held for the Obligations and may extend the time of payment or
otherwise modify the terms of the Financing Documents or this Deed of Trust,
including, without limitation, a modification of the interest rate payable on
the principal balance of the Obligations, without in any manner impairing or
affecting this Deed of Trust or the lien thereof or the priority of this Deed of
Trust, as so extended and modified, as security for the Obligations over any
such subordinate lien, encumbrance, right, title or interest. Beneficiary may
resort for the payment of the Obligations to any other security held by
Beneficiary in such order
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and manner as Beneficiary in its discretion, may elect. Beneficiary may take
action to recover the Obligations, or any portion thereof, or to enforce any
covenant hereof without prejudice to the right of Beneficiary thereafter to
foreclose this Deed of Trust. Beneficiary shall not be limited exclusively to
the rights and remedies herein stated but shall be entitled to every additional
right and remedy now or hereafter afforded by law or equity. The rights of
Beneficiary under this Deed of Trust shall be separate, distinct and cumulative,
and none shall be given effect to the exclusion of the others. No act of
Beneficiary shall be construed as an election to proceed under any one provision
herein to the exclusion of any other provision.
17. Power of Sale. Upon the occurrence and during the continuance of
-------------
an Event of Default, Beneficiary may at any time, at its option and in its sole
discretion, declare the Obligations to be due and payable and the same shall
thereupon become immediately due and payable. Beneficiary may also do any or
all of the following; provided, however, that any of the following actions shall
be undertaken in a commercially reasonable manner and in accordance with
applicable law; and provided, further, that Beneficiary shall have no obligation
to do any of the following:
(a) Either in person or by agent, with or without bringing any action
or proceeding or by a receiver appointed by a court and without regard to the
adequacy of Beneficiary's security, enter upon and take possession of the Trust
Property or any part hereof and do any acts which Beneficiary deems necessary or
desirable to preserve the value, marketability or rentability of the Trust
Property or to increase the income therefrom or to protect the security hereof
and with or without taking possession of any of the Trust Property, sue for or
otherwise collect all Rents and profits including those past due and unpaid, and
apply the same, less costs and expenses of operation and collection including
attorneys' fees and expenses, upon the Obligations secured hereby with the
remainder, if any, to the Person or Persons legally entitled thereto. The
collection of Rents and profits and the application thereof shall not cure or
waive any Event of Default or notice thereof or invalidate any act done in
response thereto or pursuant to such notice.
(b) Bring an action in any court of competent jurisdiction to
foreclose this instrument or to enforce any of the covenants hereof.
(c) Exercise any or all of the remedies available to a secured party
under the Uniform Commercial Code.
(d) Beneficiary may elect to cause the Trust Property or any part
thereof to be sold under the power of sale herein granted in any manner
permitted by applicable law. In connection with any sale or sales hereunder,
Beneficiary may elect to treat any of the Trust Property which consists of a
right in action or which is property that can be severed from the real property
covered hereby or any improvements thereon without causing structural damage
thereto as if the same were personal property, and dispose of the same in
accordance with applicable law, separate and apart from the sale of real
property. Any sale of any personal property hereunder shall be conducted in any
manner permitted by Section 9501 or any other applicable sections of the
California Uniform Commercial Code. Where the Trust Property consists of real
and personal property or fixtures, whether or not such personal property is
located on or within the real property, Beneficiary may elect in its discretion
to exercise its rights and remedies
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against any or all of the real property, personal property, and fixtures in such
order and manner as is now or hereafter permitted by applicable law. Without
limiting the generality of the foregoing, Beneficiary may at its sole and
absolute discretion and without regard to the adequacy of its security elect to
proceed against any or all of the real property, personal property and fixtures
in any manner permitted under Section 9501(4)(a) of the California Uniform
Commercial Code; and if Beneficiary elects to proceed in the manner permitted
under Section 9501(4)(a)(ii) of the California Uniform Commercial Code, the
power of sale herein granted shall be exercisable with respect to all or any of
the real property and fixtures covered hereby, as designated by Beneficiary, and
the Trustee is hereby authorized and empowered to conduct any such sale of any
real property and fixtures in accordance with the procedures applicable to real
property. Where the Trust Property consists of real property and personal
property, any reinstatement of the Obligations, following the occurrence of an
Event of Default and an election by Beneficiary to accelerate the maturity of
the Obligations, which is made by Trustor or any other Person permitted to
exercise the right of reinstatement under Section 2924c of the California Civil
Code or any successor statute, shall, in accordance with the terms of California
Uniform Commercial Code Section 9501(4)(c)(iii), not prohibit Beneficiary from
conducting a sale or other disposition of any personal property or fixtures or
from otherwise proceeding against or continuing to proceed against any personal
property or fixtures in any manner permitted by the California Uniform
Commercial Code; nor shall any such reinstatement invalidate, rescind or
otherwise affect any sale, disposition or other proceeding held, conducted or
instituted with respect to any personal property or fixtures prior to such
reinstatement. Any sums paid to Beneficiary in effecting any reinstatement
pursuant to Section 2924c of the California Civil Code shall be applied to the
Obligations and to Beneficiary's and Trustee's reasonable costs and expenses in
the manner required by such Section 2924c. Should Beneficiary elect to sell any
of the Trust Property which is real property or which is personal property or
fixtures that Beneficiary has elected under Section 9501(4)(a)(ii) of the
California Uniform Commercial Code to sell together with real property in
accordance with the laws governing a sale of real property, such notice of
default and election to sell shall be given as may then be required by law.
Thereafter, upon the expiration of such time and the giving of such notice of
sale as may then be required by law, at the time and place specified in the
notice of sale, Trustee shall sell such property, or any portion thereof
specified by Beneficiary, at public auction to the highest bidder for cash in
lawful money of the United States. Trustee may, and upon request of Beneficiary
shall, from time to time, postpone the sale by public announcement thereof at
the time and place noticed therefor. If the Trust Property consists of several
lots, parcels or interests, Beneficiary may designate the order in which the
same shall be offered for sale or sold. Should Beneficiary desire that more
than one such sale or other disposition be conducted, Beneficiary may, at its
option, cause the same to be conducted simultaneously, or successively on the
same day, or at such different days or times and in such order as Beneficiary
may deem to be in its best interest. Any Person, including Trustor, Trustee or
Beneficiary may purchase at the sale. In the event Beneficiary elects to
dispose of the Trust Property through more than one sale, Trustor agrees to pay
the costs and expenses of each such sale and of any judicial proceedings wherein
the same may be made, including reasonable compensation to Trustee and
Beneficiary, their agents and counsel, and to pay all expenses, liabilities and
advances made or incurred by Trustee in connection with such sale or sales,
together with interest on all such advances made by Trustee at the interest rate
then applicable to the indebtedness to which the Financing Documents apply.
Upon any sale Trustee shall execute and deliver to the purchaser or purchasers a
deed or deeds conveying the property so sold but without any covenant or
warranty
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whatsoever express or implied, whereupon such purchaser or purchasers shall be
let into immediate possession, and the recitals in any such deed or deeds of
facts such as default, the giving of notice of default and notice of sale, and
other facts affecting the regularity or validity of such sale or disposition,
shall be conclusive proof of the truth of such facts and any such deed or deeds
shall be conclusive against all Persons as to such facts recited therein.
(e) Exercise each of its other rights and remedies provided under the
Indenture, the Guarantees, the other Financing Documents or this Deed of Trust,
including, without limitation, any or all of the following:
(i) if the indebtedness is not paid on demand, take any and all steps
and institute any and all other proceedings that Beneficiary deems
necessary to enforce the indebtedness and obligations secured hereby and to
protect the lien of this Deed of Trust;
(ii) without assuming liability for the performance of any of
Trustor's obligations hereunder or under any Financing Document, enter and
take possession of the Trust Property or any part thereof, exclude Trustor
and all Persons claiming under Trustor whose claims are junior to this Deed
of Trust, wholly or partly therefrom, and use, operate, manage and control
the same either in the name of Trustor or otherwise as Beneficiary shall
deem best, and upon such entry, from time to time at the expense of Trustor
and the Trust Property, make all such repairs, replacements, alterations,
additions or improvements to the Trust Property or any part thereof as
Beneficiary may deem proper and, whether or not Beneficiary has so entered
and taken possession of the Trust Property or any part thereof, collect and
receive all the Rents and apply the same, to the extent permitted by law,
to the payment of all expenses which Beneficiary may be authorized to make
under this Deed of Trust, the remainder to be applied to the payment of the
Obligations until the same shall have been repaid in full; and if
Beneficiary demands or attempts to take possession of the Trust Property or
any portion thereof in the proper exercise of any rights hereunder, Trustor
shall promptly turn over and deliver complete possession thereto to
Beneficiary; and
(iii) personally or by agents, with or without entry, if Beneficiary
shall deem it advisable, proceed to protect and enforce its rights under
this Deed of Trust, by suit for specific performance of any covenant
contained herein or in any Financing Document or in aid of the execution of
any power granted herein or in any Financing Document, or for the
foreclosure of this Deed of Trust and the sale for cash of the Trust
Property under the judgment or decree of a court of competent jurisdiction,
or for the exercise of the power of sale granted under this Deed of Trust
or for the enforcement of any other right as Beneficiary shall deem most
effectual for such purpose; provided that in the event of a sale, by
--------
foreclosure or otherwise, of less than all of the Trust Property, this Deed
of Trust shall continue as a lien on, and security interest in, the
remaining portion of the Trust Property and Beneficiary shall not be
obligated to sell upon credit unless Beneficiary shall have expressly
consented in writing to a sale upon credit.
(f) Except as otherwise required by law, apply the net proceeds of any
foreclosure, collection, recovery, receipt, appropriation, realization or sale
of the Trust Property in the order of priority specified in the Indenture. If
all Obligations and any other amounts due
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under this Deed of Trust have been indefeasibly paid, satisfied and discharged
in full, any surplus then remaining shall be paid to Trustor if Trustor is
lawfully entitled to receive the same, or shall be paid to whomsoever a court of
competent jurisdiction may direct.
(g) Upon any sale or sales made under or by virtue of this section,
whether made under the power of sale or by virtue of judicial proceedings or of
a judgment or decree of foreclosure and sale, Beneficiary may bid for and
acquire the Trust Property or any part thereof. In lieu of paying cash for the
Trust Property, Beneficiary may make settlement for the purchase price by
crediting against the Obligations the sales price of the Trust Property, as
adjusted for the expenses of sale and the costs of the action and any other sums
for which Trustor is obligated to reimburse Trustee or Beneficiary under this
Deed of Trust.
18. Concerning the Trustee. Trustee shall be under no duty to take
----------------------
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being liable,
however, only for willful negligence or misconduct, and hereby waives any
statutory fee and agrees to accept reasonable compensation, in lieu thereof, for
any services rendered by Trustee in accordance with the terms hereof. Trustee
may resign at any time upon giving thirty (30) days' notice to Trustor and to
Beneficiary. Beneficiary may remove Trustee at any time or from time to time
and select a successor trustee. In the event of the death, removal,
resignation, refusal to act, or inability to act of Trustee, or in its sole
discretion for any reason whatsoever, Beneficiary may, without notice and
without specifying any reason therefor and without applying to any court, select
and appoint a successor trustee, by an instrument recorded wherever this Deed of
Trust is recorded, and all powers, rights, duties and authority of Trustee, as
aforesaid, shall thereupon become vested in such successor. Such substitute
trustee shall not be required to give bond for the faithful performance of the
duties of Trustee hereunder unless required by Beneficiary.
19. Trustee's Fees. Trustor shall pay all reasonable costs, fees and
--------------
expenses incurred by Trustee and Trustee's agents and counsel in connection with
the performance by Trustee of Trustee's duties hereunder, and all such costs,
fees and expenses shall be secured by this Deed of Trust.
20. Proceeds of Sale. Subject to the provisions of Section 49 of
----------------
this Deed of Trust, no sale or other disposition of all or any part of the Trust
Property shall be deemed to relieve Trustor of its obligations under this Deed
of Trust or any other Financing Document except and only to the extent the
proceeds are applied to the payment of the Obligations or such other
obligations. If the proceeds of sale, collection or other realization of or
upon the Trust Property are insufficient to cover the costs and expenses of such
realization and the payment in full of the Obligations, Trustor shall remain
liable for any deficiency.
21. Trustor as Tenant Holding Over. In the event of any such
------------------------------
foreclosure or other sale by Beneficiary, Trustor shall be deemed a tenant
holding over and shall forthwith deliver possession to the purchaser or
purchasers at such sale or be summarily dispossessed according to provisions of
law applicable to tenants holding over.
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22. Leases. Beneficiary is authorized to subordinate this Deed of
------
Trust to any Leases and to foreclose this Deed of Trust subject to the rights of
any tenants of the Trust Property, if any, and the failure to so subordinate or
to make any such tenants parties to any such foreclosure or other proceedings
and to foreclose their rights will not be, nor be asserted to be by Trustor, a
defense to any proceedings instituted by Beneficiary to collect the Obligations.
23. Discontinuance of Proceedings. In case Beneficiary shall have
-----------------------------
proceeded to enforce any right, power or remedy under this Deed of Trust by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
withdrawn, discontinued or abandoned for any reason, or shall have been
determined adverse to Beneficiary, then in every such case, to the fullest
extent permitted by law, (a) Trustor and Beneficiary shall be restored to their
former positions and rights, (b) all rights, powers and remedies of Beneficiary
shall continue as if no such proceeding had been taken, (c) each and every Event
of Default declared or occurring prior or subsequent to such withdrawal,
discontinuance or abandonment shall be or shall be deemed to be an independent
event of default and (d) neither the Obligations nor this Deed of Trust shall be
or shall be deemed to have been not reinstated or otherwise affected by such
withdrawal, discontinuance or abandonment; and to the fullest extent permitted
by law, Trustor hereby expressly waives the benefit of any statute or rule of
law now provided or which may hereafter conflict with the above.
24. No Reinstatement. If an Event of Default shall have occurred and
----------------
be continuing and Beneficiary shall have proceeded to enforce any right, power
or remedy permitted hereunder, then a tender of payment by Trustor or by anyone
on behalf of Trustor of any amount less than the amount necessary to satisfy the
Obligations in full, or the acceptance by Beneficiary of any such payment so
tendered, shall not constitute a reinstatement of this Deed of Trust or any
other document evidencing, securing or guaranteeing the Obligations.
25. Trustor's Waiver of Rights. Trustor hereby waives and releases,
--------------------------
to the maximum extent permitted by law, any rights, remedies or defenses which
Trustor might otherwise have (i) under California Code of Civil Procedure
Sections 726, 725a, 580a, 580b and 580d, California Civil Code Sections 2809,
2810, 2819, 2822, 2839, 2845, 2850, 2855, 2899 and 3433, under any anti-
deficiency provision of the Uniform Commercial Code, and under any future
judicial decisions or legislation, which statutes, future judicial decisions
and/or legislation might otherwise limit or condition Beneficiary's exercise of
certain of Beneficiary's rights and remedies in connection with the enforcement
of obligations secured by a lien on real property, including, without
limitation, Beneficiary's lien on the Trust Property or on any property
encumbered by other deeds of trust given to Beneficiary to secure obligations
under the Financing Documents (each, an "Additional Deed of Trust"), (ii) under
any laws now existing or hereafter enacted providing for any appraisal before
sale of a portion of the Trust Property or of the real property security of any
Additional Deed of Trust (the "Additional Deed of Trust Property"), (iii) to all
rights of redemption, valuation, appraisal, stay of execution, notice of
election to mature or any so-called "Moratorium Laws", to declare due the
Obligations, to marshalling in the event of the foreclosure of the liens created
under this Deed of Trust or under any Additional Deed of Trust, or the exercise
of the power of sale granted hereunder or thereunder, (iv) pursuant to the
defense of the statute of limitations in any action hereunder or in any action
for the collection or performance of any Obligations secured hereby or any
obligations secured by any Additional
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Deed of Trust, (v) pursuant to any defense arising because of Beneficiary's
election, in any proceeding instituted under the Federal Bankruptcy Code, of the
application of Section 1111(b)(2) of the Federal Bankruptcy Code, (vi) pursuant
to any defense based upon any borrowing or grant of a security interest under
Section 364 of the Federal Bankruptcy Code, (vii) under any law limiting
remedies, including recovery of a deficiency, under an obligation secured by a
deed of trust on real property and/or a security agreement on personal property
(including, without limitation, the Trust Property and the Additional Deed of
Trust Property) if the real property and/or personal property is sold under a
power of sale contained in the deed of trust, and all defenses based on any loss
whether as a result of any such sale or otherwise, of Trustor's right to recover
any amount from the Issuer, whether by right of subrogation or otherwise, (viii)
under any law to require Beneficiary to pursue the Issuer or any other Person,
any security which Beneficiary may hold, or any other remedy before proceeding
against Trustor, (ix) to all rights of reimbursement or subrogation, all rights
to enforce any remedy that Beneficiary, the Trustee, the Holders of the Senior
Secured Notes or the Permitted Additional Senior Lenders, if any, may have
against the Issuer, or against the Guarantors as obligors under the Partnership
Notes, and all rights to participate in any security held by Beneficiary until
the Obligations have been paid and the covenants of the Indenture have been
performed in full, (x) to all rights to assert the bankruptcy or insolvency of
Issuer as a defense hereunder or as the basis for rescission hereof, (xi) to all
rights under any law purporting to reduce Trustor's Obligations hereunder if
Issuer's obligations are reduced, (xii) all defenses based on the disability or
lack of authority of Issuer or any Person, the repudiation of the Guarantees or
any related Financing Documents by Issuer or any Person, the failure by
Beneficiary, the Trustee, the Holders of the Senior Secured Notes or any
Permitted Additional Senior Lender, if any, to enforce any claim against Issuer,
or the unenforceability in whole or in part of any Financing Document, (xiii) to
all suretyship and guarantor's defenses generally, (xiv) to all rights to insist
upon, plead or in any manner whatever claim or take the benefit or advantage of,
any appraisal, valuation, stay, extension, marshaling of assets, redemption or
similar law, or exemption, whether now or at any time hereafter in force, which
may delay, prevent or otherwise affect the performance by Trustor of its
obligations under, or the enforcement by Beneficiary of, this Deed of Trust or
any Additional Deed of Trust, (xv) to any requirement on the part of
Beneficiary, Trustee, the Holders of the Senior Secured Notes or any Permitted
Additional Senior Lender, if any, to mitigate the damages resulting from any
default (whether hereunder, under any other Financing Document, under any
Additional Deed of Trust or under any other document or instrument); and (xvi)
except as otherwise specifically set forth herein, all rights of notice and
hearing of any kind prior to the exercise of rights by Beneficiary upon the
occurrence and during the continuation of an Event of Default to repossess with
judicial process or to replevy, attach or levy upon the Trust Property or any
Additional Deed of Trust Property. To the extent permitted by applicable law,
Trustor waives the posting of any bond otherwise required of Beneficiary in
connection with any judicial process or proceeding to obtain possession of,
replevy, attach or levy upon the Trust Property or any Additional Deed of Trust
Property, to enforce any judgment or other security for the Obligations, to
enforce any judgment or other court order entered in favor of Beneficiary, or to
enforce by specific performance, temporary restraining order, preliminary or
permanent injunction, this Deed of Trust, any Additional Deed of Trust or any
other agreement or document by which Trustor or any other Person is bound and
which is in whole or in part for the benefit of Beneficiary, Trustee, the
Holders of the Senior Secured Notes or any Permitted Additional Senior Lender,
if any. Trustor further agrees that upon the occurrence and continuance of any
Event of Default, Beneficiary may elect to
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nonjudicially or judicially foreclose against any real or personal property
security (including, without limitation, under the Additional Deeds of Trust) it
holds for the Obligations or any part thereof, or to exercise any other remedy
against Issuer, any security or any guarantor, even if the effect of that action
is to deprive Trustor or any other Person of the right to collect reimbursement
from Issuer or any other Person for any sums paid to Beneficiary, Trustee, any
Holder of the Senior Secured Notes or any Permitted Additional Senior Lender, if
any. To the extent, if any, which such laws may be applicable, Trustor waives
and releases any right or defense which Trustor might otherwise have under such
provisions and under any other law of any applicable jurisdiction which might
limit or restrict the effectiveness or scope of any of Trustor's waivers or
releases hereunder. If any law referenced in this Section and now in force, of
which Trustor, Trustor's successors or assigns or any other Person might take
advantage despite this Section, shall hereafter be repealed or cease to be in
force, such law shall not thereafter be deemed to preclude the application of
this Section. Trustor warrants and agrees that each of the waivers and consents
set forth in this Deed of Trust is made voluntarily and unconditionally after
consultation with outside legal counsel and with full knowledge of its
significance and consequences, with the understanding that events giving rise to
any defense or right waived may diminish, destroy or otherwise adversely affect
the rights which Trustor otherwise may have against Beneficiary or any other
Person or against any collateral. If, notwithstanding the intent of the parties
that the terms of this Deed of Trust shall control in any and all circumstances,
any such waivers or consents are determined to be unenforceable under applicable
law, such waivers and consents shall be effective to the fullest extent
permitted by law.
26. Assignment of Rents. All of the Rents, whether now due, past due
-------------------
or to become due, and including all prepaid rents and security deposits, are
hereby absolutely, presently and unconditionally assigned, transferred, conveyed
and set over to Beneficiary to be applied by Beneficiary in payment of the
Obligations. It is understood and agreed that neither the foregoing assignment
of Rents to Beneficiary nor the exercise by Beneficiary of any of its rights or
remedies under this Deed of Trust shall be deemed to make Beneficiary a
"mortgagee-in-possession" or otherwise responsible or liable in any manner with
respect to the Trust Property or the use, occupancy, enjoyment, or operation of
all or any portion thereof, unless and until Beneficiary, in person or by agent,
assumes actual possession thereof. The appointment of a receiver for the Trust
Property by any court at the request of Beneficiary or by agreement with
Trustor, or the entering into possession of the Trust Property or any part
thereof by such receiver, also shall not be deemed to make Beneficiary a
mortgagee-in-possession or otherwise responsible or liable in any manner with
respect to the Trust Property or the use, occupancy, enjoyment or operation of
all or any portion thereof.
27. Security Agreement.
------------------
(a) This Deed of Trust is intended to be a security agreement
pursuant to the California Uniform Commercial Code for (i) any and all items of
personal property specified above as part of the Trust Property that, under
applicable law, may be subject to a security interest pursuant to the California
Uniform Commercial Code and that are not effectively made part of the CLJV
Property, and (ii) any and all items of property specified above as part of the
Trust Property that, under applicable law, constitute fixtures and may be
subject to a security interest under Section 9313 of the California Uniform
Commercial Code. Trustor hereby grants
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Beneficiary a security interest in said property, and in all additions thereto,
substitutions therefor, and proceeds thereof, for the purpose of securing the
Obligations. For purposes of treating this Deed of Trust as a security
agreement, Beneficiary shall be deemed to be the secured party and Trustor shall
be deemed to be the debtor.
(b) Trustor maintains places of business in the State of California,
and Trustor will immediately notify Beneficiary in writing of any change in such
places of business.
(c) At the request of Beneficiary, Trustor shall join Beneficiary in
executing one or more financing statements and continuations and amendments
thereof pursuant to the UCC in form reasonably satisfactory to Beneficiary; and
Trustor will pay the cost of filing the same in all public offices wherever
filing is deemed by Beneficiary to be necessary. In the event Trustor fails to
execute such documents within five (5) business days after request by
Beneficiary, Trustor hereby authorizes Beneficiary to file such financing
statements and irrevocably constitutes and appoints Beneficiary, or any officer
of Beneficiary, as its true and lawful attorney-in-fact to execute the same on
behalf of Trustor.
(d) This Deed of Trust constitutes a financing statement filed as a
fixture filing under UCC (S) 9402(6) in the official records of Inyo County with
respect to any and all fixtures included within the term "Trust Property" and
with respect to any goods or other personal property that may now be or
hereafter become such a fixture. This filing shall remain in effect as a
fixture filing until this Deed of Trust is released or satisfied of record or
its effectiveness otherwise terminates as to the Trust Property.
(e) Beneficiary has no responsibility for and does not assume any of,
Trustor's obligations or duties under any agreement or obligation which is part
of the Equipment or any obligation relating to the acquisition, preparation,
custody, use, enforcement or operation of any of the Trust Property.
(f) Trustor and Beneficiary agree that the filing of a financing
statement in the records normally having to do with personal property shall
never be construed as in any way derogating from or impairing this Deed of Trust
or the intention of the parties that everything used in connection with the
production of income from the Trust Property or adapted for use therein or which
is described or reflected in this Deed of Trust is, and at all times and for all
purposes and in all proceedings both legal or equitable shall be regarded as
part of the real estate subject to the lien hereof, irrespective of whether (i)
any such item is physically attached to improvements located on such real
property or (ii) any such item is referred to or reflected in any financing
statement so filed at any time. Similarly, the mention in any such financing
statement of (A) the rights in or to the proceeds of any casualty insurance
policy or (B) any award in eminent domain proceedings for taking or for loss of
value or for cause of action or proceeds thereof in connection with any damage
or injury to the Trust Property or any part thereof shall never be construed as
in any way altering any of the rights of Beneficiary as determined by this
instrument or impugning the priority of Beneficiary's lien granted hereby or by
any other recorded document, but such mention in such financing statement is
declared to be for the protection of Beneficiary in the event any court shall at
any time hold with respect to matters (A) and (B) above that notice of
Beneficiary's priority of interest, to be effective against a particular class
of persons, including, without limitation, the Federal government and any
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subdivision or entity of the Federal government, must be filed in the personal
property records or other commercial code records.
28. Further Acts, etc. Trustor shall, at the cost of Trustor, and
-----------------
without expense to Beneficiary, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, financing statements, mortgages, deeds of
trust, assignments, notices of assignments, transfers and assurances as
Beneficiary shall from time to time require, for the better assuring, conveying,
assigning, transferring and confirming unto Beneficiary, the property and rights
hereby conveyed or assigned or intended now or hereafter so to be, or which
Trustor may be or may hereafter become bound to convey or assign to Beneficiary,
or for carrying out the intention or facilitating the performance of the terms
of this Deed of Trust or for filing, registering or recording this Deed of Trust
and, on demand, will execute and deliver and hereby authorizes Beneficiary to
execute in the name of Trustor to the extent they may lawfully do so, one or
more financing statements, chattel mortgages or comparable security instruments,
to evidence and perfect more effectively the lien hereof upon the Trust
Property.
29. Power of Attorney.
-----------------
(a) Trustor does hereby make, constitute and appoint Beneficiary its
true and lawful exclusive agent and attorney-in-fact for it, and in its name,
place and stead for the following purposes (collectively, the "Power of
Attorney"):
(i) in connection with or following one or more foreclosures under
this Deed of Trust judicially or by power(s) of sale or otherwise, or at such
time as Trustor shall be a debtor in proceedings under federal or state
bankruptcy law, to (1) apply to the U.S. Navy for assignment to it of the Navy
Contract and to approve such assignment on behalf of Trustor and (2) subject to
the prior approval of the U.S. Navy, if applicable, to grant, bargain, sell,
convey and assign Trustor's interest under the Navy Contract to Beneficiary or
to any other Person, for such price or prices, and on such terms and conditions,
as Trustor may deem proper, and in Trustor's name, to make, execute, acknowledge
and deliver a good and sufficient assignment, or other instrument or instruments
necessary to effect such sale, conveyance or assignment;
(ii) to take all actions and exercise all rights and remedies
available to Trustor as holder of the Navy Contract, including, without
limitation, to (1) cure any defaults thereunder, (2) make rental, royalty or
other payments to the U.S. Navy, if applicable, on behalf of Trustor and/or (3)
act as operator, appoint another to act as operator or have a receiver appointed
to act as operator thereof; and
(iii) to request, demand, sue for, collect, recover, compromise,
settle and receive all monies that may become due and owing to Trustor by reason
of a sale, conveyance, assignment, taking for public use or other disposition of
Trustor's interest under the Navy Contract.
(b) Trustor hereby grants to Beneficiary full power and authority to
from time to time appoint a substitute to perform any of the acts that
Beneficiary is by this Power of Attorney authorized to perform, and the right to
revoke such appointment of substitution at any time.
20
<PAGE>
(c) Trustor does hereby give and grant Beneficiary full power and
authority to do and perform all and every act and thing whatsoever requisite,
necessary or appropriate to be done in and about the CLJV Property and/or with
respect to the Navy Contract as fully to all interests and purposes as Trustor
might or could do if personally present, hereby ratifying all that Beneficiary
shall lawfully do or cause to be done by virtue of theses presents. The powers
and authority hereby conferred upon Beneficiary shall be applicable to any and
all interests in the Navy Contract now owned or hereafter acquired by Trustor.
Subject to the terms hereof, Beneficiary is empowered to determine in its sole
discretion the time when, purpose for, and manner in which any power herein
conferred upon it shall be exercised, and the conditions, provisions and
covenants of any instrument or document that may be executed by it pursuant
hereto, and in the acquisition or disposition of the Navy Contract, Beneficiary
shall have exclusive power to fix the terms thereof. This Power of Attorney is
coupled with an interest and cannot be revoked other than by recordation of a
statement of termination by Beneficiary hereunder.
30. Headings, etc. The headings, titles and captions of various
-------------
Sections of this Deed of Trust are for convenience of reference only and are not
to be construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
31. Filing of Deed of Trust, etc. Trustor forthwith upon the
----------------------------
execution and delivery of this Deed of Trust and thereafter, from time to time,
will cause this Deed of Trust, and any security instrument creating a lien or
evidencing or perfecting the lien hereof upon the Trust Property, or in the case
of personal property or fixtures, financing statements with respect thereto, and
each instrument of further assurance, to be filed, registered or recorded in
such manner and in such places as may be required by any present or future law
in order to publish notice of and fully to protect, preserve and perfect the
lien hereof upon, and the interest of Beneficiary in the Trust Property.
Trustor will pay all filing, registration or recording fees, and all expenses
incurred by Beneficiary incident to the preparation, execution and
acknowledgment of this Deed of Trust, any deed of trust or any mortgage or deed
of trust supplemental hereto, any security instrument with respect to the Trust
Property, any financing statement with respect to the Trust Property, and any
instrument of further assurance, and all federal, state, county and municipal
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Deed of Trust, any mortgage or deed of
trust supplemental hereto, any security instrument with respect to the Trust
Property or any financing statement, continuation statement or other instrument
of further assurance. Trustor shall hold harmless and indemnify Beneficiary,
its successors and assigns, against any liability incurred by reason of the
imposition of any tax on the making and recording of this Deed of Trust.
32. Usury Laws. This Deed of Trust and the other Financing Documents
----------
are subject to the express condition that at no time shall Trustor be obligated
or required to pay interest at a rate which could subject the creditor of the
debt to either civil or criminal liability as a result of being in excess of the
maximum interest rate which Trustor is permitted by law to contract or agree to
pay. If by the terms of this Deed of Trust or the Financing Documents, Trustor
is at any time required or obligated to pay interest at a rate in excess of such
maximum rate, then such rate of interest shall be deemed to be immediately
reduced to such maximum rate and the interest payable shall be computed at such
maximum rate.
21
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33. Recovery of Sums Required to Be Paid. Beneficiary shall have the
------------------------------------
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due, without regard to
whether or not the balance of the Obligations shall be due, and without
prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Trustor existing
at the time such earlier action was commenced.
34. Authority. Trustor, and each of the undersigned acting on behalf
---------
of Trustor, hereby represents, warrants and covenants that it has full power,
authority and legal right to execute this Deed of Trust and to mortgage, give,
grant, bargain, sell, release, pledge, convey, confirm and assign the Trust
Property pursuant to the terms hereof and to keep and observe all of the terms
of this Deed of Trust on Trustor's part to be performed.
35. Invalidity of Certain Provisions. Every provision of this Deed
--------------------------------
of Trust is intended to be severable. In the event any term or provision hereof
is declared to be illegal, invalid or unenforceable for any reason whatsoever by
a court of competent jurisdiction, (i) such term or provision shall be construed
in such a manner as will allow such term or provision to be valid, provided that
such recasting shall be in accordance with the original intention of the
parties, and (ii) such illegality, invalidity or unenforceability shall not
affect the balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable. If the lien of this Deed of
Trust in invalid or unenforceable as to any part of the debt, or if the lien is
invalid or unenforceable as to any part of the Trust Property, the unsecured or
partially unsecured portion of the debt shall be completely paid prior to the
payment of the remaining and secured or partially secured portion of the debt,
and all payments made on the debt, whether voluntary or under foreclosure or
other enforcement action or procedure, shall be considered to have been first
paid on and applied to the full payment of that portion of the debt which is not
secured or fully secured by the lien of this Deed of Trust.
36. Duplicate Originals. This Deed of Trust may be executed in any
-------------------
number of duplicate originals and each such duplicate original shall be deemed
to constitute but one and the same instrument.
37. Waiver of Notice. Trustor shall not be entitled to any notices
----------------
of any nature whatsoever from Beneficiary except with respect to matters for
which this Deed of Trust or applicable law specifically and expressly provides
for the giving of notice to Trustor, and to the fullest extent permitted by law
Trustor hereby expressly waives the right to receive any notice from Beneficiary
with respect to any matter for which this Deed of Trust or applicable law does
not specifically and expressly provide for the giving of notice to Trustor.
38. No Oral Change. This Deed of Trust may only be modified, amended
--------------
or changed by an agreement in writing signed by Trustor and Beneficiary, and may
only be released, discharged or satisfied of record by an instrument in writing
signed by the Trustee or its successors and assigns as directed by Beneficiary.
No waiver of any term, covenant or provision of this Deed of Trust shall be
effective unless given in writing by Beneficiary, and if so given by Beneficiary
shall only be effective in the specific instance in which given. Trustor
acknowledges that this Deed of Trust sets forth the entire agreement and
understanding of Trustor and Beneficiary with respect to the matters set forth
herein and that no oral or other
22
<PAGE>
agreements, understanding, representations or warranties exist with respect to
these matters other than those set forth in this Deed of Trust.
39. Absolute and Unconditional Obligation. Trustor acknowledges that
-------------------------------------
the Issuer's and each Guarantor's respective obligations to perform and pay the
Obligations in accordance with the Financing Documents are and shall at all
times continue to be absolute and unconditional in all respects, and shall at
all times be valid and enforceable irrespective of any other agreements or
circumstances of any nature whatsoever which might otherwise constitute a
defense to the obligations of Trustor under this Deed of Trust, to the
obligations of Issuer or Guarantors to perform and pay the Obligations or to the
obligations of any other Person relating to this Deed of Trust or the Financing
Documents, and to the fullest extent permitted by law Trustor absolutely,
unconditionally and irrevocably waives any and all right to assert any defense,
setoff, counterclaim or crossclaim of any nature whatsoever with respect to the
obligations of Trustor under this Deed of Trust or to the obligations of any
other Person relating to this Deed of Trust or the Financing Documents, or in
any action or proceeding brought by Beneficiary to collect the Obligations, or
any portion thereof, or to enforce, foreclose and realize upon the lien and
security interest created by this Deed of Trust or any other document or
instrument securing performance and repayment of the Obligations, in whole or in
part.
40. No Rights; No Set Off. All sums secured by this Deed of Trust
---------------------
shall be paid in accordance with the Indenture and the Guarantees, as
applicable, without counterclaim, setoff, deduction or defense and without
abatement, suspension, deferment, diminution or reduction, and the obligations
and liabilities of Trustor hereunder shall in no way be released, discharged or
otherwise affected (except as expressly provided herein) by reason of (i) any
claim which Trustor, the Issuer or any Guarantor has or might have against
Beneficiary, (ii) any default or failure on the part of Beneficiary to perform
or comply with any of the terms hereof or (iii) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing and whether or not Trustor shall
have notice or knowledge of any of the foregoing.
41. Action Affecting the Trust Property.
-----------------------------------
(a) Trustor agrees to appear in and contest any action or proceeding
purporting to adversely affect the security hereof or the rights or powers of
Beneficiary, and to pay all costs and expenses of Beneficiary, including costs
of evidence of title and attorneys' fees and expenses, in any such action or
proceeding in which Beneficiary may appear.
(b) Beneficiary shall have the right to appear in and defend any
action or proceeding brought with respect to the Trust Property and to bring any
action or proceeding, in the name and on behalf of Trustor or Beneficiary, which
Beneficiary determines to be necessary or reasonably advisable to be brought to
protect its interest in the Trust Property if (i) Trustor fails to defend or
bring such action or proceeding, as appropriate, in a prompt and diligent
manner, or thereafter fails to proceed with diligence in the defense or
prosecution of the same, or (ii) an Event of Default shall have occurred and be
continuing.
42. Other Actions by Beneficiary. Except as hereinbefore expressly
----------------------------
provided, should (i) the Guarantors fail to make any payment or do any act as
and in the manner provided in the Guarantees, the Indenture or the other
Financing Documents, (ii) the Issuer fail to make
23
<PAGE>
any payment or do any act as and in the manner provided for in the Indenture of
the other Financing Documents or (iii) Trustor fail to make any payment or do
any act as and in the manner provided in this Deed of Trust, then, after the
expiration of any applicable cure or grace period and as a result an Event of
Default, Beneficiary, without obligation so to do and without notice to or
demand upon Trustor and without releasing Trustor from any obligation, may make
or do the same in such manner and to such extent as Beneficiary may deem
necessary to protect the security hereof. In connection therewith (without
limiting any general powers of Beneficiary whether conferred herein or by law),
Beneficiary shall have and is hereby given the right, but not the obligation,
(i) to the fullest extent permitted by law, to make additions, alterations,
repairs and improvements to the Trust Property which it may consider necessary
to keep the Trust Property in good condition and repair and (ii) in exercising
such powers, to pay necessary expenses, including engagement of counsel or other
necessary or desirable consultants. Trustor shall, immediately upon demand
therefor by Beneficiary, pay all reasonable costs and expenses incurred by
Beneficiary in connection with the exercise by Beneficiary of the foregoing
rights, including without limitation, costs of evidence of title, court costs,
appraisals, surveys and attorneys' fees and expenses.
43. Remedies Not Exclusive. Subject to the limitations set forth in
----------------------
Section 49 of this Deed of Trust, Beneficiary shall be entitled to enforce
payment and performance of any indebtedness or obligations secured hereby and to
exercise all rights and powers granted under this Deed of Trust or any other
agreement or any laws now or hereafter in force, notwithstanding some or all of
the said indebtedness and obligations secured hereby may now or hereafter be
otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment
or otherwise. Subject to the limitations set forth in Section 49 of this Deed
of Trust, neither the acceptance of this Deed of Trust nor its enforcement,
whether by court action or pursuant to the power of sale or other powers herein
contained, shall prejudice or in any manner affect Beneficiary's right to
realize upon or enforce any other security now or hereafter held by Beneficiary,
it being agreed that Beneficiary shall be entitled to enforce this Deed of Trust
and any other security now or hereafter held by Beneficiary in such order and
manner as it may in its absolute discretion determine. No remedy herein
conferred upon or reserved to Beneficiary is intended to be exclusive of any
other remedy herein or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute.
44. Relationship. Nothing contained in this Deed of Trust is
------------
intended to create, or shall in any event or under any circumstance be construed
as creating, a partnership, joint venture, tenancy-in-common, joint tenancy or
other relationship of any nature whatsoever between or among Beneficiary and
Trustor.
45. Indenture and Guarantees. This Deed of Trust is subject to all
------------------------
of the terms, covenants and conditions of the Guarantees, the Indenture and the
Financing Documents, which Guarantees, Indenture and Financing Documents and all
of the terms, covenants and conditions thereof are by this reference
incorporated herein and made a part hereof with the same force and effect as if
set forth at length herein. All advances made and all indebtedness arising and
accruing under the Guarantees, the Indenture or any Financing Document from time
to time shall be secured hereby.
24
<PAGE>
46. Additional Covenants.
--------------------
(a) Trustor shall not develop nor permit the development of the CLJV
Property, the Trust Property or the estate or rights created thereby or any
interest therein for any purpose without the prior written consent of
Beneficiary;
(b) Trustor shall not create, incur or suffer to exist any
Indebtedness. For purposes of this Section 46, "Indebtedness" shall mean, at
any date, without duplication, (i) all obligations of Trustor for borrowed
money, (ii) all obligations of Trustor evidenced by debentures, notes or other
similar instruments (excluding "deposit only" endorsements on checks payable to
the order of Trustor), (iii) all obligations of Trustor to pay the deferred
purchase price of property or services (except accounts payable and similar
obligations arising in the ordinary course of business), (iv) all obligations of
Trustor as lessee under capital leases to the extent required to be capitalized
on the books of Trustor in accordance with GAAP and (v) all obligations of
others of the type referred to in clauses (i) through (iv) above guaranteed by
Trustor, whether or not secured by a lien or other security interest on any
asset of Trustor;
(c) Trustor shall not directly or indirectly create, incur, assume or
suffer to exist any Liens of any kind on any asset now or hereafter acquired,
except Permitted Liens. For purposes of this Section 46, Permitted Liens shall
mean (i) mechanic's, workmen's, materialmen's, supplier's, construction or other
like Liens arising in the ordinary course of business and which have not become
the subject of any foreclosure or other action or proceeding, (ii) servitudes,
easements, rights-of-way, restrictions, minor defects or irregularities in title
and such other encumbrances or charges against real property or interests
therein as are of a nature generally existing with respect to properties of a
similar character and which will not in any material way interfere with the use
thereof and (iii) other Liens incidental to the conduct of Trustor's business or
the ownership of properties and assets which were not incurred in connection
with the borrowing of money or the obtaining of advances or credit (other than
vendor's liens for accounts payable in the ordinary course of business), and
which will not in the aggregate materially impair the use thereof in the
operation of its business.
(d) Trustor shall not contingently or otherwise be or become liable
in connection with any guarantee, except for endorsements and similar
obligations in the ordinary course of business and except as may be created by
this Deed of Trust or any other security given by Trustee to Beneficiary;
(e) Trustor (to the extent that it may lawfully do so) shall not at
any time insist upon, plead or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law wherever enacted, now
or at any time hereafter in force, that may affect the covenants contained in or
the performance of this Deed of Trust; and Trustor (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power granted herein to Beneficiary, but shall
suffer and permit the execution of every such power as though no such law has
been enacted;
(f) Trustor shall pay, prior to delinquency, all material taxes,
assessments and governmental levies except such as are contested in good faith
and by appropriate proceedings
25
<PAGE>
and where the failure to effect such payment is not adverse in any material
respect to the Holders of the Senior Secured Notes;
(g) Trustor shall not enter into any transaction of merger or
consolidation, change its form of organization or its business, liquidate, wind-
up or dissolve itself or discontinue its business; and
(h) Trustor shall do or cause to be done all things necessary to
preserve and keep in full force and effect (i) its partnership existence, in
accordance with its respective organizational documents (as the same may be
amended from time to time) and (ii) its rights (charter and statutory), licenses
and franchises.
47. Business Purpose. Trustor hereby stipulates and warrants that
----------------
the loans secured hereby are commercial or business loans and are transacted
solely for the purpose of carrying on or acquiring a business or commercial
enterprise or for a proper business purpose under the laws of the jurisdiction
in which the Trust Property is located.
48. Time of the Essence. TIME IS OF THE ESSENCE with respect to each
-------------------
and every covenant, agreement and obligation of Trustor under this Deed of
Trust.
49. No Recourse. Beneficiary agrees that no officer, director,
-----------
employee or shareholder of Trustor nor any Affiliate of any such party
(collectively, the "Nonrecourse Parties") shall be personally liable for the
performance of any obligation contained in this Deed of Trust. Beneficiary
agrees that its rights shall be limited to proceeding against Trustor and the
security provided or intended to be provided pursuant to the Security Documents,
and that it shall have no right to proceed against the Nonrecourse Parties for
(a) the satisfaction of any monetary obligation of, or enforcement of any
monetary claim against, Trustor, (b) the performance of any obligation, covenant
or agreement arising under this Deed of Trust, or (c) any deficiency judgment
remaining after foreclosure of any property securing the obligations hereunder;
provided, however, that: (A) the foregoing provisions of this Section 49 shall
not constitute a waiver, release or discharge of any of the indebtedness, or of
any of the terms, covenants, conditions or provisions of this agreement or any
Financing Document, and the same shall continue until fully paid, discharged,
observed or performed; (B) the foregoing provisions of this Section 49 shall not
limit or restrict the right of Beneficiary or the holders of the Senior Secured
Notes to name Trustor or any other Person as a defendant in any action or suit
for a judicial foreclosure or for the exercise of any other remedy under or with
respect to this Deed of Trust or any Financing Document, or for injunction or
specific performance, so long as no judgment in the nature of a deficiency
judgment shall be enforced against any Nonrecourse Party, except as set forth in
this Section 49; (C) the foregoing provisions of this Section 49 shall not in
any way limit or restrict any right or remedy of Beneficiary, the holders of the
Senior Secured Notes or the Permitted Additional Senior Lenders, if any (or any
assignee or beneficiary thereof or successor thereto) with respect to, and all
of the Nonrecourse Parties shall remain fully liable to the extent that they
would otherwise be liable for their own actions with respect to, any fraud,
negligence or willful misrepresentation, or misappropriation of any amounts to
be deposited in the Revenue Account, Proceeds or any other earnings, revenues,
rents, issues, profits or proceeds that are subject to the Security Documents
that should or would have been paid as provided herein or paid or delivered to
the Depositary Agent, Beneficiary, the holders of the
26
<PAGE>
Senior Secured Notes or the Permitted Additional Senior Lenders (or any assignee
or beneficiary thereof or successor thereto) towards any payment required under
this Deed of Trust or any Financing Document; (D) the foregoing provisions of
this Section 49 shall not affect or diminish or constitute a waiver, release or
discharge of any specific written obligation, covenant or agreement in respect
of the Project made by any of the Nonrecourse Parties or any security granted by
the Nonrecourse Parties as security for the obligations of Trustor, the
Guarantors or Issuer; and (E) nothing contained herein shall limit the liability
of (i) any Person who is a party to any Project Document or has issued any
certificate or statement in connection therewith with respect to such liability
as may arise by reason of the terms and conditions of such Project Document,
certificate or statement, or (ii) any Person rendering a legal opinion, in each
case under this clause (E) relating solely to such liability of such Person as
may arise under such referenced instrument, agreement or opinion.
50. Severance of Counterclaims. In the event of foreclosure of this
--------------------------
Deed of Trust, any and all counterclaims filed by Trustor against Beneficiary to
the extent permitted by law, shall be severed by the court having jurisdiction
over the foreclosure action, for all purposes from the basic foreclosure action,
on an ex parte basis and without notice to Trustor. Trustor, by its execution
--------
and delivery hereof, hereby expressly consents and agrees to such severance.
51. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT HEREOF, TRUSTOR
--------------------
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY RIGHT IT
MIGHT HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS DEED OF TRUST OR ANY OF THE
FINANCING DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PERSONS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BENEFICIARY TO ACCEPT DELIVERY OF THIS DEED OF TRUST.
52. GOVERNING LAW. THIS DEED OF TRUST IS GOVERNED BY AND SHALL BE
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
53. Reimbursement; Attorneys' Fees. Trustor shall pay immediately,
------------------------------
without demand, after expenditure, all sums expended or expenses incurred by
Trustee and/or Beneficiary in enforcing the terms of this Deed of Trust,
including, without limitation, all attorneys' fees. As used herein, the terms
"attorneys' fees" or "attorneys' fees and costs" shall mean the fees and
expenses of counsel to Beneficiary, Trustee and the holders of the Senior
Secured Notes, which may include printing, photostating, duplicating and other
expenses, air freight charges, and fees billed for law clerks, paralegals,
librarians and others not admitted to the bar but performing services under the
supervision of an attorney. The terms "attorneys' fees" or "attorneys' fees and
costs" shall also include, without limitation, all such fees and expenses
incurred with respect to appeals, arbitrations and bankruptcy proceedings, and
whether or not any action or proceeding is brought with respect to the matter
for which said fees and expenses were incurred.
54. Shared Draftsmanship. If there is any ambiguity in the terms of
--------------------
this Deed of Trust, the doctrine of construction which holds that the language
of the document shall be
27
<PAGE>
construed against its drafter shall not apply, as all parties have shared in the
drafting of this Deed of Trust.
55. No Third Party Beneficiary. This Deed of Trust is for the sole
--------------------------
benefit of Beneficiary, or on behalf of the holders of the Senior Secured Notes,
as applicable, and the Permitted Additional Senior Lenders, and is not for the
benefit of any third party; and no third party shall gain any subrogation rights
against Trustor or in, to or with respect to any portion of the Trust Property
by reason of this Deed of Trust or the provisions hereof.
56. Security Only. This Deed of Trust is granted for security
-------------
purposes only. Accordingly, except as otherwise specifically provided in this
Deed of Trust, Beneficiary shall not enforce Trustor's rights with respect to
the Trust Property until such time as an Event of Default shall have occurred
and be continuing.
57. Release by Beneficiary. Upon the payment and performance in full
----------------------
of the Obligations, the security interest granted hereby shall terminate and all
rights to the Trust Property shall revert to Trustor. Upon any such
termination, Trustee shall, at Trustor's expense, execute and deliver to Trustor
such documents as Trustor shall reasonably request to evidence such termination.
If this Deed of Trust shall be terminated or revoked by operation of law,
Trustor will indemnify and save Trustee harmless from any loss which may be
suffered or incurred by Trustee in acting hereunder prior to the receipt by
Trustee, its successors, transferees or assigns of notice of such termination or
revocation.
58. Regarding Beneficiary.
---------------------
(a) Trustor hereby agrees to indemnify and hold harmless Beneficiary
and its directors, officers, agents and employees from and against any and all
claims, demands, losses, penalties, liabilities, costs, damages, injuries and
expenses, including, without limitation, reasonable attorneys' fees and
expenses, suffered or sustained by Beneficiary, either directly or indirectly,
relating to or arising out of any Environmental Law (as hereinafter defined),
including, without limitation, any judgment, award, settlement, attorneys' fees
and expenses and other costs or expenses incurred in connection with the defense
of any actual or threatened action, proceeding or claim. As used herein, the
term "Environmental Law" shall mean any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or health or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment, including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
(b) The obligations of Trustor hereunder shall survive the
termination and release of this Deed of Trust or the earlier resignation or
removal of Beneficiary as trustee under the Indenture.
28
<PAGE>
59. No Waiver. By accepting payment of any sum secured hereby after
---------
its due date or in an amount less than the sum due, Beneficiary does not waive
its rights to require prompt payment when due of all other sums so secured.
[Remainder of page intentionally left blank; signatures on next page]
29
<PAGE>
IN WITNESS WHEREOF, Trustor has duly executed this Deed of Trust as of the
day and year first above written.
TRUSTOR: CHINA LAKE JOINT VENTURE,
a California general partnership
By: Caithness Acquisition Company, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Geothermal 1980 Ltd., L.P.,
a Delaware limited partnership,
its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
30
<PAGE>
ACKNOWLEDGMENT
STATE OF New York )
----------------
)
COUNTY OF New York )
----------------
On May 28 , 1999, before me, [name of notary]
------------------ ------------------------------------
Notary Public, personally appeared Christopher T. McCallion personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature(s) on
the instrument the person(s), or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ signature of notary
- ------------------------------------------------------
Notary/Public
<PAGE>
EXHIBIT A
Description of the CLJV Property
--------------------------------
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY OF
- -----------------------------------------------------------------------------
INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
- ------------------------------------------------
PARCEL 1:
- ---------
THE NORTHEAST QUARTER OF THE NORTHEAST QUARTER OF SECTION 16; THE SOUTHEAST
QUARTER OF THE SOUTHEAST QUARTER, EXCEPT THE SOUTH 600 FEET, OF SECTION 33; THE
SOUTHWEST QUARTER OF THE NORTHWEST QUARTER, THE NORTHWEST QUARTER OF THE
SOUTHWEST QUARTER, THE SOUTHWEST QUARTER OF THE SOUTHWEST QUARTER, EXCEPT THE
WEST 800 FEET OF THE SOUTH 600 FEET, OF SECTION 34, ALL IN TOWNSHIP 21 SOUTH,
RANGE 39 EAST, MOUNT DIABLO BASE AND MERIDIAN, IN THE COUNTY OF INYO, STATE OF
CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF.
PARCEL 2:
- ---------
ALL OF SECTION 16 IN TOWNSHIP 22 SOUTH, RANGE 38 EAST, MOUNT DIABLO BASE AND
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL
PLAT THEREOF.
PARCEL 3:
- ---------
THE WEST HALF OF THE WEST HALF, EXCEPT THE WEST 300 FEET, OF SECTION 3; THE
SOUTH HALF OF THE SOUTH HALF OF SECTION 5; THE SOUTH HALF OF THE SOUTHEAST
QUARTER, THE SOUTHEAST QUARTER OF THE SOUTHWEST QUARTER, EXCEPT A 20 ACRE
"PRAYER SITE", OF SECTION 6; THE EAST HALF OF SECTION 7; THE WEST HALF, THE
NORTH HALF OF THE NORTHEAST QUARTER OF SECTION 8; THE NORTH HALF OF THE
NORTHWEST QUARTER OF SECTION 9; THE EAST HALF OF SECTION 16, ALL IN TOWNSHIP 22
SOUTH, RANGE 39 EAST, MOUNT DIABLO BASE AND MERIDIAN, IN THE COUNTY OF INYO,
STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF.
PARCEL 4:
- ---------
THE NORTHWEST QUARTER OF THE NORTHWEST QUARTER, THE EAST HALF OF THE WEST HALF
(EXCEPTING REGISTER SITE) OF SECTION 34, ALL IN TOWNSHIP 21 SOUTH, RANGE 39
EAST, MOUNT DIABLO BASE AND MERIDIAN, IN THE COUNTY OF INYO, STATE OF
CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF.
PARCEL 5:
- ---------
THE EAST HALF OF THE WEST HALF OF SECTION 3; THE WEST HALF OF SECTION 10; THE
EAST HALF, THE SOUTHWEST QUARTER, THE SOUTH HALF OF THE NORTHWEST QUARTER OF
SECTION 9; THE SOUTHEAST QUARTER, THE SOUTH HALF OF THE NORTHEAST QUARTER OF
SECTION 8; THE WEST HALF OF SECTION 15; THE WEST
Exhibit "A"
Page 1 of 2
<PAGE>
HALF OF SECTION 16; ALL OF SECTION 17; THE EAST HALF OF SECTION 18, ALL IN
TOWNSHIP 22 SOUTH, RANGE 39 EAST, MOUNT DIABLO BASE AND MERIDIAN, IN THE COUNTY
OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF.
Exhibit "A"
Page 2 of 2
<PAGE>
EXHIBIT B
Description of the Navy Contract
--------------------------------
THAT CERTAIN CONTRACT NO. N62474-79-C-5382, DATED DECEMBER 6, 1979, BY AND
BETWEEN THE UNITED STATES OF AMERICA ACTING THROUGH THE DEPARTMENT OF THE NAVY
AND CALIFORNIA ENERGY COMPANY, INC., AS MODIFIED, AMENDED, ASSIGNED AND RESTATED
BY CONTRACT MODIFICATION P00004 DATED AS OF OCTOBER 19, 1983, A MEMORANDUM OF
WHICH WAS RECORDED ON MARCH 12, 1986 AS INSTRUMENT NO. 86-1043 OF OFFICIAL
RECORDS OF INYO COUNTY, CALIFORNIA, INCLUDING ALL MODIFICATIONS, AMENDMENTS AND
ASSIGNMENTS THERETO AND THEREOF MADE BEFORE THE EFFECTIVE DATE OF THIS DEED OF
TRUST AND ANY PERMITTED MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND
THEREOF MADE AFTER THE EFFECTIVE DATE OF THIS DEED OF TRUST.
<PAGE>
Exhibit 10.29
RECORDING REQUESTED BY:
WHEN RECORDED RETURN TO:
The Law Offices of David E. Chanover
16776 Bernardo Center Drive
Suite 110B
San Diego, California 92128
Attention: David E. Chanover
- --------------------------------------------------------------------------------
COSO LAND COMPANY
(as Trustor)
to
CHICAGO TITLE INSURANCE COMPANY
(as Trustee)
for the use and benefit of
U.S. BANK TRUST NATIONAL ASSOCIATION
(as Beneficiary)
DEED OF TRUST, ASSIGNMENT OF RENTS,
FIXTURE FILING AND SECURITY AGREEMENT
(CLC)
Dated: May 28, 1999
Location: County of Inyo,
State of California
<PAGE>
DEED OF TRUST, ASSIGNMENT OF RENTS,
FIXTURE FILING AND SECURITY AGREEMENT
(CLC)
THIS DEED OF TRUST, ASSIGNMENT OF RENTS, FIXTURE FILING AND SECURITY
AGREEMENT (CLC) (this "Deed of Trust") is made as of May 28, 1999, by COSO LAND
COMPANY, a California general partnership whose address is c/o Caithness
Acquisition Company, LLC, 1114 Avenue of the Americas, 41st Floor, New York, New
York 10036, as trustor ("Trustor"), to CHICAGO TITLE INSURANCE COMPANY, a
Missouri corporation, whose address is 2425 West Shaw, Fresno, California 93711,
as trustee ("Trustee"), in favor of U.S. Bank Trust National Association, whose
address is One California Street, 4th Floor, San Francisco, California 94111, as
beneficiary ("Beneficiary") not in its individual capacity but solely as trustee
and collateral agent pursuant to the Indenture of even date herewith (the
"Indenture") among Beneficiary, Caithness Coso Funding Corp., as issuer (the
"Issuer"), Coso Energy Developers, a California general partnership ("CED"),
Coso Finance Partners, a California general partnership ("CFP") and Coso Power
Developers, a California general partnership ("CPD"), as guarantors. Unless
otherwise defined herein, capitalized terms shall have the meanings set forth in
the Indenture, which is hereby incorporated herein by this reference.
This Deed of Trust is given as additional security for the obligations of
the Issuer, CED, CPD and CFP under the Indenture, the Guarantees and the other
Financing Documents.
THIS DEED OF TRUST AND THE LIEN CREATED HEREBY IS AND SHALL AT ALL TIMES
REMAIN IRREVOCABLY AND UNCONDITIONALLY SUBJECT TO, JUNIOR TO AND SUBORDINATE TO
THOSE CERTAIN DEEDS OF TRUST, ASSIGNMENT OF RENTS, FIXTURE FILING AND SECURITY
AGREEMENT OF EVEN DATE HEREWITH GIVEN BY CED, CFP AND CPD, RESPECTIVELY, TO
TRUSTEE IN FAVOR OF BENEFICIARY, TO THE LIENS CREATED THEREBY, AND TO ANY
EXTENSIONS, AMENDMENTS, MODIFICATIONS AND CHANGES THERETO, INCLUDING ANY RE-
RECORDINGS OF SAID DEEDS OF TRUST. THIS SUBORDINATION IS GIVEN FOR GOOD AND
VALUABLE CONSIDERATION, THE SUFFICIENCY AND RECEIPT OF WHICH ARE HEREBY
ACKNOWLEDGED.
NOW, THEREFORE, in consideration of, and to secure the payment and
performance of the Obligations (as hereinafter defined) which Obligations may
increase, decrease and increase again from time to time and may be evidenced by
one or more notes, Trustor has given, granted, bargained, sold, alienated,
conveyed, confirmed and assigned, and by these presents does give, grant,
bargain, sell, alienate, convey, confirm and assign unto Trustee, its successors
and assigns, with general warranties of title as provided herein or under Civil
Code Section 1113 (but subject to Permitted Liens), in trust with power of sale
and right of entry and possession forever, for the benefit and security of
Beneficiary as Collateral Agent, all right, title and interest of Trustor in and
to the following property, assets, rights and interests, whether now owned or
hereafter acquired (such property, assets, rights and interests being
collectively referred to herein as the "Trust Property"):
(a) all of Trustor's right, title and interest in and to that certain
real property located in the County of Inyo, State of California, described
in Exhibit A attached hereto and by this reference incorporated herein (the
---------
"BLM North Lease Premises"), including, without limitation, all of its
right, title and interest in and under those certain geothermal resources
leases (the "BLM North Leases") described in said Exhibit A, together with
---------
all renewals, extensions, supplements, amendments, cancellations or
terminations thereof and all credits, deposits, options, privileges and
rights thereunder;
2
<PAGE>
(b) all of Trustor's right, title and interest in and to that
certain real property located in the County of Inyo, State of California,
described in Exhibit B attached hereto and by this reference incorporated
---------
herein (the "BLM Lease CACA-11401 Premises"), including, without
limitation, all of its right, title and interest in and under that certain
geothermal resources lease ("BLM Lease CACA-11401") described in said
Exhibit B, together with all renewals, extensions, supplements, amendments,
---------
cancellations or termination thereof and all credits, deposits, options,
privileges and rights thereunder (the BLM North Lease Premises and the BLM
Lease CACA-11401 Premises are together referred to herein as the "Site");
(c) all of Trustor's right, title and interest in and under any
contracts, agreements and other documents for or relating to (i) the
acquisition, development, possession, use, exchange or disposition of
geothermal resources, steam, condensate, injectate or other fluids and/or
(ii) the ownership or co-ownership (as the case may be) of pipelines, wells
and/or related improvements, equipment and facilities, in any way
belonging, relating or pertaining to or connected with the Site, the BLM
North Leases and/or BLM Lease CACA-11401, together with all renewals,
extensions, supplements, options, amendments, cancellations or terminations
thereof;
(d) all of Trustor's right, title and interest in and to any (i)
easements, rights-of-way, licenses and entry rights, (ii) gores of land,
(iii) roads, streets, ways, alleys or passages, (iv) interests in land
lying in the bed of any street, road or avenue, whether opened or proposed,
on, near or adjoining the Site or any part thereof, (v) sewer rights, (vi)
air rights, (vii) waters, water courses, water rights and powers, (viii)
profits-a-prendre, minerals, geothermal substances, oil, gas and other
hydrocarbon substances, (ix) exploration, development and production
rights, and (x) all other estates, rights, titles, interests, privileges,
franchises, liberties, tenements, hereditaments, consents, options,
appendages and appurtenances of any nature whatsoever, in any way
belonging, relating or pertaining to or connected with the Site, the BLM
North Leases, BLM Lease CACA-11401, the Improvements or any other of the
Trust Property, or any part thereof, together with all renewals,
extensions, supplements or amendments thereof;
(e) all leases (including oil, gas, geothermal and other mineral
leases), subleases, franchises, licenses, concessions, permits, power
purchase and other contracts and agreements affecting the use or occupancy
of the Site, the BLM North Leases, BLM Lease CACA-11401, the Improvements
or any other of the Trust Property, or any part thereof, now or hereafter
entered into, and any renewals or extensions thereof (hereinafter referred
to as the "Leases"); and the right to receive and apply the rents, issues,
profits, royalties, income, accounts receivable, revenues, deposits,
security deposits, receipts and other benefits of the Trust Property to the
extent of Trustor's interest therein, including, without limitation, the
proceeds of all hydrocarbons or other minerals produced from the Trust
Property, all delay royalties, rentals and bonuses from any oil, gas,
geothermal or other mineral lease, any revenues under any power purchase or
sale contracts, including, without limitation, that certain royalty (the
"CLC Royalty") created under that certain unrecorded Agreement Regarding
Overriding Royalty dated as of May 5, 1988 between CED and Trustor, as
amended (the "Royalty Agreement"), and any amounts received from the United
States Department of the Interior, Bureau of
3
<PAGE>
Land Management (the "BLM") (collectively, hereinafter referred to as the
"Rents") to the payment of the Obligations;
(f) all of Trustor's right, title and interest in and to any and all
buildings, structures, improvements or fixtures of any kind, now or
hereafter erected or located on the Site or any part thereof (the
"Improvements");
(g) all facilities, machinery, equipment, apparatus, appliances,
fittings, goods, materials, supplies, and other items and property of every
kind and nature whatsoever owned by Trustor, or in which Trustor now or
hereafter has any right, title or interest, now or hereafter located in or
upon, or used in connection with the present or future development,
operation, occupancy or other utilization (whether temporarily or
permanently) of or activities on, the Site, any of the other Trust Property
or any part thereof, whether or not attached to or installed in any
Improvements, and all renewals, replacements and substitutions thereof and
additions thereto, including, without limitation, any and all (i) wells,
including production, injection, test, temperature gradient and water
wells, well casings, wellhead equipment, geothermal resource gathering,
injection and disposal systems, pipelines, pumps, sumps, test holes,
evaporation ponds and other facilities and equipment used to produce,
inject, store, transport or utilize geothermal substances or condensate,
(ii) overhead and underground electrical transmission, distribution and
collector lines and related systems, switchyards, substations,
transformers, energy storage facilities, conductors, separators, circuit
breakers, interconnection equipment, conduits, footings, towers, poles,
crossarms, guy lines, anchors and wires, (iii) overhead and underground
control, monitoring, communications and radio relay systems and
telecommunications equipment, (iv) roads, erosion control facilities,
dikes, signs and fences, (v) maps, plans, specifications, architectural,
engineering, construction or shop drawings, manuals or similar documents
and (vi) any other facilities, machinery, equipment, apparatus, fittings,
goods, materials, supplies, and other items and property associated with or
incidental to any of the foregoing or to the generation, conversion,
storage, switching, metering, step-up, step-down, transmission, conducting,
wheeling, sale or other use or conveyance of electricity (collectively, the
"Equipment"), as well as the right, title and interest of Trustor in and to
any of the Equipment which may be subject to any security agreements (as
defined in the Uniform Commercial Code of the State of California) superior
in lien to the lien of this Deed of Trust;
(h) all awards or payments, including interest thereon, and the right
to receive the same, which may be made with respect to the Trust Property,
whether from state fund sharing, from the exercise of the right of eminent
domain (including any transfer made in lieu of the exercise of said right),
from changes of grade of street or for any other injury to or decrease in
the value of the Trust Property now or hereafter located thereon, whether
direct or consequential, which said awards and payments are hereby assigned
to Beneficiary, and Beneficiary is hereby authorized to collect and receive
the proceeds thereof and to give proper receipts and acquittances therefor;
(i) all refunds or rebates of all taxes or charges in lieu of taxes,
assessments, water rates, sewer rents and other charges, including vault
charges and license or permit
4
<PAGE>
fees for the use of vaults, chutes and similar areas on or adjoining the
Site, now or hereafter levied or assessed against the Trust Property
(hereinafter referred to as the "Taxes");
(j) all inventory, accounts, books, records and general intangibles
in whatever form and however stored, owned by Trustor, or in which Trustor
now or hereafter has any right, title or interest, now or hereafter located
upon, arising in connection with or concerning the Trust Property;
(k) all proceeds of and any unearned premiums on any insurance
policies now or hereafter covering the Trust Property, including, without
limitation, the right to receive the proceeds of any insurance, judgments
or settlements made in lieu thereof, for damage to the Trust Property or
for any defect in the title to the Trust Property or any part thereof;
(l) the right, in the name and on behalf of Trustor, to appear in and
defend any action or proceeding brought with respect to the Trust Property
and to commence any action or proceeding to protect the interest of
Beneficiary in the Trust Property;
(m) all of Trustor's right, title and interest in and to all plans
and specifications prepared for or relating to the design, development,
construction, management and use of Improvements or Equipment or other
development of the Trust Property (including, without limitation, all
amendments, modifications, supplements, general conditions and addenda
thereof or thereto), and all studies, data and drawings related thereto,
and all contracts and agreements of Trustor relating to the aforesaid plans
and specifications or to the aforesaid studies, data and drawings or to the
design, development, construction, management and use of Improvements, the
Equipment or any of the other Trust Property;
(n) all contracts with property managers, surveyors, real estate
advisors, consultants and brokers, geothermal energy advisors and
consultants, engineers, and other like agents and professionals that relate
to any part of the Trust Property, including without limitation, any
Improvements constructed or to be constructed on the Site or any part
thereof or any Equipment to be placed, installed, used or stored on the
Site or any part thereof, and all maps, reports, surveys, tests and studies
of or relating to any of the Trust Property, owned by Trustor or in which
Trustor has or shall have an interest and now or hereafter in the
possession of Trustor or any such agent or professional;
(o) all present and future agreements, permits, licenses,
entitlements and approvals, as well as all modifications, supplements,
extensions and renewals thereof, now existing or hereafter made, in which
Trustor now or hereafter has an interest, relating to the use, development
and/or occupancy of the Site, the Improvements and/or the Equipment;
(p) all the estate, right, title, interest, claim or demand of any
nature whatsoever of Trustor, either in law or in equity, in possession or
expectancy, in and to the Trust Property and in all replacements,
substitutes, renewals, betterments and
5
<PAGE>
extensions of and all additions to any of the Improvements or Equipment, or
any part thereof; and
(q) all products and proceeds of any of the Trust Property herein
described.
This Deed of Trust secures the following obligations which shall heretofore
and hereinafter collectively be referred to as the "Obligations":
(i) The payment of all indebtedness and the performance of all
obligations of CED, CPD and CFP as evidenced in Section 9 of the Indenture
entitled "Guarantees" and as further evidenced by that certain Notation of
Guarantee of even date herewith executed by CED, CPD and CFP, including,
without limitation, the guarantee of payment of (1) $110,000,000 6.80%
Senior Secured Notes due in 2001 and (2) $303,000,000 9.05% Senior Secured
Notes due in 2009 (collectively, the "Senior Secured Notes") issued by the
Issuer (the "Guarantees"); and
(ii) The satisfaction and performance of all other debts, obligations,
covenants, agreements and liabilities of Trustor to Trustee, Beneficiary
or any of the other Secured Parties or of CED, CPD, CFP or the Issuer to
Trustee, Beneficiary or any of the other Secured Parties, arising out of,
connected with or related to this Deed of Trust, the Guarantees, any of the
Financing Documents or any other agreement now or hereafter executed by
CED, CPD, CFP, the Issuer or Trustor, and all amendments, extensions, and
renewals of the foregoing documents, whether now existing or hereafter
arising, voluntary or involuntary, absolute or contingent, liquidated or
unliquidated, and whether or not from time to time decreased or
extinguished and later increased, created, or incurred.
To protect the security of this Deed of Trust, Trustor covenants with and
represents and warrants to Trustee and Beneficiary as follows:
1. Warranty of Title. Trustor warrants its right, title or
-----------------
interest, as applicable, in and to the Site, BLM Lease CACA-11401, the BLM North
Leases, the Improvements, the Equipment and the balance of the Trust Property
and the validity and priority of the lien of this Deed of Trust and the estate
hereof against the claims and demands of all Persons whomsoever, other than with
respect to Permitted Liens. Trustor also represents and warrants that (i)
Trustor is now, and after giving effect to this Deed of Trust, will be, in a
solvent condition, (ii) the execution and delivery of this Deed of Trust by
Trustor does not constitute a "fraudulent conveyance" within the meaning of
Title 11 of the United States Code (the "Bankruptcy Code") as now constituted or
under any other applicable statute, and (iii) no bankruptcy or insolvency
proceedings are pending or contemplated by or, to the best of Trustor's
knowledge, against Trustor.
2. Notice. Trustor hereby requests that a copy of notice of default
------
and notice of sale be mailed to it at the address set forth below, and such
address is also the mailing address of Trustor, as debtor, under the California
Uniform Commercial Code. Trustor hereby covenants to cure any default within
the time period required of the Issuer under the Financing Documents upon
receipt of notice of such default. Beneficiary's address given below is the
address for Beneficiary under the California Uniform Commercial Code. Any
notice, request,
6
<PAGE>
demand, statement, authorization, approval or consent made hereunder shall be
deemed given or furnished (i) when addressed to the party intended to receive
the same at the address of such party set forth below, and delivered at such
address or (ii) three (3) days after the same is deposited in the United States
mail as first class certified mail, return receipt requested, postage prepaid:
If to Trustor:
Coso Land Company
c/o Caithness Acquisition Company, LLC
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Attention: President
If to Trustee:
Chicago Title Insurance Company
2425 West Shaw
Fresno, California 93711
Attention: Trust Department
If to Beneficiary:
U.S. Bank Trust National Association
One California Street, Suite 400
San Francisco, California 94111
Attention: Trust Officer
3. Sale of Trust Property. This Deed of Trust hereby contains more
----------------------
than one power of sale and Beneficiary, in its sole discretion, may conduct one
or multiple foreclosure sales in connection herewith. If this Deed of Trust is
foreclosed, or the power of sale hereunder is exercised, the Trust Property, or
any interest therein, may, at the discretion of Beneficiary, be sold in one or
more parcels or in several interests or portions and in any order or manner.
4. No Credits on Account of the Obligations. Trustor will not claim
----------------------------------------
or demand or be entitled to any credit or credits on account of the Obligations
for any part of the Taxes assessed against the Trust Property or any part
thereof, and no deduction shall otherwise be made or claimed from the taxable
value of the Trust Property, or any part thereof, by reason of this Deed of
Trust or the Obligations.
5. Offset, Counterclaims and Defenses. Any assignee of this Deed of
----------------------------------
Trust and the Obligations secured hereby shall take the same free and clear of
all offsets, counterclaims or defenses of any nature whatsoever which Trustor
may have against any assignor of this Deed of Trust and the Obligations secured
hereby, and no such offset, counterclaim or defense shall be interposed or
asserted by Trustor in any action or proceeding brought by any such assignee
upon this Deed of Trust or the Obligations secured hereby and any such right to
interpose or assert any such offset, counterclaim or defense in any such action
or proceeding is hereby expressly waived by Trustor.
7
<PAGE>
6. Other Security for the Obligations. Trustor shall observe and
----------------------------------
perform all of the terms, covenants and provisions to be observed or performed
by Trustor contained in this Deed of Trust or otherwise executed and delivered
in connection with this Deed of Trust.
7. Preservation of Trust Property. Trustor shall do any and all
------------------------------
acts which, from the character or use of the Trust Property, may be reasonably
necessary to protect and preserve the lien, the priority of the lien and the
security of Beneficiary granted herein, the specific enumerations herein not
excluding the general. Trustor shall maintain and preserve the Trust Property
in accordance with the requirements of the Indenture. Further, with respect to
the BLM North Leases and BLM Lease CACA-11401 (collectively, the "Primary
Rights"), Trustor hereby agrees as follows:
(a) not to amend, change, alter, cancel, surrender, release, waive,
supplement, terminate or modify, nor permit the amendment, change, alteration,
cancellation, surrender, release, waiver, supplement, termination, or
modification (each, an "Amendment") of any of the Primary Rights or the estate
or rights created thereby or any interest therein without the prior written
consent of Beneficiary. Consent to one Amendment shall not be deemed to be a
waiver of the right to require consent to other, future or successive
Amendments. Any Amendment, whether oral or in writing, made without the prior
written consent of Beneficiary, shall not be valid or effective;
(b) to make all payments and to keep and perform promptly each and
every covenant, obligation and agreement of the lessee, transferee, grantee,
licensee or holder (as the case may be) in the Primary Rights, not to commit,
suffer or permit any default thereunder and not to take any action or omit to
take any action which would effect or permit the termination or cancellation of
any of the Primary Rights. Trustor shall take all actions necessary to keep the
Primary Rights unimpaired. Trustor shall promptly deliver to Beneficiary copies
of all material notices, demands or complaints received by Trustor from the BLM,
CED, CFP, CPD or any other third party in connection with any of the Primary
Rights, and promptly notify Beneficiary in writing with respect to any default
or alleged default by any party thereto (whether or not a notice of default has
been issued under any of the Primary Rights) and deliver to Beneficiary within
ten (10) business days of Trustor's receipt of any notice of default a
certificate executed by Trustor describing the default, the actions Trustor
intends to take to cure such default, the length of time Trustor expects to take
to cure such default and the status of any actions taken to cure such default.
Trustor shall also furnish to Beneficiary such other information as Beneficiary
may reasonably request concerning Trustor's performance of its covenants,
obligations and agreements under or with respect to the Primary Rights.
Beneficiary shall have the option but not the obligation to cure any such
default and to perform any or all of Trustor's obligations thereunder;
(c) except with respect to that certain Subordination Agreement (CLC
Royalty) of even date herewith between Trustor and Beneficiary, that any
subordination of any of the Primary Rights to any fee mortgage, to any lease, or
to any other interest, either orally or in writing, made without the prior
written consent of Beneficiary, shall not be valid or effective;
(d) that if any of the Primary Rights is terminated prior to the
natural termination of its term by reason of default of Trustor thereunder, and
if, pursuant to any
8
<PAGE>
provision of such Primary Rights, or otherwise, Beneficiary or its designee
shall acquire from the BLM or any other third party, as the case may be, a new
contract, lease or right-of-way in respect of the Site or any part thereof, then
Trustor shall not have any right, title or interest in or to such new contract,
lease or right-of-way or the estate created thereby; and
(e) that the provisions hereof shall be deemed to be obligations of
Trustor in addition to Trustor's obligations as lessee, grantee, transferee,
licensee or holder, as the case may be, with respect to any similar matters
contained in any of the Primary Rights, and the inclusion herein of any
covenants and agreements relating to similar matters as to which Trustor is
obligated under any of the Primary Rights shall not restrict or limit Trustor's
duties and obligations to keep and perform promptly all of its covenants,
agreements and obligations as lessee, grantee, transferee, licensee or holder,
as the case may be, under the Primary Rights; provided, however, that nothing in
this Deed of Trust shall be construed as requiring the taking of or the
committing to take any action by Trustor or Beneficiary which would cause a
default under any of the Primary Rights.
8. Further Transfer of Trust Property. Except with regard to (i)
----------------------------------
the assignment to CED of all of all of Trustor's right, title and interest in
and under BLM Lease CACA-11401 and (ii) the assignment to CED, CFP and CPD (each
as to an undivided one-third interest as a tenant-in-common) of all of Trustor's
right, title and interest in and to the BLM North Leases (which Trustor hereby
covenants to consummate (including, without limitation, by obtaining the BLM's
approval of such assignments) as soon as possible, if not completed prior to the
date of this Deed of Trust), without the prior written consent of Beneficiary
being first had and obtained, Trustor shall not (a) execute or deliver any
pledge, security agreement, mortgage, deed of trust or other instrument of
hypothecation covering all or any portion of the Trust Property or any interest
therein or (b) sell, contract to sell, lease with option to purchase, convey,
alienate, transfer, sublease or otherwise dispose of all or any portion of the
Trust Property or any interest therein, in each case whether voluntarily or
involuntarily, by operation of law or otherwise. Consent to one such
transaction shall not be deemed to be a waiver of the right to require consent
to future or successive transactions. Beneficiary may grant or deny such
consent in its sole discretion and, if consent should be given, any such
transfer shall be subject to this Deed of Trust, and any such transferee shall
assume all obligations hereunder and agree to be bound by all provisions
contained herein and therein. Such assumption shall not, however, release
Trustor from any liability under this Deed of Trust without the written consent
of Beneficiary.
9. Eminent Domain. In the event that any proceeding or action be
--------------
commenced for the taking of the Trust Property, or any part thereof or interest
therein, for public or quasi-public use under the power of eminent domain,
condemnation or otherwise, or if the same be taken or damaged by reason of any
public improvement or condemnation proceedings, or in any other manner
(collectively, a "Condemnation"), or should Trustor receive any notice or other
information regarding such proceeding, action, taking or damage, Trustor shall
give prompt written notice thereof to Beneficiary. Beneficiary shall be
entitled to give or withhold its consent to any compromise or settlement in
connection with such taking or damage. All compensation, awards, damages,
rights of action and proceeds awarded to Trustor by reason of any such taking or
damage (the "Condemnation Proceeds") are hereby absolutely and unconditionally
assigned to Beneficiary, and Trustor agrees to execute such further assignments
of the
9
<PAGE>
Condemnation Proceeds as Beneficiary or Trustee may require. All such
Condemnation Proceeds shall be applied as provided in the Credit Agreements.
10. Assignment of Contracts. In addition to any other grant,
-----------------------
transfer or assignment effectuated hereby, and without in any manner limiting
the generality of the grants given above, Trustor shall assign to Beneficiary,
as security for the Obligations, Trustor's interest in all agreements,
contracts, leases, licenses and permits affecting the Site and Improvements in
any manner whatsoever, such assignments to be made, if so requested by
Beneficiary, by instruments in form satisfactory to Beneficiary; but no such
assignment shall be construed as a consent by Beneficiary to any agreement,
contract, license or permit so assigned, or to impose upon Beneficiary any
obligations with respect thereto.
11. Anti-Merger. There shall be no merger of any of the Primary
-----------
Rights or the estates or interests created thereby (collectively, the "Estate")
with the fee estate in the Site or any part thereof by reason of any of those
interests coming into common ownership, unless Beneficiary consents in writing
thereto. Further, if Trustor acquires any interest in the fee estate to the
Site or any part thereof, then the lien of this Deed of Trust will
simultaneously and without further action become extended to encumber Trustor's
interest in the fee estate in addition to remaining a lien on the Estate, and
Trustor agrees, upon request by Beneficiary and at no cost to Beneficiary, to
execute, acknowledge and deliver to Beneficiary all further instruments and
documents that Beneficiary believes to be appropriate to provide further
evidence of the lien of this Deed of Trust on such fee interest. Where the lien
of this Deed of Trust has been extended to cover any interest of Trustor in the
fee estate, then in the event of the exercise of any power of sale under this
Deed of Trust, Beneficiary will have the right to sell the Estate and the fee
interest of Trustor separately or together at the election of Beneficiary.
12. Documentary Stamps. If at any time the United States of America,
------------------
any state thereof or any governmental subdivision of any such state, shall
require revenue or other stamps to be affixed to this Deed of Trust, or that any
taxes be paid in connection with this Deed of Trust, Trustor shall pay for the
same, with interest and penalties thereon, if any.
13. Right of Entry. Beneficiary, may at any reasonable time or times
--------------
make or cause to be made entry upon and inspection of the Trust Property or any
part thereof in person or by agent.
14. Event of Default. The term "Event of Default," whenever used in
----------------
this Deed of Trust, shall mean:
(a) any one or more of the events of default listed or otherwise
provided in the Indenture, the Guarantees or any of the other Financing
Documents, subject to such cure rights as may be expressly set forth therein
(whether any such event shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body);
(b) any representation or warranty made by Trustor in this Deed of
Trust or any Financing Document or any other representation, warranty or
statement in any certificate,
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financial statement or other document furnished to Beneficiary or any other
Person proves to have been untrue or misleading in any material respect as of
the time made, confirmed or furnished and the fact, event or circumstance that
gave rise to such inaccuracy has resulted in, or could reasonably be expected to
result in, a Material Adverse Effect and that fact, event or circumstance
continues uncured for thirty (30) or more days from the date Trustor receives
notice thereof from Beneficiary; provided that, if Trustor commences and
diligently pursues efforts to cure such fact, event or circumstance within such
30-day period and delivers written notice to Beneficiary thereof, Trustor may
continue to effect such cure, and such misrepresentation shall not be deemed an
"Event of Default" for an additional sixty (60) days so long as Trustor is
diligently pursuing such cure;
(c) any failure to perform or observe any of the covenants or
agreements set forth in Section 46 hereof;
(d) except for the Events of Default described in Section 14(c)
hereof, any failure by Trustor to perform or observe any covenant or agreement
contained in this Deed of Trust, and such failure continues uncured for thirty
(30) or more days from the date Trustor receives notice thereof from
Beneficiary; provided that if Trustor commences and diligently pursues efforts
to cure such default within such 30-day period, Trustor may continue to effect
such cure of the default and such default will not be deemed an "Event of
Default" for an additional ninety (90) days so long as Trustor is diligently
pursuing such cure;
(e) any admission in writing by Trustor of its inability, or general
inability to pay its debts as the debts become due or the execution of a general
assignment for the benefit of creditors;
(f) commencement by Trustor of any case, proceeding or other action
seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of its or its debts under any applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, adjustment, insolvency,
reorganization or similar laws affecting the rights or remedies of creditors
generally, as in effect from time to time ("Debtor Relief Law");
(g) Trustor, in any involuntary case, proceeding or other action
commenced against it which seeks to have an order for relief (injunctive or
otherwise) entered against it, as debtor, or seeks reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under any
Debtor Relief Law, (i) fails to obtain a dismissal of such case, proceeding or
other action within ninety (90) days of its commencement, or (ii) converts the
case from one chapter of the Bankruptcy Reform Act of 1978 , as amended, to
another chapter, or (iii) is the subject of any order for relief; or
(h) Trustor has a trustee, receiver, custodian or other official
appointed for or take possession of all or any part of its property or has any
court take jurisdiction of any of its property, which action remains undismissed
for a period of ninety (90) days.
15. Appointment of Receiver. Trustee or Beneficiary, in any action
-----------------------
(or multiple actions) to foreclose this Deed of Trust or exercise the power of
sale granted under this Deed of Trust or upon the actual or threatened waste to
any part of the Trust Property or upon the
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occurrence of an Event of Default, shall be at liberty, without notice, to apply
for the appointment of a receiver, and shall be entitled to the appointment of
such receiver as a matter of right, without regard to the value of the Trust
Property as security for the Obligations, or the solvency or insolvency of any
Person then liable for the payment of the Obligations.
16. Non-Waiver. The failure of Beneficiary to insist upon strict
----------
performance of any term of this Deed of Trust shall not be deemed to be a waiver
of any term of this Deed of Trust. Trustor shall not be relieved of Trustor's
obligation to pay and perform the Obligations at the time and in the manner
provided for in this Deed of Trust by reason of (i) failure to comply with any
request(s) of Trustor to take any action to foreclose this Deed of Trust or
otherwise enforce any of the provisions hereof, of the Financing Documents or of
any other mortgage, deed of trust, instrument or document securing or
guaranteeing the payment of the Obligations or a portion thereof, (ii) the
release, regardless of consideration, of the whole or any part of the Trust
Property or any other security for the Obligations, or (iii) any agreement or
stipulation between Beneficiary and any subsequent owner or owners of the Trust
Property or other Person extending the time of payment or otherwise modifying or
supplementing the terms of this Deed of Trust or the Financing Documents
evidencing, securing or guaranteeing payment of the Obligations or any portion
thereof, without first having obtained the consent of Trustor. Regardless of
consideration, and without the necessity for any notice to or consent by the
holder of any subordinate lien, encumbrance, right, title or interest in or to
the Trust Property, Beneficiary may release any Person at any time liable for
the payment of the Obligations or any portion thereof or all or any part of the
security held for the Obligations and may extend the time of payment or
otherwise modify the terms of the Financing Documents or this Deed of Trust,
including, without limitation, a modification of the interest rate payable on
the principal balance of the Obligations, without in any manner impairing or
affecting this Deed of Trust or the lien thereof or the priority of this Deed of
Trust, as so extended and modified, as security for the Obligations over any
such subordinate lien, encumbrance, right, title or interest. Beneficiary may
resort for the payment of the Obligations to any other security held by
Beneficiary in such order and manner as Beneficiary in its discretion, may
elect. Beneficiary may take action to recover the Obligations, or any portion
thereof, or to enforce any covenant hereof without prejudice to the right of
Beneficiary thereafter to foreclose this Deed of Trust. Beneficiary shall not
be limited exclusively to the rights and remedies herein stated but shall be
entitled to every additional right and remedy now or hereafter afforded by law
or equity. The rights of Beneficiary under this Deed of Trust shall be
separate, distinct and cumulative, and none shall be given effect to the
exclusion of the others. No act of Beneficiary shall be construed as an
election to proceed under any one provision herein to the exclusion of any other
provision.
17. Power of Sale. Upon the occurrence and during the continuance of
-------------
an Event of Default, Beneficiary may at any time, at its option and in its sole
discretion, declare the Obligations to be due and payable and the same shall
thereupon become immediately due and payable. Beneficiary may also do any or
all of the following; provided, however, that any of the following actions shall
be undertaken in a commercially reasonable manner and in accordance with
applicable law; and provided, further, that Beneficiary shall have no obligation
to do any of the following:
(a) Either in person or by agent, with or without bringing any action
or proceeding or by a receiver appointed by a court and without regard to the
adequacy of
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Beneficiary's security, enter upon and take possession of the Trust Property or
any part hereof and do any acts which Beneficiary deems necessary or desirable
to preserve the value, marketability or rentability of the Trust Property or to
increase the income therefrom or to protect the security hereof and with or
without taking possession of any of the Trust Property, sue for or otherwise
collect all Rents and profits including those past due and unpaid, and apply the
same, less costs and expenses of operation and collection including attorneys'
fees and expenses, upon the Obligations secured hereby with the remainder, if
any, to the Person or Persons legally entitled thereto. The collection of Rents
and profits and the application thereof shall not cure or waive any Event of
Default or notice thereof or invalidate any act done in response thereto or
pursuant to such notice.
(b) Bring an action in any court of competent jurisdiction to
foreclose this instrument or to enforce any of the covenants hereof.
(c) Exercise any or all of the remedies available to a secured party
under the Uniform Commercial Code.
(d) Beneficiary may elect to cause the Trust Property or any part
thereof to be sold under the power of sale herein granted in any manner
permitted by applicable law. In connection with any sale or sales hereunder,
Beneficiary may elect to treat any of the Trust Property which consists of a
right in action or which is property that can be severed from the real property
covered hereby or any improvements thereon without causing structural damage
thereto as if the same were personal property, and dispose of the same in
accordance with applicable law, separate and apart from the sale of real
property. Any sale of any personal property hereunder shall be conducted in any
manner permitted by Section 9501 or any other applicable sections of the
California Uniform Commercial Code. Where the Trust Property consists of real
and personal property or fixtures, whether or not such personal property is
located on or within the real property, Beneficiary may elect in its discretion
to exercise its rights and remedies against any or all of the real property,
personal property, and fixtures in such order and manner as is now or hereafter
permitted by applicable law. Without limiting the generality of the foregoing,
Beneficiary may at its sole and absolute discretion and without regard to the
adequacy of its security elect to proceed against any or all of the real
property, personal property and fixtures in any manner permitted under Section
9501(4)(a) of the California Uniform Commercial Code; and if Beneficiary elects
to proceed in the manner permitted under Section 9501(4)(a)(ii) of the
California Uniform Commercial Code, the power of sale herein granted shall be
exercisable with respect to all or any of the real property and fixtures covered
hereby, as designated by Beneficiary, and the Trustee is hereby authorized and
empowered to conduct any such sale of any real property and fixtures in
accordance with the procedures applicable to real property. Where the Trust
Property consists of real property and personal property, any reinstatement of
the Obligations, following the occurrence of an Event of Default and an election
by Beneficiary to accelerate the maturity of the Obligations, which is made by
Trustor or any other Person permitted to exercise the right of reinstatement
under Section 2924c of the California Civil Code or any successor statute,
shall, in accordance with the terms of California Uniform Commercial Code
Section 9501(4)(c)(iii), not prohibit Beneficiary from conducting a sale or
other disposition of any personal property or fixtures or from otherwise
proceeding against or continuing to proceed against any personal property or
fixtures in any manner permitted by the California Uniform Commercial Code; nor
shall any such reinstatement invalidate, rescind or
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otherwise affect any sale, disposition or other proceeding held, conducted or
instituted with respect to any personal property or fixtures prior to such
reinstatement. Any sums paid to Beneficiary in effecting any reinstatement
pursuant to Section 2924c of the California Civil Code shall be applied to the
Obligations and to Beneficiary's and Trustee's reasonable costs and expenses in
the manner required by such Section 2924c. Should Beneficiary elect to sell any
of the Trust Property which is real property or which is personal property or
fixtures that Beneficiary has elected under Section 9501(4)(a)(ii) of the
California Uniform Commercial Code to sell together with real property in
accordance with the laws governing a sale of real property, such notice of
default and election to sell shall be given as may then be required by law.
Thereafter, upon the expiration of such time and the giving of such notice of
sale as may then be required by law, at the time and place specified in the
notice of sale, Trustee shall sell such property, or any portion thereof
specified by Beneficiary, at public auction to the highest bidder for cash in
lawful money of the United States. Trustee may, and upon request of Beneficiary
shall, from time to time, postpone the sale by public announcement thereof at
the time and place noticed therefor. If the Trust Property consists of several
lots, parcels or interests, Beneficiary may designate the order in which the
same shall be offered for sale or sold. Should Beneficiary desire that more
than one such sale or other disposition be conducted, Beneficiary may, at its
option, cause the same to be conducted simultaneously, or successively on the
same day, or at such different days or times and in such order as Beneficiary
may deem to be in its best interest. Any Person, including Trustor, Trustee or
Beneficiary may purchase at the sale. In the event Beneficiary elects to
dispose of the Trust Property through more than one sale, Trustor agrees to pay
the costs and expenses of each such sale and of any judicial proceedings wherein
the same may be made, including reasonable compensation to Trustee and
Beneficiary, their agents and counsel, and to pay all expenses, liabilities and
advances made or incurred by Trustee in connection with such sale or sales,
together with interest on all such advances made by Trustee at the interest rate
then applicable to the indebtedness to which the Financing Documents apply.
Upon any sale Trustee shall execute and deliver to the purchaser or purchasers a
deed or deeds conveying the property so sold but without any covenant or
warranty whatsoever express or implied, whereupon such purchaser or purchasers
shall be let into immediate possession, and the recitals in any such deed or
deeds of facts such as default, the giving of notice of default and notice of
sale, and other facts affecting the regularity or validity of such sale or
disposition, shall be conclusive proof of the truth of such facts and any such
deed or deeds shall be conclusive against all Persons as to such facts recited
therein.
(e) Exercise each of its other rights and remedies provided under the
Indenture, the Guarantees, the other Financing Documents or this Deed of Trust,
including, without limitation, any or all of the following:
(i) if the indebtedness is not paid on demand, take any and all steps
and institute any and all other proceedings that Beneficiary deems
necessary to enforce the indebtedness and obligations secured hereby and to
protect the lien of this Deed of Trust;
(ii) without assuming liability for the performance of any of
Trustor's obligations hereunder or under any Financing Document, enter and
take possession of the Trust Property or any part thereof, exclude Trustor
and all Persons claiming under Trustor whose claims are junior to this Deed
of Trust, wholly or partly therefrom, and use, operate, manage and control
the same either in the name of Trustor or otherwise as
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Beneficiary shall deem best, and upon such entry, from time to time at the
expense of Trustor and the Trust Property, make all such repairs,
replacements, alterations, additions or improvements to the Trust Property
or any part thereof as Beneficiary may deem proper and, whether or not
Beneficiary has so entered and taken possession of the Trust Property or
any part thereof, collect and receive all the Rents and apply the same, to
the extent permitted by law, to the payment of all expenses which
Beneficiary may be authorized to make under this Deed of Trust, the
remainder to be applied to the payment of the Obligations until the same
shall have been repaid in full; and if Beneficiary demands or attempts to
take possession of the Trust Property or any portion thereof in the proper
exercise of any rights hereunder, Trustor shall promptly turn over and
deliver complete possession thereto to Beneficiary; and
(iii) personally or by agents, with or without entry, if Beneficiary
shall deem it advisable, proceed to protect and enforce its rights under
this Deed of Trust, by suit for specific performance of any covenant
contained herein or in any Financing Document or in aid of the execution of
any power granted herein or in any Financing Document, or for the
foreclosure of this Deed of Trust and the sale for cash of the Trust
Property under the judgment or decree of a court of competent jurisdiction,
or for the exercise of the power of sale granted under this Deed of Trust
or for the enforcement of any other right as Beneficiary shall deem most
effectual for such purpose; provided that in the event of a sale, by
--------
foreclosure or otherwise, of less than all of the Trust Property, this Deed
of Trust shall continue as a lien on, and security interest in, the
remaining portion of the Trust Property and Beneficiary shall not be
obligated to sell upon credit unless Beneficiary shall have expressly
consented in writing to a sale upon credit.
(f) Except as otherwise required by law, apply the net proceeds of any
foreclosure, collection, recovery, receipt, appropriation, realization or sale
of the Trust Property in the order of priority specified in the Indenture. If
all Obligations and any other amounts due under this Deed of Trust have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Trustor if Trustor is lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
(g) Upon any sale or sales made under or by virtue of this section,
whether made under the power of sale or by virtue of judicial proceedings or of
a judgment or decree of foreclosure and sale, Beneficiary may bid for and
acquire the Trust Property or any part thereof. In lieu of paying cash for the
Trust Property, Beneficiary may make settlement for the purchase price by
crediting against the Obligations the sales price of the Trust Property, as
adjusted for the expenses of sale and the costs of the action and any other sums
for which Trustor is obligated to reimburse Trustee or Beneficiary under this
Deed of Trust.
18. Concerning the Trustee. Trustee shall be under no duty to take
----------------------
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being liable,
however, only for willful negligence or misconduct, and hereby waives any
statutory fee and agrees to accept reasonable compensation, in lieu thereof, for
any services rendered by Trustee in
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accordance with the terms hereof. Trustee may resign at any time upon giving
thirty (30) days' notice to Trustor and to Beneficiary. Beneficiary may remove
Trustee at any time or from time to time and select a successor trustee. In the
event of the death, removal, resignation, refusal to act, or inability to act of
Trustee, or in its sole discretion for any reason whatsoever, Beneficiary may,
without notice and without specifying any reason therefor and without applying
to any court, select and appoint a successor trustee, by an instrument recorded
wherever this Deed of Trust is recorded, and all powers, rights, duties and
authority of Trustee, as aforesaid, shall thereupon become vested in such
successor. Such substitute trustee shall not be required to give bond for the
faithful performance of the duties of Trustee hereunder unless required by
Beneficiary.
19. Trustee's Fees. Trustor shall pay all reasonable costs, fees and
--------------
expenses incurred by Trustee and Trustee's agents and counsel in connection with
the performance by Trustee of Trustee's duties hereunder, and all such costs,
fees and expenses shall be secured by this Deed of Trust.
20. Proceeds of Sale. Subject to the provisions of Section 49 of
----------------
this Deed of Trust, no sale or other disposition of all or any part of the Trust
Property shall be deemed to relieve Trustor of its obligations under this Deed
of Trust or any other Financing Document except and only to the extent the
proceeds are applied to the payment of the Obligations or such other
obligations. If the proceeds of sale, collection or other realization of or
upon the Trust Property are insufficient to cover the costs and expenses of such
realization and the payment in full of the Obligations, Trustor shall remain
liable for any deficiency.
21. Trustor as Tenant Holding Over. In the event of any such
------------------------------
foreclosure or other sale by Beneficiary, Trustor shall be deemed a tenant
holding over and shall forthwith deliver possession to the purchaser or
purchasers at such sale or be summarily dispossessed according to provisions of
law applicable to tenants holding over.
22. Leases. Beneficiary is authorized to subordinate this Deed of
------
Trust to any Leases and to foreclose this Deed of Trust subject to the rights of
any tenants of the Trust Property, if any, and the failure to so subordinate or
to make any such tenants parties to any such foreclosure or other proceedings
and to foreclose their rights will not be, nor be asserted to be by Trustor, a
defense to any proceedings instituted by Beneficiary to collect the Obligations.
23. Discontinuance of Proceedings. In case Beneficiary shall have
-----------------------------
proceeded to enforce any right, power or remedy under this Deed of Trust by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
withdrawn, discontinued or abandoned for any reason, or shall have been
determined adverse to Beneficiary, then in every such case, to the fullest
extent permitted by law, (a) Trustor and Beneficiary shall be restored to their
former positions and rights, (b) all rights, powers and remedies of Beneficiary
shall continue as if no such proceeding had been taken, (c) each and every Event
of Default declared or occurring prior or subsequent to such withdrawal,
discontinuance or abandonment shall be or shall be deemed to be an independent
event of default and (d) neither the Obligations nor this Deed of Trust shall be
or shall be deemed to have been not reinstated or otherwise affected by such
withdrawal, discontinuance or abandonment; and to the fullest extent permitted
by law, Trustor hereby
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expressly waives the benefit of any statute or rule of law now provided or which
may hereafter conflict with the above.
24. No Reinstatement. If an Event of Default shall have occurred and
----------------
be continuing and Beneficiary shall have proceeded to enforce any right, power
or remedy permitted hereunder, then a tender of payment by Trustor or by anyone
on behalf of Trustor of any amount less than the amount necessary to satisfy the
Obligations in full, or the acceptance by Beneficiary of any such payment so
tendered, shall not constitute a reinstatement of this Deed of Trust or any
other document evidencing, securing or guaranteeing the Obligations.
25. Trustor's Waiver of Rights. Trustor hereby waives and releases,
--------------------------
to the maximum extent permitted by law, any rights, remedies or defenses which
Trustor might otherwise have (i) under California Code of Civil Procedure
Sections 726, 725a, 580a, 580b and 580d, California Civil Code Sections 2809,
2810, 2819, 2822, 2839, 2845, 2850, 2855, 2899 and 3433, under any anti-
deficiency provision of the Uniform Commercial Code, and under any future
judicial decisions or legislation, which statutes, future judicial decisions
and/or legislation might otherwise limit or condition Beneficiary's exercise of
certain of Beneficiary's rights and remedies in connection with the enforcement
of obligations secured by a lien on real property, including, without
limitation, Beneficiary's lien on the Trust Property or on any property
encumbered by other deeds of trust given to Beneficiary to secure obligations
under the Financing Documents (each, an "Additional Deed of Trust"), (ii) under
any laws now existing or hereafter enacted providing for any appraisal before
sale of a portion of the Trust Property or of the real property security of any
Additional Deed of Trust (the "Additional Deed of Trust Property"), (iii) to all
rights of redemption, valuation, appraisal, stay of execution, notice of
election to mature or any so-called "Moratorium Laws", to declare due the
Obligations, to marshalling in the event of the foreclosure of the liens created
under this Deed of Trust or under any Additional Deed of Trust, or the exercise
of the power of sale granted hereunder or thereunder, (iv) pursuant to the
defense of the statute of limitations in any action hereunder or in any action
for the collection or performance of any Obligations secured hereby or any
obligations secured by any Additional Deed of Trust, (v) pursuant to any defense
arising because of Beneficiary's election, in any proceeding instituted under
the Federal Bankruptcy Code, of the application of Section 1111(b)(2) of the
Federal Bankruptcy Code, (vi) pursuant to any defense based upon any borrowing
or grant of a security interest under Section 364 of the Federal Bankruptcy
Code, (vii) under any law limiting remedies, including recovery of a deficiency,
under an obligation secured by a deed of trust on real property and/or a
security agreement on personal property (including, without limitation, the
Trust Property and the Additional Deed of Trust Property) if the real property
and/or personal property is sold under a power of sale contained in the deed of
trust, and all defenses based on any loss whether as a result of any such sale
or otherwise, of Trustor's right to recover any amount from the Issuer, whether
by right of subrogation or otherwise, (viii) under any law to require
Beneficiary to pursue the Issuer or any other Person, any security which
Beneficiary may hold, or any other remedy before proceeding against Trustor,
(ix) to all rights of reimbursement or subrogation, all rights to enforce any
remedy that Beneficiary, the Trustee, the Holders of the Senior Secured Notes or
the Permitted Additional Senior Lenders, if any, may have against the Issuer, or
against the Guarantors as obligors under the Partnership Notes, and all rights
to participate in any security held by Beneficiary until the Obligations have
been paid and the covenants of the Indenture have been performed in full, (x) to
all rights to assert the bankruptcy or insolvency of Issuer as a defense
hereunder or as the
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basis for rescission hereof, (xi) to all rights under any law purporting to
reduce Trustor's Obligations hereunder if Issuer's obligations are reduced,
(xii) all defenses based on the disability or lack of authority of Issuer or any
Person, the repudiation of the Guarantees or any related Financing Documents by
Issuer or any Person, the failure by Beneficiary, the Trustee, the Holders of
the Senior Secured Notes or any Permitted Additional Senior Lender, if any, to
enforce any claim against Issuer, or the unenforceability in whole or in part of
any Financing Document, (xiii) to all suretyship and guarantor's defenses
generally, (xiv) to all rights to insist upon, plead or in any manner whatever
claim or take the benefit or advantage of, any appraisal, valuation, stay,
extension, marshaling of assets, redemption or similar law, or exemption,
whether now or at any time hereafter in force, which may delay, prevent or
otherwise affect the performance by Trustor of its obligations under, or the
enforcement by Beneficiary of, this Deed of Trust or any Additional Deed of
Trust, (xv) to any requirement on the part of Beneficiary, Trustee, the Holders
of the Senior Secured Notes or any Permitted Additional Senior Lender, if any,
to mitigate the damages resulting from any default (whether hereunder, under any
other Financing Document, under any Additional Deed of Trust or under any other
document or instrument; and (xvi) except as otherwise specifically set forth
herein, all rights of notice and hearing of any kind prior to the exercise of
rights by Beneficiary upon the occurrence and during the continuation of an
Event of Default to repossess with judicial process or to replevy, attach or
levy upon the Trust Property or any Additional Deed of Trust Property. To the
extent permitted by applicable law, Trustor waives the posting of any bond
otherwise required of Beneficiary in connection with any judicial process or
proceeding to obtain possession of, replevy, attach or levy upon the Trust
Property or any Additional Deed of Trust Property, to enforce any judgment or
other security for the Obligations, to enforce any judgment or other court order
entered in favor of Beneficiary, or to enforce by specific performance,
temporary restraining order, preliminary or permanent injunction, this Deed of
Trust, any Additional Deed of Trust or any other agreement or document by which
Trustor or any other Person is bound and which is in whole or in part for the
benefit of Beneficiary, Trustee, the Holders of the Senior Secured Notes or any
Permitted Additional Senior Lender, if any. Trustor further agrees that upon
the occurrence and continuance of any Event of Default, Beneficiary may elect to
nonjudicially or judicially foreclose against any real or personal property
security (including, without limitation, under the Additional Deeds of Trust) it
holds for the Obligations or any part thereof, or to exercise any other remedy
against Issuer, any security or any guarantor, even if the effect of that action
is to deprive Trustor or any other Person of the right to collect reimbursement
from Issuer or any other Person for any sums paid to Beneficiary, Trustee, any
Holder of the Senior Secured Notes or any Permitted Additional Senior Lender, if
any. To the extent, if any, which such laws may be applicable, Trustor waives
and releases any right or defense which Trustor might otherwise have under such
provisions and under any other law of any applicable jurisdiction which might
limit or restrict the effectiveness or scope of any of Trustor's waivers or
releases hereunder. If any law referenced in this Section and now in force, of
which Trustor, Trustor's successors or assigns or any other Person might take
advantage despite this Section, shall hereafter be repealed or cease to be in
force, such law shall not thereafter be deemed to preclude the application of
this Section. Trustor warrants and agrees that each of the waivers and consents
set forth in this Deed of Trust is made voluntarily and unconditionally after
consultation with outside legal counsel and with full knowledge of its
significance and consequences, with the understanding that events giving rise to
any defense or right waived may diminish, destroy or otherwise adversely affect
the rights which Trustor otherwise may have against Beneficiary or any other
Person or against any collateral. If,
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notwithstanding the intent of the parties that the terms of this Deed of Trust
shall control in any and all circumstances, any such waivers or consents are
determined to be unenforceable under applicable law, such waivers and consents
shall be effective to the fullest extent permitted by law.
26. Assignment of Rents. All of the Rents, whether now due, past due
-------------------
or to become due, and including all prepaid rents and security deposits, are
hereby absolutely, presently and unconditionally assigned, transferred, conveyed
and set over to Beneficiary to be applied by Beneficiary in payment of the
Obligations. It is understood and agreed that neither the foregoing assignment
of Rents to Beneficiary nor the exercise by Beneficiary of any of its rights or
remedies under this Deed of Trust shall be deemed to make Beneficiary a
"mortgagee-in-possession" or otherwise responsible or liable in any manner with
respect to the Trust Property or the use, occupancy, enjoyment, or operation of
all or any portion thereof, unless and until Beneficiary, in person or by agent,
assumes actual possession thereof. The appointment of a receiver for the Trust
Property by any court at the request of Beneficiary or by agreement with
Trustor, or the entering into possession of the Trust Property or any part
thereof by such receiver, also shall not be deemed to make Beneficiary a
mortgagee-in-possession or otherwise responsible or liable in any manner with
respect to the Trust Property or the use, occupancy, enjoyment or operation of
all or any portion thereof.
27. Security Agreement.
------------------
(a) This Deed of Trust is intended to be a security agreement
pursuant to the California Uniform Commercial Code for (i) any and all items of
personal property specified above as part of the Trust Property that, under
applicable law, may be subject to a security interest pursuant to the California
Uniform Commercial Code and that are not effectively made part of the Site, and
(ii) any and all items of property specified above as part of the Trust Property
that, under applicable law, constitute fixtures and may be subject to a security
interest under Section 9313 of the California Uniform Commercial Code. Trustor
hereby grants Beneficiary a security interest in said property, and in all
additions thereto, substitutions therefor, and proceeds thereof, for the purpose
of securing the Obligations. For purposes of treating this Deed of Trust as a
security agreement, Beneficiary shall be deemed to be the secured party and
Trustor shall be deemed to be the debtor.
(b) Trustor maintains places of business in the State of California,
and Trustor will immediately notify Beneficiary in writing of any change in such
places of business.
(c) At the request of Beneficiary, Trustor shall join Beneficiary in
executing one or more financing statements and continuations and amendments
thereof pursuant to the UCC in form reasonably satisfactory to Beneficiary; and
Trustor will pay the cost of filing the same in all public offices wherever
filing is deemed by Beneficiary to be necessary. In the event Trustor fails to
execute such documents within five (5) business days after request by
Beneficiary, Trustor hereby authorizes Beneficiary to file such financing
statements and irrevocably constitutes and appoints Beneficiary, or any officer
of Beneficiary, as its true and lawful attorney-in-fact to execute the same on
behalf of Trustor.
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(d) This Deed of Trust constitutes a financing statement filed as a
fixture filing under UCC (S) 9402(6) in the official records of Inyo County with
respect to any and all fixtures included within the term "Trust Property" and
with respect to any goods or other personal property that may now be or
hereafter become such a fixture. This filing shall remain in effect as a
fixture filing until this Deed of Trust is released or satisfied of record or
its effectiveness otherwise terminates as to the Trust Property.
(e) Beneficiary has no responsibility for and does not assume any of,
Trustor's obligations or duties under any agreement or obligation which is part
of the Equipment or any obligation relating to the acquisition, preparation,
custody, use, enforcement or operation of any of the Trust Property.
(f) Trustor and Beneficiary agree that the filing of a financing
statement in the records normally having to do with personal property shall
never be construed as in any way derogating from or impairing this Deed of Trust
or the intention of the parties that everything used in connection with the
production of income from the Trust Property or adapted for use therein or which
is described or reflected in this Deed of Trust is, and at all times and for all
purposes and in all proceedings both legal or equitable shall be regarded as
part of the real estate subject to the lien hereof, irrespective of whether (i)
any such item is physically attached to improvements located on such real
property or (ii) any such item is referred to or reflected in any financing
statement so filed at any time. Similarly, the mention in any such financing
statement of (A) the rights in or to the proceeds of any casualty insurance
policy or (B) any award in eminent domain proceedings for taking or for loss of
value or for cause of action or proceeds thereof in connection with any damage
or injury to the Trust Property or any part thereof shall never be construed as
in any way altering any of the rights of Beneficiary as determined by this
instrument or impugning the priority of Beneficiary's lien granted hereby or by
any other recorded document, but such mention in such financing statement is
declared to be for the protection of Beneficiary in the event any court shall at
any time hold with respect to matters (A) and (B) above that notice of
Beneficiary's priority of interest, to be effective against a particular class
of persons, including, without limitation, the Federal government and any
subdivision or entity of the Federal government, must be filed in the personal
property records or other commercial code records.
28. Further Acts, etc. Trustor shall, at the cost of Trustor, and
-----------------
without expense to Beneficiary, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, financing statements, mortgages, deeds of
trust, assignments, notices of assignments, transfers and assurances as
Beneficiary shall from time to time require, for the better assuring, conveying,
assigning, transferring and confirming unto Beneficiary, the property and rights
hereby conveyed or assigned or intended now or hereafter so to be, or which
Trustor may be or may hereafter become bound to convey or assign to Beneficiary,
or for carrying out the intention or facilitating the performance of the terms
of this Deed of Trust or for filing, registering or recording this Deed of Trust
and, on demand, will execute and deliver and hereby authorizes Beneficiary to
execute in the name of Trustor to the extent they may lawfully do so, one or
more financing statements, chattel mortgages or comparable security instruments,
to evidence and perfect more effectively the lien hereof upon the Trust
Property.
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29. Power of Attorney.
-----------------
(a) Trustor does hereby make, constitute and appoint Beneficiary its
true and lawful exclusive agent and attorney-in-fact for it, and in its name,
place and stead for the following purposes (collectively, the "Power of
Attorney"):
(i) in connection with or following one or more foreclosures
under this Deed of Trust judicially or by power(s) of sale or otherwise, or at
such time as Trustor shall be a debtor in proceedings under federal or state
bankruptcy law, to (1) apply to the BLM for assignment to it of the BLM North
Leases and/or BLM Lease CACA-11401, and to approve such assignment on behalf of
Trustor and (2) subject to the prior approval of the BLM, if applicable, to
grant, bargain, sell, convey and assign Trustor's interest under the BLM North
Leases and/or BLM Lease CACA-11401 to Beneficiary or to any other Person, for
such price or prices, and on such terms and conditions, as Trustor may deem
proper, and in Trustor's name, to make, execute, acknowledge and deliver a good
and sufficient assignment, or other instrument or instruments necessary to
effect such sale, conveyance or assignment;
(ii) to take all actions and exercise all rights and remedies
available to Trustor as holder of the BLM North Leases and/or BLM Lease CACA-
11401, including, without limitation, to (1) cure any defaults thereunder, (2)
make rental, royalty or other payments to the BLM on behalf of Trustor and/or
(3) act as operator, appoint another to act as operator or have a receiver
appointed to act as operator thereof; and
(iii) to request, demand, sue for, collect, recover, compromise,
settle and receive all monies that may become due and owing to Trustor by reason
of a sale, conveyance, assignment, taking for public use or other disposition of
Trustor's interest under the BLM North Leases and/or BLM Lease CACA-11401.
(b) Trustor hereby grants to Beneficiary full power and authority to
from time to time appoint a substitute to perform any of the acts that
Beneficiary is by this Power of Attorney authorized to perform, and the right to
revoke such appointment of substitution at any time.
(c) Trustor does hereby give and grant Beneficiary full power and
authority to do and perform all and every act and thing whatsoever requisite,
necessary or appropriate to be done in and about the Site and/or with respect to
the BLM North Leases and/or BLM Lease CACA-11401 as fully to all interests and
purposes as Trustor might or could do if personally present, hereby ratifying
all that Beneficiary shall lawfully do or cause to be done by virtue of theses
presents. The powers and authority hereby conferred upon Beneficiary shall be
applicable to any and all interests in the BLM North Leases and BLM Lease CACA-
11401 now owned or hereafter acquired by Trustor. Subject to the terms hereof,
Beneficiary is empowered to determine in its sole discretion the time when,
purpose for, and manner in which any power herein conferred upon it shall be
exercised, and the conditions, provisions and covenants of any instrument or
document that may be executed by it pursuant hereto, and in the acquisition or
disposition of the BLM North Leases and/or BLM Lease CACA-11401, Beneficiary
shall have exclusive power to fix the terms thereof. This Power of Attorney is
coupled with an interest and
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cannot be revoked other than by recordation of a statement of termination by
Beneficiary hereunder.
30. Headings, etc. The headings, titles and captions of various
-------------
Sections of this Deed of Trust are for convenience of reference only and are not
to be construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
31. Filing of Deed of Trust, etc. Trustor forthwith upon the
----------------------------
execution and delivery of this Deed of Trust and thereafter, from time to time,
will cause this Deed of Trust, and any security instrument creating a lien or
evidencing or perfecting the lien hereof upon the Trust Property, or in the case
of personal property or fixtures, financing statements with respect thereto, and
each instrument of further assurance, to be filed, registered or recorded in
such manner and in such places as may be required by any present or future law
in order to publish notice of and fully to protect, preserve and perfect the
lien hereof upon, and the interest of Beneficiary in the Trust Property.
Trustor will pay all filing, registration or recording fees, and all expenses
incurred by Beneficiary incident to the preparation, execution and
acknowledgment of this Deed of Trust, any deed of trust or any mortgage or deed
of trust supplemental hereto, any security instrument with respect to the Trust
Property, any financing statement with respect to the Trust Property, and any
instrument of further assurance, and all federal, state, county and municipal
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Deed of Trust, any mortgage or deed of
trust supplemental hereto, any security instrument with respect to the Trust
Property or any financing statement, continuation statement or other instrument
of further assurance. Trustor shall hold harmless and indemnify Beneficiary,
its successors and assigns, against any liability incurred by reason of the
imposition of any tax on the making and recording of this Deed of Trust.
32. Usury Laws. This Deed of Trust is and the other Financing
----------
Documents are subject to the express condition that at no time shall Trustor be
obligated or required to pay interest at a rate which could subject the creditor
of the debt to either civil or criminal liability as a result of being in excess
of the maximum interest rate which Trustor is permitted by law to contract or
agree to pay. If by the terms of this Deed of Trust or the Financing Documents,
Trustor is at any time required or obligated to pay interest at a rate in excess
of such maximum rate, then such rate of interest shall be deemed to be
immediately reduced to such maximum rate and the interest payable shall be
computed at such maximum rate.
33. Recovery of Sums Required to Be Paid. Beneficiary shall have the
------------------------------------
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due, without regard to
whether or not the balance of the Obligations shall be due, and without
prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Trustor existing
at the time such earlier action was commenced.
34. Authority. Trustor, and each of the undersigned acting on behalf
---------
of Trustor, hereby represents, warrants and covenants that it has full power,
authority and legal right to execute this Deed of Trust and to mortgage, give,
grant, bargain, sell, release, pledge, convey, confirm and assign the Trust
Property pursuant to the terms hereof and to keep and observe all of the terms
of this Deed of Trust on Trustor's part to be performed.
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35. Invalidity of Certain Provisions. Every provision of this Deed
--------------------------------
of Trust is intended to be severable. In the event any term or provision hereof
is declared to be illegal, invalid or unenforceable for any reason whatsoever by
a court of competent jurisdiction, (i) such term or provision shall be construed
in such a manner as will allow such term or provision to be valid, provided that
such recasting shall be in accordance with the original intention of the
parties, and (ii) such illegality, invalidity or unenforceability shall not
affect the balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable. If the lien of this Deed of
Trust in invalid or unenforceable as to any part of the debt, or if the lien is
invalid or unenforceable as to any part of the Trust Property, the unsecured or
partially unsecured portion of the debt shall be completely paid prior to the
payment of the remaining and secured or partially secured portion of the debt,
and all payments made on the debt, whether voluntary or under foreclosure or
other enforcement action or procedure, shall be considered to have been first
paid on and applied to the full payment of that portion of the debt which is not
secured or fully secured by the lien of this Deed of Trust.
36. Duplicate Originals. This Deed of Trust may be executed in any
-------------------
number of duplicate originals and each such duplicate original shall be deemed
to constitute but one and the same instrument.
37. Waiver of Notice. Trustor shall not be entitled to any notices
----------------
of any nature whatsoever from Beneficiary except with respect to matters for
which this Deed of Trust or applicable law specifically and expressly provides
for the giving of notice to Trustor, and to the fullest extent permitted by law
Trustor hereby expressly waives the right to receive any notice from Beneficiary
with respect to any matter for which this Deed of Trust or applicable law does
not specifically and expressly provide for the giving of notice to Trustor.
38. No Oral Change. This Deed of Trust may only be modified, amended
--------------
or changed by an agreement in writing signed by Trustor and Beneficiary, and may
only be released, discharged or satisfied of record by an instrument in writing
signed by the Trustee or its successors and assigns as directed by Beneficiary.
No waiver of any term, covenant or provision of this Deed of Trust shall be
effective unless given in writing by Beneficiary, and if so given by Beneficiary
shall only be effective in the specific instance in which given. Trustor
acknowledges that this Deed of Trust sets forth the entire agreement and
understanding of Trustor and Beneficiary with respect to the matters set forth
herein and that no oral or other agreements, understanding, representations or
warranties exist with respect to these matters other than those set forth in
this Deed of Trust.
39. Absolute and Unconditional Obligation. Trustor acknowledges that
-------------------------------------
the Issuer's and each Guarantor's respective obligations to perform and pay the
Obligations in accordance with the Financing Documents are and shall at all
times continue to be absolute and unconditional in all respects, and shall at
all times be valid and enforceable irrespective of any other agreements or
circumstances of any nature whatsoever which might otherwise constitute a
defense to the obligations of Trustor under this Deed of Trust, to the
obligations of Issuer or Guarantors to perform and pay the Obligations or to the
obligations of any other Person relating to this Deed of Trust or the Financing
Documents, and to the fullest extent permitted by law Trustor absolutely,
unconditionally and irrevocably waives any and all right to assert any defense,
setoff, counterclaim or crossclaim of any nature whatsoever with respect to the
obligations of
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Trustor under this Deed of Trust or to the obligations of any other Person
relating to this Deed of Trust or the Financing Documents, or in any action or
proceeding brought by Beneficiary to collect the Obligations, or any portion
thereof, or to enforce, foreclose and realize upon the lien and security
interest created by this Deed of Trust or any other document or instrument
securing performance and repayment of the Obligations, in whole or in part.
40. No Rights; No Set Off. All sums secured by this Deed of Trust
---------------------
shall be paid in accordance with the Indenture and the Guarantees, as
applicable, without counterclaim, setoff, deduction or defense and without
abatement, suspension, deferment, diminution or reduction, and the obligations
and liabilities of Trustor hereunder shall in no way be released, discharged or
otherwise affected (except as expressly provided herein) by reason of (i) any
claim which Trustor, the Issuer or any Guarantor has or might have against
Beneficiary, (ii) any default or failure on the part of Beneficiary to perform
or comply with any of the terms hereof or (iii) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing and whether or not Trustor shall
have notice or knowledge of any of the foregoing.
41. Action Affecting the Trust Property.
-----------------------------------
(a) Trustor agrees to appear in and contest any action or proceeding
purporting to adversely affect the security hereof or the rights or powers of
Beneficiary, and to pay all costs and expenses of Beneficiary, including costs
of evidence of title and attorneys' fees and expenses, in any such action or
proceeding in which Beneficiary may appear.
(b) Beneficiary shall have the right to appear in and defend any
action or proceeding brought with respect to the Trust Property and to bring any
action or proceeding, in the name and on behalf of Trustor or Beneficiary, which
Beneficiary determines to be necessary or reasonably advisable to be brought to
protect its interest in the Trust Property if (i) Trustor fails to defend or
bring such action or proceeding, as appropriate, in a prompt and diligent
manner, or thereafter fails to proceed with diligence in the defense or
prosecution of the same, or (ii) an Event of Default shall have occurred and be
continuing.
42. Other Actions by Beneficiary. Except as hereinbefore expressly
----------------------------
provided, should (i) the Guarantors fail to make any payment or do any act as
and in the manner provided in the Guarantees, the Indenture or the other
Financing Documents, (ii) the Issuer fail to make any payment or do any act as
and in the manner provided for in the Indenture of the other Financing Documents
or (iii) Trustor fail to make any payment or do any act as and in the manner
provided in this Deed of Trust, then, after the expiration of any applicable
cure or grace period and as a result an Event of Default, Beneficiary, without
obligation so to do and without notice to or demand upon Trustor and without
releasing Trustor from any obligation, may make or do the same in such manner
and to such extent as Beneficiary may deem necessary to protect the security
hereof. In connection therewith (without limiting any general powers of
Beneficiary whether conferred herein or by law), Beneficiary shall have and is
hereby given the right, but not the obligation, (i) to the fullest extent
permitted by law, to make additions, alterations, repairs and improvements to
the Trust Property which it may consider necessary to keep the Trust Property in
good condition and repair and (ii) in exercising such powers, to pay necessary
expenses, including engagement of counsel or other necessary or desirable
consultants. Trustor shall, immediately upon demand therefor by Beneficiary,
pay all reasonable
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costs and expenses incurred by Beneficiary in connection with the exercise by
Beneficiary of the foregoing rights, including without limitation, costs of
evidence of title, court costs, appraisals, surveys and attorneys' fees and
expenses.
43. Remedies Not Exclusive. Subject to the limitations set forth in
----------------------
Section 49 of this Deed of Trust, Beneficiary shall be entitled to enforce
payment and performance of any indebtedness or obligations secured hereby and to
exercise all rights and powers granted under this Deed of Trust or any other
agreement or any laws now or hereafter in force, notwithstanding some or all of
the said indebtedness and obligations secured hereby may now or hereafter be
otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment
or otherwise. Subject to the limitations set forth in Section 49 of this Deed
of Trust, neither the acceptance of this Deed of Trust nor its enforcement,
whether by court action or pursuant to the power of sale or other powers herein
contained, shall prejudice or in any manner affect Beneficiary's right to
realize upon or enforce any other security now or hereafter held by Beneficiary,
it being agreed that Beneficiary shall be entitled to enforce this Deed of Trust
and any other security now or hereafter held by Beneficiary in such order and
manner as it may in its absolute discretion determine. No remedy herein
conferred upon or reserved to Beneficiary is intended to be exclusive of any
other remedy herein or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute.
44. Relationship. Nothing contained in this Deed of Trust is
------------
intended to create, or shall in any event or under any circumstance be construed
as creating, a partnership, joint venture, tenancy-in-common, joint tenancy or
other relationship of any nature whatsoever between or among Beneficiary and
Trustor.
45. Indenture and Guarantees. This Deed of Trust is subject to all
------------------------
of the terms, covenants and conditions of the Guarantees, the Indenture and the
other Financing Documents, which Guarantees, Indenture and Financing Documents
and all of the terms, covenants and conditions thereof are by this reference
incorporated herein and made a part hereof with the same force and effect as if
set forth at length herein. All advances made and all indebtedness arising and
accruing under the Guarantees, the Indenture or any Financing Document from time
to time shall be secured hereby.
46. Additional Covenants.
--------------------
(a) Trustor shall not develop nor permit the development of the Site,
the Trust Property or the estate or rights created thereby or any interest
therein for any purpose without the prior written consent of Beneficiary;
(b) Trustor shall not create, incur or suffer to exist any
Indebtedness. For purposes of this Section 46, "Indebtedness" shall mean, at
any date, without duplication, (i) all obligations of Trustor for borrowed
money, (ii) all obligations of Trustor evidenced by debentures, notes or other
similar instruments (excluding "deposit only" endorsements on checks payable to
the order of Trustor), (iii) all obligations of Trustor to pay the deferred
purchase price of property or services (except accounts payable and similar
obligations arising in the ordinary course of business), (iv) all obligations of
Trustor as lessee under capital leases to the extent required to
25
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be capitalized on the books of Trustor in accordance with GAAP and (v) all
obligations of others of the type referred to in clauses (i) through (iv) above
guaranteed by Trustor, whether or not secured by a lien or other security
interest on any asset of Trustor;
(c) Trustor shall not directly or indirectly create, incur, assume or
suffer to exist any Liens of any kind on any asset now or hereafter acquired,
except Permitted Liens. For purposes of this Section 46, Permitted Liens shall
mean (i) mechanic's, workmen's, materialmen's, supplier's, construction or other
like Liens arising in the ordinary course of business and which have not become
the subject of any foreclosure or other action or proceeding, (ii) servitudes,
easements, rights-of-way, restrictions, minor defects or irregularities in title
and such other encumbrances or charges against real property or interests
therein as are of a nature generally existing with respect to properties of a
similar character and which will not in any material way interfere with the use
thereof and (iii) other Liens incidental to the conduct of Trustor's business or
the ownership of properties and assets which were not incurred in connection
with the borrowing of money or the obtaining of advances or credit (other than
vendor's liens for accounts payable in the ordinary course of business), and
which will not in the aggregate materially impair the use thereof in the
operation of its business.
(d) Trustor shall not contingently or otherwise be or become liable
in connection with any guarantee, except for endorsements and similar
obligations in the ordinary course of business and except as may be created by
this Deed of Trust or any other security given by Trustee to Beneficiary;
(e) Trustor (to the extent that it may lawfully do so) shall not at
any time insist upon, plead or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law wherever enacted, now
or at any time hereafter in force, that may affect the covenants contained in or
the performance of this Deed of Trust; and Trustor (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power granted herein to Beneficiary, but shall
suffer and permit the execution of every such power as though no such law has
been enacted;
(f) Trustor shall pay, prior to delinquency, all material taxes,
assessments and governmental levies except such as are contested in good faith
and by appropriate proceedings and where the failure to effect such payment is
not adverse in any material respect to the Holders of the Senior Secured Notes;
(g) Trustor shall not enter into any transaction of merger or
consolidation, change its form of organization or its business, liquidate, wind-
up or dissolve itself or discontinue its business; and
(h) Trustor shall do or cause to be done all things necessary to
preserve and keep in full force and effect (i) its partnership existence, in
accordance with its respective organizational documents (as the same may be
amended from time to time) and (ii) its rights (charter and statutory), licenses
and franchises.
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47. Business Purpose. Trustor hereby stipulates and warrants that
----------------
the loans secured hereby are commercial or business loans and are transacted
solely for the purpose of carrying on or acquiring a business or commercial
enterprise or for a proper business purpose under the laws of the jurisdiction
in which the Trust Property is located.
48. Time of the Essence. TIME IS OF THE ESSENCE with respect to each
-------------------
and every covenant, agreement and obligation of Trustor under this Deed of
Trust.
49. No Recourse. Beneficiary agrees that no officer, director,
-----------
employee or shareholder of Trustor nor any Affiliate of any such party
(collectively, the "Nonrecourse Parties") shall be personally liable for the
performance of any obligation contained in this Deed of Trust. Beneficiary
agrees that its rights shall be limited to proceeding against Trustor and the
security provided or intended to be provided pursuant to the Security Documents,
and that it shall have no right to proceed against the Nonrecourse Parties for
(a) the satisfaction of any monetary obligation of, or enforcement of any
monetary claim against, Trustor, (b) the performance of any obligation, covenant
or agreement arising under this Deed of Trust, or (c) any deficiency judgment
remaining after foreclosure of any property securing the obligations hereunder;
provided, however, that: (A) the foregoing provisions of this Section 49 shall
not constitute a waiver, release or discharge of any of the indebtedness, or of
any of the terms, covenants, conditions or provisions of this agreement or any
Financing Document, and the same shall continue until fully paid, discharged,
observed or performed; (B) the foregoing provisions of this Section 49 shall not
limit or restrict the right of Beneficiary or the holders of the Senior Secured
Notes to name Trustor or any other Person as a defendant in any action or suit
for a judicial foreclosure or for the exercise of any other remedy under or with
respect to this Deed of Trust or any Financing Document, or for injunction or
specific performance, so long as no judgment in the nature of a deficiency
judgment shall be enforced against any Nonrecourse Party, except as set forth in
this Section 49; (C) the foregoing provisions of this Section 49 shall not in
any way limit or restrict any right or remedy of Beneficiary, the holders of the
Senior Secured Notes or the Permitted Additional Senior Lenders, if any (or any
assignee or beneficiary thereof or successor thereto) with respect to, and all
of the Nonrecourse Parties shall remain fully liable to the extent that they
would otherwise be liable for their own actions with respect to, any fraud,
negligence or willful misrepresentation, or misappropriation of any amounts to
be deposited in the Revenue Account, Proceeds or any other earnings, revenues,
rents, issues, profits or proceeds that are subject to the Security Documents
that should or would have been paid as provided herein or paid or delivered to
the Depositary Agent, Beneficiary, the holders of the Senior Secured Notes or
the Permitted Additional Senior Lenders (or any assignee or beneficiary thereof
or successor thereto) towards any payment required under this Deed of Trust or
any Financing Document; (D) the foregoing provisions of this Section 49 shall
not affect or diminish or constitute a waiver, release or discharge of any
specific written obligation, covenant or agreement in respect of the Project
made by any of the Nonrecourse Parties or any security granted by the
Nonrecourse Parties as security for the obligations of Trustor, the Guarantors
or Issuer; and (E) nothing contained herein shall limit the liability of (i) any
Person who is a party to any Project Document or has issued any certificate or
statement in connection therewith with respect to such liability as may arise by
reason of the terms and conditions of such Project Document, certificate or
statement, or (ii) any Person rendering a legal opinion, in each case under this
clause (E) relating solely to such liability of such Person as may arise under
such referenced instrument, agreement or opinion.
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50. Severance of Counterclaims. In the event of foreclosure of this
--------------------------
Deed of Trust, any and all counterclaims filed by Trustor against Beneficiary to
the extent permitted by law, shall be severed by the court having jurisdiction
over the foreclosure action, for all purposes from the basic foreclosure action,
on an ex parte basis and without notice to Trustor. Trustor, by its execution
--------
and delivery hereof, hereby expressly consents and agrees to such severance.
51. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT HEREOF, TRUSTOR
--------------------
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY RIGHT IT
MIGHT HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS DEED OF TRUST OR ANY OF THE
FINANCING DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PERSONS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BENEFICIARY TO ACCEPT DELIVERY OF THIS DEED OF TRUST.
52. GOVERNING LAW. THIS DEED OF TRUST IS GOVERNED BY AND SHALL BE
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
53. Reimbursement; Attorneys' Fees. Trustor shall pay immediately,
------------------------------
without demand, after expenditure, all sums expended or expenses incurred by
Trustee and/or Beneficiary in enforcing the terms of this Deed of Trust,
including, without limitation, all attorneys' fees. As used herein, the terms
"attorneys' fees" or "attorneys' fees and costs" shall mean the fees and
expenses of counsel to Beneficiary, Trustee and the holders of the Senior
Secured Notes, which may include printing, photostating, duplicating and other
expenses, air freight charges, and fees billed for law clerks, paralegals,
librarians and others not admitted to the bar but performing services under the
supervision of an attorney. The terms "attorneys' fees" or "attorneys' fees and
costs" shall also include, without limitation, all such fees and expenses
incurred with respect to appeals, arbitrations and bankruptcy proceedings, and
whether or not any action or proceeding is brought with respect to the matter
for which said fees and expenses were incurred.
54. Shared Draftsmanship. If there is any ambiguity in the terms of
--------------------
this Deed of Trust, the doctrine of construction which holds that the language
of the document shall be construed against its drafter shall not apply, as all
parties have shared in the drafting of this Deed of Trust.
55. No Third Party Beneficiary. This Deed of Trust is for the sole
--------------------------
benefit of Beneficiary, or on behalf of the holders of the Senior Secured Notes,
as applicable, and the Permitted Additional Senior Lenders, and is not for the
benefit of any third party; and no third party shall gain any subrogation rights
against Trustor or in, to or with respect to any portion of the Trust Property
by reason of this Deed of Trust or the provisions hereof.
56. Security Only. This Deed of Trust is granted for security
-------------
purposes only. Accordingly, except as otherwise specifically provided in this
Deed of Trust, Beneficiary shall not enforce Trustor's rights with respect to
the Trust Property until such time as an Event of Default shall have occurred
and be continuing.
28
<PAGE>
57. Release by Beneficiary. Upon the payment and performance in full
----------------------
of the Obligations, the security interest granted hereby shall terminate and all
rights to the Trust Property shall revert to Trustor. Upon any such
termination, Trustee shall, at Trustor's expense, execute and deliver to Trustor
such documents as Trustor shall reasonably request to evidence such termination.
If this Deed of Trust shall be terminated or revoked by operation of law,
Trustor will indemnify and save Trustee harmless from any loss which may be
suffered or incurred by Trustee in acting hereunder prior to the receipt by
Trustee, its successors, transferees or assigns of notice of such termination or
revocation.
58. Assignment of BLM North Leases. Trustor and Beneficiary
------------------------------
acknowledge that, as of the date of recordation of this Deed of Trust, the
assignment by Trustor of (i) BLM Lease CACA-11401 to CED and (ii) the BLM North
Leases to CED, CFP and CPD (each as to an undivided one third interest) has not
yet been completed. As such, Trustor covenants that it will cause such
assignments to occur as soon as possible, in connection with which it will,
without limitation, (1) obtain the written approval of the BLM to such
assignments and (2) cause one or more Assignment and Assumption Agreements, in
form and substance satisfactory to Beneficiary, to be recorded in the Official
Records of Inyo County, California. Further, in the event that this Deed of
Trust remains a lien against the Trust Property or any portion thereof after
completion of such assignments, then the lien of this Deed of Trust shall remain
junior and subordinate to those certain Deeds of Trust, Assignment of Rents,
Fixture Filing and Security Agreement recorded concurrently herewith under which
CED, CFP and CPD are the trustors and Beneficiary is the beneficiary.
59. Consent To Assignment. By executing this Deed of Trust, Trustor
---------------------
irrevocably and unconditionally consents to: (a) Beneficiary (or its assignee or
designee, and/or any receiver) curing any default under BLM Lease CACA-11401 or
the BLM North Leases and acting as operator thereof for that purpose (although
Beneficiary shall not be under any obligation to undertake or complete any such
cure) and (b) assignment to Beneficiary of all of its right, title and interest
in and under BLM Lease CACA-11401 and the BLM North Leases in the event of a
default under this Deed of Trust, the Guarantee or any of the other Financing
Documents or foreclosure under this Deed of Trust or any of the other Security
Documents; and Trustor acknowledges and agrees that (i) no further consents,
approvals or signatures shall be required from Trustor in order to effectuate
the transfer to Beneficiary of Trustor's right, title and interest in BLM Lease
CACA-11401 and/or the BLM North Leases or any thereof and (ii) the BLM may rely
upon this consent.
60. Regarding Beneficiary.
---------------------
(a) Trustor hereby agrees to indemnify and hold harmless Beneficiary
and its directors, officers, agents and employees from and against any and all
claims, demands, losses, penalties, liabilities, costs, damages, injuries and
expenses, including, without limitation, reasonable attorneys' fees and
expenses, suffered or sustained by Beneficiary, either directly or indirectly,
relating to or arising out of any Environmental Law (as hereinafter defined),
including, without limitation, any judgment, award, settlement, attorneys' fees
and expenses and other costs or expenses incurred in connection with the defense
of any actual or threatened action, proceeding or claim. As used herein, the
term "Environmental Law" shall mean any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments,
29
<PAGE>
orders, decrees, permits, concessions, grants, franchises, licenses, agreements
or other governmental restrictions relating to the environment or health or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes
into the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
(b) The obligations of Trustor hereunder shall survive the
termination and release of this Deed of Trust or the earlier resignation or
removal of Beneficiary as trustee under the Indenture.
61. No Waiver. By accepting payment of any sum secured hereby after
---------
its due date or in an amount less than the sum due, Beneficiary does not waive
its rights to require prompt payment when due of all other sums so secured.
[Remainder of page intentionally left blank; signatures on next page]
30
<PAGE>
IN WITNESS WHEREOF, Trustor has duly executed this Deed of Trust as of the
day and year first above written.
TRUSTOR: COSO LAND COMPANY,
a California general partnership
By: Caithness Acquisition Company, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Geothermal 1980 Ltd., L.P.,
a Delaware limited partnership,
its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
31
<PAGE>
Consent by CED, CFP and CPD:
- ---------------------------
As of the day and year first above written, CED, CFP and CPD each hereby
consents to Coso Land Company entering into this Deed of Trust.
CED: COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
CFP: COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
[SIGNATURES CONTINUED ON NEXT PAGE]
32
<PAGE>
CPD: COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
33
<PAGE>
ACKNOWLEDGMENT
STATE OF New York )
----------------
)
COUNTY OF New York )
----------------
On May 28 , 1999, before me, [name of notary]
------------------ ------------------------------------
Notary Public, personally appeared Christopher T. McCallion personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature(s) on
the instrument the person(s), or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ signature of notary
- ------------------------------------------------------
Notary/Public
<PAGE>
EXHIBIT A
Description of the BLM North Lease Premises and the BLM North Leases
--------------------------------------------------------------------
LEASE CACA-11383:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11383) APPROVED ON
NOVEMBER 1, 1983 BY THE BLM AND ISSUED TO THE LOS ANGELES DEPARTMENT OF
WATER AND POWER, A CERTIFIED COPY OF WHICH WAS RECORDED ON OCTOBER 8, 1993
AS INSTRUMENT NO. 93-4604 OF OFFICIAL RECORDS, INCLUDING ALL MODIFICATIONS,
AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE BEFORE THE EFFECTIVE
DATE OF THIS DEED OF TRUST AND ANY PERMITTED MODIFICATIONS, AMENDMENTS AND
ASSIGNMENTS THERETO AND THEREOF MADE AFTER THE EFFECTIVE DATE OF THIS DEED
OF TRUST, WHICH LEASE AFFECTS THAT CERTAIN REAL PROPERTY LOCATED IN AN
UNINCORPORATED AREA OF THE COUNTY OF INYO, STATE OF CALIFORNIA, DESCRIBED
AS FOLLOWS:
PARCEL 1:
--------
ALL OF SECTION 32; THE NORTH HALF OF SECTION 33; THE NORTH HALF OF THE
SOUTH HALF OF SECTION 33; THE SOUTH HALF OF THE SOUTHWEST QUARTER OF
SECTION 33; AND THE SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER OF
SECTION 33, ALL IN TOWNSHIP 21 SOUTH, RANGE 39 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND
AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 2:
--------
LOTS 2, 3 AND 4 OF SECTION 4; LOTS 1 TO 4 INCLUSIVE OF SECTION 5;
THE SOUTH HALF OF THE NORTH HALF OF SECTION 5; AND THE NORTH HALF OF
THE SOUTH HALF OF SECTION 5, ALL IN TOWNSHIP 22 SOUTH, RANGE 39
EAST, MOUNT DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF
CALIFORNIA.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID
LAND AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID
OIL, HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND
ASSOCIATED GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A.
1025).
Exhibit "A"
Page 1 of 4
<PAGE>
LEASE CACA-11384:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11384) APPROVED BY
THE BLM ON FEBRUARY 1, 1982 AND ISSUED TO THE LOS ANGELES DEPARTMENT OF
WATER AND POWER, WHICH LEASE WAS RECORDED ON OCTOBER 8, 1993 AS INSTRUMENT
NO. 93-4605 OF OFFICIAL RECORDS, INCLUDING ALL MODIFICATIONS, AMENDMENTS
AND ASSIGNMENTS THERETO AND THEREOF MADE BEFORE THE EFFECTIVE DATE OF THIS
DEED OF TRUST AND ANY PERMITTED MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS
THERETO AND THEREOF MADE AFTER THE EFFECTIVE DATE OF THIS DEED OF TRUST,
WHICH LEASE AFFECTS THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED
AREA OF THE COUNTY OF INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL 1:
--------
THE EAST HALF OF SECTION 11; ALL OF SECTIONS 12 AND 13; AND THE EAST
HALF OF SECTION 14, ALL IN TOWNSHIP 22 SOUTH, RANGE 38 EAST, MOUNT
DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA,
ACCORDING TO THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID
LAND AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID
OIL, HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND
ASSOCIATED GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A.
1025).
PARCEL 2:
--------
LOTS 1 TO 4, INCLUSIVE OF SECTION 7; THE EAST HALF OF THE WEST HALF
OF SECTION 7; LOTS 1 TO 4, INCLUSIVE OF SECTION 18; AND THE EAST
HALF OF THE WEST HALF OF SECTION 18, ALL IN TOWNSHIP 22 SOUTH, RANGE
39 EAST, MOUNT DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF
CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID
LAND AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID
OIL, HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND
ASSOCIATED GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A.
1025).
LEASE CACA-11385:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11385) APPROVED BY
THE BLM ON FEBRUARY 1, 1982 AND ISSUED TO THE LOS ANGELES DEPARTMENT OF
WATER AND POWER, WHICH LEASE WAS RECORDED ON OCTOBER 8, 1993 AS INSTRUMENT
NO. 93-4606 OF OFFICIAL RECORDS, INCLUDING ALL MODIFICATIONS, AMENDMENTS
AND ASSIGNMENTS THERETO
Exhibit "A"
Page 2 of 4
<PAGE>
AND THEREOF MADE BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY
PERMITTED MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF
MADE AFTER THE EFFECTIVE DATE OF THIS DEED OF TRUST, WHICH LEASE AFFECTS
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY
OF INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL 1:
--------
ALL OF SECTION 36, TOWNSHIP 21 SOUTH, RANGE 38 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO
THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID
LAND AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID
OIL, HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND
ASSOCIATED GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A.
1025).
PARCEL 2:
--------
LOTS 1 TO 4 INCLUSIVE, THE SOUTH HALF OF THE NORTH HALF, AND THE
SOUTH HALF OF SECTION 1, TOWNSHIP 22 SOUTH, RANGE 38 EAST, MOUNT
DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA,
ACCORDING TO THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID
LAND AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID
OIL, HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND
ASSOCIATED GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A.
1025).
PARCEL 3:
--------
LOTS 1 TO 4 INCLUSIVE, THE EAST HALF, AND THE EAST HALF OF THE WEST
HALF OF SECTION 31, TOWNSHIP 21 SOUTH, RANGE 39 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO
THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID
LAND AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID
OIL, HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND
ASSOCIATED GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A.
1025).
Exhibit "A"
Page 3 of 4
<PAGE>
PARCEL 4:
--------
LOTS 1 TO 7 INCLUSIVE, THE SOUTH HALF OF THE NORTHEAST QUARTER, THE
SOUTHEAST QUARTER OF THE NORTHWEST QUARTER, THE NORTHEAST QUARTER OF
THE SOUTHWEST QUARTER, AND THE NORTH HALF OF THE SOUTHEAST QUARTER
OF SECTION 6, TOWNSHIP 22 SOUTH, RANGE 39 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO
THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID
LAND AND THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID
OIL, HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND
ASSOCIATED GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A.
1025).
Exhibit "A"
Page 4 of 4
<PAGE>
EXHIBIT B
Description of the BLM Lease CACA-11401 Premises and BLM Lease CACA-11401
-------------------------------------------------------------------------
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11401) DATED DECEMBER
7, 1981 AND EFFECTIVE AS OF JANUARY 1, 1982 BY AND BETWEEN THE UNITED STATES
DEPARTMENT OF THE INTERIOR, BUREAU OF LAND MANAGEMENT, ACTING THROUGH THE CHIEF
OF LEASEABLE MINERALS SECTION, AS LESSOR, AND CALIFORNIA ENERGY COMPANY, INC.,
AS LESSEE, A CERTIFIED COPY OF WHICH GEOTHERMAL RESOURCES LEASE WAS RECORDED ON
JULY 25, 1983, AS INSTRUMENT NO. 83-2943 IN THE OFFICIAL RECORDS OF INYO COUNTY,
CALIFORNIA, INCLUDING ALL MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND
THEREOF MADE BEFORE THE EFFECTIVE DATE OF THIS DEED OF TRUST AND ANY PERMITTED
MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF MADE AFTER THE
EFFECTIVE DATE OF THIS DEED OF TRUST, WHICH GEOTHERMAL RESOURCES LEASE AFFECTS
THAT CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY OF
INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
ALL OF SECTION 21; THE WEST 1/2 OF SECTION 22; THE NORTH 1/2 OF SECTION
28 AND THE SOUTHWEST 1/4 OF SECTION 28, ALL IN TOWNSHIP 22 SOUTH, RANGE 39
EAST, MOUNT DIABLO BASE AND MERIDIAN, IN THE COUNTY OF INYO, STATE OF
CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS AND HELIUM IN SAID LAND AND
THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL, HYDROCARBON
GAS AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED GEOTHERMAL RESOURCES
PRODUCED FROM SAID LAND, (30 U.S.C.A. 1025).
<PAGE>
Exhibit 10.30
STOCK PLEDGE AGREEMENT
Dated as
of May 28, 1999
among
COSO ENERGY DEVELOPERS,
a California general partnership,
COSO FINANCE PARTNERS,
a California general partnership,
COSO POWER DEVELOPERS,
a California general partnership,
and
U.S. BANK NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Definitions............................................................................. 1
1.2 "UCC\............................................................................... 1
1.3 "Qualifying Facility"............................................................... 2
1.4 "FPA"............................................................................... 2
1.5 "PUHCA"............................................................................. 2
1.6 "PURPA"............................................................................. 2
2. Grant of Security Interest........................................................... 2
2.1 Collateral....................................................................... 2
2.2 Obligations...................................................................... 2
3. Representations and Warranties....................................................... 2
3.1 Organization and Existence....................................................... 3
3.2 Authority, Enforceability........................................................ 3
3.3 Title; No Other Liens............................................................ 3
3.4 Collateral....................................................................... 3
3.5 Perfection; Registration of Lien................................................. 3
3.6 No Default....................................................................... 4
3.7 Chief Executive Office and Principal Place of Business........................... 4
3.8 No Violation..................................................................... 4
3.9 Necessary Consents Obtained...................................................... 4
4. Covenants and Agreements............................................................. 5
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.1 Further Assurances............................................................... 5
4.2 Stock Certificates............................................................... 5
4.3 Stock Issuance................................................................... 5
4.4 Certificated Interest............................................................ 5
4.5 Change in Location, Name, Etc.................................................... 5
4.6 Limitation on Liens on the Collateral............................................ 5
4.7 Bankruptcy Filing, etc........................................................... 6
4.8 Obligations...................................................................... 6
4.9 Governmental Authority Requirement............................................... 6
4.10 Indemnification................................................................. 6
4.11 Taxes........................................................................... 7
5. Pledgor's Obligations Upon Event of Default.......................................... 7
6. Remedies; Rights Upon Event of Default............................................... 7
7. Application of Proceeds.............................................................. 9
8. Private Sales........................................................................ 9
9. Authorized Actions................................................................... 10
10. Waivers............................................................................. 10
11. Security Interest Absolute.......................................................... 11
12. Collateral Agent Appointed Attorney-in-Fact......................................... 11
12.1 Powers......................................................................... 11
12.2 Other Powers................................................................... 12
13. Trustee May Perform................................................................. 12
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
14. No Duty on Collateral Agent's Part, Limitation on Collateral Agent's Obligations.... 13
14.1 No Duty on Collateral Agent's Part............................................. 13
14.2 Limitations on Obligations..................................................... 13
15. Reasonable Care..................................................................... 13
16. Role of Collateral Agent............................................................ 13
17. Waiver of Trial by Jury............................................................. 13
18. Notices............................................................................. 14
19. Absence of Fiduciary Relation....................................................... 14
20. Survival of Representations and Warranties.......................................... 14
21. No Waiver; Cumulative Remedies...................................................... 15
22. Severability........................................................................ 15
23. Exculpatory Provisions; Reliance by Collateral Agent................................ 15
23.1 Exculpatory Provisions......................................................... 15
23.2 Reliance by Collateral Agent................................................... 16
24. Amendment........................................................................... 16
25. Successors and Assigns.............................................................. 16
26. Number and Gender................................................................... 16
27. Subrogation, etc.................................................................... 16
28. Captions............................................................................ 17
29. Applicable Law...................................................................... 17
30. Continuing Security Interest; Termination........................................... 17
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
31. Payments Set Aside.................................................................. 17
32. Counterparts........................................................................ 18
33. Non-Recourse........................................................................ 18
34. Regarding the Collateral Agent...................................................... 18
</TABLE>
iv
<PAGE>
STOCK PLEDGE AGREEMENT
----------------------
This Stock Pledge Agreement ("Stock Pledge Agreement"), dated as of
----------------------
May 28, 1999, is executed by COSO FINANCE PARTNERS, a California general
partnership ("Navy I"), COSO ENERGY DEVELOPERS, a California general partnership
------
("BLM"), and COSO POWER DEVELOPERS, a California general partnership ("Navy II",
-------
with each of BLM and Navy I, a "Pledgor", and together, the "Pledgors"), in
------- --------
favor of U.S. Bank National Association in its capacity as collateral agent
("Collateral Agent"), for the benefit of U.S. Bank National Association in its
- ------------------
capacity as trustee ("Trustee") for the holders of all Senior Secured Notes
-------
issued pursuant to that certain Indenture dated as of May 28, 1999 (the
"Indenture") among Trustee, Pledgors, and Caithness Coso Funding Corp. (the
- ----------
"Issuer") (such notes, the "Senior Secured Notes", and the holders thereof, the
--------------------
"Holders of the Senior Secured Notes") and all the Permitted Additional Senior
-----------------------------------
Lenders (as defined in the Indenture).
RECITALS
--------
A. Pledgors own all of the issued and outstanding capital stock of
Issuer (together with any such stock issued and outstanding in the future, the
"Stock").
-----
B. Issuer has, simultaneously with the execution and delivery of
this Stock Pledge Agreement, issued $413,000,000 of Senior Secured Notes (the
"Issuance"), the proceeds of which will be used to make loans to Pledgors.
--------
C. Pursuant to the Indenture, Issuer has assumed certain Obligations
(as defined below) in connection with the Issuance.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Pledgors hereby agree with the Collateral Agent as follows:
1. Definitions.
-----------
1.1 Unless otherwise defined, all capitalized terms used herein
which are defined in the Indenture shall have their respective meanings therein
defined, and all terms defined in the UCC shall have the respective meanings
given to those terms in the UCC.
1.2 "UCC" shall mean the Uniform Commercial Code as the same
---
may, from time to time, be in effect in the State of New York; provided,
however, in the event that, by reason of mandatory provisions of law, any or all
of the attachment, perfection or priority of the security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof
1
<PAGE>
relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
1.3 "Qualifying Facility" shall mean a "qualifying small power
-------------------
production facility" in accordance with PURPA and the rules and regulations of
FERC under PURPA relating thereto.
1.4 "FPA" shall mean the Federal Power Act of 1925, as amended.
---
1.5 "PUHCA" shall mean the Public Utility Holding Company Act of
-----
1935, as amended.
1.6 "PURPA" shall mean the Public Utility Regulatory Policies Act
-----
of 1978, as amended, and the regulations promulgated thereunder.
2. Grant of Security Interest.
--------------------------
2.1 Collateral. As security for the prompt and complete payment
----------
and performance when due (whether at stated maturity, by acceleration or
otherwise) of any and all of the Obligations (as defined below) now existing or
hereafter arising, and howsoever evidenced, each Pledgor hereby collaterally
assigns, conveys, mortgages, pledges, hypothecates and transfers to Collateral
Agent for the benefit of Trustee, the Holders of the Senior Secured Notes and
all Permitted Additional Senior Lenders, if any, and grants and creates a lien
on and a first priority security interest (the "Security Interest") in favor of
-----------------
Collateral Agent for the benefit of Trustee, the Holders of the Senior Secured
Notes and all Permitted Additional Senior Lenders, if any, in, all of its right,
title and interest in and to the Stock, whether presently owned or hereafter
acquired, including, without limitation, the Stock described in Schedule 2.1
hereto, and all proceeds thereof, including, without limitation, dividends and
other property received and receivable by Pledgor in connection with the Stock,
other than dividends and other distributions made by Issuer in compliance with
the other Financing Documents (the Stock and such proceeds to be referred to
herein collectively as the "Collateral"). Pledgors hereby agree to provide to
----------
Collateral Agent an amended Schedule 2.1 from time to time which includes Stock
existing after the Closing Date. In connection herewith, Pledgor hereby agrees
to execute the Form of Control Agreement attached hereto as Exhibit A, and the
Irrevocable Proxy attached hereto as Exhibit B.
2.2 Obligations. This Stock Pledge Agreement secures, in
-----------
accordance with the provisions hereof, payment and performance of Issuer's
obligations under the Indenture including, but not limited to, the payment of
all amounts owed to Collateral Agent, Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, of every kind and
description and any agreement pursuant to which any other Senior Indebtedness is
created (the "Obligations"), whether direct or indirect, joint or several,
------------
absolute or contingent, liquidated or unliquidated, now or hereafter existing,
renewed or restructured, reinstated, created or incurred.
3. Representations and Warranties. Each Pledgor hereby represents
------------------------------
and warrants, solely with respect to itself, as follows:
2
<PAGE>
3.1 Organization and Existence. As of the date of this Agreement,
--------------------------
Pledgor is a general partnership duly organized and validly existing under the
laws of the State of California. Pledgor is duly qualified, authorized to do
business and in good standing in California and each other jurisdiction where
the character of its properties or the nature of its activities makes such
qualification necessary.
3.2 Authority, Enforceability. Pledgor has full corporate power and
-------------------------
authority to enter into and perform this Stock Pledge Agreement and the entering
into and performance of such agreement by Pledgor has been duly authorized by
all proper and necessary corporate action. This Stock Pledge Agreement, when
executed and delivered by Pledgor and any other party hereto, will constitute
the legally valid and binding obligation of Pledgor, enforceable in accordance
with its terms.
3.3 Title; No Other Liens. Pledgor is the legal and beneficial owner
---------------------
of its Collateral in existence on the date hereof and will be the sole owner of
any Collateral hereafter acquired by it, free and clear of any and all Liens or
claims of others except for Permitted Liens, and Pledgor has full corporate
power and authority to grant the liens and security interests in and to the
Collateral hereunder. Except with respect to the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, and as required under
this Stock Pledge Agreement, no security agreement, financing statement or other
public notice with respect to all or any part of the Collateral is on file or of
record in any public office, and no lien or security interest on or in the
Collateral has been registered in the registration books maintained by Issuer in
which all capital stock of Issuer is recorded, except such as may have been
filed in favor of Collateral Agent for the benefit of Trustee, the Holders of
the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
pursuant to this Stock Pledge Agreement.
3.4 Collateral. All of the Collateral constituting shares of Capital
----------
Stock are, and future collateral constituting shares of Capital Stock will be,
validly issued, fully paid and nonassessable securities of Issuer. The
Collateral includes all of the issued and outstanding shares of capital stock of
Issuer. Except for the Collateral, there are no outstanding options, warrants or
other rights to subscribe for or purchase voting or non-voting capital stock of
Issuer from Issuer, nor any notes, bonds, debentures or other evidences of
indebtedness that (1) are at any time convertible into capital stock of Issuer,
or (2) have or at any time would have voting rights with respect to Issuer.
3.5 Perfection; Registration of Lien. Financing statements or other
--------------------------------
appropriate instruments have been filed or deposited for filing pursuant to the
UCC in such public offices as may be necessary to perfect the Security Interest
granted or purported to be granted hereby to the extent such Security Interest
may be perfected by the filing of a financing statement. All other action by
Pledgor, and, to Pledgor's knowledge, by any other Person necessary or desirable
to perfect the Security Interest in each item of the Collateral, has been duly
taken. Subject to the requirements contained in the UCC with respect to the
filing of continuation statements, this Stock Pledge Agreement constitutes a
valid and continuing Lien, on
3
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and, upon possession and retention in New York by the Collateral Agent of the
stock certificates perfected Security Interest in the Collateral in favor of
Collateral Agent for the benefit of Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, superior and prior to
the rights of all Persons, whether the Collateral subject to the Security
Interest is now owned by Pledgor or is hereafter acquired.
3.6 No Default. Pledgor is not in default in the performance,
----------
observance or fulfillment of any of the material obligations, covenants or
conditions applicable to Pledgor contained in any Financing Document to which it
is a party.
3.7 Chief Executive Office and Principal Place of Business. The chief
------------------------------------------------------
executive office and principal place of business of each Pledgor, and the place
where each Pledgor keeps its records concerning the Collateral, is,
respectively:
Coso Energy Developers
c/o Caithness Energy L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, NY 10036-7790
Coso Finance Partners
c/o Caithness Energy L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, NY 10036-7790
Coso Power Developers
c/o Caithness Energy L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, NY 10036-7790
3.8 No Violation. The execution, delivery and performance of this
------------
Agreement do not (i) violate any laws, rules or regulations applicable to
Pledgor, (ii) violate any provision of, or result in the breach or the
acceleration of or entitle any Person to accelerate (whether after the giving of
notice or lapse of time or both) any obligation under any material indenture,
mortgage, lien, lease agreement, license, instrument, guaranty or other document
to which Pledgor is a party or by which Pledgor or its property is bound, or
(iii) result in the creation or imposition of any lien upon any property, asset
or reserve of Pledgor (except such liens as may be created in favor of
Collateral Agent pursuant to this Stock Pledge Agreement).
3.9 Necessary Consents Obtained. No consent, approval, order or
---------------------------
authorization of, or registration, declaration or filing with, any Governmental
Authority or other Person (including, without limitation, the partners or
shareholders of any Person) is required in connection with the execution,
delivery and performance of this Stock Pledge Agreement, except such consents,
approvals, orders, authorizations, registrations, declarations and filings that
are so required and which have been obtained and are in full force and effect.
4
<PAGE>
4. Covenants and Agreements. Each Pledgor hereby covenants and agrees
------------------------
to faithfully observe and fulfill, and cause to be observed and fulfilled, each
and all of the following covenants until all Obligations have been paid and
performed in full:
4.1 Further Assurances. Pledgor shall, from time to time at Pledgor's
------------------
expense, and upon request by Collateral Agent, promptly execute and deliver all
further instruments and documents, and take all further action that may be
necessary or required, or that Collateral Agent reasonably determines may be
necessary, in order to perfect and protect the Security Interest granted or
purported to be granted by it hereby or to enable Collateral Agent to exercise
and enforce its rights and remedies hereunder with respect to the Collateral.
4.2 Stock Certificates. Pledgor shall promptly deliver to Collateral
------------------
Agent all originals of certificates and other documents, instruments and
agreements evidencing the Collateral which are now held or hereafter received by
Pledgor, together with such blank stock powers executed by Pledgor as necessary
to enable Collateral Agent to exercise and enforce its rights and remedies
hereunder.
4.3 Stock Issuance. Pledgor shall not, except as expressly permitted
--------------
by the Financing Documents, hereafter vote to enable, or take any other action
to permit, Issuer to issue any additional stock other than the Stock issued and
outstanding on the date hereof.
4.4 Certificated Interest. If Pledgor shall become entitled to
---------------------
receive or shall receive any certificate, instrument, option or rights, whether
as an addition to, in substitution of, or in exchange for the Collateral or any
part thereof, or otherwise, Pledgor shall accept any such certificate,
instrument, option or rights as Collateral Agent's agent, shall hold them in
trust for Collateral Agent, and shall deliver them forthwith to Collateral Agent
in the exact form received, with Pledgor's endorsement when necessary, or
accompanied by duly executed instruments of transfer or assignment in blank or,
if requested by Collateral Agent, an additional pledge agreement or security
agreement executed and delivered by Pledgor, all in form and substance
satisfactory to enable Collateral Agent to exercise and enforce its rights and
remedies hereunder, to be held by Collateral Agent, subject to the terms hereof,
as further Collateral for the Obligations.
4.5 Change in Location, Name, Etc. Pledgor may change the location
-----------------------------
of its chief executive office, principal place of business or the office where
such records are kept to another location in the United States after giving
Collateral Agent thirty (30) days' advance written notice of such change.
Without thirty (30) days' advance written notice to Collateral Agent, Pledgor
shall not adopt any trade name or fictitious business name.
4.6 Limitation on Liens on the Collateral. Pledgor shall not
-------------------------------------
surrender or lose possession of (other than to Collateral Agent), sell,
encumber, lease, rent or otherwise dispose of or transfer, any Collateral, and
shall keep the Collateral free of all Liens except those created hereunder and
Permitted Liens and defend the right, title and interest of Collateral Agent in
and to any of such Collateral against the claims and demands of all Persons.
5
<PAGE>
4.7 Bankruptcy Filing, Etc. Pledgor shall not authorize or permit
----------------------
Issuer (i) to commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of Issuer, (ii) to
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against
Issuer or (iii) to make a general assignment for the benefit of its creditors.
Neither Pledgor nor any of its Affiliates shall commence or join with any other
Person (other than the Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any) in commencing any proceeding against Issuer
under any bankruptcy, reorganization, liquidation or insolvency law or statute
now or hereafter in effect in any jurisdiction.
4.8 Obligations. Pledgor acknowledges and agrees that its rights to
-----------
receive any payments from Issuer, or arising out of or in connection with
Pledgor's interest in Issuer, shall be payable by Issuer only from funds
available to Issuer upon distributions pursuant to the Depositary Agreement or
any provision of the Indenture expressly providing for distribution, payment or
release of funds to Issuer, and only so long as such distribution, payment or
release is made in accordance with the Depositary Agreement and the Indenture.
Pledgor also agrees that any distributions made by Issuer to it that do not
comply with the Depositary Agreement and the Indenture shall be restored to
Issuer by Pledgor by deposit into an account designated by Collateral Agent,
promptly upon demand by Collateral Agent or Issuer or upon Pledgor becoming
aware of receipt of such non-complying distribution.
4.9 Governmental Authority Requirement. Pledgor shall not take or
----------------------------------
omit to take (or suffer such taking or omission of) any action (unless ordered
to do so by a competent Governmental Authority having jurisdiction) in respect
of Pledgor or Issuer and their respective businesses if, as a consequence
directly or indirectly of such action or omission, Issuer or Pledgor were to
become subject to regulation by any Governmental Authority as (i) a "public
utility company," an "electric utility," an "electric utility holding company,"
a "public utility holding company" or a subsidiary or affiliate of any of the
foregoing under PUHCA (other than under Section 9(a)(2) of PUHCA) or (ii) an
"electric utility holding company" within the meaning of 18 C.F.R. Part 292.
Pledgor shall not do anything or cause, suffer or permit anything to be done
(other than the exercise by others of remedies under the Financing Documents),
which may cause the Project to lose its status as a Qualifying Facility.
4.10 Indemnification. Pledgor shall defend, indemnify and hold
---------------
harmless Collateral Agent, Trustee, the Holders of the Senior Secured Notes and
the Permitted Additional Senior Lenders, if any, and their respective officers,
directors and employees, from and against any and all costs, expenses,
disbursements, liabilities, obligations, losses, damages, injunctions,
judgments, suits, actions, causes of action, fines, penalties, claims and
demands, of every kind or nature (including, without limitation, reasonable
attorney's fees and expenses) which are occasioned by or result from any (i)
failure by Pledgor to perform any of the terms, agreements, or covenants to be
performed by Pledgor under this Stock Pledge Agreement and (ii) proceeding or
action to enforce brought by Collateral Agent pursuant to this Stock Pledge
6
<PAGE>
Agreement or which arise out of any such agreement unless due solely to the
gross negligence or willful misconduct of Collateral Agent.
4.11 Taxes. Pledgor shall pay, and save the Collateral Agent
-----
harmless from, any and all liabilities with respect to, or resulting from any
delay in paying, any and all stamps, excise, sales or other similar taxes which
may be payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this Stock Pledge
Agreement.
5. Pledgor's Obligations Upon Event of Default. If an Event of Default
-------------------------------------------
under the Indenture shall occur and be continuing (i) all payments received by
such Pledgor under or in connection with any of the Collateral shall be held by
each Pledgor in trust for Collateral Agent, shall be segregated from other funds
of Pledgor and shall, forthwith upon receipt by such Pledgor, be turned over to
Collateral Agent or its designee in the same form as received by Pledgor (duly
endorsed by Pledgor to Collateral Agent, if requested), and (ii) any and all
such payments so received by Collateral Agent or its designee (whether from
Pledgor or otherwise) may, in the sole discretion of Collateral Agent or its
designee, be held by Collateral Agent or such designee as collateral security
for, and/or then or at any time thereafter be applied, subject only to the
relevant provisions of the Depositary Agreement or as otherwise may be required
by applicable law, in whole or in part by Collateral Agent or its designee in
the manner specified in Section 7 hereof.
6. Remedies; Rights Upon Event of Default. Until an Event of Default
--------------------------------------
shall have occurred and be continuing under the Indenture and Collateral Agent
shall have given notice to the relevant Pledgor of Collateral Agent's intent to
exercise its rights pursuant to Subparagraph 6.5 below, each Pledgor shall be
permitted (a) to receive all dividends paid on Stock (other than dividends paid
in additional capital stock unless such additional capital stock is pledged to
Collateral Agent for the benefit of Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, pursuant to a Pledge
Agreement in the form of this Stock Pledge Agreement) which are expressly
permitted by the Financing Documents and (b) to exercise all voting and
corporate rights with respect to the such capital stock; provided however, that
no vote shall be cast or corporate right exercised or other action taken with
respect to the Collateral or which would be inconsistent with or result in any
violation of any provision of this Stock Pledge Agreement, the Indenture or any
other Financing Agreement. The Collateral Agent makes no representations as to
the value or condition of the Collateral and shall incur no liability in respect
thereof. Upon the occurrence and during the continuance of an Event of Default
under the Indenture, Collateral Agent, for the benefit of and on behalf of
Trustee, the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, may, subject to the provisions of the Financing
Documents and the notice and other requirements of applicable law, do one or
more of the following:
6.1 exercise the rights of acceleration set forth in Section 5.02 of
the Indenture;
7
<PAGE>
6.2 upon notice to the relevant Pledgor, which notice need not be in
writing, make such payments and do such acts as Collateral Agent may deem
necessary to protect, perfect or continue the perfection of the Security
Interest of the Collateral Agent on behalf of the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, in the Collateral,
including, without limitation, paying, purchasing, contesting or compromising
any Lien which is, or purports to be, prior to or superior to the Security
Interest granted hereunder, and commencing, appearing or otherwise participating
in or controlling any action or proceeding purporting to affect the Security
Interest in or ownership of the Collateral;
6.3 foreclose on the Collateral as herein provided or in any manner
permitted by law and exercise any and all of the rights and remedies conferred
upon the Trustee by the Security Documents or by laws either concurrently or in
such order as Collateral Agent may determine without affecting the rights or
remedies to which the Trustee, the Depositary, the Holders of the Senior Secured
Notes or the Permitted Additional Senior Lenders, if any, may be entitled under
any Security Documents. Each Pledgor hereby waives, to the extent permitted by
applicable law, notice and judicial hearing in connection with Collateral
Agent's taking possession or collection, recovery, receipt, appropriation,
repossession, retention, set-off, sale, leasing, conveyance, assignment,
transfer or other disposition of or realization upon any or all of the
Collateral, including, without limitation, any and all prior notice and hearing
for any prejudgment remedy or remedies and any such right which Pledgor would
otherwise have under the constitution or any statute or other law of the United
States of America or of any state;
6.4 without notice, except as specified below, sell the Collateral,
or any part thereof, in one or more parcels at public or private sale, at any of
Collateral Agent's offices or elsewhere, at such time or times, for cash, on
credit or for future delivery, and at a commercially reasonable price or prices
and on other commercially reasonable terms. Pledgor agree that, to the extent
notice of sale shall be required by law, at least ten (10) business days' notice
to the relevant Pledgor of the time and the place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. At any sale of the Collateral, if permitted by law, Collateral
Agent may bid (which bid may be, in whole or in part, in the form of
cancellation of indebtedness) for the purchase of the Collateral or any portion
thereof for the account of Collateral Agent on behalf of Trustee, the Holders of
the Senior Secured Notes and the Permitted Additional Senior Lenders, if any.
Collateral Agent shall not be obligated to make any sale of the Collateral
regardless of notice of sale having been given. Collateral Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. Collateral Agent shall incur no
liability as a result of the manner of sale of the Collateral, or any part
thereof, at any private sale conducted in a commercially reasonable manner. Each
Pledgor hereby waives, to the extent permitted by applicable law, any claims
against Collateral Agent arising by reason of the fact that the price at which
the Collateral, or any part thereof, may have been sold at a private sale was
less than the price which might have been obtained at public sale or was less
than the aggregate amount of the Obligations, even if Collateral Agent accepts
the first offer received which Collateral Agent in good faith deems to be
commercially reasonable under the circumstances and does not offer the
Collateral to more than one offeree. To the full extent permitted by law, each
Pledgor shall have
8
<PAGE>
the burden of proving that any such sale of the Collateral was conducted in a
commercially unreasonable manner. To the extent permitted by law, Pledgor hereby
specifically waives all rights of redemption, stay or appraisal which they have
or may have under any law now existing or hereafter enacted. Each Pledgor
authorizes Collateral Agent, at any time and from time to time, to execute, in
connection with a sale of the Collateral pursuant to the provisions of this
Stock Pledge Agreement, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral;
6.5 upon notice to the relevant Pledgor, register the Collateral in
the name of Collateral Agent or its nominee as pledgee or otherwise take such
action as Collateral Agent shall in its sole discretion deem necessary or
desirable with respect to the Collateral, and Collateral Agent or its nominee
may thereafter, in its sole discretion, without notice, exercise all voting,
consent, managerial and other rights relating to the Collateral and exercise any
and all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to the Collateral as if it were the absolute
owner thereof, including, without limitation, all rights of such Pledgor,
including, without limitation, the right to (i) receive all permitted
distributions, if any, made for the account of Pledgor and (ii) exchange any and
all of the Collateral upon the merger, consolidation, reorganization,
recapitalization or other readjustment of Issuer, all without liability except
to account for property actually received by Collateral Agent, but Collateral
Agent shall have no duty to exercise any of the aforesaid rights, privileges or
options and shall not be responsible for any failure to do so or delay in so
doing; and
6.6 exercise in respect of the Collateral, in addition to other
rights and remedies provided for herein or otherwise available to it, all the
rights and remedies of a secured party after default under the UCC.
7. Application of Proceeds. The net proceeds of any foreclosure,
-----------------------
collection, recovery, receipt, appropriation, realization or sale of the
Collateral shall be applied in the order of priority specified in Section 5.10
of the Indenture. If all Obligations and any other amounts due under this Stock
Pledge Agreement have been indefeasibly paid, satisfied and discharged in full,
any surplus then remaining shall be paid to the Pledgors, if they are lawfully
entitled to receive the same, or shall be paid to whomsoever a court of
competent jurisdiction may direct.
8. Private Sales. Pledgors recognize that Collateral Agent may be
-------------
unable to effect a public sale of any or all the Stock, by reason of certain
prohibitions contained in the Securities Act of 1933, as amended (the
"Securities Act") and applicable state securities laws or otherwise, and may be
- ---------------
compelled to resort to one or more private sales thereof to a restricted group
of purchasers which will be obliged to agree, among other things, to acquire
such securities for their own account for investment and not with a view to the
distribution or resale thereof. Pledgors each acknowledge and agree that any
such private sale may result in prices and other terms less favorable than if
such sale were a public sale and, notwithstanding such circumstances, agrees
that any such private sale shall be deemed to have been made in a commercially
reasonable manner. Collateral Agent shall be under no obligation to delay a
sale of any of the Stock for the period of time necessary to permit Issuer to
register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if Issuer would agree to do so.
9
<PAGE>
9. Authorized Actions. Each Pledgor authorizes Collateral Agent,
------------------
in its discretion, without notice to Pledgor, irrespective of any change in the
financial condition of Issuer or such Pledgor since the date hereof, and without
affecting or impairing in any way the liability of such Pledgor hereunder, from
time to time to (i) create new Obligations, and, either before or after receipt
of notice of revocation, renew, compromise, extend, accelerate or otherwise
change the time for payment or performance of, or otherwise change the terms of
the Obligations or any part thereof, including increase or decrease of the rate
of interest thereon; (ii) take and hold security for the payment or performance
of the Obligations and exchange, enforce, waive or release any such security;
(iii) apply such security and direct the order or manner of sale thereof; (iv)
purchase such security at public or private sale; (v) otherwise exercise any
right or remedy it may have against Issuer, such Pledgor or any security,
including, without limitation, the right to foreclose upon any such security by
judicial or nonjudicial sale; (vi) settle, compromise with, release or
substitute any one or more makers, endorsers or guarantors of the Obligations;
and (vii) assign the Obligations, this Stock Pledge Agreement, or the other
Financing Agreements in whole or in part (subject to the terms and conditions of
the Indenture).
10. Waivers. (A) Each Pledgor waives (a) any right to require
-------
Collateral Agent to (i) proceed against Issuer, (ii) proceed against or exhaust
any security received from Issuer or (iii) pursue any other remedy in Collateral
Agent's power whatsoever; (b) any defense resulting from the absence, impairment
or loss of any right of reimbursement or subrogation or other right or remedy of
Pledgor against Issuer or any security, whether resulting from an election by
Collateral Agent to foreclose upon security by nonjudicial sale, or otherwise;
(c) any setoff or counterclaim of Issuer or any defense which results from any
disability or other defense of Issuer or the cessation or stay of enforcement
from any cause whatsoever of the liability of Issuer; (d) any right to
exoneration of sureties which would otherwise be applicable; (e) any right of
subrogation or reimbursement and any right of contribution, and right to enforce
any remedy which Collateral Agent now has or may hereafter have against Issuer,
and any benefit of, and any right to participate in, any security now or
hereafter received by Collateral Agent until the Obligations have been paid and
the covenants of the Financing Documents have been performed in full; (f) all
presentments, demands for performance, notices of non-performance, protests,
notice of dishonor, and notices of acceptance of this Agreement and of the
existence, creation or incurring of new or additional Obligations; (g) the
benefit of any statute of limitations (to the extent permitted by law); (h) any
right to be informed by Collateral Agent of the financial condition of Issuer or
any change therein or any other circumstances bearing upon the risk of
nonpayment or nonperformance of the Obligations; (i) all suretyship and
guarantor's defenses generally; (j) all rights to insist upon, plead or in any
manner whatever claim or take the benefit or advantage of, any appraisal,
valuation, stay, extension, marshaling of assets, redemption or similar law, or
exemption, whether now or at any time hereafter in force, which may delay,
prevent or otherwise affect the performance by Pledgor of its obligations under,
or the enforcement by Collateral Agent of, this Stock Pledge Agreement; (k) any
requirement on the part of Collateral Agent to mitigate the damages resulting
from any default; and (l) except as otherwise specifically set forth herein, all
rights of notice and hearing of any kind prior to the exercise of rights by
Collateral Agent upon the occurrence and during the continuation of an Event of
Default to repossess with judicial process or to replevy, attach or levy upon
the Collateral. To the extent permitted by law, each Pledgor waives the posting
of any bond otherwise
10
<PAGE>
required of Collateral Agent in connection with any judicial process or
proceeding to obtain possession of, replevy, attach, or levy upon the
Collateral, to enforce any judgment or other security for the Obligations, to
enforce any judgment or other court order entered in favor of Collateral Agent,
or to enforce by specific performance, temporary restraining order, preliminary
or permanent injunction, this Stock Pledge Agreement or any other agreement or
document between Pledgor, Collateral Agent and Trustee. Each Pledgor has the
ability and assume the responsibility for keeping informed of the financial
condition of Issuer and of other circumstances affecting nonpayment and
nonperformance risks.
(B) If Collateral Agent may, under applicable law, proceed to realize its
benefits under any of the Financing Documents giving Collateral Agent a Lien
upon any Collateral or any property of Issuer or any other Person, whether owned
by Issuer or by any other Person, either by judicial foreclosure or by
nonjudicial sale or enforcement, Collateral Agent may, at its sole option,
determine which of its remedies or rights it may pursue without affecting any of
the rights and remedies of Collateral Agent under this Agreement. In the event
Collateral Agent shall bid at any foreclosure or trustee's sale or at any
private sale permitted by law or the Financing Documents, Collateral Agent may
bid all or less than the amount of the Obligations.
11. Security Interest Absolute. All the rights of Collateral Agent, the
--------------------------
Holders of the Senior Secured Notes and the Permitted Additional Senior Lenders,
if any, and the Security Interest and all obligations of each Pledgor hereunder
shall be absolute and unconditional irrespective of:
11.1 any lack of validity or enforceability of the Transaction
Documents or any other agreement or instrument relating thereto; and
11.2 the failure by a Pledgor to fulfill its obligations under this
Stock Pledge Agreement.
12. Collateral Agent Appointed Attorney-in-Fact.
-------------------------------------------
12.1 Powers. Each Pledgor hereby irrevocably constitutes and appoints
------
Collateral Agent and any officer or agent thereof with full power of
substitution, as such Pledgor's true and lawful attorney-in-fact (which
appointment as attorney-in-fact shall be coupled with an interest), with full
authority in the place and stead of Pledgor and in the name of Pledgor or
otherwise, from time to time upon the occurrence and during the continuance of
any Event of Default under the Indenture in Collateral Agent's discretion, to
take any action and to execute any and all documents and instruments which
Collateral Agent may deem necessary or advisable to accomplish the purposes of
this Stock Pledge Agreement, without notice to Pledgor, including, without
limitation:
12.1.1 to exercise all rights, powers and privileges to the same
extent Pledgor shall have been entitled under applicable law, including, without
limitation, all voting rights of Pledgor as holder of capital stock of Issuer;
11
<PAGE>
12.1.2 to receive, endorse and collect all instruments made
payable to any Pledgor representing any interest payment or other distribution
in respect of the Collateral or any part thereof and to give full discharge for
the same and to file any claim or to take any other action or proceeding in any
court of law or equity or otherwise deemed appropriate by Collateral Agent for
the purpose of collecting any and all of such dividends, payments or other
distributions;
12.1.3 to pay or discharge taxes and liens levied or placed on
the Collateral; and
12.1.4 (a) to direct any party liable for any payment in respect
of or arising out of any of the Collateral to make payment of any and all moneys
due or to become due in connection therewith directly to Collateral Agent or as
Collateral Agent shall otherwise direct, (b) to ask or make demand for, collect,
receive payment of and receipt for, any and all moneys, claims and other amounts
due or to become due at any time in respect of or arising out of any Collateral,
(c) to commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the Collateral or any
part thereof and to enforce any other right in respect of any Collateral, (d) to
defend any suit, action or proceeding brought against Pledgor with respect to
any Collateral, (e) to settle, compromise or adjust any suit, action or
proceeding described in clause (d) above and, in connection therewith, to give
such discharges or releases as Collateral Agent acting in good faith may deem
appropriate and (f) generally, to sell, transfer, pledge and make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though Collateral Agent were the absolute owner thereof for all
purposes, and (g) to do, at Collateral Agent's option and at Pledgor' expense,
at any time, or from time to time, all acts and things which Collateral Agent
acting in good faith deems necessary to protect, preserve or realize upon the
Collateral and the Security Interest granted herein and to effect the intent of
this Stock Pledge Agreement, all as fully and effectively as Pledgor might do.
12.2 Other Powers. Each Pledgor further authorizes Collateral Agent,
------------
at any time and from time to time (i) to execute, in connection with any sale
provided for hereunder, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral and (ii) to the full
extent permitted by applicable law, to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral without the signature of such Pledgor.
13. Collateral Agent May Perform. Upon the occurrence and during the
----------------------------
continuance of an Event of Default under the Indenture, Collateral Agent,
without releasing any Pledgor from any obligation, covenant or condition hereof,
itself may make any payment or perform, or cause the performance of, any such
obligation, covenant, condition or agreement or any other action in such manner
and to such extent as Collateral Agent may deem necessary to protect, perfect or
continue the perfection of the Security Interest of the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, in the
Collateral. Any costs or expenses incurred by Collateral Agent in connection
with the foregoing shall be governed by the Indenture and the Financing
Documents, and constitute Obligations secured hereby.
12
<PAGE>
14. No Duty on Collateral Agent's Part; Limitation on Collateral
------------------------------------------------------------
Agent's Obligations.
- -------------------
14.1 No Duty on Collateral Agent's Part. The powers conferred
----------------------------------
on Collateral Agent hereunder are solely to protect Collateral Agent's interests
in the Collateral and shall not impose any duty upon it to exercise any such
powers. Collateral Agent shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers.
14.2 Limitations on Obligations. Without limiting the
--------------------------
effectiveness of Section 33 hereof, anything herein to the contrary
notwithstanding, each Pledgor shall remain liable under any Transaction Document
to which it is a party to the extent set forth therein to perform all of its
duties and obligations thereunder, to the same extent as if this Stock Pledge
Agreement had not been executed. The exercise by Collateral Agent of any of the
rights or remedies hereunder shall not release any Pledgor from any of its
duties or obligations under any Transaction Document to which it is a party. All
of the Collateral is hereby assigned to Collateral Agent solely as security, and
Collateral Agent shall have no duty, liability or obligation whatsoever with
respect to any of the Collateral, unless Collateral Agent so elects in writing
consistent with its rights under this Stock Pledge Agreement.
15. Reasonable Care. Collateral Agent shall exercise the same degree of
---------------
care hereunder as it exercises in connection with similar transactions for its
own account. Collateral Agent shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which Collateral
Agent accords or would accord collateral held by Collateral Agent in similar
transactions for its own account. Without limiting the generality of the
foregoing and except as otherwise provided by applicable law, Collateral Agent
shall not be required to marshall any collateral, including, without limitation,
the Collateral subject to the Security Interest created hereby and any
guaranties of the Obligations, or to resort to any item of Collateral or
guaranties in any particular order; and all of Collateral Agent's rights
hereunder and in respect of such Collateral and guaranties shall be cumulative
and in addition to all other rights, however existing or arising. To the extent
that it lawfully may, each Pledgor hereby (a) agrees that it will not invoke any
law relating to the marshaling of collateral which might cause delay in or
impede the enforcement of Collateral Agent's rights under this Stock Pledge
Agreement or under any other instrument evidencing any of the Obligations or
under which any of the Obligations is outstanding or by which any of the
Obligations is secured or guaranteed and (b) irrevocably waives the benefits of
all laws and any and all rights to equity of redemption or other rights of
redemption that it may have in equity or at law with respect to the Collateral.
16. Role of Collateral Agent. The rights, duties, liabilities and
------------------------
immunities of Collateral Agent and its appointment and replacement hereunder
shall be governed by the Indenture.
17. Waiver of Trial by Jury. WITH REGARD TO THIS STOCK PLEDGE AGREEMENT
-----------------------
EACH OF PLEDGORS AND COLLATERAL AGENT HEREBY WAIVE
13
<PAGE>
THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING AND FOR ANY
COUNTERCLAIM THEREIN.
18. Notices. All notices, demands, requests and other required or
-------
permitted hereunder shall be in writing, and shall be given and deemed to have
been given in accordance with Section 10.02 of the Indenture and the information
set forth immediately below shall apply to each Pledgor, respectively:
Coso Energy Developers
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, NY 10036-7790
Coso Finance Partners
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, NY 10036-7790
Coso Power Developers
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, NY 10036-7790
19. Absence of Fiduciary Relation. Collateral Agent undertakes to
-----------------------------
perform or to observe only such of its agreements and obligations as are
specifically set forth in this Stock Pledge Agreement or any other Security
Document, and no implied agreements, covenants or obligations with respect to
any Pledgor, any Affiliate of such Pledgor or any other party to the Indenture
or any other Transaction Document to which any Pledgor is a party shall be read
into this Stock Pledge Agreement against Collateral Agent, any of the Holders of
the Senior Secured Notes, or any Permitted Additional Senior Lenders; none of
Collateral Agent, Trustee, any of the Holders of the Senior Secured Notes or any
Permitted Additional Senior Lenders in its and their capacity as such is a
fiduciary of and shall not owe or be deemed to owe any fiduciary duty to any
Pledgor, any Affiliate of such Pledgor or any other party to any Transaction
Document to which any Pledgor is a party, except as otherwise specifically
required by law.
20. Survival of Representations and Warranties. All agreements,
------------------------------------------
representations and warranties made herein shall survive the execution and
delivery of this Stock Pledge Agreement and the other Financing Documents, and
shall be deemed to be material and to have been relied upon by Collateral Agent,
any of the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, regardless of any investigation made by or on behalf of
any of Collateral Agent, Trustee, any of the Holders of the Senior Secured Notes
and the Permitted Additional Senior Lenders, if any. Notwithstanding anything
in this Stock Pledge Agreement or implied by law to the contrary, the agreements
and obligations of Pledgors set
14
<PAGE>
forth in Section 4.10 shall survive until the payment or prepayment in full of
the Obligations and the termination of this Stock Pledge Agreement in accordance
with Section 30 hereof.
21. No Waiver; Cumulative Remedies. By exercising or failing to
------------------------------
exercise any of its rights, options or elections hereunder (without also
expressly waiving the same in writing), Collateral Agent, on behalf of Trustee,
the Holders of the Senior Secured Notes and the Permitted Additional Senior
Lenders, if any, shall not be deemed to have waived any breach or default on the
part of any Pledgor or to have released such Pledgor from any of its obligations
secured hereby. No failure on the part of Collateral Agent to exercise, and no
delay in exercising (without also expressly waiving the same in writing) any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or privilege preclude
any other or further exercise thereof, or the exercise of any other right, power
or privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law. Collateral Agent, acting on behalf of the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
shall have all of the rights and remedies granted under any Financing Document,
and available at law or in equity, and these same rights and remedies may be
pursued separately, successively or concurrently against any Pledgor or any
Collateral, at the discretion of Collateral Agent.
22. Severability. Any provision of this Stock Pledge Agreement
------------
which is prohibited, unenforceable or not authorized in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction. Where provisions of any law or regulation
resulting in such prohibition or unenforceability may be waived they are hereby
waived by each Pledgor and Collateral Agent to the full extent permitted by law
so that this Stock Pledge Agreement shall be deemed a valid, binding agreement,
and the Security Interest created hereby shall constitute a continuing first
lien on and first perfected security interest in the Collateral, in each case
enforceable in accordance with its terms.
23. Exculpatory Provisions; Reliance by Collateral Agent.
----------------------------------------------------
23.1 Exculpatory Provisions. Neither Collateral Agent, Trustee,
----------------------
the Holders of the Senior Secured Notes and the Permitted Additional Senior
Lenders, if any, nor any of their respective officers, directors, employees,
agents, attorneys-in-fact or affiliates (the "Exculpated Parties") shall be
------------------
liable to any Pledgor for any action taken or omitted to be taken by it or them
under or in connection with this Stock Pledge Agreement or any other Transaction
Document to which such Pledgor is a party, except for the Exculpated Parties'
own negligence or willful misconduct, or responsible in any manner to any Person
for any recitals, statements, representations or warranties made by such Pledgor
or any officer thereof contained in this Stock Pledge Agreement or any other
Transaction Document to which such Pledgor is a party or in any certificate,
report, statement or other document referred to or provided for in, or received
by Collateral Agent, Trustee, any Holder of the Senior Secured Notes and the
Permitted Additional Senior Lenders, if any, under or in connection with, this
Stock Pledge Agreement or any other Transaction Document to which a Pledgor is a
party or for the value, validity, effectiveness,
15
<PAGE>
genuineness, enforceability or sufficiency of this Stock Pledge Agreement or any
other Transaction Document to which such Pledgor is a party or for any failure
of such Pledgor to perform any of the Obligations. Neither Collateral Agent,
Trustee, any Holder of the Senior Secured Notes nor the Permitted Additional
Senior Lenders, if any, shall be under any obligation to any Person to ascertain
or to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Stock Pledge Agreement or any other
Transaction Document to which any Pledgor is a party, or to inspect the
properties or records of any Pledgor.
23.2 Reliance by Collateral Agent. Collateral Agent shall be
----------------------------
entitled to conclusively rely, and shall be fully protected in relying, upon any
note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon advice
and statements of legal counsel (including, without limitation, counsel to
Pledgor), independent accountants and other experts selected by Collateral
Agent. Collateral Agent shall have no obligation to any Person to act or
refrain from acting or exercising any of its rights under this Stock Pledge
Agreement.
24. Amendment. No modification or waiver of any of the provisions of
---------
this Stock Pledge Agreement shall be binding on any party hereto, except as
expressly set forth in a writing duly signed and delivered by all parties hereto
and which is otherwise in accordance with Article 8 of the Indenture.
25. Successors and Assigns. This Stock Pledge Agreement shall be binding
----------------------
upon and inure to the benefit of each Pledgor and Collateral Agent for the
benefit of the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, and their respective successors and assigns. In the
event of any assignment or transfer by any Holder of any instrument evidencing
all or any part of the Obligations, the holder of such instrument shall, subject
to the Indenture, be entitled to the benefits of this Stock Pledge Agreement.
26. Number and Gender. Whenever used in this Stock Pledge Agreement,
-----------------
the singular number shall include the plural and the plural the singular, and
the use of any gender shall be applicable to all genders.
27. Subrogation, etc. Notwithstanding any payment or payments made by
------------------
such Pledgor or the exercise by Collateral Agent of any of the remedies provided
under this Stock Pledge Agreement or any of the Financing Documents, each
Pledgor shall have no claim (as defined in 11 U.S.C. (S) 101(5)) of subrogation
to any of the rights of the Holders against Issuer, any Pledgor or any
Collateral or guaranty held by the Holders of the Senior Secured Notes and the
Permitted Additional Senior Lenders, if any, for the satisfaction of any of the
Obligations, nor shall such Pledgor have any claims (as defined in 11 U.S.C. (S)
101(5)) for reimbursement, indemnity, exoneration or contribution from Issuer in
respect of payments made by such Pledgor hereunder. Notwithstanding the
foregoing, if any amount shall be paid to a Pledgor on account of such
subrogation, reimbursement, indemnity, exoneration or contribution rights at any
time, such amount shall be held by such Pledgor in trust for the Holders of the
16
<PAGE>
Senior Secured Notes, and Permitted Additional Senior Lenders if any, segregated
from other funds of such Pledgor, and shall be turned over to Collateral Agent
for the benefit of the Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any, in the exact form received by such Pledgor
(duly endorsed by such Pledgor to Collateral Agent for the benefit of Trustee,
the Holders of the Senior Secured Notes and the Permitted Additional Senior
Lenders, if any, if required), to be applied against such amounts in such order
as Collateral Agent may elect.
28. Captions. The captions, headings and table of contents used in
--------
this Stock Pledge Agreement are for convenience only and do not and shall not be
deemed to affect, limit, amplify or modify the terms and provisions hereof.
29. Applicable Law. This Stock Pledge Agreement, including all
--------------
matters of construction, validity, performance and the creation, validity,
enforcement or priority of the lien of, and security interests created by, this
Stock Pledge Agreement in or upon the Collateral shall be governed by the laws
of the State of New York, without reference to conflicts of law (other than
Section 5-1401 of the New York General Obligations Law), except as required by
mandatory provisions of law and except to the extent that the validity or
perfection of the lien and security interest hereunder, or remedies hereunder,
in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York.
30. Continuing Security Interest; Termination. This Stock Pledge
-----------------------------------------
Agreement shall create a continuing assignment, pledge and first priority
Security Interest in the Collateral, subject only to Permitted Liens, and shall
remain in full force and effect for the benefit of Collateral Agent, Trustee and
the other Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, until all Obligations to be paid or performed by Issuer
under the Indenture have been paid and performed in full. Upon the happening of
such event, the Security Interest granted hereby shall terminate. Upon such
termination, Collateral Agent shall, upon the request and at the expense of any
Pledgor, execute and deliver to such Pledgor such documents as such Pledgor
shall reasonably request to evidence such termination or expiration.
31. Payments Set Aside. To the extent that a Pledgor makes a
------------------
payment or payments to Collateral Agent, Trustee and/or any Holder of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, or Collateral
Agent, Trustee and/or any Holder of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any, enforces the Security Interests or Collateral
Agent exercises its right of set-off, and such payment or payments or the
proceeds of such enforcement or set-off or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the Obligations or any part thereof originally intended
to be satisfied, and this Stock Pledge Agreement and all Liens, rights and
remedies therefor, shall be revived and continued in full force and effect as if
such payment had not been made or such enforcement or set-off had not occurred.
17
<PAGE>
32. Counterparts. This Stock Pledge Agreement may be executed in
------------
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
33. Non-Recourse. No past, present or future director, officer,
------------
employee, partner, incorporator, management committee or stockholder of a
Pledgor, as such, shall have any liability for any obligations of such Pledgor
under this Stock Pledge Agreement or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Collateral Agent waives and
releases all such liability.
34. Regarding the Collateral Agent. The Collateral Agent shall be
------------------------------
afforded all of the rights, powers, protections, immunities and indemnities set
forth in those certain Security Agreements dated as of the date hereof between
each of the Pledgors and Collateral Agent as if the same were specifically set
forth herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Pledge
Agreement to be executed as of the day and year first above written.
COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------
Name: Judy P. Manansala
---------------------
Title: Trust Officer
---------------------
<PAGE>
ACKNOWLEDGMENT AND CONSENT OF ISSUER
Caithness Coso Funding Corp., a Delaware corporation ("Issuer"),
------
hereby acknowledges receipt of a copy of the above Stock Pledge Agreement,
agrees to be bound by and comply with the terms thereof, including, without
limitation, Section 6 thereof, and agrees to perform all covenants and
obligations therein which, by their express or implied terms are to be performed
by Issuer.
CAITHNESS COSO FUNDING CORP., a Delaware
corporation
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
Schedule 2.1
------------
Stock
<TABLE>
<CAPTION>
Percentage of
Stock Outstanding
Stockholder Certificate No. No. of Shares Shares
----------- --------------- ------------- -------------
<S> <C> <C> <C>
Coso Energy Developers 3 100 33.33%
Coso Finance Partners 4 100 33.33%
Coso Power Developers 2 100 33.33%
</TABLE>
<PAGE>
Exhibit 10.31
PARTNERSHIP INTEREST PLEDGE AGREEMENT
Dated as of May 28, 1999
Among
ESCA, LLC
a Delaware limited liability company,
NEW CLOC COMPANY, LLC,
a Delaware limited liability company,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
PREFACE.................................................................. 1
1. DEFINITIONS........................................................... 2
2. ASSIGNMENT, PLEDGE AND GRANT OF SECURITY INTEREST..................... 2
3. DOCUMENTS............................................................. 3
4. EVENTS OF DEFAULT..................................................... 4
5. REMEDIES.............................................................. 4
6. REMEDIES CUMULATIVE; DELAY NOT WAIVER................................. 7
7. COVENANTS AND REPRESENTATIONS OF PLEDGORS............................. 7
8. CERTAIN CONSENTS AND WAIVERS.......................................... 10
9. BORROWER'S CONSENTS AND COVENANTS..................................... 11
10. ATTORNEY-IN-FACT..................................................... 11
11. PLACE OF BUSINESS; LOCATION OF RECORDS............................... 12
12. PERFECTION; FURTHER ASSURANCES....................................... 12
13. CONTINUING ASSIGNMENT AND SECURITY INTEREST;
TRANSFER OF LOANS.................................................. 13
14. LIABILITY............................................................ 13
15. ATTORNEYS' FEES...................................................... 13
16. SEVERABILITY......................................................... 14
17. SUCCESSORS AND ASSIGNS............................................... 14
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
18. HEADINGS............................................................. 14
19. GOVERNING LAW........................................................ 14
20. TIME................................................................. 14
21. REFERENCES TO OTHER DOCUMENTS........................................ 14
22. REINSTATEMENT........................................................ 14
23. STATUTE OF LIMITATIONS............................................... 15
24. ENTIRE AGREEMENT..................................................... 15
25. COUNTERPARTS......................................................... 15
26. WAIVER OF JURY TRIAL................................................. 15
27. REGARDING THE COLLATERAL AGENT....................................... 15
</TABLE>
ii
<PAGE>
COSO FINANCE PARTNERS
PARTNERSHIP INTEREST PLEDGE AGREEMENT
This Partnership Interest Pledge Agreement ("Agreement"), dated as of May 28,
---------
1999, is entered into by and among COSO FINANCE PARTNERS, a California general
partnership ("Borrower,"), ESCA, LLC, a Delaware limited liability company
--------
("ESCA"), NEW CLOC COMPANY, LLC, a Delaware limited liability company ("NEW
---- ---
CLOC") (each of ESCA and NEW CLOC a "Pledgor," and, collectively, the
-------
"Pledgors"), and U.S. BANK TRUST NATIONAL ASSOCIATION in its capacity as
--------
collateral agent ("Collateral Agent") for U.S. BANK TRUST NATIONAL ASSOCIATION
in its capacity as trustee ("Trustee") for the holders of all senior secured
-------
notes issued pursuant to that certain Indenture dated as of May 28, 1999 (the
"Indenture"), among Borrower, Trustee, COSO ENERGY DEVELOPERS, a California
---------
general partnership ("BLM"), COSO POWER DEVELOPERS, a California general
---
partnership ("Navy II"), and CAITHNESS COSO FUNDING CORP., a Delaware
-------
corporation (the "Issuer") (such notes, the "Senior Secured Notes" and the
------ ------
holders thereof, the "Holders of the Senior Secured Notes").
-----------------------------------
PREFACE
-------
A. Issuer has, as of the date of this Agreement, issued $413,000,000 of the
Senior Secured Notes, the proceeds of which will be used to make loans to
Borrower, BLM and Navy II.
B. ESCA and NEW CLOC are general partners in Borrower pursuant to that certain
General Partnership Agreement of COSO FINANCE PARTNERS, as amended and restated
as of May 28, 1999 (the "Partnership Agreement").
---------------------
C. Pursuant to a Guarantee dated as of even date herewith (the "Guarantee"),
---------
Borrower has guaranteed to Trustee and the Holders of the Senior Secured Notes
the payment and performance of Issuer's obligations under the Senior Secured
Notes and the Indenture.
D. As a condition precedent to the sale of the Senior Secured Notes, the
Borrower and Pledgors are required to have executed this Agreement as security
for the payment and performance of Borrower's obligations under the Guarantee.
AGREEMENT
---------
In consideration of the premises herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Borrower and Pledgors hereby agree with Collateral Agent for the benefit of
Trustee and the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, as follows:
<PAGE>
1. Definitions.
-----------
(a) Unless otherwise defined, all capitalized terms used herein which
are defined in the Indenture shall have their respective meanings therein
defined, and all terms, defined in the UCC shall have the respective meanings
given to those terms in the UCC.
(b) "UCC" shall mean the Uniform Commercial Code as the same may, from
---
time to time, be in effect in the State of New York; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
(c) "Qualifying Facility" shall mean a qualifying small power
-------------------
production facility in accordance with PURPA and the rules and regulations of
FERC under PURPA relating thereto.
(d) "FPA" shall mean the Federal Power Act of 1925, as amended.
---
(e) "PUHCA" shall mean the Public Utility Holding Company Act of 1935,
-----
as amended.
(f) "PURPA" shall mean the Public Utility Regulatory Policies Act of
-----
1978, as amended, and the regulations promulgated thereunder.
2. Assignment, Pledge and Grant of Security Interest.
-------------------------------------------------
(a) To secure the timely payment and performance of the Obligations
(as defined below), each Pledgor hereby assigns and pledges to Collateral Agent
for the benefit of the Trustee, the Holders of the Senior Secured Notes and all
Permitted Additional Senior Lenders, if any, and grants to Collateral Agent for
the benefit of the Trustee, the Holders of the Senior Secured Notes and all
Permitted Additional Senior Lenders, if any, a security interest in all the
estate, right, title and interest of each such Pledgor, now owned or hereafter
acquired, in, to and under any and all of the following (the "Collateral"):
----------
Such Pledgor's partnership interest in Borrower, including without
limitation such Pledgor's (i) rights to receive all income, gain, profit,
loss or other items allocated or distributed to such Pledgor under the
Partnership Agreement, (ii) rights to receive all distributions of any
nature whatsoever by Borrower with respect to such partnership interest;
provided that the Collateral shall not include any Restricted Payments made
pursuant to the terms of the Deposit and Disbursement Agreement, (iii)
capital or ownership interest, including capital accounts, in Borrower, and
all accounts, deposits or credits of any kind with Borrower, (iv) voting
rights in or rights to control or direct the affairs of Borrower, (v)
right, title and interest, as a partner in Borrower, in or to any and all
of
2
<PAGE>
Borrower's assets or properties, (vi) other rights, title and interest in
or to Borrower, and all rights to receive income, profit or other
distributions from Borrower, of any nature whatsoever, in each case, as
such rights are derived from such Pledgor's partnership interests in
Borrower, (vii) claims for damages arising out of or for breach of or
default relating to the Collateral, and (viii) rights to terminate, amend,
supplement, modify or waive performance under the Partnership Agreement, to
perform thereunder and to compel performance and otherwise exercise all
remedies thereunder, along with all of the proceeds of any of the above and
all "general intangibles" (as such term is defined in the UCC) constituting
any of the above.
(b) This Agreement and all of the Collateral secure the payment and
performance of Borrower's obligations under the Guarantee, including, but not
limited to, the payment of all amounts owed to Collateral Agent, Trustee, the
Holders of the Senior Secured Notes and the Permitted Additional Senior Lenders,
if any, of every kind and description (whether or not evidenced by any note or
instrument and whether or not for the payment of money), direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
pursuant to the terms of the Guarantee, including all interest, fees, charges,
expenses, attorney's fees and accountant's fees (all such obligations being
herein called the "Obligations").
-----------
3. Documents.
---------
(a) At any time and from time to time upon the request of Collateral
Agent, each Pledgor will (i) deliver and pledge to Collateral Agent, endorsed
and/or accompanied by such evidence of assignment and transfer, in such form and
substance as Collateral Agent may request, any and all instruments, documents,
chattel paper and/or general intangibles relating to the Collateral as
Collateral Agent may specify; (ii) give, execute, deliver, file and/or record
any notice, statement, instrument, document, agreement or other papers that may
be reasonably necessary, as Collateral Agent may reasonably request, in order to
create, preserve, perfect or validate the assignment and security interest
granted pursuant hereto or to enable Collateral Agent to exercise and enforce
its rights hereunder or with respect to such assignment and security interest;
and (iii) keep and stamp or otherwise mark any and all documents and its
individual books and records relating to Collateral in such manner as Collateral
Agent may require.
(b) Pledgor agrees that, from time to time, at the expense of Pledgor,
Pledgor will promptly execute and deliver all further instruments and documents,
and take all further action that may be necessary or required, or that
Collateral Agent may reasonably request, in order to perfect and protect the
assignment and security interest granted or intended to be granted hereby or to
enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of
the foregoing, Pledgor will execute and file such financing or continuation
statements or amendments thereto and such other instruments, endorsements or
notices as may be necessary or required, or as the Collateral Agent may
reasonably request, in order to perfect and preserve the assignments and
security interests granted or purported to be granted hereby. Notwithstanding
the foregoing, Collateral Agent shall have no obligation in respect of filing
such statements or the perfection or preservation of such security interests.
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(c) If any default by any Pledgor under the Partnership Agreement
shall occur, Collateral Agent shall, at its option, be permitted (but shall not
be obligated) to remedy any such default by giving written notice of such intent
to Borrower and the relevant Pledgor. Collateral Agent shall have a period of
sixty (60) days after giving such notice in which to cure such default. In the
event that any such default (except monetary defaults) shall not be reasonably
curable within such 60-day period, neither Borrower nor any Person acting on
behalf of Borrower, including without limitation a general partner of Borrower,
shall exercise any remedies thereunder if Collateral Agent shall, within such 60
day period, initiate action to cure such default and proceed diligently to the
curing thereof. Any cure by Collateral Agent of a Pledgor's default under the
Partnership Agreement shall not be construed as an assumption by Collateral
Agent, Trustee, any of the Holders of the Senior Secured Notes or any Permitted
Additional Senior Lender of any obligations, covenants or agreements of any
Pledgor under the Partnership Agreement, and neither Collateral Agent, Trustee,
nor any Permitted Additional Senior Lender shall be liable for any action taken
pursuant to this Section 3(c) to cure any such default. This Agreement shall not
be deemed to release or to affect in any way the obligations of any Pledgor
under the Partnership Agreement.
4. Events of Default. The occurrence and continuance of any of the
-----------------
following events ("Events of Default") whatever the reason for such Event of
-----------------
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body, shall
constitute an Event of Default hereunder and shall entitle Collateral Agent
(subject to the Indenture) to exercise any and all of its rights and remedies
hereunder or at law:
(a) the occurrence (whether as a result of acts or omissions by
Borrower or the Issuer) of an Event of Default under the Indenture; or
(b) the failure on the part of a Pledgor to observe or perform any
covenant, condition or agreement on its part to be observed or performed under,
or the breach of any representation or warranty of a Pledgor contained in, this
Agreement or the Partnership Agreement and such failure continues uncured for 30
or more days from the date a Responsible Officer of such Pledgor receives notice
thereof from the Collateral Agent; provided that if such Pledgor commences and
diligently pursues efforts to cure such default within such 30-day period, such
Pledgor may continue to effect such cure of the default and such default will
not be deemed an Event of Default for an additional 60 days so long as such
Pledgor is diligently pursuing such cure.
5. Remedies.
--------
(a) If any Event of Default has occurred and is continuing, Collateral
Agent shall have the right, at its election, but not the obligation, to do any
of the following, with respect to the defaulting Pledgor: (i) subject to Section
5(e) below and applicable law, vote or exercise any and all of such Pledgor's
rights or powers under the Partnership Agreement, including any rights or powers
to manage or control Borrower; (ii) subject to Section 5(e) and applicable law
demand, sue for, collect or receive any money or property at any time payable to
or receivable by such Pledgor on account of or in exchange for all or any part
of the Collateral; (iii) institute and prosecute any
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action at law or suit in equity or other proceeding to collect or enforce any
Obligations or rights hereunder or in the Collateral, including specific
enforcement of any covenant or agreement contained herein or in the Partnership
Agreement, or to foreclose or enforce the security interest in all or any part
of the Collateral granted herein, or to enforce any other legal or equitable
right vested in it by this Agreement or by law; (iv) sell or otherwise dispose
of any or all of the Collateral or cause all or any part of the Collateral to be
sold or otherwise disposed of in one or more sales or transactions, at such
prices as Collateral Agent may deem commercially reasonable, and for cash or on
credit or for future delivery, without assumption of any credit risk, at any
broker's board or at public or private sale, without demand of performance or
notice of intention to sell or of time or place of sale (except such notice
which under applicable law cannot be waived), and any Holder of the Senior
Secured Notes, any Permitted Additional Senior Lender, or any other Person may
be the purchaser of any or all of the Collateral so sold and thereafter hold the
same absolutely free from any claim or right of whatsoever kind, including any
equity of redemption, of such Pledgor or Borrower, any such demand, notice or
right and equity being hereby expressly waived and released (to the extent
permitted by applicable law); (v) incur expenses, including reasonable
attorneys' fees, consultants' fees, and other costs appropriate to the exercise
of any right or power under this Agreement; (vi) perform any obligation of such
Pledgor hereunder or under the Partnership Agreement; (vii) secure the
appointment of a receiver for such Pledgor (to the extent and in the manner
permitted by applicable law); or (viii) exercise any other or additional rights
or remedies granted to a secured party under the UCC. If, pursuant to applicable
law, prior notice of any such action is required to be given to such Pledgor or
Borrower, such Pledgor and Borrower hereby acknowledges and agrees that the
minimum time required by such applicable law, or if no minimum is specified, ten
(10) Business Days, shall be deemed a reasonable notice period.
(b) In addition to the foregoing remedies, Collateral Agent (subject
to Section 3(c)) may, but shall not be obligated to, cure any Event of Default
and incur reasonable fees, costs and expenses in doing so, in which event
Borrower or the relevant Pledgor shall immediately reimburse Collateral Agent on
demand for all such fees, costs and expenses, together with interest on the
total amount at a rate equal to the "Prime Rate" of Bankers Trust Company, as
such rate is announced from time to time, plus one percent (1%) (the "Default
Rate"). Subject to the such Pledgor's rights described in paragraph (c) below to
contest certain claims, taxes, assessments, charges, liens and encumbrances,
Collateral Agent shall be the sole judge of the validity of any adverse claims,
taxes, assessments, charges, liens or encumbrances pertaining to the Collateral,
and the amount to be paid in satisfaction thereof, and of the necessity
therefor, provided Collateral Agent shall be under no obligation to do any such
acts or to make any such payments.
(c) Each Pledgor may contest in good faith any taxes, assessments and
other governmental charges in connection with the Collateral and, in such event,
may permit the taxes, assessments or other charges so contested to remain unpaid
during any period, including appeals, when such Pledgor is in good faith
contesting the same, so long as (i) reserves have been established in an amount
sufficient to pay any such taxes, assessments or other charges, accrued interest
thereon and potential penalties or other costs relating thereto, or other
adequate provision for the payment thereof shall have been made, (ii)
enforcement of the contested tax, assessment or other charge is effectively
stayed for the entire duration of such contest, and (iii) any tax, assessment or
other charge determined to be due, together with any interest or penalties
thereon, is
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immediately paid after resolution of such contest. Additionally, each Pledgor
may contest in good faith Liens for any tax, assessment or other governmental
charge, by appropriate proceedings, so long as (i) such proceedings shall not
involve any substantial danger of the sale, forfeiture or loss of the
Collateral, title thereto or any interest therein, or (ii) in connection with
such proceedings a bond or other security has been posted or provided in such
manner and amount as to provide that any taxes, assessments or other charges
determined to be due will be promptly paid in full when such contest is
determined.
(d) All reasonable costs and expenses (including without limitation
agents' and reasonable attorneys' fees and expenses) incurred by Collateral
Agent, Trustee, any Holder of the Senior Secured Notes or Permitted Additional
Senior Lender in connection with exercising any remedy provided for herein or at
law, curing any Event of Default or performing any of a Pledgor's agreements
contained herein or in the Partnership Agreement or in respect of any part of
the Collateral, together with interest thereon computed at the Default Rate from
the date on which such costs or expenses are incurred to the date of payment
thereof, shall constitute indebtedness secured by this Agreement and shall be
paid by such Pledgor or the Borrower to Collateral Agent, Trustee such Holder of
the Senior Secured Notes or such Permitted Additional Senior Lender, as the case
may be, on demand.
(e) So long as no Event of Default has occurred and is continuing,
each Pledgor reserves the right to exercise all of its rights under the
Partnership Agreement (except as limited by the Indenture) and to receive all
income and other distributions and payments from the Borrower in respect of the
Collateral. Notwithstanding any other term or provision of this Agreement, each
Pledgor shall be entitled to receive and retain for its own benefit and use all
distributions and other payments paid by the Borrower to such Pledgor in respect
of the Collateral prior to the occurrence of an Event of Default.
(f) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority specified in Section 5.10 of the Indenture. If all
Obligations and any other amounts due under this Agreement have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Pledgors, if they are lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
(g) The Collateral Agent shall not be deemed to make any
representations as to the value or condition of the Collateral and shall incur
no liability in respect thereof.
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6. Remedies Cumulative; Delay Not Waiver. No right, power or remedy
-------------------------------------
herein conferred upon or reserved to Collateral Agent, Trustee, the Holders of
the Senior Secured Notes or the Permitted Additional Senior Lenders, if any, is
intended to be exclusive of any other right, power or remedy, and every such
right, power and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right, power and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy. No delay or omission of
Collateral Agent to exercise any right or power accruing upon the occurrence and
during the continuance of any Event of Default as aforesaid shall impair any
such right or power or shall be construed to be a waiver of any such Event of
Default or an acquiescence therein. Every power and remedy given by this
Agreement may be exercised from time to time, and as often as shall be deemed
expedient, by Collateral Agent.
7. Covenants and Representations of Pledgors. Each Pledgor
-----------------------------------------
covenants, agrees and represents, solely with respect to itself, as follows:
(a) Pledgor will perform and comply, in all material respects, with
all obligations and conditions on its part to be performed hereunder, under the
Partnership Agreement or with respect to the Collateral.
(b) Pledgor (i) is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority under the laws of its state of organization to
enter into the Partnership Agreement and to perform its obligations thereunder
and to consummate the transactions contemplated thereby; (ii) is duly qualified,
authorized to do business and in good standing in each jurisdiction where the
character of its properties or the nature of its activities makes such
qualification necessary; (iii) has all requisite power and authority (W) to
carry on its business as now being conducted and as proposed to be conducted by
it, (X) to execute, deliver and perform this Agreement and the Partnership
Agreement to which it is a party, in its individual capacity, (Y) to take all
action as may be necessary to consummate the transactions contemplated
thereunder, and (Z) to grant liens and security interest provided for in this
Agreement; and (iv) has all requisite power and authority under the Partnership
Agreement to execute and deliver, on behalf of Borrower, each Financing Document
to which Borrower is a party.
(c) Pledgor has (i) taken all necessary action to authorize the
execution, delivery and performance of the Partnership Agreement and this
Agreement and each Financing Document to which it is a party; and (ii) duly
executed and delivered the Partnership Agreement and this Agreement and each
Financing Document to which it is a party. Neither any Pledgor's execution and
delivery of this Agreement and the other Financing Documents to which it is a
party nor its consummation of the transactions contemplated thereby nor its
compliance with the terms thereof (i) does or will contravene the Partnership
Agreement, the articles of incorporation or formation documents of such Pledgor
or any other requirements of law applicable to or binding on such Pledgor or any
of its properties, (ii) does or will contravene or result in any breach of or
constitute any default under, or result in or require the creation of any Lien
(other than Permitted Liens) upon any of its property under, any agreement or
instrument to which it is a
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party or by which it or any of its properties may be bound or affected or (iii)
does or will require the consent or approval of any Person which has not already
been obtained.
(d) The Partnership Agreement has been duly authorized, executed and
delivered by such Pledgor, has not been amended or otherwise modified, and is in
full force and effect and is binding upon and enforceable against such Pledgor
in accordance with its terms. There exists no default under the Partnership
Agreement by such Pledgor.
(e) This Agreement is the legal, valid and binding obligation of such
Pledgor, enforceable against such Pledgor in accordance with its terms, except
to the extent the enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and subject to general equitable
principles.
(f) Pledgor has not executed and is not aware of any effective
financing statement, security agreement or other instrument similar in effect
covering all or any part of the Collateral on file in any recording office,
except such as may have been filed pursuant to this Agreement or the other
Financing Documents or pursuant to the documents evidencing Permitted Liens.
(g) Pledgor is the lawful owner of and has full right, title and
interest in and to, the Collateral, subject to no mortgages, liens, charges, or
encumbrances of any kind other than as granted pursuant to the Partnership
Agreement, and has full power and lawful authority to pledge, assign and grant a
security interest in the Collateral granted by it hereunder. Pledgor will, so
long as any Obligations shall be outstanding, warrant and defend its title to
the Collateral against any claims and demands which may affect to a material
extent its title to, or the Collateral Agent's right or interest in, such
Collateral.
(h) Pledgor will not directly or indirectly create, incur, assume or
suffer to exist any Liens on or with respect to any part of the Collateral other
than the rights and interests of the Collateral Agent, the Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
hereunder, Permitted Liens and rights of Pledgors under the Partnership
Agreement. Pledgor will at its own cost and expense promptly take such action
as may be necessary to discharge any such liens not so permitted.
(i) Pledgor has not assigned any of its rights under the Partnership
Agreement or any of the Collateral except as provided in this Agreement.
(j) Any action or proceeding to enforce the rights granted or to
protect or preserve the Collateral under this Agreement may be taken by
Collateral Agent either in Pledgor's name or in Collateral Agent's name, as
Collateral Agent may deem necessary.
(k) Without the prior written consent of Collateral Agent, or as
otherwise permitted by the Indenture, Pledgor shall not (i) terminate or make
any material modification or amendment of the Partnership Agreement (unless
required, in the opinion of Pledgor, to maintain the Project as a "qualifying
facility"), (ii) fail to deliver to Collateral Agent a copy of each
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demand or notice received or given by it relating to the Partnership Agreement
and which could reasonably be expected to have a material adverse effect upon
the Collateral or Collateral Agent's rights therein, or (iii) sell, contract to
sell, assign, transfer or dispose of any of the Collateral.
(l) Pledgor shall give to Collateral Agent prompt written notice of
any material default, event of default or event which with the giving of notice
or the passage of time or both might become an event of default (however
"default" or "event of default" may be defined) under the Partnership Agreement,
whether by Borrower, such Pledgor, or any other Person, of which such Pledgor
has actual knowledge or has received notice.
(m) If a Pledgor in its capacity as a partner, whether general or
limited, as applicable, receives any income or distribution of money or property
of any kind in respect of the Collateral from the Borrower while an Event of
Default has occurred and is continuing, such Pledgor shall hold such income or
distribution of money or property as trustee for and shall deliver the same to
Collateral Agent.
(n) Pledgor will, at all times, keep accurate and complete records of
the Collateral. Pledgor shall, at all times on three (3) Business Days' notice,
permit representatives of Collateral Agent at any time during normal business
hours of such Pledgor to inspect and make abstracts from such Pledgor's books
and records pertaining to the Collateral. Upon the occurrence and continuance of
any Event of Default, at Collateral Agent's request, Pledgor shall promptly
deliver any and all such records to Collateral Agent.
(o) Pledgor will give prompt notice in writing to Collateral Agent of
any change in the location of the place of business where correspondence,
notices or proceeds in connection with the Collateral are received or located or
of any change in the location of the place of business where records concerning
Collateral are kept.
(p) Pledgor is not, and will not, as a result of becoming a general
partner of Borrower, be or become, or cause Borrower to be or become or to be
deemed by any Governmental Authority to be, solely as a result of the
construction, ownership, leasing or operation of the Project, the sale of
electricity therefrom or the entering into of any Financing Document or any
transaction contemplated thereby, a "utility" or subject to or not exempt from
regulation under the FPA (other than such regulation contemplated under 18
C.F.R. (S) 292.601(e)) or the PUHCA (other than Section 9(a)(2) of PUHCA) or
under state laws and regulations respecting the rates or the financial or
organizational regulation of public or electric utilities except as a Qualifying
Facility under PURPA.
(q) Pledgor will not do anything or cause, suffer or permit anything
to be done, including without limitation sale or other transfer of a Pledgor's
partnership interest in Borrower or of any stock, partnership interest or other
ownership interest in any Pledgor (other than the exercise by others of remedies
under the Financing Documents), which may cause the Project to lose its status
as a Qualifying Facility.
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(r) Pledgor shall not register, or permit the Borrower to register,
any other secured party as a "registered owner" (as defined in Section 8-301 of
the New York UCC) of any partnership interest in Borrower.
8. Certain Consents and Waivers.
----------------------------
(a) Each Pledgor hereby consents to each of the other Pledgors
entering into this Agreement in favor of Collateral Agent for the benefit of the
Trustee, the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any. Each Pledgor specifically agrees that such action may,
among other things, assign or delegate to Collateral Agent rights to cure
defaults under the Partnership Agreement, to exercise voting rights and other
rights to manage or control the Borrower, and to act as such other Pledgor's
attorney-in-fact in a manner similar to the assignment and delegation of such
rights provided herein. Each Pledgor (to the extent permitted by applicable
law) agrees that it will recognize and accept such assignment and delegation and
the exercise of such rights by Collateral Agent in connection with this
Agreement and agrees that any option or rights of any Pledgor to acquire any of
the Collateral from any other Pledgor pursuant to the Partnership Agreement
shall be subordinate to any right of the Trustee in the Collateral created
hereunder.
(b) Each Pledgor hereby waives, to the maximum extent permitted by law
(i) all rights under any law limiting remedies, including recovery of a
deficiency, under an obligation secured by a deed of trust on real property if
the real property is sold under a power of sale contained in the deed of trust,
and all defenses based on any loss whether as a result of any such sale or
otherwise, of Pledgor's right to recover any amount from Borrower, whether by
right of subrogation or otherwise; (ii) all rights under any law to require
Collateral Agent to pursue Borrower or any other Person, any security which
Collateral Agent may hold, or any other remedy before proceeding against
Pledgor; (iii) all rights of reimbursement or subrogation, all rights to enforce
any remedy that Collateral Agent, the Trustee, the Holders of the Senior Secured
Notes or the Permitted Additional Senior Lenders, if any, may have against
Borrower, and all rights to participate in any security held by Collateral Agent
until the Obligations have been paid and the covenants of the Indenture have
been performed in full; (iv) all rights to require Collateral Agent to give any
notices of any kind, including without limitation notices of nonpayment,
nonperformance, protest, dishonor, default, delinquency or acceleration, or to
make any presentments, demands or protests, except as expressly provided herein
and in the Indenture; (v) all rights to assert the bankruptcy or insolvency of
Borrower as a defense hereunder or as the basis for rescission hereof; (vi) all
rights under any law purporting to reduce Pledgors' Obligations hereunder if
Borrower's Obligations are reduced; (vii) all defenses based on the disability
or lack of authority of Borrower or any Person, the repudiation of the
Guarantees or any related Financing Documents by Borrower or any Person, the
failure by Collateral Agent, the Trustee, the Holders of the Senior Secured
Notes or any Permitted Additional Senior Lender, if any, to enforce any claim
against Borrower, or the unenforceability in whole or in part of any Financing
Document; (viii) all suretyship and guarantor's defenses generally; (ix) all
rights to insist upon, plead or in any manner whatever claim or take the benefit
or advantage of, any appraisal, valuation, stay, extension, marshaling of
assets, redemption or similar law, or exemption, whether now or at any time
hereafter in force, which may delay, prevent or otherwise affect the performance
by Pledgor or its obligations under, or the enforcement
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by Collateral Agent of, this Agreement; (x) any requirement on the part of
Collateral Agent, Trustee, the Holders of the Senior Secured Notes or any
Permitted Additional Senior Lender, if any, to mitigate the damages resulting
from any default; and (xi) except as otherwise specifically set forth herein,
all rights of notice and hearing of any kind prior to the exercise of rights by
Collateral Agent upon the occurrence and during the continuation of an Event of
Default to repossess with judicial process or to replevy, attach or levy upon
the Collateral. To the extent permitted by applicable law, each Pledgor waives
the posting of any bond otherwise required of Collateral Agent in connection
with any judicial process or proceeding to obtain possession of, replevy,
attach, or levy upon the Collateral, to enforce any judgment or other security
for the Obligations, to enforce any judgment or other court order entered in
favor of Collateral Agent, or to enforce by specific performance, temporary
restraining order, preliminary or permanent injunction, this Agreement or any
other agreement or document between any Pledgor, Collateral Agent, Trustee, the
Holders of the Senior Secured Notes or any Permitted Additional Senior Lender,
if any. Each Pledgor further agrees that upon the occurrence and continuance of
an Event of Default, Collateral Agent may elect to nonjudicially or judicially
foreclose against any real or personal property security it holds for the
Obligations or any part thereof, or to exercise any other remedy against
Borrower, any security or any guarantor, even if the effect of that action is to
deprive a Pledgor of the right to collect reimbursement from Borrower for any
sums paid by such Pledgor to Collateral Agent, Trustee or any Holder of the
Senior Secured Notes or any Permitted Additional Senior Lender, if any.
(c) If Collateral Agent may, under applicable law, proceed to realize
its benefits under any of the Financing Documents giving Collateral Agent a Lien
upon any Collateral, whether owned by any Borrower, any Pledgor or by any other
Person, either by judicial foreclosure or by nonjudicial sale or enforcement,
Collateral Agent may, at its sole option, determine which of its remedies or
rights it may pursue without affecting any of the rights and remedies of
Collateral Agent under this Agreement. In the event Collateral Agent shall bid
at any foreclosure or trustee's sale or at any private sale permitted by law or
the Financing Documents, Collateral Agent may bid all or less than the amount of
Obligations. To the extent permitted by applicable law, the amount of the
successful bid at any such sale, whether Collateral Agent or any other party is
the successful bidder, shall be conclusively deemed to be the fair market value
of the Collateral and the difference between such bid amount and the remaining
balance of the Obligations shall be conclusively deemed to be the amount of the
Obligations.
9. Borrower's Consent and Covenants. Borrower hereby consents to
--------------------------------
the assignment of and grant of a security interest in the Collateral to
Collateral Agent and to the exercise by Collateral Agent of all rights and
powers assigned or delegated to Collateral Agent by each Pledgor hereunder,
including without limitation the rights upon and during an Event of Default to
exercise such Pledgor's voting rights and other rights under the Partnership
Agreement to manage or control Borrower, subject to the notice and other
requirements of applicable law. Borrower further agrees to perform all
covenants and obligations herein which, by their express or implied terms, are
to be performed by Borrower.
10. Attorney-in-Fact. Each Pledgor hereby irrevocably constitutes
----------------
and appoints Collateral Agent its true and lawful attorney-in-fact to enforce
all rights of Pledgor with respect to the Collateral, including without
limitation, the right to vote, demand, receive and enforce Pledgor's
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rights with respect to the Collateral, and to give appropriate receipts,
releases and satisfactions for and on behalf of and in the name of the Pledgor
or, at the option of Collateral Agent, in the name of Collateral Agent, with the
same force and effect as Pledgor could do if this Agreement had not been made;
provided, however, Collateral Agent shall not exercise such rights except upon
- -------- -------
the occurrence and during the continuation of an Event of Default. This power of
attorney is a power coupled with an interest and shall be irrevocable.
11. Place of Business; Location of Records.
--------------------------------------
(a) Unless Collateral Agent is otherwise notified, the place of
business and chief executive office of each respective Pledgor is and all
records of each respective Pledgor concerning the Collateral are and will be
located at the following addresses:
ESCA, LLC
c/o Caithness Energy, L.L.C., 41st Floor
1114 Avenue of the Americas
New York, New York 10036-7790
New CLOC Company, LLC
c/o Caithness Energy, L.L.C., 41st Floor
1114 Avenue of the Americas
New York, New York 10036-7790
(b) All notices required or permitted under the terms and provisions
hereof shall be in writing and any such notice shall be effective if given in
accordance with the provisions of Section 10.02 of the Indenture. Notices to
each Pledgor may be given at the address of Borrower set forth in such Section
10.02 above. Notices to Collateral Agent shall be given to Collateral Agent c/o
Trustee at its address set forth in such Section 10.02.
12. Perfection; Further Assurances.
------------------------------
(a) Each Pledgor agrees that from time to time, it will promptly
execute and deliver all instruments and documents as required by Section 3(a)
hereof. Without limiting the generality of the foregoing, each Pledgor will (i)
deliver the Collateral or any part thereof to Collateral Agent, as Collateral
Agent may request, accompanied by such duly executed instruments of transfer or
assignment as Collateral Agent may request, and (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments, endorsements or notices, as may be reasonably necessary in order to
perfect and preserve the assignments and security interests granted or purported
to be granted hereby.
(b) Each Pledgor shall pay all filing, registration and recording fees
and all refiling, re-registration and re-recording fees, and all reasonable
expenses incident to the execution and acknowledgment of this Agreement, any
instruments of further assurance, and (except as otherwise provided in the
Indenture) all federal, state, county and municipal stamp taxes and other taxes,
duties, imports, assessments and charges arising out of or in connection with
the execution
12
<PAGE>
and delivery of this Agreement, any agreement supplemental hereto, any financing
statements, and any instruments of further assurance.
(c) Each Pledgor shall give Collateral Agent at least forty-five (45)
days prior written notice before it changes the location of its place of
business and chief executive office and shall at the expense of Borrower execute
and deliver such instruments and documents as may be required by Collateral
Agent to maintain a prior perfected security interest in the Collateral.
13. Continuing Assignment and Security Interest; Transfer of Loans.
--------------------------------------------------------------
This Agreement shall create a continuing pledge and assignment of and security
interest in the Collateral and shall (i) remain in full force and effect until
payment in full of the Obligations, (ii) be binding upon Borrower, Pledgors, and
their respective successors and assigns, and (iii) inure, together with the
rights and remedies provided herein, to the benefit of Collateral Agent, the
Holders of the Senior Secured Notes, the Permitted Additional Senior Lenders, if
any, and their respective successors, transferees and assigns. Without limiting
the generality of the foregoing, but subject to Section 2.06 of the Indenture,
any of the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, may assign or otherwise transfer all or any part of or
interest in their Senior Secured Notes to any other Person to the extent
permitted by and in accordance with the Indenture, and such other Person shall
thereupon become vested with all or an appropriate part of the benefits in
respect thereof granted to the Holders of the Senior Secured Notes herein or
otherwise. The release of the security interest in any or all of the Collateral,
the taking or acceptance of additional security, or the resort by Collateral
Agent to any security it may have in any order it may deem appropriate, shall
not affect the liability of any person on the Obligations. Upon the payment and
performance in full of the Obligations, the security interest granted hereby
shall terminate and all rights to the Collateral shall revert to Pledgors. Upon
any such termination, Collateral Agent shall, at Pledgors' expense, execute and
deliver to Pledgors such documents as Borrower or Pledgors shall reasonably
request to evidence such termination. If this Agreement shall be terminated or
revoked by operation of law, Pledgors will indemnify and save Collateral Agent,
the Trustee, the Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any, harmless from any loss which may be suffered
or incurred by Collateral Agent, Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, in acting hereunder
prior to the receipt by Collateral Agent, its successors, transferees or assigns
of written notice of such termination or revocation.
14. Liability. The obligations hereunder are subject to the
---------
limitations set forth in Section 6.11 of the Credit Agreement, the provisions of
which are hereby incorporated by reference.
15. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
13
<PAGE>
16. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17. Successors and Assigns. All covenants and agreements contained
----------------------
herein shall be binding upon, and inure to the benefit of, the parties and their
respective successors and assigns; provided, however, that such Pledgor or
Borrower shall cause its assignee to pledge the assigned Collateral to the
Collateral Agent pursuant to an agreement in substantially the form of this
Agreement.
18. Headings. The headings of the various sections herein are for
--------
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
19. Governing Law. This Agreement, including all matters of
-------------
construction, validity, performance and the creation, validity, enforcement or
priority of the lien of, and security interests created by, this Agreement in or
upon the Collateral shall be governed by the laws of the State of New York,
without reference to conflicts of law (other than Section 5-1401 of the New York
General Obligations Law), except as required by mandatory provisions of law and
except to the extent that the validity or perfection of the lien and security
interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the State of
New York.
20. Time. Time is of the essence of this Agreement.
----
21. References to Other Documents. All defined terms used in this
-----------------------------
Agreement which refer to other documents shall be deemed to refer to such other
documents as they may be amended, supplemented or replaced from time to time,
provided such documents were not amended in breach of a covenant contained in
any agreement to which any Pledgor, Borrower, Collateral Agent or Trustee is a
party.
22. Reinstatement. This Agreement shall continue to be effective or
-------------
be reinstated, as the case may be, if at any time any amount received by
Collateral Agent in respect of the Obligations is rescinded or must otherwise be
restored or returned by Collateral Agent upon the insolvency, bankruptcy,
reorganization, liquidation of any Pledgor or Borrower or upon the dissolution
of, or appointment of any intervenor or conservator of, or trustee or similar
official for any Pledgor or Borrower or any substantial part of any Pledgor's or
Borrower's assets, or otherwise, all as though such payments had not been made.
23. Statute of Limitations. Each Pledgor hereby waives the right to
----------------------
plead any statute of limitations as a defense to any indebtedness or obligation
hereunder or secured hereby to the full extent permitted by law.
14
<PAGE>
24. Entire Agreement. This Agreement, together with any other
----------------
agreement executed in connection herewith, is intended by the parties as a final
expression of their agreement and is intended as a complete and exclusive
statement of the terms and condition thereof.
25. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.
26. Waiver of Jury Trial. EACH PLEDGOR, BORROWER AND COLLATERAL
--------------------
AGENT HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING
OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER COLLATERAL
DOCUMENTS OR FINANCING DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE COLLATERAL AGENT,
BORROWER OR ANY PLEDGOR. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
COLLATERAL AGENT TO ENTER INTO THIS AGREEMENT.
27. Regarding the Collateral Agent. The Collateral Agent shall be
------------------------------
afforded all of the rights, powers, protections, immunities and indemnities set
forth in that certain Security Agreement dated as of the date hereof between
Borrower and Collateral Agent as if the same were specifically set forth herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
15
<PAGE>
IN WITNESS WHEREOF, Pledgors, Borrower and Collateral Agent have
caused this Partnership Interest Pledge Agreement to be duly executed by their
partners and officers thereunto duly authorized, as of the day and year first
above written.
New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------
Name: Judy P. Manansala
-----------------
Title: Trust Officer
-------------
16
<PAGE>
ACCEPTED AND AGREED
-------------------
COSO FINANCE PARTNERS,
a California general partnership
New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
---------------------------------
Christopher T. McCallion
Executive Vice President
ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
---------------------------------
Christopher T. McCallion
Executive Vice President
17
<PAGE>
Exhibit 10.32
PARTNERSHIP INTEREST PLEDGE AGREEMENT
Dated as of May 28, 1999
Among
CAITHNESS COSO HOLDINGS, LLC,
a Delaware limited liability company,
NEW CHIP COMPANY, LLC,
a Delaware limited liability company,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
PREFACE..................................................................... 1
1. DEFINITIONS............................................................. 2
2. ASSIGNMENT, PLEDGE AND GRANT OF SECURITY INTEREST....................... 2
3. DOCUMENTS............................................................... 3
4. EVENTS OF DEFAULT....................................................... 4
5. REMEDIES................................................................ 4
6. REMEDIES CUMULATIVE; DELAY NOT WAIVER................................... 7
7. COVENANTS AND REPRESENTATIONS OF PLEDGORS............................... 7
8. CERTAIN CONSENTS AND WAIVERS............................................ 10
9. BORROWER'S CONSENT AND COVENANTS........................................ 11
10. ATTORNEY-IN-FACT........................................................ 11
11. PLACE OF BUSINESS; LOCATION OF RECORDS.................................. 12
12. PERFECTION; FURTHER ASSURANCES.......................................... 12
13. CONTINUING ASSIGNMENT AND SECURITY INTEREST;
TRANSFER OF LOANS....................................................... 13
14. LIABILITY............................................................... 13
15. ATTORNEYS' FEES......................................................... 13
16. SEVERABILITY............................................................ 14
17. SUCCESSORS AND ASSIGNS.................................................. 14
</TABLE>
<PAGE>
<TABLE>
<S> <C>
18. HEADINGS........................................................ 14
19. GOVERNING LAW................................................... 14
20. TIME............................................................ 14
21. REFERENCES TO OTHER DOCUMENTS................................... 14
22. REINSTATEMENT................................................... 14
23. STATUTE OF LIMITATIONS.......................................... 15
24. ENTIRE AGREEMENT................................................ 15
25. COUNTERPARTS.................................................... 15
26. WAIVER OF JURY TRIAL............................................ 15
27. REGARDING THE COLLATERAL AGENT.................................. 15
</TABLE>
ii
<PAGE>
COSO ENERGY DEVELOPERS
PARTNERSHIP INTEREST PLEDGE AGREEMENT
This Partnership Interest Pledge Agreement ("Agreement"), dated as of May 28,
---------
1999, is entered into by and among COSO ENERGY DEVELOPERS, a California general
partnership ("Borrower,"), CAITHNESS COSO HOLDINGS, LLC, a Delaware limited
--------
liability company ("CCH"), NEW CHIP COMPANY, LLC, a Delaware limited liability
---
company ("NEW CHIP") (each of CCH and NEW CHIP a "Pledgor," and, collectively,
-------- -------
the "Pledgors"), and U.S. BANK TRUST NATIONAL ASSOCIATION in its capacity as
--------
collateral agent ("Collateral Agent") for U.S. BANK TRUST NATIONAL ASSOCIATION
in its capacity as trustee ("Trustee") for the holders of all senior secured
-------
notes issued pursuant to that certain Indenture dated as of May 28, 1999 (the
"Indenture"), among Borrower, Trustee, COSO FINANCE PARTNERS, a California
---------
general partnership ("Navy I"), COSO POWER DEVELOPERS, a California general
------
partnership ("Navy II"), and CAITHNESS COSO FUNDING CORP., a Delaware
-------
corporation (the "Issuer") (such notes, the "Senior Secured Notes" and the
------ --------------------
holders thereof, the "Holders of the Senior Secured Notes").
-----------------------------------
PREFACE
-------
A. Issuer has, as of the date of this Agreement, issued $413,000,000 of the
Senior Secured Notes, the proceeds of which will be used to make loans to
Borrower, Navy I and Navy II.
B. CCH and NEW CHIP are general partners in Borrower pursuant to that certain
General Partnership Agreement of COSO ENERGY DEVELOPERS, as amended and restated
as of May 28, 1999 (the "Partnership Agreement").
---------------------
C. Pursuant to a Guarantee dated as of even date herewith (the "Guarantee"),
---------
Borrower has guaranteed to Trustee and the Holders of the Senior Secured Notes
the payment and performance of Issuer's obligations under the Senior Secured
Notes and the Indenture.
D. As a condition precedent to the sale of the Senior Secured Notes, the
Borrower and Pledgors are required to have executed this Agreement as security
for the payment and performance of Borrower's obligations under the Guarantee.
AGREEMENT
---------
In consideration of the premises herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Borrower and Pledgors hereby agree with Collateral Agent for the benefit of
Trustee and the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, as follows:
<PAGE>
1. Definitions.
-----------
(a) Unless otherwise defined, all capitalized terms used herein which
are defined in the Indenture shall have their respective meanings therein
defined, and all terms, defined in the UCC shall have the respective meanings
given to those terms in the UCC.
(b) "UCC" shall mean the Uniform Commercial Code as the same may,
---
from time to time, be in effect in the State of New York; provided, however, in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
(c) "Qualifying Facility" shall mean a qualifying small power
-------------------
production facility in accordance with PURPA and the rules and regulations of
FERC under PURPA relating thereto.
(d) "FPA" shall mean the Federal Power Act of 1925, as amended.
---
(e) "PUHCA" shall mean the Public Utility Holding Company Act of
-----
1935, as amended.
(f) "PURPA" shall mean the Public Utility Regulatory Policies Act of
-----
1978, as amended, and the regulations promulgated thereunder.
2. Assignment, Pledge and Grant of Security Interest.
-------------------------------------------------
(a) To secure the timely payment and performance of the Obligations
(as defined below), each Pledgor hereby assigns and pledges to Collateral Agent
for the benefit of the Trustee, the Holders of the Senior Secured Notes and all
Permitted Additional Senior Lenders, if any, and grants to Collateral Agent for
the benefit of the Trustee, the Holders of the Senior Secured Notes and all
Permitted Additional Senior Lenders, if any, a security interest in all the
estate, right, title and interest of each such Pledgor, now owned or hereafter
acquired, in, to and under any and all of the following (the "Collateral"):
----------
Such Pledgor's partnership interest in Borrower, including without
limitation such Pledgor's (i) rights to receive all income, gain, profit,
loss or other items allocated or distributed to such Pledgor under the
Partnership Agreement, (ii) rights to receive all distributions of any
nature whatsoever by Borrower with respect to such partnership interest;
provided that the Collateral shall not include any Restricted Payments made
pursuant to the terms of the Deposit and Disbursement Agreement, (iii)
capital or ownership interest, including capital accounts, in Borrower, and
all accounts, deposits or credits of any kind with Borrower, (iv) voting
rights in or rights to control or direct the affairs of Borrower, (v)
right, title and interest, as a partner in Borrower, in or to any and all
of
2
<PAGE>
Borrower's assets or properties, (vi) other rights, title and interest in
or to Borrower, and all rights to receive income, profit or other
distributions from Borrower, of any nature whatsoever, in each case, as
such rights are derived from such Pledgor's partnership interests in
Borrower, (vii) claims for damages arising out of or for breach of or
default relating to the Collateral, and (viii) rights to terminate, amend,
supplement, modify or waive performance under the Partnership Agreement, to
perform thereunder and to compel performance and otherwise exercise all
remedies thereunder, along with all of the proceeds of any of the above and
all "general intangibles" (as such term is defined in the UCC) constituting
any of the above.
(b) This Agreement and all of the Collateral secure the payment and
performance of Borrower's obligations under the Guarantee, including, but
not limited to, the payment of all amounts owed to Collateral Agent,
Trustee, the Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any, of every kind and description (whether
or not evidenced by any note or instrument and whether or not for the
payment of money), direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, pursuant to the terms of the
Guarantee, including all interest, fees, charges, expenses, attorney's fees
and accountant's fees (all such obligations being herein called the
"Obligations").
-----------
3. Documents.
---------
(a) At any time and from time to time upon the request of Collateral
Agent, each Pledgor will (i) deliver and pledge to Collateral Agent, endorsed
and/or accompanied by such evidence of assignment and transfer, in such form and
substance as Collateral Agent may request, any and all instruments, documents,
chattel paper and/or general intangibles relating to the Collateral as
Collateral Agent may specify; (ii) give, execute, deliver, file and/or record
any notice, statement, instrument, document, agreement or other papers that may
be reasonably necessary, as Collateral Agent may reasonably request, in order to
create, preserve, perfect or validate the assignment and security interest
granted pursuant hereto or to enable Collateral Agent to exercise and enforce
its rights hereunder or with respect to such assignment and security interest;
and (iii) keep and stamp or otherwise mark any and all documents and its
individual books and records relating to Collateral in such manner as Collateral
Agent may require.
(b) Pledgor agrees that, from time to time, at the expense of
Pledgor, Pledgor will promptly execute and deliver all further instruments and
documents, and take all further action that may be necessary or required, or
that Collateral Agent may reasonably request, in order to perfect and protect
the assignment and security interest granted or intended to be granted hereby or
to enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of the
foregoing, Pledgor will execute and file such financing or continuation
statements or amendments thereto and such other instruments, endorsements or
notices as may be necessary or required, or as the Collateral Agent may
reasonably request, in order to perfect and preserve the assignments and
security interests granted or purported to be granted hereby. Notwithstanding
the foregoing, Collateral Agent shall have no obligation in respect of filing
such statements or the perfection or preservation of such security interests.
3
<PAGE>
(c) If any default by any Pledgor under the Partnership Agreement
shall occur, Collateral Agent shall, at its option, be permitted (but shall not
be obligated) to remedy any such default by giving written notice of such intent
to Borrower and the relevant Pledgor. Collateral Agent shall have a period of
sixty (60) days after giving such notice in which to cure such default. In the
event that any such default (except monetary defaults) shall not be reasonably
curable within such 60-day period, neither Borrower nor any Person acting on
behalf of Borrower, including without limitation a general partner of Borrower,
shall exercise any remedies thereunder if Collateral Agent shall, within such 60
day period, initiate action to cure such default and proceed diligently to the
curing thereof. Any cure by Collateral Agent of a Pledgor's default under the
Partnership Agreement shall not be construed as an assumption by Collateral
Agent, Trustee, any of the Holders of the Senior Secured Notes or any Permitted
Additional Senior Lender of any obligations, covenants or agreements of any
Pledgor under the Partnership Agreement, and neither Collateral Agent, Trustee,
nor any Permitted Additional Senior Lender shall be liable for any action taken
pursuant to this Section 3(c) to cure any such default. This Agreement shall not
be deemed to release or to affect in any way the obligations of any Pledgor
under the Partnership Agreement.
4. Events of Default. The occurrence and continuance of any of the
-----------------
following events ("Events of Default") whatever the reason for such Event of
-----------------
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body, shall
constitute an Event of Default hereunder and shall entitle Collateral Agent
(subject to the Indenture) to exercise any and all of its rights and remedies
hereunder or at law:
(a) the occurrence (whether as a result of acts or omissions by
Borrower or the Issuer) of an Event of Default under the Indenture; or
(b) the failure on the part of a Pledgor to observe or perform any
covenant, condition or agreement on its part to be observed or performed under,
or the breach of any representation or warranty of a Pledgor contained in, this
Agreement or the Partnership Agreement and such failure continues uncured for 30
or more days from the date a Responsible Officer of such Pledgor receives notice
thereof from the Collateral Agent; provided that if such Pledgor commences and
diligently pursues efforts to cure such default within such 30-day period, such
Pledgor may continue to effect such cure of the default and such default will
not be deemed an Event of Default for an additional 60 days so long as such
Pledgor is diligently pursuing such cure.
5. Remedies.
--------
(a) If any Event of Default has occurred and is continuing,
Collateral Agent shall have the right, at its election, but not the obligation,
to do any of the following, with respect to the defaulting Pledgor: (i) subject
to Section 5(e) below and applicable law, vote or exercise any and all of such
Pledgor's rights or powers under the Partnership Agreement, including any rights
or powers to manage or control Borrower; (ii) subject to Section 5(e) and
applicable law demand, sue for, collect or receive any money or property at any
time payable to or receivable by such Pledgor on account of or in exchange for
all or any part of the Collateral; (iii) institute and prosecute any
4
<PAGE>
action at law or suit in equity or other proceeding to collect or enforce any
Obligations or rights hereunder or in the Collateral, including specific
enforcement of any covenant or agreement contained herein or in the Partnership
Agreement, or to foreclose or enforce the security interest in all or any part
of the Collateral granted herein, or to enforce any other legal or equitable
right vested in it by this Agreement or by law; (iv) sell or otherwise dispose
of any or all of the Collateral or cause all or any part of the Collateral to be
sold or otherwise disposed of in one or more sales or transactions, at such
prices as Collateral Agent may deem commercially reasonable, and for cash or on
credit or for future delivery, without assumption of any credit risk, at any
broker's board or at public or private sale, without demand of performance or
notice of intention to sell or of time or place of sale (except such notice
which under applicable law cannot be waived), and any Holder of the Senior
Secured Notes, any Permitted Additional Senior Lender, or any other Person may
be the purchaser of any or all of the Collateral so sold and thereafter hold the
same absolutely free from any claim or right of whatsoever kind, including any
equity of redemption, of such Pledgor or Borrower, any such demand, notice or
right and equity being hereby expressly waived and released (to the extent
permitted by applicable law); (v) incur expenses, including reasonable
attorneys' fees, consultants' fees, and other costs appropriate to the exercise
of any right or power under this Agreement; (vi) perform any obligation of such
Pledgor hereunder or under the Partnership Agreement; (vii) secure the
appointment of a receiver for such Pledgor (to the extent and in the manner
permitted by applicable law); or (viii) exercise any other or additional rights
or remedies granted to a secured party under the UCC. If, pursuant to applicable
law, prior notice of any such action is required to be given to such Pledgor or
Borrower, such Pledgor and Borrower hereby acknowledges and agrees that the
minimum time required by such applicable law, or if no minimum is specified, ten
(10) Business Days, shall be deemed a reasonable notice period.
(b) In addition to the foregoing remedies, Collateral Agent (subject
to Section 3(c)) may, but shall not be obligated to, cure any Event of Default
and incur reasonable fees, costs and expenses in doing so, in which event
Borrower or the relevant Pledgor shall immediately reimburse Collateral Agent on
demand for all such fees, costs and expenses, together with interest on the
total amount at a rate equal to the "Prime Rate" of Bankers Trust Company, as
such rate is announced from time to time, plus one percent (1%) (the "Default
Rate"). Subject to the such Pledgor's rights described in paragraph (c) below to
contest certain claims, taxes, assessments, charges, liens and encumbrances,
Collateral Agent shall be the sole judge of the validity of any adverse claims,
taxes, assessments, charges, liens or encumbrances pertaining to the Collateral,
and the amount to be paid in satisfaction thereof, and of the necessity
therefor, provided Collateral Agent shall be under no obligation to do any such
acts or to make any such payments.
(c) Each Pledgor may contest in good faith any taxes, assessments and
other governmental charges in connection with the Collateral and, in such event,
may permit the taxes, assessments or other charges so contested to remain unpaid
during any period, including appeals, when such Pledgor is in good faith
contesting the same, so long as (i) reserves have been established in an amount
sufficient to pay any such taxes, assessments or other charges, accrued interest
thereon and potential penalties or other costs relating thereto, or other
adequate provision for the payment thereof shall have been made, (ii)
enforcement of the contested tax, assessment or other charge is effectively
stayed for the entire duration of such contest, and (iii) any tax, assessment or
other charge determined to be due, together with any interest or penalties
thereon, is
5
<PAGE>
immediately paid after resolution of such contest. Additionally, each Pledgor
may contest in good faith Liens for any tax, assessment or other governmental
charge, by appropriate proceedings, so long as (i) such proceedings shall not
involve any substantial danger of the sale, forfeiture or loss of the
Collateral, title thereto or any interest therein, or (ii) in connection with
such proceedings a bond or other security has been posted or provided in such
manner and amount as to provide that any taxes, assessments or other charges
determined to be due will be promptly paid in full when such contest is
determined.
(d) All reasonable costs and expenses (including without limitation
agents' and reasonable attorneys' fees and expenses) incurred by Collateral
Agent, Trustee, any Holder of the Senior Secured Notes or Permitted Additional
Senior Lender in connection with exercising any remedy provided for herein or at
law, curing any Event of Default or performing any of a Pledgor's agreements
contained herein or in the Partnership Agreement or in respect of any part of
the Collateral, together with interest thereon computed at the Default Rate from
the date on which such costs or expenses are incurred to the date of payment
thereof, shall constitute indebtedness secured by this Agreement and shall be
paid by such Pledgor or the Borrower to Collateral Agent, Trustee such Holder of
the Senior Secured Notes or such Permitted Additional Senior Lender, as the case
may be, on demand.
(e) So long as no Event of Default has occurred and is continuing,
each Pledgor reserves the right to exercise all of its rights under the
Partnership Agreement (except as limited by the Indenture) and to receive all
income and other distributions and payments from the Borrower in respect of the
Collateral. Notwithstanding any other term or provision of this Agreement, each
Pledgor shall be entitled to receive and retain for its own benefit and use all
distributions and other payments paid by the Borrower to such Pledgor in respect
of the Collateral prior to the occurrence of an Event of Default.
(f) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority specified in Section 5.10 of the Indenture. If all
Obligations and any other amounts due under this Agreement have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Pledgors, if they are lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
(g) The Collateral Agent shall not be deemed to make any
representations as to the value or condition of the Collateral and shall incur
no liability in respect thereof.
6
<PAGE>
6. Remedies Cumulative; Delay Not Waiver. No right, power or remedy
-------------------------------------
herein conferred upon or reserved to Collateral Agent, Trustee, the Holders of
the Senior Secured Notes or the Permitted Additional Senior Lenders, if any, is
intended to be exclusive of any other right, power or remedy, and every such
right, power and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right, power and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy. No delay or omission of
Collateral Agent to exercise any right or power accruing upon the occurrence and
during the continuance of any Event of Default as aforesaid shall impair any
such right or power or shall be construed to be a waiver of any such Event of
Default or an acquiescence therein. Every power and remedy given by this
Agreement may be exercised from time to time, and as often as shall be deemed
expedient, by Collateral Agent.
7. Covenants and Representations of Pledgors. Each Pledgor
-----------------------------------------
covenants, agrees and represents, solely with respect to itself, as follows:
(a) Pledgor will perform and comply, in all material respects, with
all obligations and conditions on its part to be performed hereunder, under the
Partnership Agreement or with respect to the Collateral.
(b) Pledgor (i) is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite power and authority under the laws of its state of
organization to enter into the Partnership Agreement and to perform its
obligations thereunder and to consummate the transactions contemplated thereby;
(ii) is duly qualified, authorized to do business and in good standing in each
jurisdiction where the character of its properties or the nature of its
activities makes such qualification necessary; (iii) has all requisite power and
authority (W) to carry on its business as now being conducted and as proposed to
be conducted by it, (X) to execute, deliver and perform this Agreement and the
Partnership Agreement to which it is a party, in its individual capacity, (Y) to
take all action as may be necessary to consummate the transactions contemplated
thereunder, and (Z) to grant liens and security interest provided for in this
Agreement; and (iv) has all requisite power and authority under the Partnership
Agreement to execute and deliver, on behalf of Borrower, each Financing Document
to which Borrower is a party.
(c) Pledgor has (i) taken all necessary action to authorize the
execution, delivery and performance of the Partnership Agreement and this
Agreement and each Financing Document to which it is a party; and (ii) duly
executed and delivered the Partnership Agreement and this Agreement and each
Financing Document to which it is a party. Neither any Pledgor's execution and
delivery of this Agreement and the other Financing Documents to which it is a
party nor its consummation of the transactions contemplated thereby nor its
compliance with the terms thereof (i) does or will contravene the Partnership
Agreement, the articles of incorporation or formation documents of such Pledgor
or any other requirements of law applicable to or binding on such Pledgor or any
of its properties, (ii) does or will contravene or result in any breach of or
constitute any default under, or result in or require the creation of any Lien
(other than Permitted Liens) upon any of its property under, any agreement or
instrument to which it is a
7
<PAGE>
party or by which it or any of its properties may be bound or affected or (iii)
does or will require the consent or approval of any Person which has not already
been obtained.
(d) The Partnership Agreement has been duly authorized, executed and
delivered by such Pledgor, has not been amended or otherwise modified, and is in
full force and effect and is binding upon and enforceable against such Pledgor
in accordance with its terms. There exists no default under the Partnership
Agreement by such Pledgor.
(e) This Agreement is the legal, valid and binding obligation of such
Pledgor, enforceable against such Pledgor in accordance with its terms, except
to the extent the enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and subject to general equitable
principles.
(f) Pledgor has not executed and is not aware of any effective
financing statement, security agreement or other instrument similar in effect
covering all or any part of the Collateral on file in any recording office,
except such as may have been filed pursuant to this Agreement or the other
Financing Documents or pursuant to the documents evidencing Permitted Liens.
(g) Pledgor is the lawful owner of and has full right, title and
interest in and to, the Collateral, subject to no mortgages, liens, charges, or
encumbrances of any kind other than as granted pursuant to the Partnership
Agreement, and has full power and lawful authority to pledge, assign and grant a
security interest in the Collateral granted by it hereunder. Pledgor will, so
long as any Obligations shall be outstanding, warrant and defend its title to
the Collateral against any claims and demands which may affect to a material
extent its title to, or the Collateral Agent's right or interest in, such
Collateral.
(h) Pledgor will not directly or indirectly create, incur, assume or
suffer to exist any Liens on or with respect to any part of the Collateral other
than the rights and interests of the Collateral Agent, the Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
hereunder, Permitted Liens and rights of Pledgors under the Partnership
Agreement. Pledgor will at its own cost and expense promptly take such action
as may be necessary to discharge any such liens not so permitted.
(i) Pledgor has not assigned any of its rights under the Partnership
Agreement or any of the Collateral except as provided in this Agreement.
(j) Any action or proceeding to enforce the rights granted or to
protect or preserve the Collateral under this Agreement may be taken by
Collateral Agent either in Pledgor's name or in Collateral Agent's name, as
Collateral Agent may deem necessary.
(k) Without the prior written consent of Collateral Agent, or as
otherwise permitted by the Indenture, Pledgor shall not (i) terminate or make
any material modification or amendment of the Partnership Agreement (unless
required, in the opinion of Pledgor, to maintain the Project as a "qualifying
facility"), (ii) fail to deliver to Collateral Agent a copy of each
8
<PAGE>
demand or notice received or given by it relating to the Partnership Agreement
and which could reasonably be expected to have a material adverse effect upon
the Collateral or Collateral Agent's rights therein, or (iii) sell, contract to
sell, assign, transfer or dispose of any of the Collateral.
(l) Pledgor shall give to Collateral Agent prompt written notice of
any material default, event of default or event which with the giving of notice
or the passage of time or both might become an event of default (however
"default" or "event of default" may be defined) under the Partnership Agreement,
whether by Borrower, such Pledgor, or any other Person, of which such Pledgor
has actual knowledge or has received notice.
(m) If a Pledgor in its capacity as a partner, whether general or
limited, as applicable, receives any income or distribution of money or property
of any kind in respect of the Collateral from the Borrower while an Event of
Default has occurred and is continuing, such Pledgor shall hold such income or
distribution of money or property as trustee for and shall deliver the same to
Collateral Agent.
(n) Pledgor will, at all times, keep accurate and complete records of
the Collateral. Pledgor shall, at all times on three (3) Business Days' notice,
permit representatives of Collateral Agent at any time during normal business
hours of such Pledgor to inspect and make abstracts from such Pledgor's books
and records pertaining to the Collateral. Upon the occurrence and continuance of
any Event of Default, at Collateral Agent's request, Pledgor shall promptly
deliver any and all such records to Collateral Agent.
(o) Pledgor will give prompt notice in writing to Collateral Agent of
any change in the location of the place of business where correspondence,
notices or proceeds in connection with the Collateral are received or located or
of any change in the location of the place of business where records concerning
Collateral are kept.
(p) Pledgor is not, and will not, as a result of becoming a general
partner of Borrower, be or become, or cause Borrower to be or become or to be
deemed by any Governmental Authority to be, solely as a result of the
construction, ownership, leasing or operation of the Project, the sale of
electricity therefrom or the entering into of any Financing Document or any
transaction contemplated thereby, a "utility" or subject to or not exempt from
regulation under the FPA (other than such regulation contemplated under 18
C.F.R. (S) 292.601(e)) or the PUHCA (other than Section 9(a)(2) of PUHCA) or
under state laws and regulations respecting the rates or the financial or
organizational regulation of public or electric utilities except as a Qualifying
Facility under PURPA.
(q) Pledgor will not do anything or cause, suffer or permit anything
to be done, including without limitation sale or other transfer of a Pledgor's
partnership interest in Borrower or of any stock, partnership interest or other
ownership interest in any Pledgor (other than the exercise by others of remedies
under the Financing Documents), which may cause the Project to lose its status
as a Qualifying Facility.
9
<PAGE>
(r) Pledgor shall not register, or permit the Borrower to register,
any other secured party as a "registered owner" (as defined in Section 8-301 of
the New York UCC) of any partnership interest in Borrower.
8. Certain Consents and Waivers.
----------------------------
(a) Each Pledgor hereby consents to each of the other Pledgors
entering into this Agreement in favor of Collateral Agent for the benefit of the
Trustee, the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any. Each Pledgor specifically agrees that such action may,
among other things, assign or delegate to Collateral Agent rights to cure
defaults under the Partnership Agreement, to exercise voting rights and other
rights to manage or control the Borrower, and to act as such other Pledgor's
attorney-in-fact in a manner similar to the assignment and delegation of such
rights provided herein. Each Pledgor (to the extent permitted by applicable
law) agrees that it will recognize and accept such assignment and delegation and
the exercise of such rights by Collateral Agent in connection with this
Agreement and agrees that any option or rights of any Pledgor to acquire any of
the Collateral from any other Pledgor pursuant to the Partnership Agreement
shall be subordinate to any right of the Trustee in the Collateral created
hereunder.
(b) Each Pledgor hereby waives, to the maximum extent permitted by
law (i) all rights under any law limiting remedies, including recovery of a
deficiency, under an obligation secured by a deed of trust on real property if
the real property is sold under a power of sale contained in the deed of trust,
and all defenses based on any loss whether as a result of any such sale or
otherwise, of Pledgor's right to recover any amount from Borrower, whether by
right of subrogation or otherwise; (ii) all rights under any law to require
Collateral Agent to pursue Borrower or any other Person, any security which
Collateral Agent may hold, or any other remedy before proceeding against
Pledgor; (iii) all rights of reimbursement or subrogation, all rights to enforce
any remedy that Collateral Agent, the Trustee, the Holders of the Senior Secured
Notes or the Permitted Additional Senior Lenders, if any, may have against
Borrower, and all rights to participate in any security held by Collateral Agent
until the Obligations have been paid and the covenants of the Indenture have
been performed in full; (iv) all rights to require Collateral Agent to give any
notices of any kind, including without limitation notices of nonpayment,
nonperformance, protest, dishonor, default, delinquency or acceleration, or to
make any presentments, demands or protests, except as expressly provided herein
and in the Indenture; (v) all rights to assert the bankruptcy or insolvency of
Borrower as a defense hereunder or as the basis for rescission hereof; (vi) all
rights under any law purporting to reduce Pledgors' Obligations hereunder if
Borrower's Obligations are reduced; (vii) all defenses based on the disability
or lack of authority of Borrower or any Person, the repudiation of the
Guarantees or any related Financing Documents by Borrower or any Person, the
failure by Collateral Agent, the Trustee, the Holders of the Senior Secured
Notes or any Permitted Additional Senior Lender, if any, to enforce any claim
against Borrower, or the unenforceability in whole or in part of any Financing
Document; (viii) all suretyship and guarantor's defenses generally; (ix) all
rights to insist upon, plead or in any manner whatever claim or take the benefit
or advantage of, any appraisal, valuation, stay, extension, marshaling of
assets, redemption or similar law, or exemption, whether now or at any time
hereafter in force, which may delay, prevent or otherwise affect the performance
by Pledgor or its obligations under, or the enforcement
10
<PAGE>
by Collateral Agent of, this Agreement; (x) any requirement on the part of
Collateral Agent, Trustee, the Holders of the Senior Secured Notes or any
Permitted Additional Senior Lender, if any, to mitigate the damages resulting
from any default; and (xi) except as otherwise specifically set forth herein,
all rights of notice and hearing of any kind prior to the exercise of rights by
Collateral Agent upon the occurrence and during the continuation of an Event of
Default to repossess with judicial process or to replevy, attach or levy upon
the Collateral. To the extent permitted by applicable law, each Pledgor waives
the posting of any bond otherwise required of Collateral Agent in connection
with any judicial process or proceeding to obtain possession of, replevy,
attach, or levy upon the Collateral, to enforce any judgment or other security
for the Obligations, to enforce any judgment or other court order entered in
favor of Collateral Agent, or to enforce by specific performance, temporary
restraining order, preliminary or permanent injunction, this Agreement or any
other agreement or document between any Pledgor, Collateral Agent, Trustee, the
Holders of the Senior Secured Notes or any Permitted Additional Senior Lender,
if any. Each Pledgor further agrees that upon the occurrence and continuance of
an Event of Default, Collateral Agent may elect to nonjudicially or judicially
foreclose against any real or personal property security it holds for the
Obligations or any part thereof, or to exercise any other remedy against
Borrower, any security or any guarantor, even if the effect of that action is to
deprive a Pledgor of the right to collect reimbursement from Borrower for any
sums paid by such Pledgor to Collateral Agent, Trustee or any Holder of the
Senior Secured Notes or any Permitted Additional Senior Lender, if any.
(c) If Collateral Agent may, under applicable law, proceed to realize
its benefits under any of the Financing Documents giving Collateral Agent a Lien
upon any Collateral, whether owned by any Borrower, any Pledgor or by any other
Person, either by judicial foreclosure or by nonjudicial sale or enforcement,
Collateral Agent may, at its sole option, determine which of its remedies or
rights it may pursue without affecting any of the rights and remedies of
Collateral Agent under this Agreement. In the event Collateral Agent shall bid
at any foreclosure or trustee's sale or at any private sale permitted by law or
the Financing Documents, Collateral Agent may bid all or less than the amount of
Obligations. To the extent permitted by applicable law, the amount of the
successful bid at any such sale, whether Collateral Agent or any other party is
the successful bidder, shall be conclusively deemed to be the fair market value
of the Collateral and the difference between such bid amount and the remaining
balance of the Obligations shall be conclusively deemed to be the amount of the
Obligations.
9. Borrower's Consent and Covenants. Borrower hereby consents to
--------------------------------
the assignment of and grant of a security interest in the Collateral to
Collateral Agent and to the exercise by Collateral Agent of all rights and
powers assigned or delegated to Collateral Agent by each Pledgor hereunder,
including without limitation the rights upon and during an Event of Default to
exercise such Pledgor's voting rights and other rights under the Partnership
Agreement to manage or control Borrower, subject to the notice and other
requirements of applicable law. Borrower further agrees to perform all covenants
and obligations herein which, by their express or implied terms, are to be
performed by Borrower.
10. Attorney-in-Fact. Each Pledgor hereby irrevocably constitutes
----------------
and appoints Collateral Agent its true and lawful attorney-in-fact to enforce
all rights of Pledgor with respect to the Collateral, including without
limitation, the right to vote, demand, receive and enforce Pledgor's
11
<PAGE>
rights with respect to the Collateral, and to give appropriate receipts,
releases and satisfactions for and on behalf of and in the name of the Pledgor
or, at the option of Collateral Agent, in the name of Collateral Agent, with the
same force and effect as Pledgor could do if this Agreement had not been made;
provided, however, Collateral Agent shall not exercise such rights except upon
- -------- -------
the occurrence and during the continuation of an Event of Default. This power of
attorney is a power coupled with an interest and shall be irrevocable.
11. Place of Business; Location of Records.
--------------------------------------
(a) Unless Collateral Agent is otherwise notified, the place of
business and chief executive office of each respective Pledgor is and all
records of each respective Pledgor concerning the Collateral are and will be
located at the following addresses:
Caithness Coso Holdings, LLC
c/o Caithness Energy, L.L.C.,
1114 Avenue of the Americas, 41st Floor
New York, New York 10036-7790
New CHIP Company, LLC
c/o Caithness Energy, L.L.C.,
1114 Avenue of the Americas 41st Floor
New York, New York 10036-7790
(b) All notices required or permitted under the terms and provisions
hereof shall be in writing and any such notice shall be effective if given in
accordance with the provisions of Section 10.02 of the Indenture. Notices to
each Pledgor may be given at the address of Borrower set forth in such Section
10.02 above. Notices to Collateral Agent shall be given to Collateral Agent c/o
Trustee at its address set forth in such Section 10.02.
12. Perfection; Further Assurances.
------------------------------
(a) Each Pledgor agrees that from time to time, it will promptly
execute and deliver all instruments and documents as required by Section 3(a)
hereof. Without limiting the generality of the foregoing, each Pledgor will (i)
deliver the Collateral or any part thereof to Collateral Agent, as Collateral
Agent may request, accompanied by such duly executed instruments of transfer or
assignment as Collateral Agent may request, and (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments, endorsements or notices, as may be reasonably necessary in order to
perfect and preserve the assignments and security interests granted or purported
to be granted hereby.
(b) Each Pledgor shall pay all filing, registration and recording
fees and all refiling, re-registration and re-recording fees, and all reasonable
expenses incident to the execution and acknowledgment of this Agreement, any
instruments of further assurance, and (except as otherwise provided in the
Indenture) all federal, state, county and municipal stamp taxes and other taxes,
duties, imports, assessments and charges arising out of or in connection with
the execution
12
<PAGE>
and delivery of this Agreement, any agreement supplemental hereto, any financing
statements, and any instruments of further assurance.
(c) Each Pledgor shall give Collateral Agent at least forty-five (45)
days prior written notice before it changes the location of its place of
business and chief executive office and shall at the expense of Borrower execute
and deliver such instruments and documents as may be required by Collateral
Agent to maintain a prior perfected security interest in the Collateral.
13. Continuing Assignment and Security Interest; Transfer of Loans.
--------------------------------------------------------------
This Agreement shall create a continuing pledge and assignment of and security
interest in the Collateral and shall (i) remain in full force and effect until
payment in full of the Obligations, (ii) be binding upon Borrower, Pledgors, and
their respective successors and assigns, and (iii) inure, together with the
rights and remedies provided herein, to the benefit of Collateral Agent, the
Holders of the Senior Secured Notes, the Permitted Additional Senior Lenders, if
any, and their respective successors, transferees and assigns. Without limiting
the generality of the foregoing, but subject to Section 2.06 of the Indenture,
any of the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, may assign or otherwise transfer all or any part of or
interest in their Senior Secured Notes to any other Person to the extent
permitted by and in accordance with the Indenture, and such other Person shall
thereupon become vested with all or an appropriate part of the benefits in
respect thereof granted to the Holders of the Senior Secured Notes herein or
otherwise. The release of the security interest in any or all of the Collateral,
the taking or acceptance of additional security, or the resort by Collateral
Agent to any security it may have in any order it may deem appropriate, shall
not affect the liability of any person on the Obligations. Upon the payment and
performance in full of the Obligations, the security interest granted hereby
shall terminate and all rights to the Collateral shall revert to Pledgors. Upon
any such termination, Collateral Agent shall, at Pledgors' expense, execute and
deliver to Pledgors such documents as Borrower or Pledgors shall reasonably
request to evidence such termination. If this Agreement shall be terminated or
revoked by operation of law, Pledgors will indemnify and save Collateral Agent,
the Trustee, the Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any, harmless from any loss which may be suffered
or incurred by Collateral Agent, Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, in acting hereunder
prior to the receipt by Collateral Agent, its successors, transferees or assigns
of written notice of such termination or revocation.
14. Liability. The obligations hereunder are subject to the
---------
limitations set forth in Section 6.11 of the Credit Agreement, the provisions of
which are hereby incorporated by reference.
15. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
13
<PAGE>
16. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17. Successors and Assigns. All covenants and agreements contained
----------------------
herein shall be binding upon, and inure to the benefit of, the parties and their
respective successors and assigns; provided, however, that such Pledgor or
Borrower shall cause its assignee to pledge the assigned Collateral to the
Collateral Agent pursuant to an agreement in substantially the form of this
Agreement.
18. Headings. The headings of the various sections herein are for
--------
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
19. Governing Law. This Agreement, including all matters of
-------------
construction, validity, performance and the creation, validity, enforcement or
priority of the lien of, and security interests created by, this Agreement in or
upon the Collateral shall be governed by the laws of the State of New York,
without reference to conflicts of law (other than Section 5-1401 of the New York
General Obligations Law), except as required by mandatory provisions of law and
except to the extent that the validity or perfection of the lien and security
interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the State of
New York.
20. Time. Time is of the essence of this Agreement.
----
21. References to Other Documents. All defined terms used in this
-----------------------------
Agreement which refer to other documents shall be deemed to refer to such other
documents as they may be amended, supplemented or replaced from time to time,
provided such documents were not amended in breach of a covenant contained in
any agreement to which any Pledgor, Borrower, Collateral Agent or Trustee is a
party.
22. Reinstatement. This Agreement shall continue to be effective or
-------------
be reinstated, as the case may be, if at any time any amount received by
Collateral Agent in respect of the Obligations is rescinded or must otherwise be
restored or returned by Collateral Agent upon the insolvency, bankruptcy,
reorganization, liquidation of any Pledgor or Borrower or upon the dissolution
of, or appointment of any intervenor or conservator of, or trustee or similar
official for any Pledgor or Borrower or any substantial part of any Pledgor's or
Borrower's assets, or otherwise, all as though such payments had not been made.
23. Statute of Limitations. Each Pledgor hereby waives the right to
----------------------
plead any statute of limitations as a defense to any indebtedness or obligation
hereunder or secured hereby to the full extent permitted by law.
14
<PAGE>
24. Entire Agreement. This Agreement, together with any other
----------------
agreement executed in connection herewith, is intended by the parties as a final
expression of their agreement and is intended as a complete and exclusive
statement of the terms and condition thereof.
25. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.
26. Waiver of Jury Trial. EACH PLEDGOR, BORROWER AND COLLATERAL
--------------------
AGENT HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING
OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER COLLATERAL
DOCUMENTS OR FINANCING DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE COLLATERAL AGENT,
BORROWER OR ANY PLEDGOR. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
COLLATERAL AGENT TO ENTER INTO THIS AGREEMENT.
27. Regarding the Collateral Agent. The Collateral Agent shall be
------------------------------
afforded all of the rights, powers, protections, immunities and indemnities set
forth in that certain Security Agreement dated as of the date hereof between
Borrower and Collateral Agent as if the same were specifically set forth herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
15
<PAGE>
IN WITNESS WHEREOF, Pledgors, Borrower and Collateral Agent have
caused this Partnership Interest Pledge Agreement to be duly executed by their
partners and officers thereunto duly authorized, as of the day and year first
above written.
NEW CHIP COMPANY, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
CAITHNESS COSO HOLDINGS, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------
Name: Judy P. Manansala
-----------------
Title: Trust Officer
-------------
16
<PAGE>
ACCEPTED AND AGREED
-------------------
COSO ENERGY DEVELOPERS,
a California general partnership
NEW CHIP COMPANY, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
CAITHNESS COSO HOLDINGS, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
17
<PAGE>
EXHIBIT 10.33
PARTNERSHIP INTEREST PLEDGE AGREEMENT
Dated as of May 28, 1999
Among
CAITHNESS NAVY II GROUP, LLC,
a Delaware limited liability company,
NEW CTC COMPANY, LLC,
a Delaware limited liability company,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
PREFACE.............................................................. 1
1. DEFINITIONS...................................................... 2
2. ASSIGNMENT, PLEDGE AND GRANT OF SECURITY INTEREST................ 2
3. DOCUMENTS........................................................ 3
4. EVENTS OF DEFAULT................................................ 4
5. REMEDIES......................................................... 4
6. REMEDIES CUMULATIVE; DELAY NOT WAIVER............................ 7
7. COVENANTS AND REPRESENTATIONS OF PLEDGORS........................ 7
8. CERTAIN CONSENTS AND WAIVERS..................................... 10
9. BORROWER'S CONSENT AND COVENANTS................................. 11
10. ATTORNEY-IN-FACT................................................. 11
11. PLACE OF BUSINESS; LOCATION OF RECORDS........................... 12
12. PERFECTION; FURTHER ASSURANCES................................... 12
13. CONTINUING ASSIGNMENT AND SECURITY INTEREST;
TRANSFER OF LOANS................................................ 13
14. LIABILITY........................................................ 13
15. ATTORNEYS' FEES.................................................. 13
16. SEVERABILITY..................................................... 14
17. SUCCESSORS AND ASSIGNS........................................... 14
</TABLE>
<PAGE>
<TABLE>
<S> <C>
18. HEADINGS......................................................... 14
19. GOVERNING LAW.................................................... 14
20. TIME............................................................. 14
21. REFERENCES TO OTHER DOCUMENTS.................................... 14
22. REINSTATEMENT.................................................... 14
23. STATUTE OF LIMITATIONS........................................... 15
24. ENTIRE AGREEMENT................................................. 15
25. COUNTERPARTS..................................................... 15
26. WAIVER OF JURY TRIAL............................................. 15
27. REGARDING THE COLLATERAL AGENT................................... 15
</TABLE>
ii
<PAGE>
COSO POWER DEVELOPERS
PARTNERSHIP INTEREST PLEDGE AGREEMENT
This Partnership Interest Pledge Agreement ("Agreement"), dated as of May 28,
---------
1999, is entered into by and among COSO POWER DEVELOPERS, a California general
partnership ("Borrower"), CAITHNESS NAVY II GROUP, LLC, a Delaware limited
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liability company ("CNG"), NEW CTC COMPANY, LLC, a Delaware limited liability
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company ("NEW CTC") (each of CCH and NEW CTC a "Pledgor," and, collectively, the
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"Pledgors"), and U.S. BANK TRUST NATIONAL ASSOCIATION in its capacity as
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collateral agent ("Collateral Agent") for U.S. BANK TRUST NATIONAL ASSOCIATION
in its capacity as trustee ("Trustee") for the holders of all senior secured
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notes issued pursuant to that certain Indenture dated as of May 28, 1999 (the
"Indenture"), among Borrower, Trustee, COSO ENERGY DEVELOPERS, a California
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general partnership ("BLM"), COSO FINANCE PARTNERS, a California general
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partnership ("Navy II"), and CAITHNESS COSO FUNDING CORP., a Delaware
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corporation (the "Issuer") (such notes, the "Senior Secured Notes" and the
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holders thereof, the "Holders of the Senior Secured Notes").
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PREFACE
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A. Issuer has, as of the date of this Agreement, issued $413,000,000 of the
Senior Secured Notes, the proceeds of which will be used to make loans to
Borrower, Navy I and BLM.
B. CNG and NEW CTC are general partners in Borrower pursuant to that certain
General Partnership Agreement of COSO POWER DEVELOPERS, as amended and restated
as of May 28, 1999 (the "Partnership Agreement").
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C. Pursuant to a Guarantee dated as of even date herewith (the "Guarantee"),
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Borrower has guaranteed to Trustee and the Holders of the Senior Secured Notes
the payment and performance of Issuer's obligations under the Senior Secured
Notes and the Indenture.
D. As a condition precedent to the sale of the Senior Secured Notes, the
Borrower and Pledgors are required to have executed this Agreement as security
for the payment and performance of Borrower's obligations under the Guarantee.
AGREEMENT
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In consideration of the premises herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Borrower and Pledgors hereby agree with Collateral Agent for the benefit of
Trustee and the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, as follows:
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1. Definitions.
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(a) Unless otherwise defined, all capitalized terms used herein which
are defined in the Indenture shall have their respective meanings therein
defined, and all terms, defined in the UCC shall have the respective meanings
given to those terms in the UCC.
(b) "UCC" shall mean the Uniform Commercial Code as the same may,
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from time to time, be in effect in the State of New York; provided, however, in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
(c) "Qualifying Facility" shall mean a qualifying small power
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production facility in accordance with PURPA and the rules and regulations of
FERC under PURPA relating thereto.
(d) "FPA" shall mean the Federal Power Act of 1925, as amended.
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(e) "PUHCA" shall mean the Public Utility Holding Company Act of
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1935, as amended.
(f) "PURPA" shall mean the Public Utility Regulatory Policies Act of
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1978, as amended, and the regulations promulgated thereunder.
2. Assignment, Pledge and Grant of Security Interest.
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(a) To secure the timely payment and performance of the Obligations
(as defined below), each Pledgor hereby assigns and pledges to Collateral Agent
for the benefit of the Trustee, the Holders of the Senior Secured Notes and all
Permitted Additional Senior Lenders, if any, and grants to Collateral Agent for
the benefit of the Trustee, the Holders of the Senior Secured Notes and all
Permitted Additional Senior Lenders, if any, a security interest in all the
estate, right, title and interest of each such Pledgor, now owned or hereafter
acquired, in, to and under any and all of the following (the "Collateral"):
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Such Pledgor's partnership interest in Borrower, including without
limitation such Pledgor's (i) rights to receive all income, gain, profit,
loss or other items allocated or distributed to such Pledgor under the
Partnership Agreement, (ii) rights to receive all distributions of any
nature whatsoever by Borrower with respect to such partnership interest;
provided that the Collateral shall not include any Restricted Payments made
pursuant to the terms of the Deposit and Disbursement Agreement, (iii)
capital or ownership interest, including capital accounts, in Borrower, and
all accounts, deposits or credits of any kind with Borrower, (iv) voting
rights in or rights to control or direct the affairs of Borrower, (v)
right, title and interest, as a partner in Borrower, in or to any and all
of
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Borrower's assets or properties, (vi) other rights, title and interest in
or to Borrower, and all rights to receive income, profit or other
distributions from Borrower, of any nature whatsoever, in each case, as
such rights are derived from such Pledgor's partnership interests in
Borrower, (vii) claims for damages arising out of or for breach of or
default relating to the Collateral, and (viii) rights to terminate, amend,
supplement, modify or waive performance under the Partnership Agreement, to
perform thereunder and to compel performance and otherwise exercise all
remedies thereunder, along with all of the proceeds of any of the above and
all "general intangibles" (as such term is defined in the UCC) constituting
any of the above.
(b) This Agreement and all of the Collateral secure the payment and
performance of Borrower's obligations under the Guarantee, including, but not
limited to, the payment of all amounts owed to Collateral Agent, Trustee, the
Holders of the Senior Secured Notes and the Permitted Additional Senior Lenders,
if any, of every kind and description (whether or not evidenced by any note or
instrument and whether or not for the payment of money), direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
pursuant to the terms of the Guarantee, including all interest, fees, charges,
expenses, attorney's fees and accountant's fees (all such obligations being
herein called the "Obligations").
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3. Documents.
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(a) At any time and from time to time upon the request of Collateral
Agent, each Pledgor will (i) deliver and pledge to Collateral Agent, endorsed
and/or accompanied by such evidence of assignment and transfer, in such form and
substance as Collateral Agent may request, any and all instruments, documents,
chattel paper and/or general intangibles relating to the Collateral as
Collateral Agent may specify; (ii) give, execute, deliver, file and/or record
any notice, statement, instrument, document, agreement or other papers that may
be reasonably necessary, as Collateral Agent may reasonably request, in order to
create, preserve, perfect or validate the assignment and security interest
granted pursuant hereto or to enable Collateral Agent to exercise and enforce
its rights hereunder or with respect to such assignment and security interest;
and (iii) keep and stamp or otherwise mark any and all documents and its
individual books and records relating to Collateral in such manner as Collateral
Agent may require.
(b) Pledgor agrees that, from time to time, at the expense of
Pledgor, Pledgor will promptly execute and deliver all further instruments and
documents, and take all further action that may be necessary or required, or
that Collateral Agent may reasonably request, in order to perfect and protect
the assignment and security interest granted or intended to be granted hereby or
to enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of the
foregoing, Pledgor will execute and file such financing or continuation
statements or amendments thereto and such other instruments, endorsements or
notices as may be necessary or required, or as the Collateral Agent may
reasonably request, in order to perfect and preserve the assignments and
security interests granted or purported to be granted hereby. Notwithstanding
the foregoing, Collateral Agent shall have no obligation in respect of filing
such statements or the perfection or preservation of such security interests.
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(c) If any default by any Pledgor under the Partnership Agreement
shall occur, Collateral Agent shall, at its option, be permitted (but shall not
be obligated) to remedy any such default by giving written notice of such intent
to Borrower and the relevant Pledgor. Collateral Agent shall have a period of
sixty (60) days after giving such notice in which to cure such default. In the
event that any such default (except monetary defaults) shall not be reasonably
curable within such 60-day period, neither Borrower nor any Person acting on
behalf of Borrower, including without limitation a general partner of Borrower,
shall exercise any remedies thereunder if Collateral Agent shall, within such 60
day period, initiate action to cure such default and proceed diligently to the
curing thereof. Any cure by Collateral Agent of a Pledgor's default under the
Partnership Agreement shall not be construed as an assumption by Collateral
Agent, Trustee, any of the Holders of the Senior Secured Notes or any Permitted
Additional Senior Lender of any obligations, covenants or agreements of any
Pledgor under the Partnership Agreement, and neither Collateral Agent, Trustee,
nor any Permitted Additional Senior Lender shall be liable for any action taken
pursuant to this Section 3(c) to cure any such default. This Agreement shall not
be deemed to release or to affect in any way the obligations of any Pledgor
under the Partnership Agreement.
4. Events of Default. The occurrence and continuance of any of the
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following events ("Events of Default") whatever the reason for such Event of
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Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body, shall
constitute an Event of Default hereunder and shall entitle Collateral Agent
(subject to the Indenture) to exercise any and all of its rights and remedies
hereunder or at law:
(a) the occurrence (whether as a result of acts or omissions by
Borrower or the Issuer) of an Event of Default under the Indenture; or
(b) the failure on the part of a Pledgor to observe or perform any
covenant, condition or agreement on its part to be observed or performed under,
or the breach of any representation or warranty of a Pledgor contained in, this
Agreement or the Partnership Agreement and such failure continues uncured for 30
or more days from the date a Responsible Officer of such Pledgor receives notice
thereof from the Collateral Agent; provided that if such Pledgor commences and
diligently pursues efforts to cure such default within such 30-day period, such
Pledgor may continue to effect such cure of the default and such default will
not be deemed an Event of Default for an additional 60 days so long as such
Pledgor is diligently pursuing such cure.
5. Remedies.
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(a) If any Event of Default has occurred and is continuing,
Collateral Agent shall have the right, at its election, but not the obligation,
to do any of the following, with respect to the defaulting Pledgor: (i) subject
to Section 5(e) below and applicable law, vote or exercise any and all of such
Pledgor's rights or powers under the Partnership Agreement, including any rights
or powers to manage or control Borrower; (ii) subject to Section 5(e) and
applicable law demand, sue for, collect or receive any money or property at any
time payable to or receivable by such Pledgor on account of or in exchange for
all or any part of the Collateral; (iii) institute and prosecute any
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action at law or suit in equity or other proceeding to collect or enforce any
Obligations or rights hereunder or in the Collateral, including specific
enforcement of any covenant or agreement contained herein or in the Partnership
Agreement, or to foreclose or enforce the security interest in all or any part
of the Collateral granted herein, or to enforce any other legal or equitable
right vested in it by this Agreement or by law; (iv) sell or otherwise dispose
of any or all of the Collateral or cause all or any part of the Collateral to be
sold or otherwise disposed of in one or more sales or transactions, at such
prices as Collateral Agent may deem commercially reasonable, and for cash or on
credit or for future delivery, without assumption of any credit risk, at any
broker's board or at public or private sale, without demand of performance or
notice of intention to sell or of time or place of sale (except such notice
which under applicable law cannot be waived), and any Holder of the Senior
Secured Notes, any Permitted Additional Senior Lender, or any other Person may
be the purchaser of any or all of the Collateral so sold and thereafter hold the
same absolutely free from any claim or right of whatsoever kind, including any
equity of redemption, of such Pledgor or Borrower, any such demand, notice or
right and equity being hereby expressly waived and released (to the extent
permitted by applicable law); (v) incur expenses, including reasonable
attorneys' fees, consultants' fees, and other costs appropriate to the exercise
of any right or power under this Agreement; (vi) perform any obligation of such
Pledgor hereunder or under the Partnership Agreement; (vii) secure the
appointment of a receiver for such Pledgor (to the extent and in the manner
permitted by applicable law); or (viii) exercise any other or additional rights
or remedies granted to a secured party under the UCC. If, pursuant to applicable
law, prior notice of any such action is required to be given to such Pledgor or
Borrower, such Pledgor and Borrower hereby acknowledges and agrees that the
minimum time required by such applicable law, or if no minimum is specified, ten
(10) Business Days, shall be deemed a reasonable notice period.
(b) In addition to the foregoing remedies, Collateral Agent (subject
to Section 3(c)) may, but shall not be obligated to, cure any Event of Default
and incur reasonable fees, costs and expenses in doing so, in which event
Borrower or the relevant Pledgor shall immediately reimburse Collateral Agent on
demand for all such fees, costs and expenses, together with interest on the
total amount at a rate equal to the "Prime Rate" of Bankers Trust Company, as
such rate is announced from time to time, plus one percent (1%) (the "Default
Rate"). Subject to the such Pledgor's rights described in paragraph (c) below to
contest certain claims, taxes, assessments, charges, liens and encumbrances,
Collateral Agent shall be the sole judge of the validity of any adverse claims,
taxes, assessments, charges, liens or encumbrances pertaining to the Collateral,
and the amount to be paid in satisfaction thereof, and of the necessity
therefor, provided Collateral Agent shall be under no obligation to do any such
acts or to make any such payments.
(c) Each Pledgor may contest in good faith any taxes, assessments and
other governmental charges in connection with the Collateral and, in such event,
may permit the taxes, assessments or other charges so contested to remain unpaid
during any period, including appeals, when such Pledgor is in good faith
contesting the same, so long as (i) reserves have been established in an amount
sufficient to pay any such taxes, assessments or other charges, accrued interest
thereon and potential penalties or other costs relating thereto, or other
adequate provision for the payment thereof shall have been made, (ii)
enforcement of the contested tax, assessment or other charge is effectively
stayed for the entire duration of such contest, and (iii) any tax, assessment or
other charge determined to be due, together with any interest or penalties
thereon, is
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immediately paid after resolution of such contest. Additionally, each Pledgor
may contest in good faith Liens for any tax, assessment or other governmental
charge, by appropriate proceedings, so long as (i) such proceedings shall not
involve any substantial danger of the sale, forfeiture or loss of the
Collateral, title thereto or any interest therein, or (ii) in connection with
such proceedings a bond or other security has been posted or provided in such
manner and amount as to provide that any taxes, assessments or other charges
determined to be due will be promptly paid in full when such contest is
determined.
(d) All reasonable costs and expenses (including without limitation
agents' and reasonable attorneys' fees and expenses) incurred by Collateral
Agent, Trustee, any Holder of the Senior Secured Notes or Permitted Additional
Senior Lender in connection with exercising any remedy provided for herein or at
law, curing any Event of Default or performing any of a Pledgor's agreements
contained herein or in the Partnership Agreement or in respect of any part of
the Collateral, together with interest thereon computed at the Default Rate from
the date on which such costs or expenses are incurred to the date of payment
thereof, shall constitute indebtedness secured by this Agreement and shall be
paid by such Pledgor or the Borrower to Collateral Agent, Trustee such Holder of
the Senior Secured Notes or such Permitted Additional Senior Lender, as the case
may be, on demand.
(e) So long as no Event of Default has occurred and is continuing,
each Pledgor reserves the right to exercise all of its rights under the
Partnership Agreement (except as limited by the Indenture) and to receive all
income and other distributions and payments from the Borrower in respect of the
Collateral. Notwithstanding any other term or provision of this Agreement, each
Pledgor shall be entitled to receive and retain for its own benefit and use all
distributions and other payments paid by the Borrower to such Pledgor in respect
of the Collateral prior to the occurrence of an Event of Default.
(f) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority specified in Section 5.10 of the Indenture. If all
Obligations and any other amounts due under this Agreement have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Pledgors, if they are lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
(g) The Collateral Agent shall not be deemed to make any
representations as to the value or condition of the Collateral and shall incur
no liability in respect thereof.
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6. Remedies Cumulative; Delay Not Waiver. No right, power or remedy
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herein conferred upon or reserved to Collateral Agent, Trustee, the Holders of
the Senior Secured Notes or the Permitted Additional Senior Lenders, if any, is
intended to be exclusive of any other right, power or remedy, and every such
right, power and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right, power and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy. No delay or omission of
Collateral Agent to exercise any right or power accruing upon the occurrence and
during the continuance of any Event of Default as aforesaid shall impair any
such right or power or shall be construed to be a waiver of any such Event of
Default or an acquiescence therein. Every power and remedy given by this
Agreement may be exercised from time to time, and as often as shall be deemed
expedient, by Collateral Agent.
7. Covenants and Representations of Pledgors. Each Pledgor
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covenants, agrees and represents, solely with respect to itself, as follows:
(a) Pledgor will perform and comply, in all material respects, with
all obligations and conditions on its part to be performed hereunder, under the
Partnership Agreement or with respect to the Collateral.
(b) Pledgor (i) is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite power and authority under the laws of its state of
organization to enter into the Partnership Agreement and to perform its
obligations thereunder and to consummate the transactions contemplated thereby;
(ii) is duly qualified, authorized to do business and in good standing in each
jurisdiction where the character of its properties or the nature of its
activities makes such qualification necessary; (iii) has all requisite power and
authority (W) to carry on its business as now being conducted and as proposed to
be conducted by it, (X) to execute, deliver and perform this Agreement and the
Partnership Agreement to which it is a party, in its individual capacity, (Y) to
take all action as may be necessary to consummate the transactions contemplated
thereunder, and (Z) to grant liens and security interest provided for in this
Agreement; and (iv) has all requisite power and authority under the Partnership
Agreement to execute and deliver, on behalf of Borrower, each Financing Document
to which Borrower is a party.
(c) Pledgor has (i) taken all necessary action to authorize the
execution, delivery and performance of the Partnership Agreement and this
Agreement and each Financing Document to which it is a party; and (ii) duly
executed and delivered the Partnership Agreement and this Agreement and each
Financing Document to which it is a party. Neither any Pledgor's execution and
delivery of this Agreement and the other Financing Documents to which it is a
party nor its consummation of the transactions contemplated thereby nor its
compliance with the terms thereof (i) does or will contravene the Partnership
Agreement, the articles of incorporation or formation documents of such Pledgor
or any other requirements of law applicable to or binding on such Pledgor or any
of its properties, (ii) does or will contravene or result in any breach of or
constitute any default under, or result in or require the creation of any Lien
(other than Permitted Liens) upon any of its property under, any agreement or
instrument to which it is a
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party or by which it or any of its properties may be bound or affected or (iii)
does or will require the consent or approval of any Person which has not already
been obtained.
(d) The Partnership Agreement has been duly authorized, executed and
delivered by such Pledgor, has not been amended or otherwise modified, and is in
full force and effect and is binding upon and enforceable against such Pledgor
in accordance with its terms. There exists no default under the Partnership
Agreement by such Pledgor.
(e) This Agreement is the legal, valid and binding obligation of such
Pledgor, enforceable against such Pledgor in accordance with its terms, except
to the extent the enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and subject to general equitable
principles.
(f) Pledgor has not executed and is not aware of any effective
financing statement, security agreement or other instrument similar in effect
covering all or any part of the Collateral on file in any recording office,
except such as may have been filed pursuant to this Agreement or the other
Financing Documents or pursuant to the documents evidencing Permitted Liens.
(g) Pledgor is the lawful owner of and has full right, title and
interest in and to, the Collateral, subject to no mortgages, liens, charges, or
encumbrances of any kind other than as granted pursuant to the Partnership
Agreement, and has full power and lawful authority to pledge, assign and grant a
security interest in the Collateral granted by it hereunder. Pledgor will, so
long as any Obligations shall be outstanding, warrant and defend its title to
the Collateral against any claims and demands which may affect to a material
extent its title to, or the Collateral Agent's right or interest in, such
Collateral.
(h) Pledgor will not directly or indirectly create, incur, assume or
suffer to exist any Liens on or with respect to any part of the Collateral other
than the rights and interests of the Collateral Agent, the Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
hereunder, Permitted Liens and rights of Pledgors under the Partnership
Agreement. Pledgor will at its own cost and expense promptly take such action
as may be necessary to discharge any such liens not so permitted.
(i) Pledgor has not assigned any of its rights under the Partnership
Agreement or any of the Collateral except as provided in this Agreement.
(j) Any action or proceeding to enforce the rights granted or to
protect or preserve the Collateral under this Agreement may be taken by
Collateral Agent either in Pledgor's name or in Collateral Agent's name, as
Collateral Agent may deem necessary.
(k) Without the prior written consent of Collateral Agent, or as
otherwise permitted by the Indenture, Pledgor shall not (i) terminate or make
any material modification or amendment of the Partnership Agreement (unless
required, in the opinion of Pledgor, to maintain the Project as a "qualifying
facility"), (ii) fail to deliver to Collateral Agent a copy of each
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demand or notice received or given by it relating to the Partnership Agreement
and which could reasonably be expected to have a material adverse effect upon
the Collateral or Collateral Agent's rights therein, or (iii) sell, contract to
sell, assign, transfer or dispose of any of the Collateral.
(l) Pledgor shall give to Collateral Agent prompt written notice of
any material default, event of default or event which with the giving of notice
or the passage of time or both might become an event of default (however
"default" or "event of default" may be defined) under the Partnership Agreement,
whether by Borrower, such Pledgor, or any other Person, of which such Pledgor
has actual knowledge or has received notice.
(m) If a Pledgor in its capacity as a partner, whether general or
limited, as applicable, receives any income or distribution of money or property
of any kind in respect of the Collateral from the Borrower while an Event of
Default has occurred and is continuing, such Pledgor shall hold such income or
distribution of money or property as trustee for and shall deliver the same to
Collateral Agent.
(n) Pledgor will, at all times, keep accurate and complete records of
the Collateral. Pledgor shall, at all times on three (3) Business Days' notice,
permit representatives of Collateral Agent at any time during normal business
hours of such Pledgor to inspect and make abstracts from such Pledgor's books
and records pertaining to the Collateral. Upon the occurrence and continuance of
any Event of Default, at Collateral Agent's request, Pledgor shall promptly
deliver any and all such records to Collateral Agent.
(o) Pledgor will give prompt notice in writing to Collateral Agent of
any change in the location of the place of business where correspondence,
notices or proceeds in connection with the Collateral are received or located or
of any change in the location of the place of business where records concerning
Collateral are kept.
(p) Pledgor is not, and will not, as a result of becoming a general
partner of Borrower, be or become, or cause Borrower to be or become or to be
deemed by any Governmental Authority to be, solely as a result of the
construction, ownership, leasing or operation of the Project, the sale of
electricity therefrom or the entering into of any Financing Document or any
transaction contemplated thereby, a "utility" or subject to or not exempt from
regulation under the FPA (other than such regulation contemplated under 18
C.F.R. (S) 292.601(e)) or the PUHCA (other than Section 9(a)(2) of PUHCA) or
under state laws and regulations respecting the rates or the financial or
organizational regulation of public or electric utilities except as a Qualifying
Facility under PURPA.
(q) Pledgor will not do anything or cause, suffer or permit anything
to be done, including without limitation sale or other transfer of a Pledgor's
partnership interest in Borrower or of any stock, partnership interest or other
ownership interest in any Pledgor (other than the exercise by others of remedies
under the Financing Documents), which may cause the Project to lose its status
as a Qualifying Facility.
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(r) Pledgor shall not register, or permit the Borrower to register,
any other secured party as a "registered owner" (as defined in Section 8-301 of
the New York UCC) of any partnership interest in Borrower.
8. Certain Consents and Waivers.
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(a) Each Pledgor hereby consents to each of the other Pledgors
entering into this Agreement in favor of Collateral Agent for the benefit of the
Trustee, the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any. Each Pledgor specifically agrees that such action may,
among other things, assign or delegate to Collateral Agent rights to cure
defaults under the Partnership Agreement, to exercise voting rights and other
rights to manage or control the Borrower, and to act as such other Pledgor's
attorney-in-fact in a manner similar to the assignment and delegation of such
rights provided herein. Each Pledgor (to the extent permitted by applicable
law) agrees that it will recognize and accept such assignment and delegation and
the exercise of such rights by Collateral Agent in connection with this
Agreement and agrees that any option or rights of any Pledgor to acquire any of
the Collateral from any other Pledgor pursuant to the Partnership Agreement
shall be subordinate to any right of the Trustee in the Collateral created
hereunder.
(b) Each Pledgor hereby waives, to the maximum extent permitted by
law (i) all rights under any law limiting remedies, including recovery of a
deficiency, under an obligation secured by a deed of trust on real property if
the real property is sold under a power of sale contained in the deed of trust,
and all defenses based on any loss whether as a result of any such sale or
otherwise, of Pledgor's right to recover any amount from Borrower, whether by
right of subrogation or otherwise; (ii) all rights under any law to require
Collateral Agent to pursue Borrower or any other Person, any security which
Collateral Agent may hold, or any other remedy before proceeding against
Pledgor; (iii) all rights of reimbursement or subrogation, all rights to enforce
any remedy that Collateral Agent, the Trustee, the Holders of the Senior Secured
Notes or the Permitted Additional Senior Lenders, if any, may have against
Borrower, and all rights to participate in any security held by Collateral Agent
until the Obligations have been paid and the covenants of the Indenture have
been performed in full; (iv) all rights to require Collateral Agent to give any
notices of any kind, including without limitation notices of nonpayment,
nonperformance, protest, dishonor, default, delinquency or acceleration, or to
make any presentments, demands or protests, except as expressly provided herein
and in the Indenture; (v) all rights to assert the bankruptcy or insolvency of
Borrower as a defense hereunder or as the basis for rescission hereof; (vi) all
rights under any law purporting to reduce Pledgors' Obligations hereunder if
Borrower's Obligations are reduced; (vii) all defenses based on the disability
or lack of authority of Borrower or any Person, the repudiation of the
Guarantees or any related Financing Documents by Borrower or any Person, the
failure by Collateral Agent, the Trustee, the Holders of the Senior Secured
Notes or any Permitted Additional Senior Lender, if any, to enforce any claim
against Borrower, or the unenforceability in whole or in part of any Financing
Document; (viii) all suretyship and guarantor's defenses generally; (ix) all
rights to insist upon, plead or in any manner whatever claim or take the benefit
or advantage of, any appraisal, valuation, stay, extension, marshaling of
assets, redemption or similar law, or exemption, whether now or at any time
hereafter in force, which may delay, prevent or otherwise affect the performance
by Pledgor or its obligations under, or the enforcement
10
<PAGE>
by Collateral Agent of, this Agreement; (x) any requirement on the part of
Collateral Agent, Trustee, the Holders of the Senior Secured Notes or any
Permitted Additional Senior Lender, if any, to mitigate the damages resulting
from any default; and (xi) except as otherwise specifically set forth herein,
all rights of notice and hearing of any kind prior to the exercise of rights by
Collateral Agent upon the occurrence and during the continuation of an Event of
Default to repossess with judicial process or to replevy, attach or levy upon
the Collateral. To the extent permitted by applicable law, each Pledgor waives
the posting of any bond otherwise required of Collateral Agent in connection
with any judicial process or proceeding to obtain possession of, replevy,
attach, or levy upon the Collateral, to enforce any judgment or other security
for the Obligations, to enforce any judgment or other court order entered in
favor of Collateral Agent, or to enforce by specific performance, temporary
restraining order, preliminary or permanent injunction, this Agreement or any
other agreement or document between any Pledgor, Collateral Agent, Trustee, the
Holders of the Senior Secured Notes or any Permitted Additional Senior Lender,
if any. Each Pledgor further agrees that upon the occurrence and continuance of
an Event of Default, Collateral Agent may elect to nonjudicially or judicially
foreclose against any real or personal property security it holds for the
Obligations or any part thereof, or to exercise any other remedy against
Borrower, any security or any guarantor, even if the effect of that action is to
deprive a Pledgor of the right to collect reimbursement from Borrower for any
sums paid by such Pledgor to Collateral Agent, Trustee or any Holder of the
Senior Secured Notes or any Permitted Additional Senior Lender, if any.
(c) If Collateral Agent may, under applicable law, proceed to realize
its benefits under any of the Financing Documents giving Collateral Agent a Lien
upon any Collateral, whether owned by any Borrower, any Pledgor or by any other
Person, either by judicial foreclosure or by nonjudicial sale or enforcement,
Collateral Agent may, at its sole option, determine which of its remedies or
rights it may pursue without affecting any of the rights and remedies of
Collateral Agent under this Agreement. In the event Collateral Agent shall bid
at any foreclosure or trustee's sale or at any private sale permitted by law or
the Financing Documents, Collateral Agent may bid all or less than the amount of
Obligations. To the extent permitted by applicable law, the amount of the
successful bid at any such sale, whether Collateral Agent or any other party is
the successful bidder, shall be conclusively deemed to be the fair market value
of the Collateral and the difference between such bid amount and the remaining
balance of the Obligations shall be conclusively deemed to be the amount of the
Obligations.
9. Borrower's Consent and Covenants. Borrower hereby consents to
--------------------------------
the assignment of and grant of a security interest in the Collateral to
Collateral Agent and to the exercise by Collateral Agent of all rights and
powers assigned or delegated to Collateral Agent by each Pledgor hereunder,
including without limitation the rights upon and during an Event of Default to
exercise such Pledgor's voting rights and other rights under the Partnership
Agreement to manage or control Borrower, subject to the notice and other
requirements of applicable law. Borrower further agrees to perform all
covenants and obligations herein which, by their express or implied terms, are
to be performed by Borrower.
10. Attorney-in-Fact. Each Pledgor hereby irrevocably constitutes
----------------
and appoints Collateral Agent its true and lawful attorney-in-fact to enforce
all rights of Pledgor with respect to the Collateral, including without
limitation, the right to vote, demand, receive and enforce Pledgor's
11
<PAGE>
rights with respect to the Collateral, and to give appropriate receipts,
releases and satisfactions for and on behalf of and in the name of the Pledgor
or, at the option of Collateral Agent, in the name of Collateral Agent, with the
same force and effect as Pledgor could do if this Agreement had not been made;
provided, however, Collateral Agent shall not exercise such rights except upon
- -------- -------
the occurrence and during the continuation of an Event of Default. This power of
attorney is a power coupled with an interest and shall be irrevocable.
11. Place of Business; Location of Records.
--------------------------------------
(a) Unless Collateral Agent is otherwise notified, the place of
business and chief executive office of each respective Pledgor is and all
records of each respective Pledgor concerning the Collateral are and will be
located at the following addresses:
Caithness Navy II Group, LLC
c/o Caithness Energy, L.L.C.,
1114 Avenue of the Americas, 41st Floor
New York, New York 10036-7790
New CTC Company, LLC
c/o Caithness Energy, L.L.C.,
1114 Avenue of the Americas, 41st Floor
New York, New York 10036-7790
(b) All notices required or permitted under the terms and provisions
hereof shall be in writing and any such notice shall be effective if given in
accordance with the provisions of Section 10.02 of the Indenture. Notices to
each Pledgor may be given at the address of Borrower set forth in such Section
10.02 above. Notices to Collateral Agent shall be given to Collateral Agent c/o
Trustee at its address set forth in such Section 10.02.
12. Perfection; Further Assurances.
------------------------------
(a) Each Pledgor agrees that from time to time, it will promptly
execute and deliver all instruments and documents as required by Section 3(a)
hereof. Without limiting the generality of the foregoing, each Pledgor will (i)
deliver the Collateral or any part thereof to Collateral Agent, as Collateral
Agent may request, accompanied by such duly executed instruments of transfer or
assignment as Collateral Agent may request, and (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments, endorsements or notices, as may be reasonably necessary in order to
perfect and preserve the assignments and security interests granted or purported
to be granted hereby.
(b) Each Pledgor shall pay all filing, registration and recording
fees and all refiling, re-registration and re-recording fees, and all reasonable
expenses incident to the execution and acknowledgment of this Agreement, any
instruments of further assurance, and (except as otherwise provided in the
Indenture) all federal, state, county and municipal stamp taxes and other taxes,
duties, imports, assessments and charges arising out of or in connection with
the execution
12
<PAGE>
and delivery of this Agreement, any agreement supplemental hereto, any financing
statements, and any instruments of further assurance.
(c) Each Pledgor shall give Collateral Agent at least forty-five (45)
days prior written notice before it changes the location of its place of
business and chief executive office and shall at the expense of Borrower execute
and deliver such instruments and documents as may be required by Collateral
Agent to maintain a prior perfected security interest in the Collateral.
13. Continuing Assignment and Security Interest; Transfer of Loans.
--------------------------------------------------------------
This Agreement shall create a continuing pledge and assignment of and security
interest in the Collateral and shall (i) remain in full force and effect until
payment in full of the Obligations, (ii) be binding upon Borrower, Pledgors, and
their respective successors and assigns, and (iii) inure, together with the
rights and remedies provided herein, to the benefit of Collateral Agent, the
Holders of the Senior Secured Notes, the Permitted Additional Senior Lenders, if
any, and their respective successors, transferees and assigns. Without limiting
the generality of the foregoing, but subject to Section 2.06 of the Indenture,
any of the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, may assign or otherwise transfer all or any part of or
interest in their Senior Secured Notes to any other Person to the extent
permitted by and in accordance with the Indenture, and such other Person shall
thereupon become vested with all or an appropriate part of the benefits in
respect thereof granted to the Holders of the Senior Secured Notes herein or
otherwise. The release of the security interest in any or all of the Collateral,
the taking or acceptance of additional security, or the resort by Collateral
Agent to any security it may have in any order it may deem appropriate, shall
not affect the liability of any person on the Obligations. Upon the payment and
performance in full of the Obligations, the security interest granted hereby
shall terminate and all rights to the Collateral shall revert to Pledgors. Upon
any such termination, Collateral Agent shall, at Pledgors' expense, execute and
deliver to Pledgors such documents as Borrower or Pledgors shall reasonably
request to evidence such termination. If this Agreement shall be terminated or
revoked by operation of law, Pledgors will indemnify and save Collateral Agent,
the Trustee, the Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any, harmless from any loss which may be suffered
or incurred by Collateral Agent, Trustee, the Holders of the Senior Secured
Notes and the Permitted Additional Senior Lenders, if any, in acting hereunder
prior to the receipt by Collateral Agent, its successors, transferees or assigns
of written notice of such termination or revocation.
14. Liability. The obligations hereunder are subject to the
---------
limitations set forth in Section 6.11 of the Credit Agreement, the provisions of
which are hereby incorporated by reference.
15. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
13
<PAGE>
16. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17. Successors and Assigns. All covenants and agreements contained
----------------------
herein shall be binding upon, and inure to the benefit of, the parties and their
respective successors and assigns; provided, however, that such Pledgor or
Borrower shall cause its assignee to pledge the assigned Collateral to the
Collateral Agent pursuant to an agreement in substantially the form of this
Agreement.
18. Headings. The headings of the various sections herein are for
--------
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
19. Governing Law. This Agreement, including all matters of
-------------
construction, validity, performance and the creation, validity, enforcement or
priority of the lien of, and security interests created by, this Agreement in or
upon the Collateral shall be governed by the laws of the State of New York,
without reference to conflicts of law (other than Section 5-1401 of the New York
General Obligations Law), except as required by mandatory provisions of law and
except to the extent that the validity or perfection of the lien and security
interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the State of
New York.
20. Time. Time is of the essence of this Agreement.
----
21. References to Other Documents. All defined terms used in this
-----------------------------
Agreement which refer to other documents shall be deemed to refer to such other
documents as they may be amended, supplemented or replaced from time to time,
provided such documents were not amended in breach of a covenant contained in
any agreement to which any Pledgor, Borrower, Collateral Agent or Trustee is a
party.
22. Reinstatement. This Agreement shall continue to be effective or
-------------
be reinstated, as the case may be, if at any time any amount received by
Collateral Agent in respect of the Obligations is rescinded or must otherwise be
restored or returned by Collateral Agent upon the insolvency, bankruptcy,
reorganization, liquidation of any Pledgor or Borrower or upon the dissolution
of, or appointment of any intervenor or conservator of, or trustee or similar
official for any Pledgor or Borrower or any substantial part of any Pledgor's or
Borrower's assets, or otherwise, all as though such payments had not been made.
23. Statute of Limitations. Each Pledgor hereby waives the right to
----------------------
plead any statute of limitations as a defense to any indebtedness or obligation
hereunder or secured hereby to the full extent permitted by law.
14
<PAGE>
24. Entire Agreement. This Agreement, together with any other
----------------
agreement executed in connection herewith, is intended by the parties as a final
expression of their agreement and is intended as a complete and exclusive
statement of the terms and condition thereof.
25. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.
26. Waiver of Jury Trial. EACH PLEDGOR, BORROWER AND COLLATERAL
--------------------
AGENT HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING
OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER COLLATERAL
DOCUMENTS OR FINANCING DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE COLLATERAL AGENT,
BORROWER OR ANY PLEDGOR. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
COLLATERAL AGENT TO ENTER INTO THIS AGREEMENT.
27. Regarding the Collateral Agent. The Collateral Agent shall be
------------------------------
afforded all of the rights, powers, protections, immunities and indemnities set
forth in that certain Security Agreement dated as of the date hereof between
Borrower and Collateral Agent as if the same were specifically set forth herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
15
<PAGE>
IN WITNESS WHEREOF, Pledgors, Borrower and Collateral Agent have
caused this Partnership Interest Pledge Agreement to be duly executed by their
partners and officers thereunto duly authorized, as of the day and year first
above written.
New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
-----------------------
Name: Judy P. Manansala
-----------------
Title: Trust Officer
-------------
16
<PAGE>
ACCEPTED AND AGREED
-------------------
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
17
<PAGE>
Exhibit 10.34
PARTNERSHIP INTEREST PLEDGE AGREEMENT (CTLP)
-------------------------------------
Dated as of May 28, 1999
Among
COSO ENERGY DEVELOPERS,
a California general partnership,
COSO POWER DEVELOPERS,
a California general partnership,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
PREFACE............................................................. 1
AGREEMENT........................................................... 1
1. Definitions...................................................... 2
2. Assignment, Pledge and Grant of Security Interest................ 2
3. Documents........................................................ 3
4. Events of Default................................................ 4
5. Remedies......................................................... 5
6. Remedies Cumulative; Delay Not Waiver............................ 7
7. Covenants and Representations of Pledgors........................ 8
8. Certain Consents and Waivers..................................... 11
9. CTLP's Consent and Covenants..................................... 13
10. Attorney-in-Fact................................................ 13
11. Place of Business; Location of Records.......................... 13
12. Perfection; Further Assurances.................................. 14
</TABLE>
<PAGE>
<TABLE>
<S> <C>
13. Continuing Assignment and Security Interest; Transfer of Loans.. 15
14. Liability....................................................... 15
15. Attorneys' Fees................................................. 15
16. Severability.................................................... 16
17. Successors and Assigns.......................................... 16
18. Headings........................................................ 16
19. Governing Law................................................... 16
20. Time............................................................ 16
21. References to Other Documents................................... 16
22. Reinstatement................................................... 17
23. Statute of Limitations.......................................... 17
24. Entire Agreement................................................ 17
25. Counterparts.................................................... 17
26. Waiver of Jury Trial............................................ 17
27. Regarding the Collateral Agent.................................. 17
</TABLE>
ii
<PAGE>
COSO TRANSMISSION LINE PARTNERSHIP
PARTNERSHIP INTEREST PLEDGE AGREEMENT
This Partnership Interest Pledge Agreement ("Agreement"), dated as of
---------
May 28, 1999, is entered into by and among COSO TRANSMISSION LINE PARTNERS, a
California general partnership ("CTLP"), COSO ENERGY DEVELOPERS, a California
----
general partnership ("BLM"), COSO POWER DEVELOPERS, a California general
partnership ("Navy II") (each of BLM and Navy II a "Pledgor," and, collectively,
------- -------
the "Pledgors"), and U.S. BANK TRUST NATIONAL ASSOCIATION in its capacity as
--------
collateral agent ("Collateral Agent") for U.S. BANK TRUST NATIONAL ASSOCIATION
----------------
in its capacity as trustee ("Trustee") for the holders of all secured notes
-------
issued pursuant to that certain Indenture dated as of May 28, 1999 (the
"Indenture") among the Pledgors, Trustee, COSO FINANCE PARTNERS, a California
- ----------
general partnership ("Navy I"), and CAITHNESS COSO FUNDING CORP., a Delaware
------
corporation (the "Issuer") (such notes, the "Senior Secured Notes" and the
------ --------------------
holders thereof, the "Holders of the Senior Secured Notes"), and all Permitted
-----------------------------------
Additional Senior Lenders (as defined in the Indenture).
PREFACE
-------
A. Issuer has, as of the date of this Agreement, issued $413,000,000
of the Senior Secured Notes, the proceeds of which will be used to make loans to
the Pledgors and Navy I.
B. Pledgors are the general partners of CTLP pursuant to that certain
Amended and Restated General Partnership Agreement of COSO TRANSMISSION LINE
PARTNERS, dated as of July 31, 1989, as amended (the "Partnership Agreement").
---------------------
C. Pursuant to a Guarantee dated as of even date herewith (the
"Guarantee"), the Pledgors have guaranteed to Trustee and the Holders of the
- ----------
Senior Secured Notes the payment and performance of Issuer's obligations under
the Senior Secured Notes and the Indenture.
D. As a condition precedent to the sale of the Senior Secured Notes,
CTLP and the Pledgors are required to have executed this Agreement as security
for the payment and performance of Pledgor's obligations under the Guarantee.
AGREEMENT
---------
In consideration of the premises herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, CTLP
and the
<PAGE>
Pledgors hereby agree with Collateral Agent for the benefit of Trustee, the
Holders of the Senior Secured Notes and the Permitted Additional Senior Lenders,
if any, as follows:
1. Definitions.
-----------
(a) Unless otherwise defined, all capitalized terms used herein which
are defined in the Indenture shall have their respective meanings therein
defined, and all terms, defined in the UCC shall have the respective meanings
given to those terms in the UCC.
(b) "UCC" shall mean the Uniform Commercial Code as the same may,
---
from time to time, be in effect in the State of New York; provided, however, in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
(c) "Qualifying Facility" shall mean a qualifying small power
-------------------
production facility in accordance with PURPA and the rules and regulations of
FERC under PURPA relating thereto.
(d) "FPA" shall mean the Federal Power Act of 1925, as amended.
---
(e) "PUHCA" shall mean the Public Utility Holding Company Act of
-----
1935, as amended.
(f) "PURPA" shall mean the Public Utility Regulatory Policies Act of
-----
1978, as amended, and the regulations promulgated thereunder.
2. Assignment, Pledge and Grant of Security Interest.
-------------------------------------------------
(a) To secure the timely payment and performance of the Obligations
(as defined below), each Pledgor hereby assigns and pledges to Collateral Agent
for the benefit of the Trustee, the Holders of the Senior Secured Notes and all
Permitted Additional Senior Lenders, if any, and grants to Collateral Agent for
the benefit of the Trustee, the Holders of the Senior Secured Notes and all
Permitted Additional Senior Lenders, if any, a security interest in all the
estate, right, title and interest of each such Pledgor, now owned or hereafter
acquired, in, to and under any and all of the following (the "Collateral"):
----------
2
<PAGE>
Such Pledgor's partnership interest in CTLP, including without limitation
such Pledgor's (i) rights to receive all income, gain, profit, loss or
other items allocated or distributed to such Pledgor under the Partnership
Agreement, (ii) rights to receive all distributions of any nature
whatsoever by the Pledgors with respect to such partnership interest; (iii)
capital or ownership interest, including capital accounts, in CTLP, and all
accounts, deposits or credits of any kind with CTLP, (iv) voting rights in
or rights to control or direct the affairs of CTLP, (v) right, title and
interest, as a partner in CTLP, in or to any and all of CTLP's assets or
properties, (vi) other rights, title and interest in or to CTLP, and all
rights to receive income, profit or other distributions from CTLP, of any
nature whatsoever, in each case, as such rights are derived from such
Pledgor's partnership interests in CTLP, (vii) claims for damages arising
out of or for breach of or default relating to the Collateral, and (viii)
rights to terminate, amend, supplement, modify or waive performance under
the Partnership Agreement, to perform thereunder and to compel performance
and otherwise exercise all remedies thereunder, along with all of the
proceeds of any of the above and all General Intangibles (as such term is
defined in the UCC) constituting any of the above.
(b) This Agreement and all of the Collateral secure the payment and
performance of Pledgor's obligations under the Guarantee, including, but not
limited to, the payment of all amounts owed to Collateral Agent, Trustee, the
Holders of the Senior Secured Notes and the Permitted Additional Senior Lenders,
if any, of every kind and description (whether or not evidenced by any note or
instrument and whether or not for the payment of money), direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
pursuant to the terms of the Guarantee, including all interest, fees, charges,
expenses, attorney's fees and accountant's fees (all such obligations being
herein called the "Obligations").
-----------
3. Documents.
---------
(a) At any time and from time to time upon the request of Collateral
Agent, each Pledgor will (i) deliver and pledge to Collateral Agent, endorsed
and/or accompanied by such evidence of assignment and transfer, in such form and
substance, as Collateral Agent may request, any and all instruments, documents,
chattel paper and/or general intangibles relating to the Collateral as
Collateral Agent may specify; (ii) give, execute, deliver, file and/or record
any notice, statement, instrument, document, agreement or other papers that may
be reasonably necessary, as Collateral Agent may reasonably request, in order to
create, preserve, perfect or validate the assignment and security interest
granted pursuant hereto or to enable Collateral Agent to exercise and enforce
its rights hereunder or with respect to such assignment and security interest;
and (iii) keep and stamp or otherwise mark any and all documents and its
individual books and records relating to Collateral in such manner as Collateral
Agent may require.
3
<PAGE>
(b) Each Pledgor agrees that, from time to time, at the expense of
the relevant Pledgor, such Pledgor will promptly execute and deliver all further
instruments and documents, and take all further action that may be necessary or
required, or that Collateral Agent may reasonably request, in order to perfect
and protect the assignment and security interest granted or intended to be
granted hereby or to enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, each Pledgor will execute and file such
financing or continuation statements or amendments thereto and such other
instruments, endorsements or notices as may be necessary or required, or as the
Collateral Agent may reasonably request, in order to perfect and preserve the
assignments and security interests granted or purported to be granted hereby.
Notwithstanding the foregoing, Collateral Agent shall have no obligation in
respect of filing such statements or the perfection or preservation of such
security interests.
(c) If any default by any Pledgor under the Partnership Agreement
shall occur, Collateral Agent shall, at its option, be permitted (but shall not
be obligated) to remedy any such default by giving written notice of such intent
to CTLP and the relevant Pledgor. Collateral Agent shall have a period of sixty
(60) days after giving such notice in which to cure such default. In the event
that any such default (except monetary defaults) shall not be reasonably curable
within such 60 day period, neither CTLP nor any Person acting on behalf of CTLP,
including without limitation a general partner of CTLP, shall exercise any
remedies thereunder if Collateral Agent shall, within such 60 day period,
initiate action to cure such default and proceed diligently to the curing
thereof. Any cure by Collateral Agent of a Pledgor's default under the
Partnership Agreement shall not be construed as an assumption by Collateral
Agent, Trustee, any of the Holders of the Senior Secured Notes or any Permitted
Additional Senior Lender of any obligations, covenants or agreements of any
Pledgor under the Partnership Agreement, and neither Collateral Agent, Trustee,
the Holders of the Senior Secured Notes nor any Permitted Additional Senior
Lender shall be liable for any action taken pursuant to this Section 3(c) to
cure any such default. This Agreement shall not be deemed to release or to
affect in any way the obligations of any Pledgor under the Partnership
Agreement.
4. Events of Default. The occurrence and continuance of any of the
-----------------
following events ("Events of Default") whatever the reason for such Event of
-----------------
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body, shall
constitute an Event of Default hereunder and shall entitle Collateral Agent
(subject to the Indenture) to exercise any and all of its rights and remedies
hereunder or at law:
4
<PAGE>
(a) the occurrence (whether as a result of acts or omissions by any
Pledgor or any other Person) of an Event of Default under the Indenture; or
(b) the failure on the part of any Pledgor to observe or perform any
covenant, condition or agreement on its part to be observed or performed, or the
breach of any representation or warranty of a Pledgor contained in this
Agreement or the Partnership Agreement and such failure continues uncured for 30
or more days from the date a Responsible Officer of such Pledgor receives notice
thereof from the Collateral Agent; provided that if such Pledgor commences and
diligently pursues efforts to cure such default within such 30-day period, such
Pledgor may continue to effect such cure of the default and such default will
not be deemed an Event of Default for an additional 60 days so long as such
Pledgor is diligently pursuing such cure.
5. Remedies.
--------
(a) If any Event of Default has occurred and is continuing,
Collateral Agent shall have the right, at its election, but not the obligation,
to do any of the following, with respect to such Pledgor: (i) subject to Section
5(e) below and applicable law, vote or exercise any and all of such Pledgor's
rights or powers under the Partnership Agreement, including any rights or powers
to manage or control CTLP; (ii) subject to Section 5(e) and applicable law
demand, sue for, collect or receive any money or property at any time payable to
or receivable by such Pledgor on account of or in exchange for all or any part
of the Collateral; (iii) institute and prosecute any action at law or suit in
equity or other proceeding to collect or enforce any Obligations or rights
hereunder or in the Collateral, including specific enforcement of any covenant
or agreement contained herein or in the Partnership Agreement, or to foreclose
or enforce the security interest in all or any part of the Collateral granted
herein, or to enforce any other legal or equitable right vested in it by this
Agreement or by law; (iv) sell or otherwise dispose of any or all of the
Collateral or cause all or any part of the Collateral to be sold or otherwise
disposed of in one or more sales or transactions, at such prices as Collateral
Agent may deem commercially reasonable, and for cash or on credit or for future
delivery, without assumption of any credit risk, at any broker's board or at
public or private sale, without demand of performance or notice of intention to
sell or of time or place of sale (except such notice which under applicable law
cannot be waived), and any Holder of the Senior Secured Notes, any Permitted
Additional Senior Lender, or any other Person may be the purchaser of any or all
of the Collateral so sold and thereafter hold the same absolutely free from any
claim or right of whatsoever kind, including any equity of redemption, of such
Pledgor or CTLP, any such demand, notice or right and equity being hereby
expressly waived and released (to the extent permitted by applicable law); (v)
incur expenses, including reasonable attorneys' fees, consultants' fees, and
other costs appropriate to the exercise of any right or power under this
Agreement; (vi) perform any obligation of such Pledgor hereunder or under the
Partnership Agreement; (vii) secure the appointment of a receiver
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<PAGE>
for such Pledgor (to the extent and in the manner permitted by applicable law);
or (viii) exercise any other or additional rights or remedies granted to a
secured party under the UCC. If, pursuant to applicable law, prior notice of any
such action is required to be given to such Pledgor or CTLP, such Pledgor and
CTLP hereby acknowledge and agree that the minimum time required by such
applicable law, or if no minimum is specified, ten (10) Business Days, shall be
deemed a reasonable notice period.
(b) In addition to the foregoing remedies, Collateral Agent (subject
to Section 3(c)) may, but shall not be obligated to, cure any Event of Default
and incur reasonable fees, costs and expenses in doing so, in which event CTLP
or the relevant Pledgor shall immediately reimburse Collateral Agent on demand
for all such fees, costs and expenses, together with interest on the total
amount at a rate equal to the "Prime Rate" of Bankers Trust Company, as such
rate is announced from time to time, plus one percent (1%) (the "Default Rate").
Subject to the such Pledgor's rights described in paragraph (c) below to contest
certain claims, taxes, assessments, charges, liens and encumbrances, Collateral
Agent shall be the sole judge of the validity of any adverse claims, taxes,
assessments, charges, liens or encumbrances pertaining to the Collateral, and
the amount to be paid in satisfaction thereof, and of the necessity therefor,
provided Collateral Agent shall be under no obligation to do any such acts or to
make any such payments.
(c) Each Pledgor may contest in good faith any taxes, assessments and
other governmental charges in connection with the Collateral and, in such event,
may permit the taxes, assessments or other charges so contested to remain unpaid
during any period, including appeals, when such Pledgor is in good faith
contesting the same, so long as (i) reserves have been established in an amount
sufficient to pay any such taxes, assessments or other charges, accrued interest
thereon and potential penalties or other costs relating thereto, or other
adequate provision for the payment thereof shall have been made, (ii)
enforcement of the contested tax, assessment or other charge is effectively
stayed for the entire duration of such contest, and (iii) any tax, assessment or
other charge determined to be due, together with any interest or penalties
thereon, is immediately paid after resolution of such contest. Additionally,
each Pledgor may contest in good faith Liens for any tax, assessment or other
governmental charge, by appropriate proceedings, so long as (i) such proceedings
shall not involve any substantial danger of the sale, forfeiture or loss of the
Collateral, title thereto or any interest therein, or (ii) in connection with
such proceedings a bond or other security has been posted or provided in such
manner and amount as to provide that any taxes, assessments or other charges
determined to be due will be promptly paid in full when such contest is
determined.
(d) All reasonable costs and expenses (including without limitation
agents' and reasonable attorneys' fees and expenses) incurred by Collateral
Agent, Trustee, any Holder of the Senior Secured Notes or Permitted Additional
Senior Lender in connection with exercising any
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<PAGE>
remedy provided for herein or at law, curing any Event of Default or performing
any of a Pledgor's agreements contained herein or in the Partnership Agreement
or in respect of any part of the Collateral, together with interest thereon
computed at the Default Rate from the date on which such costs or expenses are
incurred to the date of payment thereof, shall constitute indebtedness secured
by this Agreement and shall be paid by such Pledgor or CTLP to Collateral Agent,
Trustee such Holder of the Senior Secured Notes or such Permitted Additional
Senior Lender, as the case may be, on demand.
(e) So long as no Event of Default has occurred and is continuing,
each Pledgor reserves the right to exercise all of its rights under the
Partnership Agreement (except as limited by the Indenture) and to receive all
income and other distributions and payments from CTLP in respect of the
Collateral. Notwithstanding any other term or provision of this Agreement, each
Pledgor shall be entitled to receive and retain for its own benefit and use all
distributions and other payments paid by CTLP to such Pledgor in respect of the
Collateral prior to the occurrence of an Event of Default.
(f) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority specified in Section 5.10 of the Indenture. If all
Obligations and any other amounts due under this Agreement have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Pledgors, if they are lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
(g) The Collateral Agent shall not be deemed to make any
representations as to the value or condition of the Collateral and shall incur
no liability in respect thereof.
6. Remedies Cumulative; Delay Not Waiver. No right, power or remedy
-------------------------------------
herein conferred upon or reserved to Collateral Agent, Trustee, the Holders of
the Senior Secured Notes or the Permitted Additional Senior Lenders, if any, is
intended to be exclusive of any other right, power or remedy, and every such
right, power and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right, power and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy. No delay or omission of
Collateral Agent to exercise any right or power accruing upon the occurrence and
during the continuance of any Event of Default as aforesaid shall impair any
such right or power or shall be construed to be a waiver of any such Event of
Default or an acquiescence therein. Every power and remedy given by this
Agreement may be exercised from time to time, and as often as shall be deemed
expedient, by Collateral Agent.
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7. Covenants and Representations of Pledgors. Each Pledgor
-----------------------------------------
covenants, agrees and represents, solely with respect to itself, as follows:
(a) Pledgor will perform and comply, in all material respects, with
all obligations and conditions on its part to be performed hereunder, under the
Partnership Agreement or with respect to the Collateral.
(b) Pledgor (i) is, respectively, (A) a general partnership duly
organized, validly existing and in good standing under the laws of the State of
California, in the case of BLM, and (B) a general partnership duly organized,
validly existing and in good standing under the laws of the State of
California, in the case of Navy II, and in each case such Pledgor has all
requisite power and authority under the laws of its state of organization to
enter into the Partnership Agreement and to perform its obligations thereunder
and to consummate the transactions contemplated thereby, (ii) is duly qualified,
authorized to do business and in good standing in each jurisdiction where the
character of its properties or the nature of its activities makes such
qualification necessary, (iii) has all requisite power and authority (W) to
carry on its business as now being conducted and as proposed to be conducted by
it, (X) to execute, deliver and perform this Agreement and the Partnership
Agreement to which it is a party, in its individual capacity, (Y) to take all
action as may be necessary to consummate the transactions contemplated
thereunder and (Z) to grant liens and security interest provided for in this
Agreement, and (iv) has all requisite power and authority under the Partnership
Agreement to execute and deliver, on behalf of CTLP, each Financing Document to
which CTLP is a party.
(c) Pledgor has (i) taken all necessary action to authorize the
execution, delivery and performance of the Partnership Agreement and this
Agreement and each Financing Document to which it is a party; and (ii) duly
executed and delivered the Partnership Agreement and this Agreement and each
Financing Document to which it is a party. Neither any Pledgor's execution and
delivery of this Agreement and the other Financing Documents to which it is a
party nor its consummation of the transactions contemplated thereby nor its
compliance with the terms thereof (i) does or will contravene the Partnership
Agreement, the articles of incorporation or formation documents of such Pledgor
or any other requirements of law applicable to or binding on such Pledgor or any
of its properties, (ii) does or will contravene or result in any breach of or
constitute any default under, or result in or require the creation of any Lien
(other than Permitted Liens) upon any of its property under, any agreement or
instrument to which it is a party or by which it or any of its properties may be
bound or affected or (iii) does or will require the consent or approval of any
Person which has not already been obtained.
(d) The Partnership Agreement has been duly authorized, executed and
delivered by such Pledgor, has not been amended or otherwise modified, and is in
full force and effect and
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<PAGE>
is binding upon and enforceable against such Pledgor in accordance with its
terms. There exists no default under the Partnership Agreement by such Pledgor.
(e) This Agreement is the legal, valid and binding obligation of such
Pledgor, enforceable against such Pledgor in accordance with its terms, except
to the extent the enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights and subject to general equitable principles.
(f) Pledgor has not executed and is not aware of any effective
financing statement, security agreement or other instrument similar in effect
covering all or any part of the Collateral on file in any recording office,
except such as may have been filed pursuant to this Agreement or the other
Financing Documents or pursuant to the documents evidencing Permitted Liens.
(g) Pledgor is the lawful owner of and has full right, title and
interest in and to, the Collateral, subject to no mortgages, liens, charges, or
encumbrances of any kind other than as granted pursuant to the Partnership
Agreement, and has full power and lawful authority to pledge, assign and grant a
security interest in the Collateral granted by it hereunder. Pledgor will, so
long as any Obligations shall be outstanding, warrant and defend its title to
the Collateral against any claims and demands which may affect to a material
extent its title to, or the Collateral Agent's right or interest in, such
Collateral.
(h) Pledgor will not directly or indirectly create, incur, assume or
suffer to exist any Liens on or with respect to any part of the Collateral other
than the rights and interests of the Collateral Agent, the Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
hereunder, Permitted Liens and rights of Pledgors under the Partnership
Agreement. Pledgor will at its own cost and expense promptly take such action
as may be necessary to discharge any such liens not so permitted.
(i) Pledgor has not assigned any of its rights under the Partnership
Agreement or any of the Collateral except as provided in this Agreement.
(j) Any action or proceeding to enforce the rights granted or to
protect or preserve the Collateral under this Agreement may be taken by
Collateral Agent either in Pledgor's name or in Collateral Agent's name, as
Collateral Agent may deem necessary.
(k) Without the prior written consent of Collateral Agent, or as
otherwise permitted by the Indenture, Pledgor shall not (i) terminate or make
any material modification or amendment of the Partnership Agreement (unless
required, in the opinion of Pledgor, to maintain the Project as a "qualifying
facility"), (ii) fail to deliver to Collateral Agent a copy of each
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<PAGE>
demand or notice received or given by it relating to the Partnership Agreement
and which could reasonably be expected to have a material adverse effect upon
the Collateral or Collateral Agent's rights therein, or (iii) sell, contract to
sell, assign, transfer or dispose of any of the Collateral.
(l) Without the prior written consent of Collateral Agent, or as
otherwise permitted by the Indenture, each Pledgor covenants that it shall not
(i) permit CTLP to directly or indirectly create, incur, assume or suffer to
exist any Liens on or with respect to any asset of CTLP other than the rights
and interests of the Collateral Agent, the Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, hereunder,
Permitted Liens and rights of Pledgors under the Partnership Agreement, (ii)
permit CTLP to directly or indirectly incur, assume or guarantee any debt, or
(iii) permit CTLP to sell, transfer, or assign, directly or indirectly, any
asset of CTLP.
(m) Pledgor shall give to Collateral Agent prompt written notice of
any material default, event of default or event which with the giving of notice
or the passage of time or both might become an event of default (however
"default" or "event of default" may be defined) under the Partnership Agreement,
whether by CTLP, such Pledgor, or any other Person, of which such Pledgor has
actual knowledge or has received notice.
(n) If a Pledgor in its capacity as a partner receives any income or
distribution of money or property of any kind in respect of the Collateral from
CTLP while an Event of Default has occurred and is continuing, such Pledgor
shall hold such income or distribution of money or property as trustee for and
shall deliver the same to Collateral Agent.
(o) Pledgor will, at all times, keep accurate and complete records of
the Collateral. Pledgor shall, at all times on three (3) Business Days' notice,
permit representatives of Collateral Agent at any time during normal business
hours of such Pledgor to inspect and make abstracts from such Pledgor's books
and records pertaining to the Collateral. Upon the occurrence and continuance of
any Event of Default, at Collateral Agent's request, Pledgor shall promptly
deliver any and all such records to Collateral Agent.
(p) Pledgor will give prompt notice in writing to Collateral Agent of
any change in the location of the place of business where correspondence,
notices or proceeds in connection with the Collateral are received or located or
of any change in the location of the place of business where records concerning
Collateral are kept.
(q) Pledgor is not, and will not, be or become, or cause CTLP to be
or become or to be deemed by any Governmental Authority to be, solely as a
result of the construction, ownership, leasing or operation of the Project, the
sale of electricity therefrom or the entering into of any Financing Document or
any transaction contemplated thereby, a "utility" or subject to
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<PAGE>
or not exempt from regulation under the FPA (other than such regulation
contemplated under 18 C.F.R. (S) 292.601(e)) or the PUHCA (other than Section
9(a)(2) of PUHCA) or under state laws and regulations respecting the rates or
the financial or organizational regulation of public or electric utilities
except as a Qualifying Facility under PURPA.
(r) Pledgor will not do anything or cause, suffer or permit anything
to be done, including without limitation sale or other transfer of a Pledgor's
partnership interest in CTLP or of any stock, partnership interest or other
ownership interest in any Pledgor (other than the exercise by others of remedies
under the Financing Documents), which may cause the Project to lose its status
as a Qualifying Facility.
(s) Pledgor shall not register any other secured party as a
"registered owner" (as defined in Section 8-301 of the New York UCC) of any
partnership interest in CTLP.
8. Certain Consents and Waivers.
----------------------------
(a) Each Pledgor hereby consents to the other Pledgor entering into
this Agreement in favor of Collateral Agent for the benefit of the Trustee, the
Holders of the Senior Secured Notes and the Permitted Additional Senior Lenders,
if any. Each Pledgor specifically agrees that such action may, among other
things, assign or delegate to Collateral Agent rights to cure defaults under the
Partnership Agreement, to exercise voting rights and other rights to manage or
control CTLP, and to act as such other Pledgor's attorney-in-fact in a manner
similar to the assignment and delegation of such rights provided herein. Each
Pledgor (to the extent permitted by applicable law) agrees that it will
recognize and accept such assignment and delegation and the exercise of such
rights by Collateral Agent in connection with this Agreement and agrees that any
option or rights of any Pledgor to acquire any of the Collateral from any other
Pledgor pursuant to the Partnership Agreement shall be subordinate to any right
of the Trustee in the Collateral created hereunder.
(b) Each Pledgor hereby waives, to the maximum extent permitted by
law (i) all rights under any law limiting remedies, including recovery of a
deficiency, under an obligation secured by a deed of trust on real property if
the real property is sold under a power of sale contained in the mortgage, and
all defenses based on any loss whether as a result of any such sale or
otherwise, of Pledgor's right to recover any amount from CTLP, whether by right
of subrogation or otherwise; (ii) all rights under any law to require Collateral
Agent to pursue CTLP or any other Person, any security which Collateral Agent
may hold, or any other remedy before proceeding against Pledgor; (iii) all
rights of reimbursement or subrogation, all rights to enforce any remedy that
Collateral Agent, the Trustee, the Holders of the Senior Secured Notes or the
Permitted Additional Senior Lenders, if any, may have against CTLP, and all
rights to participate in any security held by Collateral Agent until the
Obligations have been paid and the
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<PAGE>
covenants of the Indenture have been performed in full; (iv) all rights to
require Collateral Agent to give any notices of any kind, including without
limitation notices of nonpayment, nonperformance, protest, dishonor, default,
delinquency or acceleration, or to make any presentments, demands or protests,
except as expressly provided herein and in the Indenture; (v) all rights to
assert the bankruptcy or insolvency of CTLP as a defense hereunder or as the
basis for rescission hereof; (vi) all rights under any law purporting to reduce
Pledgors' Obligations hereunder if Pledgors' Obligations are reduced; (vii) all
defenses based on the disability or lack of authority of Pledgor or any Person,
the repudiation of the Guarantees or any related Financing Documents by Pledgor
or any Person, the failure by Collateral Agent, the Trustee, the Holders of the
Senior Secured Notes or any Permitted Additional Senior Lender, if any, to
enforce any claim against Pledgor, or the unenforceability in whole or in part
of any Financing Document; (viii) all suretyship and guarantor's defenses
generally; (ix) all rights to insist upon, plead or in any manner whatever claim
or take the benefit or advantage of, any appraisal, valuation, stay, extension,
marshaling of assets, redemption or similar law, or exemption, whether now or at
any time hereafter in force, which may delay, prevent or otherwise affect the
performance by Pledgor or its obligations under, or the enforcement by
Collateral Agent of, this Agreement; (x) any requirement on the part of
Collateral Agent, Trustee, the Holders of the Senior Secured Notes or any
Permitted Additional Senior Lender, if any, to mitigate the damages resulting
from any default; and (xi) except as otherwise specifically set forth herein,
all rights of notice and hearing of any kind prior to the exercise of rights by
Collateral Agent upon the occurrence and during the continuation of an Event of
Default to repossess with judicial process or to replevy, attach or levy upon
the Collateral. To the extent permitted by applicable law, each Pledgor waives
the posting of any bond otherwise required of Collateral Agent in connection
with any judicial process or proceeding to obtain possession of, replevy,
attach, or levy upon the Collateral, to enforce any judgment or other security
for the Obligations, to enforce any judgment or other court order entered in
favor of Collateral Agent, or to enforce by specific performance, temporary
restraining order, preliminary or permanent injunction, this Agreement or any
other agreement or document between any Pledgor, Collateral Agent, Trustee, the
Holders of the Senior Secured Notes or any Permitted Additional Senior Lender,
if any. Each Pledgor further agrees that upon the occurrence and continuance of
an Event of Default, Collateral Agent may elect to nonjudicially or judicially
foreclose against any real or personal property security it holds for the
Obligations or any part thereof, or to exercise any other remedy against
Pledgor, any security or any guarantor, even if the effect of that action is to
deprive a Pledgor of the right to collect reimbursement from CTLP for any sums
paid by such Pledgor to Collateral Agent, Trustee or any Holder of the Senior
Secured Notes or any Permitted Additional Senior Lender, if any.
(c) If Collateral Agent may, under applicable law, proceed to realize
its benefits under any of the Financing Documents giving Collateral Agent a Lien
upon any Collateral, whether owned by Pledgor or by any other Person, either by
judicial foreclosure or by nonjudicial sale or enforcement, Collateral Agent
may, at its sole option, determine which of its
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remedies or rights it may pursue without affecting any of the rights and
remedies of Collateral Agent under this Agreement. In the event Collateral Agent
shall bid at any foreclosure or trustee's sale or at any private sale permitted
by law or the Financing Documents, Collateral Agent may bid all or less than the
amount of Obligations. To the extent permitted by applicable law, the amount of
the successful bid at any such sale, whether Collateral Agent or any other party
is the successful bidder, shall be conclusively deemed to be the fair market
value of the Collateral and the difference between such bid amount and the
remaining balance of the Obligations shall be conclusively deemed to be the
amount of the Obligations.
9. CTLP's Consent and Covenants. CTLP hereby consents to the
----------------------------
assignment of and grant of a security interest in the Collateral to Collateral
Agent and to the exercise by Collateral Agent of all rights and powers assigned
or delegated to Collateral Agent by each Pledgor hereunder, including without
limitation the rights upon and during an Event of Default to exercise such
Pledgor's voting rights and other rights under the Partnership Agreement to
manage or control CTLP, subject to the notice and other requirements of
applicable law. CTLP further agrees to perform all covenants and obligations
herein which, by their express or implied terms, are to be performed by CTLP.
10. Attorney-in-Fact. Each Pledgor hereby irrevocably constitutes
----------------
and appoints Collateral Agent its true and lawful attorney-in-fact to enforce
all rights of such Pledgor with respect to the Collateral, including without
limitation, the right to vote, demand, receive and enforce such Pledgor's rights
with respect to the Collateral, and to give appropriate receipts, releases and
satisfactions for and on behalf of and in the name of such Pledgor or, at the
option of Collateral Agent, in the name of Collateral Agent, with the same force
and effect as such Pledgor could do if this Agreement had not been made;
provided, however, Collateral Agent shall not exercise such rights except upon
- -------- -------
the occurrence and during the continuation of an Event of Default. This power
of attorney is a power coupled with an interest and shall be irrevocable.
11. Place of Business; Location of Records.
--------------------------------------
(a) Unless Collateral Agent is otherwise notified, the place of
business and chief executive office of each respective Pledgor is and all
records of each respective Pledgor concerning the Collateral are and will be
located at the following addresses:
COSO ENERGY DEVELOPERS
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Street
New York, New York 10036
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COSO POWER DEVELOPERS
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Street
New York, New York 10036
(b) All notices required or permitted under the terms and provisions
hereof shall be in writing and any such notice shall be effective if given in
accordance with the provisions of Section 10.02 of the Indenture. Notices to
each Pledgor may be given at the address of CTLP set forth in such Section 10.02
above. Notices to Collateral Agent shall be given to Collateral Agent c/o
Trustee at its address set forth in such Section 10.02.
12. Perfection; Further Assurances.
------------------------------
(a) Each Pledgor agrees that from time to time, it will promptly
execute and deliver all instruments and documents as required by Section 3(a)
hereof. Without limiting the generality of the foregoing, each Pledgor will (i)
deliver the Collateral or any part thereof to Collateral Agent, as Collateral
Agent may request, accompanied by such duly executed instruments of transfer or
assignment as Collateral Agent may request, and (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments, endorsements or notices, as may be reasonably necessary in order to
perfect and preserve the assignments and security interests granted or purported
to be granted hereby.
(b) Each Pledgor shall pay all filing, registration and recording
fees and all refiling, re-registration and re-recording fees, and all reasonable
expenses incident to the execution and acknowledgment of this Agreement, any
instruments of further assurance, and (except as otherwise provided in the
Indenture) all federal, state, county and municipal stamp taxes and other taxes,
duties, imports, assessments and charges arising out of or in connection with
the execution and delivery of this Agreement, any agreement supplemental hereto,
any financing statements, and any instruments of further assurance.
(c) Each Pledgor shall give Collateral Agent at least forty-five (45)
days prior written notice before it changes the location of its place of
business and chief executive office and shall, at the expense of each Pledgor,
execute and deliver such instruments and documents as may be required by
Collateral Agent to maintain a prior perfected security interest in the
Collateral.
13. Continuing Assignment and Security Interest; Transfer of Loans.
--------------------------------------------------------------
This Agreement shall create a continuing pledge and assignment of and security
interest in the Collateral and shall (i) remain in full force and effect until
payment in full of the Obligations, (ii) be binding upon CTLP, Pledgors, and
their respective successors and assigns, and (iii) inure,
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together with the rights and remedies provided herein, to the benefit of
Collateral Agent, the Holders of the Senior Secured Notes, the Permitted
Additional Senior Lenders, if any, and their respective successors, transferees
and assigns. Without limiting the generality of the foregoing, but subject to
Section 2.06 of the Indenture, any of the Holders of the Senior Secured Notes
and the Permitted Additional Senior Lenders, if any, may assign or otherwise
transfer all or any part of or interest in their Senior Secured Notes to any
other Person to the extent permitted by and in accordance with the Indenture,
and such other Person shall thereupon become vested with all or an appropriate
part of the benefits in respect thereof granted to the Holders of the Senior
Secured Notes herein or otherwise. The release of the security interest in any
or all of the Collateral, the taking or acceptance of additional security, or
the resort by Collateral Agent to any security it may have in any order it may
deem appropriate, shall not affect the liability of any person on the
Obligations. Upon the payment and performance in full of the Obligations, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Pledgors. Upon any such termination, Collateral Agent
shall, at Pledgors' expense, execute and deliver to Pledgors such documents as
CTLP or Pledgors shall reasonably request to evidence such termination. If this
Agreement shall be terminated or revoked by operation of law, Pledgors will
indemnify and save Collateral Agent, the Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, harmless from
any loss which may be suffered or incurred by Collateral Agent, Trustee, the
Holders of the Senior Secured Notes and the Permitted Additional Senior Lenders,
if any, in acting hereunder prior to the receipt by Collateral Agent, its
successors, transferees or assigns of written notice of such termination or
revocation.
14. Liability. The obligations hereunder are subject to the
---------
limitations set forth in Section 6.11 of the Credit Agreement, the provisions of
which are hereby incorporated by reference.
15. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
16. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
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17. Successors and Assigns. All covenants and agreements contained
----------------------
herein shall be binding upon, and inure to the benefit of, the parties and their
respective successors and assigns. Pledgor and CTLP shall cause any assignee to
pledge the assigned Collateral to the Collateral Agent.
18. Headings. The headings of the various sections herein are for
--------
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
19. Governing Law. This Agreement, including all matters of
-------------
construction, validity, performance and the creation, validity, enforcement or
priority of the lien of, and security interests created by, this Agreement in or
upon the Collateral shall be governed by the laws of the State of New York,
without reference to conflicts of law (other than Section 5-1401 of the New York
General Obligations Law), except as required by mandatory provisions of law and
except to the extent that the validity or perfection of the lien and security
interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the State of
New York.
20. Time. Time is of the essence of this Agreement.
----
21. References to Other Documents. All defined terms used in this
-----------------------------
Agreement which refer to other documents shall be deemed to refer to such other
documents as they may be amended, supplemented or replaced from time to time,
provided such documents were not amended in breach of a covenant contained in
any agreement to which any Pledgor, CTLP, Collateral Agent or Trustee is a
party.
22. Reinstatement. This Agreement shall continue to be effective or
-------------
be reinstated, as the case may be, if at any time any amount received by
Collateral Agent in respect of the Obligations is rescinded or must otherwise be
restored or returned by Collateral Agent upon the insolvency, bankruptcy,
reorganization, liquidation of any Pledgor or CTLP or upon the dissolution of,
or appointment of any intervenor or conservator of, or trustee or similar
official for any Pledgor or CTLP or any substantial part of any Pledgor's or
CTLP's assets, or otherwise, all as though such payments had not been made.
23. Statute of Limitations. Each Pledgor hereby waives the right to
----------------------
plead any statute of limitations as a defense to any indebtedness or obligation
hereunder or secured hereby to the full extent permitted by law.
24. Entire Agreement. This Agreement, together with any other
----------------
agreement executed in connection herewith, is intended by the parties as a final
expression of their
16
<PAGE>
agreement and is intended as a complete and exclusive statement of the terms and
condition thereof.
25. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.
26. Waiver of Jury Trial. EACH PLEDGOR, CTLP AND COLLATERAL AGENT
--------------------
HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER COLLATERAL DOCUMENTS
OR FINANCING DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE COLLATERAL AGENT, CTLP OR ANY
PLEDGOR. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE COLLATERAL AGENT TO
ENTER INTO THIS AGREEMENT.
27. Regarding the Collateral Agent. The Collateral Agent shall be
------------------------------
afforded all of the rights, powers, protections, immunities and indemnities set
forth in that certain Security Agreement dated as of the date hereof between
Pledgors and Collateral Agent as if the same were specifically set forth herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, Pledgors, CTLP Collateral Agent have caused this
Partnership Interest Pledge Agreement to be duly executed by their partners and
officers thereunto duly authorized, as of the day and year first above written.
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
18
<PAGE>
By: Caithness Navy II Group, LLC,
a Delaware limited liability company
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
-----------------------
Name: Judy P. Manansala
-------------------
Title: Trust Officer
-------------------
19
<PAGE>
ACCEPTED AND AGREED
-------------------
COSO TRANSMISSION LINE PARTNERSHIP,
a California general partnership
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
20
<PAGE>
By: Caithness Navy II Group, LLC,
a Delaware limited liability company
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
21
<PAGE>
EXHIBIT 10.35
PARTNERSHIP INTEREST PLEDGE AGREEMENT (CLJV)
--------------------------------------------
Dated as of May 28, 1999
Among
CAITHNESS ACQUISITION COMPANY, LLC,
a Delaware limited liability company,
CAITHNESS GEOTHERMAL 1980 LTD., L.P.,
a Delaware limited partnership,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
PREFACE............................................................. 1
AGREEMENT........................................................... 1
1. Definitions...................................................... 2
2. Assignment, Pledge and Grant of Security Interest................ 3
3. Documents........................................................ 3
4. Events of Default................................................ 5
5. Remedies......................................................... 5
6. Remedies Cumulative; Delay Not Waiver............................ 7
7. Covenants and Representations of Pledgors........................ 8
8. Certain Consents and Waivers..................................... 11
9. CLJV's Consent and Covenants..................................... 13
10. Attorney-in-Fact................................................ 13
11. Place of Business; Location of Records.......................... 14
12. Perfection; Further Assurances.................................. 14
</TABLE>
<PAGE>
<TABLE>
<S> <C>
13. Continuing Assignment and Security Interest; Transfer of Loans.. 15
14. Liability....................................................... 16
15. Attorneys' Fees................................................. 16
16. Severability.................................................... 16
17. Successors and Assigns.......................................... 16
18. Headings........................................................ 16
19. Governing Law................................................... 16
20. Time............................................................ 16
21. References to Other Documents................................... 17
22. Reinstatement................................................... 17
23. Statute of Limitations.......................................... 17
24. Entire Agreement................................................ 17
25. Counterparts.................................................... 17
26. Waiver of Jury Trial............................................ 17
27. Regarding the Collateral Agent.................................. 18
</TABLE>
ii
<PAGE>
CHINA LAKE JOINT VENTURE
PARTNERSHIP INTEREST PLEDGE AGREEMENT
This Partnership Interest Pledge Agreement ("Agreement"), dated as of
---------
May 28, 1999, is entered into by and among CHINA LAKE JOINT VENTURE, a
California general partnership ("CLJV"), CAITHNESS ACQUISITION COMPANY, LLC, a
----
Delaware limited liability company ("CAC"), CAITHNESS GEOTHERMAL 1980 LTD.,
---
L.P., ("CAG") a Delaware limited partnership (each of CAC and CAG a "Pledgor,"
--- -------
and, collectively, the "Pledgors"), and U.S. BANK TRUST NATIONAL ASSOCIATION in
--------
its capacity as collateral agent ("Collateral Agent") for U.S. BANK TRUST
----------------
NATIONAL ASSOCIATION in its capacity as trustee ("Trustee") for the holders of
-------
all secured notes issued pursuant to that certain Indenture dated as of May 28,
1999 (the "Indenture") among the Trustee, COSO FINANCE PARTNERS, a California
---------
general partnership ("Navy I"), COSO ENERGY DEVELOPERS, a California general
------
partnership ("BLM"), COSO POWER DEVELOPERS, a California general partnership
---
("Navy II" together with BLM and Navy I the "Guarantors,"), and CAITHNESS COSO
------- ----------
FUNDING CORP., a Delaware corporation (the "Issuer") (such notes, the "Senior
------ ------
Secured Notes" and the holders thereof, the "Holders of the Senior Secured
- ------------- -----------------------------
Notes"), and all Permitted Additional Senior Lenders (as defined in the
- -----
Indenture).
PREFACE
-------
A. Issuer has, as of the date of this Agreement, issued $413,000,000 of
the Senior Secured Notes, the proceeds of which will be used to make loans to
the Guarantors.
B. Pledgors are the general partners of CLJV pursuant to that certain
Amended and Restated General Partnership Agreement of CHINA LAKE JOINT VENTURE,
dated as of January 1, 1988 (the "Partnership Agreement").
---------------------
C. Pursuant to a Guarantee dated as of even date herewith (the
"Guarantee"), the Pledgors have guaranteed to Trustee and the Holders of the
----------
Senior Secured Notes the payment and performance of Issuer's obligations under
the Senior Secured Notes and the Indenture.
D. As a condition precedent to the sale of the Senior Secured Notes, CLJV
and the Pledgors are required to have executed this Agreement as security for
the payment and performance of Guarantors' obligations under the Guarantee.
AGREEMENT
---------
<PAGE>
In consideration of the premises herein and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, CLJV and the Pledgors hereby agree with Collateral Agent for the
benefit of Trustee, the Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any, as follows:
1. Definitions.
-----------
(a) Unless otherwise defined, all capitalized terms used herein which
are defined in the Indenture shall have their respective meanings therein
defined, and all terms, defined in the UCC shall have the respective meanings
given to those terms in the UCC.
(b) "UCC" shall mean the Uniform Commercial Code as the same may,
---
from time to time, be in effect in the State of New York; provided, however, in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
(c) "Qualifying Facility" shall mean a qualifying small power
-------------------
production facility in accordance with PURPA and the rules and regulations of
FERC under PURPA relating thereto.
(d) "FPA" shall mean the Federal Power Act of 1925, as amended.
---
(e) "PUHCA" shall mean the Public Utility Holding Company Act of
-----
1935, as amended.
(f) "PURPA" shall mean the Public Utility Regulatory Policies Act of
-----
1978, as amended, and the regulations promulgated thereunder.
2
<PAGE>
2. Assignment, Pledge and Grant of Security Interest.
-------------------------------------------------
(a) To secure the timely payment and performance of the Obligations
(as defined below), each Pledgor hereby assigns and pledges to Collateral Agent
for the benefit of the Trustee, the Holders of the Senior Secured Notes and all
Permitted Additional Senior Lenders, if any, and grants to Collateral Agent for
the benefit of the Trustee, the Holders of the Senior Secured Notes and all
Permitted Additional Senior Lenders, if any, a security interest in all the
estate, right, title and interest of each such Pledgor, now owned or hereafter
acquired, in, to and under any and all of the following (the "Collateral"):
----------
Such Pledgor's partnership interest in CLJV, including without limitation
such Pledgor's (i) rights to receive all income, gain, profit, loss or
other items allocated or distributed to such Pledgor under the Partnership
Agreement, (ii) rights to receive all distributions of any nature
whatsoever by the Pledgors with respect to such partnership interest; (iii)
capital or ownership interest, including capital accounts, in CLJV, and all
accounts, deposits or credits of any kind with CLJV, (iv) voting rights in
or rights to control or direct the affairs of CLJV, (v) right, title and
interest, as a partner in CLJV, in or to any and all of CLJV's assets or
properties, (vi) other rights, title and interest in or to CLJV, and all
rights to receive income, profit or other distributions from CLJV, of any
nature whatsoever, in each case, as such rights are derived from such
Pledgor's partnership interests in CLJV, (vii) claims for damages arising
out of or for breach of or default relating to the Collateral, and (viii)
rights to terminate, amend, supplement, modify or waive performance under
the Partnership Agreement, to perform thereunder and to compel performance
and otherwise exercise all remedies thereunder, along with all of the
proceeds of any of the above and all General Intangibles (as such term is
defined in the UCC) constituting any of the above.
(b) This Agreement and all of the Collateral secure the payment and
performance of Guarantors' obligations under the Guarantee, including, but not
limited to, the payment of all amounts owed to Collateral Agent, Trustee, the
Holders of the Senior Secured Notes and the Permitted Additional Senior Lenders,
if any, of every kind and description (whether or not evidenced by any note or
instrument and whether or not for the payment of money), direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
pursuant to the terms of the Guarantee, including all interest, fees, charges,
expenses, attorney's fees and accountant's fees (all such obligations being
herein called the "Obligations").
-----------
3. Documents.
---------
3
<PAGE>
(a) At any time and from time to time upon the request of Collateral
Agent, each Pledgor will (i) deliver and pledge to Collateral Agent, endorsed
and/or accompanied by such evidence of assignment and transfer, in such form and
substance, as Collateral Agent may request, any and all instruments, documents,
chattel paper and/or general intangibles relating to the Collateral as
Collateral Agent may specify; (ii) give, execute, deliver, file and/or record
any notice, statement, instrument, document, agreement or other papers that may
be reasonably necessary, as Collateral Agent may reasonably request, in order to
create, preserve, perfect or validate the assignment and security interest
granted pursuant hereto or to enable Collateral Agent to exercise and enforce
its rights hereunder or with respect to such assignment and security interest;
and (iii) keep and stamp or otherwise mark any and all documents and its
individual books and records relating to Collateral in such manner as Collateral
Agent may require.
(b) Each Pledgor agrees that, from time to time, at the expense of
the relevant Pledgor, such Pledgor will promptly execute and deliver all further
instruments and documents, and take all further action that may be necessary or
required, or that Collateral Agent may reasonably request, in order to perfect
and protect the assignment and security interest granted or intended to be
granted hereby or to enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, each Pledgor will execute and file such
financing or continuation statements or amendments thereto and such other
instruments, endorsements or notices as may be necessary or required, or as the
Collateral Agent may reasonably request, in order to perfect and preserve the
assignments and security interests granted or purported to be granted hereby.
Notwithstanding the foregoing, Collateral Agent shall have no obligation in
respect of filing such statements or the perfection or preservation of such
security interests.
(c) If any default by any Pledgor under the Partnership Agreement
shall occur, Collateral Agent shall, at its option, be permitted (but shall not
be obligated) to remedy any such default by giving written notice of such intent
to CLJV and the relevant Pledgor. Collateral Agent shall have a period of sixty
(60) days after giving such notice in which to cure such default. In the event
that any such default (except monetary defaults) shall not be reasonably curable
within such 60 day period, neither CLJV nor any Person acting on behalf of CLJV,
including without limitation a general partner of CLJV, shall exercise any
remedies thereunder if Collateral Agent shall, within such 60 day period,
initiate action to cure such default and proceed diligently to the curing
thereof. Any cure by Collateral Agent of a Pledgor's default under the
Partnership Agreement shall not be construed as an assumption by Collateral
Agent, Trustee, any of the Holders of the Senior Secured Notes or any Permitted
Additional Senior Lender of any obligations, covenants or agreements of any
Pledgor under the Partnership Agreement, and neither Collateral Agent, Trustee,
the Holders of the Senior Secured Notes nor any Permitted Additional Senior
Lender shall be liable for any action taken pursuant to this Section 3(c) to
cure
4
<PAGE>
any such default. This Agreement shall not be deemed to release or to affect in
any way the obligations of any Pledgor under the Partnership Agreement.
4. Events of Default. The occurrence and continuance of any of the
-----------------
following events ("Events of Default") whatever the reason for such Event of
-----------------
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body, shall
constitute an Event of Default hereunder and shall entitle Collateral Agent
(subject to the Indenture) to exercise any and all of its rights and remedies
hereunder or at law:
(a) the occurrence (whether as a result of acts or omissions by any
Guarantor or any other Person) of an Event of Default under the Indenture; or
(b) the failure on the part of any Pledgor to observe or perform any
covenant, condition or agreement on its part to be observed or performed, or the
breach of any representation or warranty of a Pledgor contained in this
Agreement or the Partnership Agreement and such failure continues uncured for 30
or more days from the date a Responsible Officer of such Pledgor receives notice
thereof from the Collateral Agent; provided that if such Pledgor commences and
diligently pursues efforts to cure such default within such 30-day period, such
Pledgor may continue to effect such cure of the default and such default will
not be deemed an Event of Default for an additional 60 days so long as such
Pledgor is diligently pursuing such cure.
5. Remedies.
--------
(a) If any Event of Default has occurred and is continuing, Collateral
Agent shall have the right, at its election, but not the obligation, to do any
of the following, with respect to such Pledgor: (i) subject to Section 5(e)
below and applicable law, vote or exercise any and all of such Pledgor's rights
or powers under the Partnership Agreement, including any rights or powers to
manage or control CLJV; (ii) subject to Section 5(e) and applicable law demand,
sue for, collect or receive any money or property at any time payable to or
receivable by such Pledgor on account of or in exchange for all or any part of
the Collateral; (iii) institute and prosecute any action at law or suit in
equity or other proceeding to collect or enforce any Obligations or rights
hereunder or in the Collateral, including specific enforcement of any covenant
or agreement contained herein or in the Partnership Agreement, or to foreclose
or enforce the security interest in all or any part of the Collateral granted
herein, or to enforce any other legal or equitable right vested in it by this
Agreement or by law; (iv) sell or otherwise dispose of any or all of the
Collateral or cause all or any part of the Collateral to be sold or otherwise
disposed of in one or more sales or transactions, at such prices as Collateral
Agent may deem commercially
5
<PAGE>
reasonable, and for cash or on credit or for future delivery, without assumption
of any credit risk, at any broker's board or at public or private sale, without
demand of performance or notice of intention to sell or of time or place of sale
(except such notice which under applicable law cannot be waived), and any Holder
of the Senior Secured Notes, any Permitted Additional Senior Lender, or any
other Person may be the purchaser of any or all of the Collateral so sold and
thereafter hold the same absolutely free from any claim or right of whatsoever
kind, including any equity of redemption, of such Pledgor or CLJV, any such
demand, notice or right and equity being hereby expressly waived and released
(to the extent permitted by applicable law); (v) incur expenses, including
reasonable attorneys' fees, consultants' fees, and other costs appropriate to
the exercise of any right or power under this Agreement; (vi) perform any
obligation of such Pledgor hereunder or under the Partnership Agreement; (vii)
secure the appointment of a receiver for such Pledgor (to the extent and in the
manner permitted by applicable law); or (viii) exercise any other or additional
rights or remedies granted to a secured party under the UCC. If, pursuant to
applicable law, prior notice of any such action is required to be given to such
Pledgor or CLJV, such Pledgor and CLJV hereby acknowledge and agree that the
minimum time required by such applicable law, or if no minimum is specified, ten
(10) Business Days, shall be deemed a reasonable notice period.
(b) In addition to the foregoing remedies, Collateral Agent (subject
to Section 3(c)) may, but shall not be obligated to, cure any Event of Default
and incur reasonable fees, costs and expenses in doing so, in which event CLJV
or the relevant Pledgor shall immediately reimburse Collateral Agent on demand
for all such fees, costs and expenses, together with interest on the total
amount at a rate equal to the "Prime Rate" of Bankers Trust Company, as such
rate is announced from time to time, plus one percent (1%) (the "Default Rate").
Subject to the such Pledgor's rights described in paragraph (c) below to contest
certain claims, taxes, assessments, charges, liens and encumbrances, Collateral
Agent shall be the sole judge of the validity of any adverse claims, taxes,
assessments, charges, liens or encumbrances pertaining to the Collateral, and
the amount to be paid in satisfaction thereof, and of the necessity therefor,
provided Collateral Agent shall be under no obligation to do any such acts or to
make any such payments.
(c) Each Pledgor may contest in good faith any taxes, assessments and
other governmental charges in connection with the Collateral and, in such event,
may permit the taxes, assessments or other charges so contested to remain unpaid
during any period, including appeals, when such Pledgor is in good faith
contesting the same, so long as (i) reserves have been established in an amount
sufficient to pay any such taxes, assessments or other charges, accrued interest
thereon and potential penalties or other costs relating thereto, or other
adequate provision for the payment thereof shall have been made, (ii)
enforcement of the contested tax, assessment or other charge is effectively
stayed for the entire duration of such contest, and (iii) any tax, assessment or
other charge determined to be due, together with any interest or penalties
thereon,
6
<PAGE>
is immediately paid after resolution of such contest. Additionally, each Pledgor
may contest in good faith Liens for any tax, assessment or other governmental
charge, by appropriate proceedings, so long as (i) such proceedings shall not
involve any substantial danger of the sale, forfeiture or loss of the
Collateral, title thereto or any interest therein, or (ii) in connection with
such proceedings a bond or other security has been posted or provided in such
manner and amount as to provide that any taxes, assessments or other charges
determined to be due will be promptly paid in full when such contest is
determined.
(d) All reasonable costs and expenses (including without limitation
agents' and reasonable attorneys' fees and expenses) incurred by Collateral
Agent, Trustee, any Holder of the Senior Secured Notes or Permitted Additional
Senior Lender in connection with exercising any remedy provided for herein or at
law, curing any Event of Default or performing any of a Pledgor's agreements
contained herein or in the Partnership Agreement or in respect of any part of
the Collateral, together with interest thereon computed at the Default Rate from
the date on which such costs or expenses are incurred to the date of payment
thereof, shall constitute indebtedness secured by this Agreement and shall be
paid by such Pledgor or CLJV to Collateral Agent, Trustee such Holder of the
Senior Secured Notes or such Permitted Additional Senior Lender, as the case may
be, on demand.
(e) So long as no Event of Default has occurred and is continuing,
each Pledgor reserves the right to exercise all of its rights under the
Partnership Agreement (except as limited by the Indenture) and to receive all
income and other distributions and payments from CLJV in respect of the
Collateral. Notwithstanding any other term or provision of this Agreement, each
Pledgor shall be entitled to receive and retain for its own benefit and use all
distributions and other payments paid by CLJV to such Pledgor in respect of the
Collateral prior to the occurrence of an Event of Default.
(f) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority specified in Section 5.10 of the Indenture. If all
Obligations and any other amounts due under this Agreement have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Pledgors, if they are lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
(g) The Collateral Agent shall not be deemed to make any
representations as to the value or condition of the Collateral and shall incur
no liability in respect thereof.
6. Remedies Cumulative; Delay Not Waiver. No right, power or remedy
-------------------------------------
herein conferred upon or reserved to Collateral Agent, Trustee, the Holders of
the Senior Secured Notes or the Permitted Additional Senior Lenders, if any, is
intended to be exclusive of
7
<PAGE>
any other right, power or remedy, and every such right, power and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right, power and remedy given hereunder or now or hereafter existing at law or
in equity or otherwise. The assertion or employment of any right or remedy
hereunder shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy. No delay or omission of Collateral Agent to
exercise any right or power accruing upon the occurrence and during the
continuance of any Event of Default as aforesaid shall impair any such right or
power or shall be construed to be a waiver of any such Event of Default or an
acquiescence therein. Every power and remedy given by this Agreement may be
exercised from time to time, and as often as shall be deemed expedient, by
Collateral Agent.
7. Covenants and Representations of Pledgors. Each Pledgor
-----------------------------------------
covenants, agrees and represents, solely with respect to itself, as follows:
(a) Pledgor will perform and comply, in all material respects, with
all obligations and conditions on its part to be performed hereunder, under the
Partnership Agreement or with respect to the Collateral.
(b) Pledgor (i) is, respectively, (A) a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware, in the case of CAC, and (B) a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Delaware,
in the case of CAG, and in each case such Pledgor has all requisite power and
authority under the laws of its state of organization to enter into the
Partnership Agreement and to perform its obligations thereunder and to
consummate the transactions contemplated thereby, (ii) is duly qualified,
authorized to do business and in good standing in each jurisdiction where the
character of its properties or the nature of its activities makes such
qualification necessary, (iii) has all requisite power and authority (W) to
carry on its business as now being conducted and as proposed to be conducted by
it, (X) to execute, deliver and perform this Agreement and the Partnership
Agreement to which it is a party, in its individual capacity, (Y) to take all
action as may be necessary to consummate the transactions contemplated
thereunder and (Z) to grant liens and security interest provided for in this
Agreement, and (iv) has all requisite power and authority under the Partnership
Agreement to execute and deliver, on behalf of CLJV, each Financing Document to
which CLJV is a party.
(c) Pledgor has (i) taken all necessary action to authorize the
execution, delivery and performance of the Partnership Agreement and this
Agreement and each Financing Document to which it is a party; and (ii) duly
executed and delivered the Partnership Agreement and this Agreement and each
Financing Document to which it is a party. Neither any Pledgor's execution and
delivery of this Agreement and the other Financing Documents to which it is a
party nor its consummation of the transactions contemplated thereby nor its
compliance with the
8
<PAGE>
terms thereof (i) does or will contravene the Partnership Agreement, the
articles of incorporation or formation documents of such Pledgor or any other
requirements of law applicable to or binding on such Pledgor or any of its
properties, (ii) does or will contravene or result in any breach of or
constitute any default under, or result in or require the creation of any Lien
(other than Permitted Liens) upon any of its property under, any agreement or
instrument to which it is a party or by which it or any of its properties may be
bound or affected or (iii) does or will require the consent or approval of any
Person which has not already been obtained.
(d) The Partnership Agreement has been duly authorized, executed and
delivered by such Pledgor, has not been amended or otherwise modified, and is in
full force and effect and is binding upon and enforceable against such Pledgor
in accordance with its terms. There exists no default under the Partnership
Agreement by such Pledgor.
(e) This Agreement is the legal, valid and binding obligation of such
Pledgor, enforceable against such Pledgor in accordance with its terms, except
to the extent the enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights and subject to general equitable principles.
(f) Pledgor has not executed and is not aware of any effective
financing statement, security agreement or other instrument similar in effect
covering all or any part of the Collateral on file in any recording office,
except such as may have been filed pursuant to this Agreement or the other
Financing Documents or pursuant to the documents evidencing Permitted Liens.
(g) Pledgor is the lawful owner of and has full right, title and
interest in and to, the Collateral, subject to no mortgages, liens, charges, or
encumbrances of any kind other than as granted pursuant to the Partnership
Agreement, and has full power and lawful authority to pledge, assign and grant a
security interest in the Collateral granted by it hereunder. Pledgor will, so
long as any Obligations shall be outstanding, warrant and defend its title to
the Collateral against any claims and demands which may affect to a material
extent its title to, or the Collateral Agent's right or interest in, such
Collateral.
(h) Pledgor will not directly or indirectly create, incur, assume or
suffer to exist any Liens on or with respect to any part of the Collateral other
than the rights and interests of the Collateral Agent, the Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
hereunder, Permitted Liens and rights of Pledgors under the Partnership
Agreement. Pledgor will at its own cost and expense promptly take such action as
may be necessary to discharge any such liens not so permitted.
9
<PAGE>
(i) Pledgor has not assigned any of its rights under the Partnership
Agreement or any of the Collateral except as provided in this Agreement.
(j) Any action or proceeding to enforce the rights granted or to
protect or preserve the Collateral under this Agreement may be taken by
Collateral Agent either in Pledgor's name or in Collateral Agent's name, as
Collateral Agent may deem necessary.
(k) Without the prior written consent of Collateral Agent, or as
otherwise permitted by the Indenture, Pledgor shall not (i) terminate or make
any material modification or amendment of the Partnership Agreement (unless
required, in the opinion of Pledgor, to maintain the Project as a "qualifying
facility"), (ii) fail to deliver to Collateral Agent a copy of each demand or
notice received or given by it relating to the Partnership Agreement and which
could reasonably be expected to have a material adverse effect upon the
Collateral or Collateral Agent's rights therein, or (iii) sell, contract to
sell, assign, transfer or dispose of any of the Collateral.
(l) Without the prior written consent of Collateral Agent, or as
otherwise permitted by the Indenture, each Pledgor covenants that it shall not
(i) permit CLJV to directly or indirectly create, incur, assume or suffer to
exist any Liens on or with respect to any asset of CLJV other than the rights
and interests of the Collateral Agent, the Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, hereunder,
Permitted Liens and rights of Pledgors under the Partnership Agreement, (ii)
permit CLJV to directly or indirectly incur, assume or guarantee any debt.
(m) Pledgor shall give to Collateral Agent prompt written notice of
any material default, event of default or event which with the giving of notice
or the passage of time or both might become an event of default (however
"default" or "event of default" may be defined) under the Partnership Agreement,
whether by CLJV, such Pledgor, or any other Person, of which such Pledgor has
actual knowledge or has received notice.
(n) If a Pledgor in its capacity as a partner receives any income or
distribution of money or property of any kind in respect of the Collateral from
CLJV while an Event of Default has occurred and is continuing, such Pledgor
shall hold such income or distribution of money or property as trustee for and
shall deliver the same to Collateral Agent.
(o) Pledgor will, at all times, keep accurate and complete records of
the Collateral. Pledgor shall, at all times on three (3) Business Days' notice,
permit representatives of Collateral Agent at any time during normal business
hours of such Pledgor to inspect and make abstracts from such Pledgor's books
and records pertaining to the Collateral. Upon the occurrence and continuance of
any Event of Default, at Collateral Agent's request, Pledgor shall promptly
deliver any and all such records to Collateral Agent.
10
<PAGE>
(p) Pledgor will give prompt notice in writing to Collateral Agent of
any change in the location of the place of business where correspondence,
notices or proceeds in connection with the Collateral are received or located or
of any change in the location of the place of business where records concerning
Collateral are kept.
(q) Pledgor is not, and will not, be or become, or cause CLJV to be
or become or to be deemed by any Governmental Authority to be, solely as a
result of the construction, ownership, leasing or operation of the Project, the
sale of electricity therefrom or the entering into of any Financing Document or
any transaction contemplated thereby, a "utility" or subject to or not exempt
from regulation under the FPA (other than such regulation contemplated under 18
C.F.R. (S) 292.601(e)) or the PUHCA (other than Section 9(a)(2) of PUHCA) or
under state laws and regulations respecting the rates or the financial or
organizational regulation of public or electric utilities except as a Qualifying
Facility under PURPA.
(r) Pledgor will not do anything or cause, suffer or permit anything
to be done, including without limitation sale or other transfer of a Pledgor's
partnership interest in CLJV or of any stock, partnership interest or other
ownership interest in any Pledgor (other than the exercise by others of remedies
under the Financing Documents), which may cause the Project to lose its status
as a Qualifying Facility.
(s) Pledgor shall not register any other secured party as a
"registered owner" (as defined in Section 8-301 of the New York UCC) of any
partnership interest in CLJV.
8. Certain Consents and Waivers.
----------------------------
(a) Each Pledgor hereby consents to the other Pledgor entering into
this Agreement in favor of Collateral Agent for the benefit of the Trustee, the
Holders of the Senior Secured Notes and the Permitted Additional Senior Lenders,
if any. Each Pledgor specifically agrees that such action may, among other
things, assign or delegate to Collateral Agent rights to cure defaults under the
Partnership Agreement, to exercise voting rights and other rights to manage or
control CLJV, and to act as such other Pledgor's attorney-in-fact in a manner
similar to the assignment and delegation of such rights provided herein. Each
Pledgor (to the extent permitted by applicable law) agrees that it will
recognize and accept such assignment and delegation and the exercise of such
rights by Collateral Agent in connection with this Agreement and agrees that any
option or rights of any Pledgor to acquire any of the Collateral from any other
Pledgor pursuant to the Partnership Agreement shall be subordinate to any right
of the Trustee in the Collateral created hereunder.
11
<PAGE>
(b) Each Pledgor hereby waives, to the maximum extent permitted by law
(i) all rights under any law limiting remedies, including recovery of a
deficiency, under an obligation secured by a deed of trust on real property if
the real property is sold under a power of sale contained in the mortgage, and
all defenses based on any loss whether as a result of any such sale or
otherwise, of Pledgor's right to recover any amount from CLJV, whether by right
of subrogation or otherwise; (ii) all rights under any law to require Collateral
Agent to pursue CLJV or any other Person, any security which Collateral Agent
may hold, or any other remedy before proceeding against Pledgor; (iii) all
rights of reimbursement or subrogation, all rights to enforce any remedy that
Collateral Agent, the Trustee, the Holders of the Senior Secured Notes or the
Permitted Additional Senior Lenders, if any, may have against CLJV, and all
rights to participate in any security held by Collateral Agent until the
Obligations have been paid and the covenants of the Indenture have been
performed in full; (iv) all rights to require Collateral Agent to give any
notices of any kind, including without limitation notices of nonpayment,
nonperformance, protest, dishonor, default, delinquency or acceleration, or to
make any presentments, demands or protests, except as expressly provided herein
and in the Indenture; (v) all rights to assert the bankruptcy or insolvency of
CLJV as a defense hereunder or as the basis for rescission hereof; (vi) all
rights under any law purporting to reduce Pledgors' Obligations hereunder if
Pledgors' Obligations are reduced; (vii) all defenses based on the disability or
lack of authority of Pledgor or any Person, the repudiation of the Guarantees or
any related Financing Documents by Pledgor or any Person, the failure by
Collateral Agent, the Trustee, the Holders of the Senior Secured Notes or any
Permitted Additional Senior Lender, if any, to enforce any claim against
Pledgor, or the unenforceability in whole or in part of any Financing Document;
(viii) all suretyship and guarantor's defenses generally; (ix) all rights to
insist upon, plead or in any manner whatever claim or take the benefit or
advantage of, any appraisal, valuation, stay, extension, marshaling of assets,
redemption or similar law, or exemption, whether now or at any time hereafter in
force, which may delay, prevent or otherwise affect the performance by Pledgor
or its obligations under, or the enforcement by Collateral Agent of, this
Agreement; (x) any requirement on the part of Collateral Agent, Trustee, the
Holders of the Senior Secured Notes or any Permitted Additional Senior Lender,
if any, to mitigate the damages resulting from any default; and (xi) except as
otherwise specifically set forth herein, all rights of notice and hearing of any
kind prior to the exercise of rights by Collateral Agent upon the occurrence and
during the continuation of an Event of Default to repossess with judicial
process or to replevy, attach or levy upon the Collateral. To the extent
permitted by applicable law, each Pledgor waives the posting of any bond
otherwise required of Collateral Agent in connection with any judicial process
or proceeding to obtain possession of, replevy, attach, or levy upon the
Collateral, to enforce any judgment or other security for the Obligations, to
enforce any judgment or other court order entered in favor of Collateral Agent,
or to enforce by specific performance, temporary restraining order, preliminary
or permanent injunction, this Agreement or any other agreement or document
between any Pledgor, Collateral Agent, Trustee, the Holders of the Senior
Secured Notes or any Permitted Additional Senior Lender, if any. Each Pledgor
further agrees that upon the occurrence
12
<PAGE>
and continuance of an Event of Default, Collateral Agent may elect to
nonjudicially or judicially foreclose against any real or personal property
security it holds for the Obligations or any part thereof, or to exercise any
other remedy against Pledgor, any security or any guarantor, even if the effect
of that action is to deprive a Pledgor of the right to collect reimbursement
from CLJV for any sums paid by such Pledgor to Collateral Agent, Trustee or any
Holder of the Senior Secured Notes or any Permitted Additional Senior Lender, if
any.
(c) If Collateral Agent may, under applicable law, proceed to realize
its benefits under any of the Financing Documents giving Collateral Agent a Lien
upon any Collateral, whether owned by Pledgor or by any other Person, either by
judicial foreclosure or by nonjudicial sale or enforcement, Collateral Agent
may, at its sole option, determine which of its remedies or rights it may pursue
without affecting any of the rights and remedies of Collateral Agent under this
Agreement. In the event Collateral Agent shall bid at any foreclosure or
trustee's sale or at any private sale permitted by law or the Financing
Documents, Collateral Agent may bid all or less than the amount of Obligations.
To the extent permitted by applicable law, the amount of the successful bid at
any such sale, whether Collateral Agent or any other party is the successful
bidder, shall be conclusively deemed to be the fair market value of the
Collateral and the difference between such bid amount and the remaining balance
of the Obligations shall be conclusively deemed to be the amount of the
Obligations.
9. CLJV's Consent and Covenants. CLJV hereby consents to the
----------------------------
assignment of and grant of a security interest in the Collateral to Collateral
Agent and to the exercise by Collateral Agent of all rights and powers assigned
or delegated to Collateral Agent by each Pledgor hereunder, including without
limitation the rights upon and during an Event of Default to exercise such
Pledgor's voting rights and other rights under the Partnership Agreement to
manage or control CLJV, subject to the notice and other requirements of
applicable law. CLJV further agrees to perform all covenants and obligations
herein which, by their express or implied terms, are to be performed by CLJV.
10. Attorney-in-Fact. Each Pledgor hereby irrevocably constitutes
----------------
and appoints Collateral Agent its true and lawful attorney-in-fact to enforce
all rights of such Pledgor with respect to the Collateral, including without
limitation, the right to vote, demand, receive and enforce such Pledgor's rights
with respect to the Collateral, and to give appropriate receipts, releases and
satisfactions for and on behalf of and in the name of such Pledgor or, at the
option of Collateral Agent, in the name of Collateral Agent, with the same force
and effect as such Pledgor could do if this Agreement had not been made;
provided, however, Collateral Agent shall not exercise such rights except upon
- -------- -------
the occurrence and during the continuation of an Event of Default. This power of
attorney is a power coupled with an interest and shall be irrevocable.
11. Place of Business; Location of Records.
--------------------------------------
13
<PAGE>
(a) Unless Collateral Agent is otherwise notified, the place of
business and chief executive office of each respective Pledgor is and all
records of each respective Pledgor concerning the Collateral are and will be
located at the following addresses:
CAITHNESS ACQUISITION COMPANY, LLC,
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Street
New York, New York 10036
CAITHNESS GEOTHERMAL 1980 LTD., L.P.,
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Street
New York, New York 10036
(b) All notices required or permitted under the terms and provisions
hereof shall be in writing and any such notice shall be effective if given in
accordance with the provisions of Section 10.02 of the Indenture. Notices to
each Pledgor may be given at the address of CLJV set forth in such Section 10.02
above. Notices to Collateral Agent shall be given to Collateral Agent c/o
Trustee at its address set forth in such Section 10.02.
12. Perfection; Further Assurances.
------------------------------
(a) Each Pledgor agrees that from time to time, it will promptly
execute and deliver all instruments and documents as required by Section 3(a)
hereof. Without limiting the generality of the foregoing, each Pledgor will (i)
deliver the Collateral or any part thereof to Collateral Agent, as Collateral
Agent may request, accompanied by such duly executed instruments of transfer or
assignment as Collateral Agent may request, and (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments, endorsements or notices, as may be reasonably necessary in order to
perfect and preserve the assignments and security interests granted or purported
to be granted hereby.
(b) Each Pledgor shall pay all filing, registration and recording fees
and all refiling, re-registration and re-recording fees, and all reasonable
expenses incident to the execution and acknowledgment of this Agreement, any
instruments of further assurance, and (except as otherwise provided in the
Indenture) all federal, state, county and municipal stamp taxes and other taxes,
duties, imports, assessments and charges arising out of or in connection with
the execution and delivery of this Agreement, any agreement supplemental hereto,
any financing statements, and any instruments of further assurance.
14
<PAGE>
(c) Each Pledgor shall give Collateral Agent at least forty-five (45)
days prior written notice before it changes the location of its place of
business and chief executive office and shall, at the expense of each Pledgor,
execute and deliver such instruments and documents as may be required by
Collateral Agent to maintain a prior perfected security interest in the
Collateral.
13. Continuing Assignment and Security Interest; Transfer of Loans.
--------------------------------------------------------------
This Agreement shall create a continuing pledge and assignment of and security
interest in the Collateral and shall (i) remain in full force and effect until
payment in full of the Obligations, (ii) be binding upon CLJV, Pledgors, and
their respective successors and assigns, and (iii) inure, together with the
rights and remedies provided herein, to the benefit of Collateral Agent, the
Holders of the Senior Secured Notes, the Permitted Additional Senior Lenders, if
any, and their respective successors, transferees and assigns. Without limiting
the generality of the foregoing, but subject to Section 2.06 of the Indenture,
any of the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, may assign or otherwise transfer all or any part of or
interest in their Senior Secured Notes to any other Person to the extent
permitted by and in accordance with the Indenture, and such other Person shall
thereupon become vested with all or an appropriate part of the benefits in
respect thereof granted to the Holders of the Senior Secured Notes herein or
otherwise. The release of the security interest in any or all of the Collateral,
the taking or acceptance of additional security, or the resort by Collateral
Agent to any security it may have in any order it may deem appropriate, shall
not affect the liability of any person on the Obligations. Upon the payment and
performance in full of the Obligations, the security interest granted hereby
shall terminate and all rights to the Collateral shall revert to Pledgors. Upon
any such termination, Collateral Agent shall, at Pledgors' expense, execute and
deliver to Pledgors such documents as CLJV or Pledgors shall reasonably request
to evidence such termination. If this Agreement shall be terminated or revoked
by operation of law, Pledgors will indemnify and save Collateral Agent, the
Trustee, the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, harmless from any loss which may be suffered or incurred
by Collateral Agent, Trustee, the Holders of the Senior Secured Notes and the
Permitted Additional Senior Lenders, if any, in acting hereunder prior to the
receipt by Collateral Agent, its successors, transferees or assigns of written
notice of such termination or revocation.
14. Liability. The obligations hereunder are subject to the
---------
limitations set forth in Section 6.11 of the Credit Agreement, the provisions of
which are hereby incorporated by reference.
15. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover
15
<PAGE>
its reasonable attorneys' fees and other reasonable costs and expenses incurred
therein from the losing party, and, if a judgment or award is entered in any
such action or proceeding, such attorneys' fees and other costs and expenses may
be made a part of such judgment or award.
16. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17. Successors and Assigns. All covenants and agreements contained
----------------------
herein shall be binding upon, and inure to the benefit of, the parties and their
respective successors and assigns. Pledgor and CLJV shall cause any assignee to
pledge the assigned Collateral to the Collateral Agent.
18. Headings. The headings of the various sections herein are for
--------
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
19. Governing Law. This Agreement, including all matters of
-------------
construction, validity, performance and the creation, validity, enforcement or
priority of the lien of, and security interests created by, this Agreement in or
upon the Collateral shall be governed by the laws of the State of New York,
without reference to conflicts of law (other than Section 5-1401 of the New York
General Obligations Law), except as required by mandatory provisions of law and
except to the extent that the validity or perfection of the lien and security
interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the State of
New York.
20. Time. Time is of the essence of this Agreement.
----
21. References to Other Documents. All defined terms used in this
-----------------------------
Agreement which refer to other documents shall be deemed to refer to such other
documents as they may be amended, supplemented or replaced from time to time,
provided such documents were not amended in breach of a covenant contained in
any agreement to which any Pledgor, CLJV, Collateral Agent or Trustee is a
party.
22. Reinstatement. This Agreement shall continue to be effective or
-------------
be reinstated, as the case may be, if at any time any amount received by
Collateral Agent in respect of the Obligations is rescinded or must otherwise be
restored or returned by Collateral Agent upon the insolvency, bankruptcy,
reorganization, liquidation of any Pledgor or CLJV or upon the dissolution of,
or appointment of any intervenor or conservator of, or trustee or similar
official
16
<PAGE>
for any Pledgor or CLJV or any substantial part of any Pledgor's or CLJV's
assets, or otherwise, all as though such payments had not been made.
23. Statute of Limitations. Each Pledgor hereby waives the right to
----------------------
plead any statute of limitations as a defense to any indebtedness or obligation
hereunder or secured hereby to the full extent permitted by law.
24. Entire Agreement. This Agreement, together with any other
----------------
agreement executed in connection herewith, is intended by the parties as a final
expression of their agreement and is intended as a complete and exclusive
statement of the terms and condition thereof.
25. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.
26. Waiver of Jury Trial. EACH PLEDGOR, CLJV AND COLLATERAL AGENT
--------------------
HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER COLLATERAL DOCUMENTS
OR FINANCING DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE COLLATERAL AGENT, CLJV OR ANY
PLEDGOR. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE COLLATERAL AGENT TO
ENTER INTO THIS AGREEMENT.
27. Regarding the Collateral Agent. The Collateral Agent shall be
------------------------------
afforded all of the rights, powers, protections, immunities and indemnities set
forth in that certain Security Agreement dated as of the date hereof between
Pledgors and Collateral Agent as if the same were specifically set forth herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, Pledgors, CLJV Collateral Agent have caused this
Partnership Interest Pledge Agreement to be duly executed by their partners and
officers thereunto duly authorized, as of the day and year first above written.
Caithness Acquisition Company, LLC,
a Delaware limited liability company,
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
Caithness Geothermal 1980 Ltd., L.P.,
a Delaware limited partnership,
its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company
its: General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
----------------------
Name: Judy P. Manansala
--------------------
Title: Trust Officer
-------------------
18
<PAGE>
ACCEPTED AND AGREED
-------------------
CHINA LAKE JOINT VENTURE,
a California general partnership
By: Caithness Acquisition Company, LLC,
a Delaware limited liability company,
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Geothermal 1980 Ltd., L.P.,
a Delaware limited partnership,
its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company
its: General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
19
<PAGE>
Exhibit 10.36
PARTNERSHIP INTEREST PLEDGE AGREEMENT (CLC)
-------------------------------------------
Dated as of May 28, 1999
Among
CAITHNESS ACQUISITION COMPANY, LLC,
a Delaware limited liability company,
CAITHNESS GEOTHERMAL 1980 LTD., L.P.,
a Delaware limited partnership,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
PREFACE............................................................. 1
AGREEMENT........................................................... 1
1. Definitions...................................................... 2
2. Assignment, Pledge and Grant of Security Interest................ 3
3. Documents........................................................ 3
4. Events of Default................................................ 5
5. Remedies......................................................... 5
6. Remedies Cumulative; Delay Not Waiver............................ 7
7. Covenants and Representations of Pledgors........................ 8
8. Certain Consents and Waivers..................................... 11
9. CLC's Consent and Covenants...................................... 13
10. Attorney-in-Fact................................................ 13
11. Place of Business; Location of Records.......................... 14
12. Perfection; Further Assurances.................................. 14
</TABLE>
<PAGE>
<TABLE>
<S> <C>
13. Continuing Assignment and Security Interest; Transfer of Loans.. 15
14. Liability....................................................... 16
15. Attorneys' Fees................................................. 16
16. Severability.................................................... 16
17. Successors and Assigns.......................................... 16
18. Headings........................................................ 16
19. Governing Law................................................... 16
20. Time............................................................ 16
21. References to Other Documents................................... 17
22. Reinstatement................................................... 17
23. Statute of Limitations.......................................... 17
24. Entire Agreement................................................ 17
25. Counterparts.................................................... 17
26. Waiver of Jury Trial............................................ 17
27. Regarding the Collateral Agent.................................. 18
</TABLE>
ii
<PAGE>
COSO LAND COMPANY
PARTNERSHIP INTEREST PLEDGE AGREEMENT
This Partnership Interest Pledge Agreement ("Agreement"), dated as of
---------
May 28, 1999, is entered into by and among COSO LAND COMPANY, a California
general partnership ("CLC"), CAITHNESS ACQUISITION COMPANY, LLC, a Delaware
---
limited liability company ("CAC"), CAITHNESS GEOTHERMAL 1980 LTD., L.P.,
---
("CAG") a Delaware limited partnership (each of CAC and CAG a "Pledgor," and,
--- -------
collectively, the "Pledgors"), and U.S. BANK TRUST NATIONAL ASSOCIATION in its
--------
capacity as collateral agent ("Collateral Agent") for U.S. BANK TRUST NATIONAL
----------------
ASSOCIATION in its capacity as trustee ("Trustee") for the holders of all
-------
secured notes issued pursuant to that certain Indenture dated as of May 28, 1999
(the "Indenture") among the Trustee, COSO FINANCE PARTNERS, a California general
---------
partnership ("Navy I"), COSO ENERGY DEVELOPERS, a California general partnership
------
("BLM"), COSO POWER DEVELOPERS, a California general partnership ("Navy II"
--- -------
together with BLM and Navy I the "Guarantors,"), and CAITHNESS COSO FUNDING
----------
CORP., a Delaware corporation (the "Issuer") (such notes, the "Senior Secured
------ --------------
Notes" and the holders thereof, the "Holders of the Senior Secured Notes"), and
- ----- -----------------------------------
all Permitted Additional Senior Lenders (as defined in the Indenture).
PREFACE
-------
A. Issuer has, as of the date of this Agreement, issued $413,000,000
of the Senior Secured Notes, the proceeds of which will be used to make loans to
the Guarantors.
B. Pledgors are the general partners of CLC pursuant to that certain
Amended Joint Venture Agreement of COSO LAND COMPANY, dated as of June 1, 1983
(the "Partnership Agreement").
---------------------
C. Pursuant to a Guarantee dated as of even date herewith (the
"Guarantee"), the Pledgors have guaranteed to Trustee and the Holders of the
---------
Senior Secured Notes the payment and performance of Issuer's obligations under
the Senior Secured Notes and the Indenture.
D. As a condition precedent to the sale of the Senior Secured Notes,
CLC and the Pledgors are required to have executed this Agreement as security
for the payment and performance of Guarantors' obligations under the Guarantee.
AGREEMENT
---------
<PAGE>
In consideration of the premises herein and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, CLC and the Pledgors hereby agree with Collateral Agent for the
benefit of Trustee, the Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any, as follows:
1. Definitions.
-----------
(a) Unless otherwise defined, all capitalized terms used herein which
are defined in the Indenture shall have their respective meanings therein
defined, and all terms, defined in the UCC shall have the respective meanings
given to those terms in the UCC.
(b) "UCC" shall mean the Uniform Commercial Code as the same may,
---
from time to time, be in effect in the State of New York; provided, however, in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
(c) "Qualifying Facility" shall mean a qualifying small power
-------------------
production facility in accordance with PURPA and the rules and regulations of
FERC under PURPA relating thereto.
(d) "FPA" shall mean the Federal Power Act of 1925, as amended.
---
(e) "PUHCA" shall mean the Public Utility Holding Company Act of
-----
1935, as amended.
(f) "PURPA" shall mean the Public Utility Regulatory Policies Act of
-----
1978, as amended, and the regulations promulgated thereunder.
2
<PAGE>
2. Assignment, Pledge and Grant of Security Interest.
-------------------------------------------------
(a) To secure the timely payment and performance of the Obligations
(as defined below), each Pledgor hereby assigns and pledges to Collateral Agent
for the benefit of the Trustee, the Holders of the Senior Secured Notes and all
Permitted Additional Senior Lenders, if any, and grants to Collateral Agent for
the benefit of the Trustee, the Holders of the Senior Secured Notes and all
Permitted Additional Senior Lenders, if any, a security interest in all the
estate, right, title and interest of each such Pledgor, now owned or hereafter
acquired, in, to and under any and all of the following (the "Collateral"):
----------
Such Pledgor's partnership interest in CLC, including without limitation
such Pledgor's (i) rights to receive all income, gain, profit, loss or
other items allocated or distributed to such Pledgor under the Partnership
Agreement, (ii) rights to receive all distributions of any nature
whatsoever by the Pledgors with respect to such partnership interest; (iii)
capital or ownership interest, including capital accounts, in CLC, and all
accounts, deposits or credits of any kind with CLC, (iv) voting rights in
or rights to control or direct the affairs of CLC, (v) right, title and
interest, as a partner in CLC, in or to any and all of CLC's assets or
properties, (vi) other rights, title and interest in or to CLC, and all
rights to receive income, profit or other distributions from CLC, of any
nature whatsoever, in each case, as such rights are derived from such
Pledgor's partnership interests in CLC, (vii) claims for damages arising
out of or for breach of or default relating to the Collateral, and (viii)
rights to terminate, amend, supplement, modify or waive performance under
the Partnership Agreement, to perform thereunder and to compel performance
and otherwise exercise all remedies thereunder, along with all of the
proceeds of any of the above and all General Intangibles (as such term is
defined in the UCC) constituting any of the above.
(b) This Agreement and all of the Collateral secure the payment and
performance of Guarantors' obligations under the Guarantee, including, but not
limited to, the payment of all amounts owed to Collateral Agent, Trustee, the
Holders of the Senior Secured Notes and the Permitted Additional Senior Lenders,
if any, of every kind and description (whether or not evidenced by any note or
instrument and whether or not for the payment of money), direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
pursuant to the terms of the Guarantee, including all interest, fees, charges,
expenses, attorney's fees and accountant's fees (all such obligations being
herein called the "Obligations").
-----------
3. Documents.
---------
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(a) At any time and from time to time upon the request of Collateral
Agent, each Pledgor will (i) deliver and pledge to Collateral Agent, endorsed
and/or accompanied by such evidence of assignment and transfer, in such form and
substance, as Collateral Agent may request, any and all instruments, documents,
chattel paper and/or general intangibles relating to the Collateral as
Collateral Agent may specify; (ii) give, execute, deliver, file and/or record
any notice, statement, instrument, document, agreement or other papers that may
be reasonably necessary, as Collateral Agent may reasonably request, in order to
create, preserve, perfect or validate the assignment and security interest
granted pursuant hereto or to enable Collateral Agent to exercise and enforce
its rights hereunder or with respect to such assignment and security interest;
and (iii) keep and stamp or otherwise mark any and all documents and its
individual books and records relating to Collateral in such manner as Collateral
Agent may require.
(b) Each Pledgor agrees that, from time to time, at the expense of
the relevant Pledgor, such Pledgor will promptly execute and deliver all further
instruments and documents, and take all further action that may be necessary or
required, or that Collateral Agent may reasonably request, in order to perfect
and protect the assignment and security interest granted or intended to be
granted hereby or to enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, each Pledgor will execute and file such
financing or continuation statements or amendments thereto and such other
instruments, endorsements or notices as may be necessary or required, or as the
Collateral Agent may reasonably request, in order to perfect and preserve the
assignments and security interests granted or purported to be granted hereby.
Notwithstanding the foregoing, Collateral Agent shall have no obligation in
respect of filing such statements or the perfection or preservation of such
security interests.
(c) If any default by any Pledgor under the Partnership Agreement
shall occur, Collateral Agent shall, at its option, be permitted (but shall not
be obligated) to remedy any such default by giving written notice of such intent
to CLC and the relevant Pledgor. Collateral Agent shall have a period of sixty
(60) days after giving such notice in which to cure such default. In the event
that any such default (except monetary defaults) shall not be reasonably curable
within such 60 day period, neither CLC nor any Person acting on behalf of CLC,
including without limitation a general partner of CLC, shall exercise any
remedies thereunder if Collateral Agent shall, within such 60 day period,
initiate action to cure such default and proceed diligently to the curing
thereof. Any cure by Collateral Agent of a Pledgor's default under the
Partnership Agreement shall not be construed as an assumption by Collateral
Agent, Trustee, any of the Holders of the Senior Secured Notes or any Permitted
Additional Senior Lender of any obligations, covenants or agreements of any
Pledgor under the Partnership Agreement, and neither Collateral Agent, Trustee,
the Holders of the Senior Secured Notes nor any Permitted Additional Senior
Lender shall be liable for any action taken pursuant to this Section 3(c) to
cure any such default. This
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Agreement shall not be deemed to release or to affect in any way the obligations
of any Pledgor under the Partnership Agreement.
4. Events of Default. The occurrence and continuance of any of the
-----------------
following events ("Events of Default") whatever the reason for such Event of
-----------------
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body, shall
constitute an Event of Default hereunder and shall entitle Collateral Agent
(subject to the Indenture) to exercise any and all of its rights and remedies
hereunder or at law:
(a) the occurrence (whether as a result of acts or omissions by any
Guarantor or any other Person) of an Event of Default under the Indenture; or
(b) the failure on the part of any Pledgor to observe or perform any
covenant, condition or agreement on its part to be observed or performed, or the
breach of any representation or warranty of a Pledgor contained in this
Agreement or the Partnership Agreement and such failure continues uncured for 30
or more days from the date a Responsible Officer of such Pledgor receives notice
thereof from the Collateral Agent; provided that if such Pledgor commences and
diligently pursues efforts to cure such default within such 30-day period, such
Pledgor may continue to effect such cure of the default and such default will
not be deemed an Event of Default for an additional 60 days so long as such
Pledgor is diligently pursuing such cure.
5. Remedies.
--------
(a) If any Event of Default has occurred and is continuing,
Collateral Agent shall have the right, at its election, but not the obligation,
to do any of the following, with respect to such Pledgor: (i) subject to Section
5(e) below and applicable law, vote or exercise any and all of such Pledgor's
rights or powers under the Partnership Agreement, including any rights or powers
to manage or control CLC; (ii) subject to Section 5(e) and applicable law
demand, sue for, collect or receive any money or property at any time payable to
or receivable by such Pledgor on account of or in exchange for all or any part
of the Collateral; (iii) institute and prosecute any action at law or suit in
equity or other proceeding to collect or enforce any Obligations or rights
hereunder or in the Collateral, including specific enforcement of any covenant
or agreement contained herein or in the Partnership Agreement, or to foreclose
or enforce the security interest in all or any part of the Collateral granted
herein, or to enforce any other legal or equitable right vested in it by this
Agreement or by law; (iv) sell or otherwise dispose of any or all of the
Collateral or cause all or any part of the Collateral to be sold or otherwise
disposed of in one or more sales or transactions, at such prices as Collateral
Agent may deem commercially
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reasonable, and for cash or on credit or for future delivery, without assumption
of any credit risk, at any broker's board or at public or private sale, without
demand of performance or notice of intention to sell or of time or place of sale
(except such notice which under applicable law cannot be waived), and any Holder
of the Senior Secured Notes, any Permitted Additional Senior Lender, or any
other Person may be the purchaser of any or all of the Collateral so sold and
thereafter hold the same absolutely free from any claim or right of whatsoever
kind, including any equity of redemption, of such Pledgor or CLC, any such
demand, notice or right and equity being hereby expressly waived and released
(to the extent permitted by applicable law); (v) incur expenses, including
reasonable attorneys' fees, consultants' fees, and other costs appropriate to
the exercise of any right or power under this Agreement; (vi) perform any
obligation of such Pledgor hereunder or under the Partnership Agreement; (vii)
secure the appointment of a receiver for such Pledgor (to the extent and in the
manner permitted by applicable law); or (viii) exercise any other or additional
rights or remedies granted to a secured party under the UCC. If, pursuant to
applicable law, prior notice of any such action is required to be given to such
Pledgor or CLC, such Pledgor and CLC hereby acknowledge and agree that the
minimum time required by such applicable law, or if no minimum is specified, ten
(10) Business Days, shall be deemed a reasonable notice period.
(b) In addition to the foregoing remedies, Collateral Agent (subject
to Section 3(c)) may, but shall not be obligated to, cure any Event of Default
and incur reasonable fees, costs and expenses in doing so, in which event CLC or
the relevant Pledgor shall immediately reimburse Collateral Agent on demand for
all such fees, costs and expenses, together with interest on the total amount at
a rate equal to the "Prime Rate" of Bankers Trust Company, as such rate is
announced from time to time, plus one percent (1%) (the "Default Rate"). Subject
to the such Pledgor's rights described in paragraph (c) below to contest certain
claims, taxes, assessments, charges, liens and encumbrances, Collateral Agent
shall be the sole judge of the validity of any adverse claims, taxes,
assessments, charges, liens or encumbrances pertaining to the Collateral, and
the amount to be paid in satisfaction thereof, and of the necessity therefor,
provided Collateral Agent shall be under no obligation to do any such acts or to
make any such payments.
(c) Each Pledgor may contest in good faith any taxes, assessments and
other governmental charges in connection with the Collateral and, in such event,
may permit the taxes, assessments or other charges so contested to remain unpaid
during any period, including appeals, when such Pledgor is in good faith
contesting the same, so long as (i) reserves have been established in an amount
sufficient to pay any such taxes, assessments or other charges, accrued interest
thereon and potential penalties or other costs relating thereto, or other
adequate provision for the payment thereof shall have been made, (ii)
enforcement of the contested tax, assessment or other charge is effectively
stayed for the entire duration of such contest, and (iii) any tax, assessment or
other charge determined to be due, together with any interest or penalties
thereon,
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<PAGE>
is immediately paid after resolution of such contest. Additionally, each Pledgor
may contest in good faith Liens for any tax, assessment or other governmental
charge, by appropriate proceedings, so long as (i) such proceedings shall not
involve any substantial danger of the sale, forfeiture or loss of the
Collateral, title thereto or any interest therein, or (ii) in connection with
such proceedings a bond or other security has been posted or provided in such
manner and amount as to provide that any taxes, assessments or other charges
determined to be due will be promptly paid in full when such contest is
determined.
(d) All reasonable costs and expenses (including without limitation
agents' and reasonable attorneys' fees and expenses) incurred by Collateral
Agent, Trustee, any Holder of the Senior Secured Notes or Permitted Additional
Senior Lender in connection with exercising any remedy provided for herein or at
law, curing any Event of Default or performing any of a Pledgor's agreements
contained herein or in the Partnership Agreement or in respect of any part of
the Collateral, together with interest thereon computed at the Default Rate from
the date on which such costs or expenses are incurred to the date of payment
thereof, shall constitute indebtedness secured by this Agreement and shall be
paid by such Pledgor or CLC to Collateral Agent, Trustee such Holder of the
Senior Secured Notes or such Permitted Additional Senior Lender, as the case may
be, on demand.
(e) So long as no Event of Default has occurred and is continuing,
each Pledgor reserves the right to exercise all of its rights under the
Partnership Agreement (except as limited by the Indenture) and to receive all
income and other distributions and payments from CLC in respect of the
Collateral. Notwithstanding any other term or provision of this Agreement, each
Pledgor shall be entitled to receive and retain for its own benefit and use all
distributions and other payments paid by CLC to such Pledgor in respect of the
Collateral prior to the occurrence of an Event of Default.
(f) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority specified in Section 5.10 of the Indenture. If all
Obligations and any other amounts due under this Agreement have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Pledgors, if they are lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
(g) The Collateral Agent shall not be deemed to make any
representations as to the value or condition of the Collateral and shall incur
no liability in respect thereof.
6. Remedies Cumulative; Delay Not Waiver. No right, power or remedy
-------------------------------------
herein conferred upon or reserved to Collateral Agent, Trustee, the Holders of
the Senior Secured Notes or the Permitted Additional Senior Lenders, if any, is
intended to be exclusive of
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<PAGE>
any other right, power or remedy, and every such right, power and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right, power and remedy given hereunder or now or hereafter existing at law or
in equity or otherwise. The assertion or employment of any right or remedy
hereunder shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy. No delay or omission of Collateral Agent to
exercise any right or power accruing upon the occurrence and during the
continuance of any Event of Default as aforesaid shall impair any such right or
power or shall be construed to be a waiver of any such Event of Default or an
acquiescence therein. Every power and remedy given by this Agreement may be
exercised from time to time, and as often as shall be deemed expedient, by
Collateral Agent.
7. Covenants and Representations of Pledgors. Each Pledgor
-----------------------------------------
covenants, agrees and represents, solely with respect to itself, as follows:
(a) Pledgor will perform and comply, in all material respects, with
all obligations and conditions on its part to be performed hereunder, under the
Partnership Agreement or with respect to the Collateral.
(b) Pledgor (i) is, respectively, (A) a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware, in the case of CAC, and (B) a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware, in the case of CAG, and in each case such Pledgor has all requisite
power and authority under the laws of its state of organization to enter into
the Partnership Agreement and to perform its obligations thereunder and to
consummate the transactions contemplated thereby, (ii) is duly qualified,
authorized to do business and in good standing in each jurisdiction where the
character of its properties or the nature of its activities makes such
qualification necessary, (iii) has all requisite power and authority (W) to
carry on its business as now being conducted and as proposed to be conducted by
it, (X) to execute, deliver and perform this Agreement and the Partnership
Agreement to which it is a party, in its individual capacity, (Y) to take all
action as may be necessary to consummate the transactions contemplated
thereunder and (Z) to grant liens and security interest provided for in this
Agreement, and (iv) has all requisite power and authority under the Partnership
Agreement to execute and deliver, on behalf of CLC, each Financing Document to
which CLC is a party.
(c) Pledgor has (i) taken all necessary action to authorize the
execution, delivery and performance of the Partnership Agreement and this
Agreement and each Financing Document to which it is a party; and (ii) duly
executed and delivered the Partnership Agreement and this Agreement and each
Financing Document to which it is a party. Neither any Pledgor's execution and
delivery of this Agreement and the other Financing Documents to which it is a
party nor its consummation of the transactions contemplated thereby nor its
compliance with the
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<PAGE>
terms thereof (i) does or will contravene the Partnership Agreement, the
articles of incorporation or formation documents of such Pledgor or any other
requirements of law applicable to or binding on such Pledgor or any of its
properties, (ii) does or will contravene or result in any breach of or
constitute any default under, or result in or require the creation of any Lien
(other than Permitted Liens) upon any of its property under, any agreement or
instrument to which it is a party or by which it or any of its properties may be
bound or affected or (iii) does or will require the consent or approval of any
Person which has not already been obtained.
(d) The Partnership Agreement has been duly authorized, executed and
delivered by such Pledgor, has not been amended or otherwise modified, and is in
full force and effect and is binding upon and enforceable against such Pledgor
in accordance with its terms. There exists no default under the Partnership
Agreement by such Pledgor.
(e) This Agreement is the legal, valid and binding obligation of such
Pledgor, enforceable against such Pledgor in accordance with its terms, except
to the extent the enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights and subject to general equitable principles.
(f) Pledgor has not executed and is not aware of any effective
financing statement, security agreement or other instrument similar in effect
covering all or any part of the Collateral on file in any recording office,
except such as may have been filed pursuant to this Agreement or the other
Financing Documents or pursuant to the documents evidencing Permitted Liens.
(g) Pledgor is the lawful owner of and has full right, title and
interest in and to, the Collateral, subject to no mortgages, liens, charges, or
encumbrances of any kind other than as granted pursuant to the Partnership
Agreement, and has full power and lawful authority to pledge, assign and grant a
security interest in the Collateral granted by it hereunder. Pledgor will, so
long as any Obligations shall be outstanding, warrant and defend its title to
the Collateral against any claims and demands which may affect to a material
extent its title to, or the Collateral Agent's right or interest in, such
Collateral.
(h) Pledgor will not directly or indirectly create, incur, assume or
suffer to exist any Liens on or with respect to any part of the Collateral other
than the rights and interests of the Collateral Agent, the Trustee, the Holders
of the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
hereunder, Permitted Liens and rights of Pledgors under the Partnership
Agreement. Pledgor will at its own cost and expense promptly take such action
as may be necessary to discharge any such liens not so permitted.
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<PAGE>
(i) Pledgor has not assigned any of its rights under the Partnership
Agreement or any of the Collateral except as provided in this Agreement.
(j) Any action or proceeding to enforce the rights granted or to
protect or preserve the Collateral under this Agreement may be taken by
Collateral Agent either in Pledgor's name or in Collateral Agent's name, as
Collateral Agent may deem necessary.
(k) Without the prior written consent of Collateral Agent, or as
otherwise permitted by the Indenture, Pledgor shall not (i) terminate or make
any material modification or amendment of the Partnership Agreement (unless
required, in the opinion of Pledgor, to maintain the Project as a "qualifying
facility"), (ii) fail to deliver to Collateral Agent a copy of each demand or
notice received or given by it relating to the Partnership Agreement and which
could reasonably be expected to have a material adverse effect upon the
Collateral or Collateral Agent's rights therein, or (iii) sell, contract to
sell, assign, transfer or dispose of any of the Collateral.
(l) Without the prior written consent of Collateral Agent, or as
otherwise permitted by the Indenture, each Pledgor covenants that it shall not
(i) permit CLC to directly or indirectly create, incur, assume or suffer to
exist any Liens on or with respect to any asset of CLC other than the rights and
interests of the Collateral Agent, the Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, hereunder,
Permitted Liens and rights of Pledgors under the Partnership Agreement, (ii)
permit CLC to directly or indirectly incur, assume or guarantee any debt.
(m) Pledgor shall give to Collateral Agent prompt written notice of
any material default, event of default or event which with the giving of notice
or the passage of time or both might become an event of default (however
"default" or "event of default" may be defined) under the Partnership Agreement,
whether by CLC, such Pledgor, or any other Person, of which such Pledgor has
actual knowledge or has received notice.
(n) If a Pledgor in its capacity as a partner receives any income or
distribution of money or property of any kind in respect of the Collateral from
CLC while an Event of Default has occurred and is continuing, such Pledgor shall
hold such income or distribution of money or property as trustee for and shall
deliver the same to Collateral Agent.
(o) Pledgor will, at all times, keep accurate and complete records of
the Collateral. Pledgor shall, at all times on three (3) Business Days' notice,
permit representatives of Collateral Agent at any time during normal business
hours of such Pledgor to inspect and make abstracts from such Pledgor's books
and records pertaining to the Collateral. Upon the occurrence and continuance of
any Event of Default, at Collateral Agent's request, Pledgor shall promptly
deliver any and all such records to Collateral Agent.
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(p) Pledgor will give prompt notice in writing to Collateral Agent of
any change in the location of the place of business where correspondence,
notices or proceeds in connection with the Collateral are received or located or
of any change in the location of the place of business where records concerning
Collateral are kept.
(q) Pledgor is not, and will not, be or become, or cause CLC to be
or become or to be deemed by any Governmental Authority to be, solely as a
result of the construction, ownership, leasing or operation of the Project, the
sale of electricity therefrom or the entering into of any Financing Document or
any transaction contemplated thereby, a "utility" or subject to or not exempt
from regulation under the FPA (other than such regulation contemplated under 18
C.F.R. (S) 292.601(e)) or the PUHCA (other than Section 9(a)(2) of PUHCA) or
under state laws and regulations respecting the rates or the financial or
organizational regulation of public or electric utilities except as a Qualifying
Facility under PURPA.
(r) Pledgor will not do anything or cause, suffer or permit anything
to be done, including without limitation sale or other transfer of a Pledgor's
partnership interest in CLC or of any stock, partnership interest or other
ownership interest in any Pledgor (other than the exercise by others of remedies
under the Financing Documents), which may cause the Project to lose its status
as a Qualifying Facility.
(s) Pledgor shall not register any other secured party as a
"registered owner" (as defined in Section 8-301 of the New York UCC) of any
partnership interest in CLC.
8. Certain Consents and Waivers.
----------------------------
(a) Each Pledgor hereby consents to the other Pledgor entering into
this Agreement in favor of Collateral Agent for the benefit of the Trustee, the
Holders of the Senior Secured Notes and the Permitted Additional Senior Lenders,
if any. Each Pledgor specifically agrees that such action may, among other
things, assign or delegate to Collateral Agent rights to cure defaults under the
Partnership Agreement, to exercise voting rights and other rights to manage or
control CLC, and to act as such other Pledgor's attorney-in-fact in a manner
similar to the assignment and delegation of such rights provided herein. Each
Pledgor (to the extent permitted by applicable law) agrees that it will
recognize and accept such assignment and delegation and the exercise of such
rights by Collateral Agent in connection with this Agreement and agrees that any
option or rights of any Pledgor to acquire any of the Collateral from any other
Pledgor pursuant to the Partnership Agreement shall be subordinate to any right
of the Trustee in the Collateral created hereunder.
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(b) Each Pledgor hereby waives, to the maximum extent permitted by
law (i) all rights under any law limiting remedies, including recovery of a
deficiency, under an obligation secured by a deed of trust on real property if
the real property is sold under a power of sale contained in the mortgage, and
all defenses based on any loss whether as a result of any such sale or
otherwise, of Pledgor's right to recover any amount from CLC, whether by right
of subrogation or otherwise; (ii) all rights under any law to require Collateral
Agent to pursue CLC or any other Person, any security which Collateral Agent may
hold, or any other remedy before proceeding against Pledgor; (iii) all rights of
reimbursement or subrogation, all rights to enforce any remedy that Collateral
Agent, the Trustee, the Holders of the Senior Secured Notes or the Permitted
Additional Senior Lenders, if any, may have against CLC, and all rights to
participate in any security held by Collateral Agent until the Obligations have
been paid and the covenants of the Indenture have been performed in full; (iv)
all rights to require Collateral Agent to give any notices of any kind,
including without limitation notices of nonpayment, nonperformance, protest,
dishonor, default, delinquency or acceleration, or to make any presentments,
demands or protests, except as expressly provided herein and in the Indenture;
(v) all rights to assert the bankruptcy or insolvency of CLC as a defense
hereunder or as the basis for rescission hereof; (vi) all rights under any law
purporting to reduce Pledgors' Obligations hereunder if Pledgors' Obligations
are reduced; (vii) all defenses based on the disability or lack of authority of
Pledgor or any Person, the repudiation of the Guarantees or any related
Financing Documents by Pledgor or any Person, the failure by Collateral Agent,
the Trustee, the Holders of the Senior Secured Notes or any Permitted Additional
Senior Lender, if any, to enforce any claim against Pledgor, or the
unenforceability in whole or in part of any Financing Document; (viii) all
suretyship and guarantor's defenses generally; (ix) all rights to insist upon,
plead or in any manner whatever claim or take the benefit or advantage of, any
appraisal, valuation, stay, extension, marshaling of assets, redemption or
similar law, or exemption, whether now or at any time hereafter in force, which
may delay, prevent or otherwise affect the performance by Pledgor or its
obligations under, or the enforcement by Collateral Agent of, this Agreement;
(x) any requirement on the part of Collateral Agent, Trustee, the Holders of the
Senior Secured Notes or any Permitted Additional Senior Lender, if any, to
mitigate the damages resulting from any default; and (xi) except as otherwise
specifically set forth herein, all rights of notice and hearing of any kind
prior to the exercise of rights by Collateral Agent upon the occurrence and
during the continuation of an Event of Default to repossess with judicial
process or to replevy, attach or levy upon the Collateral. To the extent
permitted by applicable law, each Pledgor waives the posting of any bond
otherwise required of Collateral Agent in connection with any judicial process
or proceeding to obtain possession of, replevy, attach, or levy upon the
Collateral, to enforce any judgment or other security for the Obligations, to
enforce any judgment or other court order entered in favor of Collateral Agent,
or to enforce by specific performance, temporary restraining order, preliminary
or permanent injunction, this Agreement or any other agreement or document
between any Pledgor, Collateral Agent, Trustee, the Holders of the Senior
Secured Notes or any Permitted Additional Senior Lender, if any. Each Pledgor
further agrees that upon the occurrence
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and continuance of an Event of Default, Collateral Agent may elect to
nonjudicially or judicially foreclose against any real or personal property
security it holds for the Obligations or any part thereof, or to exercise any
other remedy against Pledgor, any security or any guarantor, even if the effect
of that action is to deprive a Pledgor of the right to collect reimbursement
from CLC for any sums paid by such Pledgor to Collateral Agent, Trustee or any
Holder of the Senior Secured Notes or any Permitted Additional Senior Lender, if
any.
(c) If Collateral Agent may, under applicable law, proceed to realize
its benefits under any of the Financing Documents giving Collateral Agent a Lien
upon any Collateral, whether owned by Pledgor or by any other Person, either by
judicial foreclosure or by nonjudicial sale or enforcement, Collateral Agent
may, at its sole option, determine which of its remedies or rights it may pursue
without affecting any of the rights and remedies of Collateral Agent under this
Agreement. In the event Collateral Agent shall bid at any foreclosure or
trustee's sale or at any private sale permitted by law or the Financing
Documents, Collateral Agent may bid all or less than the amount of Obligations.
To the extent permitted by applicable law, the amount of the successful bid at
any such sale, whether Collateral Agent or any other party is the successful
bidder, shall be conclusively deemed to be the fair market value of the
Collateral and the difference between such bid amount and the remaining balance
of the Obligations shall be conclusively deemed to be the amount of the
Obligations.
9. CLC's Consent and Covenants. CLC hereby consents to the
---------------------------
assignment of and grant of a security interest in the Collateral to Collateral
Agent and to the exercise by Collateral Agent of all rights and powers assigned
or delegated to Collateral Agent by each Pledgor hereunder, including without
limitation the rights upon and during an Event of Default to exercise such
Pledgor's voting rights and other rights under the Partnership Agreement to
manage or control CLC, subject to the notice and other requirements of
applicable law. CLC further agrees to perform all covenants and obligations
herein which, by their express or implied terms, are to be performed by CLC.
10. Attorney-in-Fact. Each Pledgor hereby irrevocably constitutes
----------------
and appoints Collateral Agent its true and lawful attorney-in-fact to enforce
all rights of such Pledgor with respect to the Collateral, including without
limitation, the right to vote, demand, receive and enforce such Pledgor's rights
with respect to the Collateral, and to give appropriate receipts, releases and
satisfactions for and on behalf of and in the name of such Pledgor or, at the
option of Collateral Agent, in the name of Collateral Agent, with the same force
and effect as such Pledgor could do if this Agreement had not been made;
provided, however, Collateral Agent shall not exercise such rights except upon
- -------- -------
the occurrence and during the continuation of an Event of Default. This power
of attorney is a power coupled with an interest and shall be irrevocable.
11. Place of Business; Location of Records.
--------------------------------------
13
<PAGE>
(a) Unless Collateral Agent is otherwise notified, the place of
business and chief executive office of each respective Pledgor is and all
records of each respective Pledgor concerning the Collateral are and will be
located at the following addresses:
CAITHNESS ACQUISITION COMPANY, LLC,
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Street
New York, New York 10036
CAITHNESS GEOTHERMAL 1980 LTD., L.P.,
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Street
New York, New York 10036
(b) All notices required or permitted under the terms and provisions
hereof shall be in writing and any such notice shall be effective if given in
accordance with the provisions of Section 10.02 of the Indenture. Notices to
each Pledgor may be given at the address of CLC set forth in such Section 10.02
above. Notices to Collateral Agent shall be given to Collateral Agent c/o
Trustee at its address set forth in such Section 10.02.
12. Perfection; Further Assurances.
------------------------------
(a) Each Pledgor agrees that from time to time, it will promptly
execute and deliver all instruments and documents as required by Section 3(a)
hereof. Without limiting the generality of the foregoing, each Pledgor will (i)
deliver the Collateral or any part thereof to Collateral Agent, as Collateral
Agent may request, accompanied by such duly executed instruments of transfer or
assignment as Collateral Agent may request, and (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments, endorsements or notices, as may be reasonably necessary in order to
perfect and preserve the assignments and security interests granted or purported
to be granted hereby.
(b) Each Pledgor shall pay all filing, registration and recording
fees and all refiling, re-registration and re-recording fees, and all reasonable
expenses incident to the execution and acknowledgment of this Agreement, any
instruments of further assurance, and (except as otherwise provided in the
Indenture) all federal, state, county and municipal stamp taxes and other taxes,
duties, imports, assessments and charges arising out of or in connection with
the execution and delivery of this Agreement, any agreement supplemental hereto,
any financing statements, and any instruments of further assurance.
14
<PAGE>
(c) Each Pledgor shall give Collateral Agent at least forty-five (45)
days prior written notice before it changes the location of its place of
business and chief executive office and shall, at the expense of each Pledgor,
execute and deliver such instruments and documents as may be required by
Collateral Agent to maintain a prior perfected security interest in the
Collateral.
13. Continuing Assignment and Security Interest; Transfer of Loans.
--------------------------------------------------------------
This Agreement shall create a continuing pledge and assignment of and security
interest in the Collateral and shall (i) remain in full force and effect until
payment in full of the Obligations, (ii) be binding upon CLC, Pledgors, and
their respective successors and assigns, and (iii) inure, together with the
rights and remedies provided herein, to the benefit of Collateral Agent, the
Holders of the Senior Secured Notes, the Permitted Additional Senior Lenders, if
any, and their respective successors, transferees and assigns. Without limiting
the generality of the foregoing, but subject to Section 2.06 of the Indenture,
any of the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, may assign or otherwise transfer all or any part of or
interest in their Senior Secured Notes to any other Person to the extent
permitted by and in accordance with the Indenture, and such other Person shall
thereupon become vested with all or an appropriate part of the benefits in
respect thereof granted to the Holders of the Senior Secured Notes herein or
otherwise. The release of the security interest in any or all of the Collateral,
the taking or acceptance of additional security, or the resort by Collateral
Agent to any security it may have in any order it may deem appropriate, shall
not affect the liability of any person on the Obligations. Upon the payment and
performance in full of the Obligations, the security interest granted hereby
shall terminate and all rights to the Collateral shall revert to Pledgors. Upon
any such termination, Collateral Agent shall, at Pledgors' expense, execute and
deliver to Pledgors such documents as CLC or Pledgors shall reasonably request
to evidence such termination. If this Agreement shall be terminated or revoked
by operation of law, Pledgors will indemnify and save Collateral Agent, the
Trustee, the Holders of the Senior Secured Notes and the Permitted Additional
Senior Lenders, if any, harmless from any loss which may be suffered or incurred
by Collateral Agent, Trustee, the Holders of the Senior Secured Notes and the
Permitted Additional Senior Lenders, if any, in acting hereunder prior to the
receipt by Collateral Agent, its successors, transferees or assigns of written
notice of such termination or revocation.
14. Liability. The obligations hereunder are subject to the
---------
limitations set forth in Section 6.11 of the Credit Agreement, the provisions of
which are hereby incorporated by reference.
15. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover
15
<PAGE>
its reasonable attorneys' fees and other reasonable costs and expenses incurred
therein from the losing party, and, if a judgment or award is entered in any
such action or proceeding, such attorneys' fees and other costs and expenses may
be made a part of such judgment or award.
16. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17. Successors and Assigns. All covenants and agreements contained
----------------------
herein shall be binding upon, and inure to the benefit of, the parties and their
respective successors and assigns. Pledgor and CLC shall cause any assignee to
pledge the assigned Collateral to the Collateral Agent.
18. Headings. The headings of the various sections herein are for
--------
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
19. Governing Law. This Agreement, including all matters of
-------------
construction, validity, performance and the creation, validity, enforcement or
priority of the lien of, and security interests created by, this Agreement in or
upon the Collateral shall be governed by the laws of the State of New York,
without reference to conflicts of law (other than Section 5-1401 of the New York
General Obligations Law), except as required by mandatory provisions of law and
except to the extent that the validity or perfection of the lien and security
interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the State of
New York.
20. Time. Time is of the essence of this Agreement.
----
21. References to Other Documents. All defined terms used in this
-----------------------------
Agreement which refer to other documents shall be deemed to refer to such other
documents as they may be amended, supplemented or replaced from time to time,
provided such documents were not amended in breach of a covenant contained in
any agreement to which any Pledgor, CLC, Collateral Agent or Trustee is a party.
22. Reinstatement. This Agreement shall continue to be effective or
-------------
be reinstated, as the case may be, if at any time any amount received by
Collateral Agent in respect of the Obligations is rescinded or must otherwise be
restored or returned by Collateral Agent upon the insolvency, bankruptcy,
reorganization, liquidation of any Pledgor or CLC or upon the dissolution of, or
appointment of any intervenor or conservator of, or trustee or similar official
16
<PAGE>
for any Pledgor or CLC or any substantial part of any Pledgor's or CLC's assets,
or otherwise, all as though such payments had not been made.
23. Statute of Limitations. Each Pledgor hereby waives the right to
----------------------
plead any statute of limitations as a defense to any indebtedness or obligation
hereunder or secured hereby to the full extent permitted by law.
24. Entire Agreement. This Agreement, together with any other
----------------
agreement executed in connection herewith, is intended by the parties as a final
expression of their agreement and is intended as a complete and exclusive
statement of the terms and condition thereof.
25. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.
26. Waiver of Jury Trial. EACH PLEDGOR, CLC AND COLLATERAL AGENT
--------------------
HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER COLLATERAL DOCUMENTS
OR FINANCING DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE COLLATERAL AGENT, CLC OR ANY
PLEDGOR. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE COLLATERAL AGENT TO
ENTER INTO THIS AGREEMENT.
27. Regarding the Collateral Agent. The Collateral Agent shall be
------------------------------
afforded all of the rights, powers, protections, immunities and indemnities set
forth in that certain Security Agreement dated as of the date hereof between
Pledgors and Collateral Agent as if the same were specifically set forth herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, Pledgors, CLC Collateral Agent have caused this
Partnership Interest Pledge Agreement to be duly executed by their partners and
officers thereunto duly authorized, as of the day and year first above written.
Caithness Acquisition Company, LLC,
a Delaware limited liability company,
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
Caithness Geothermal 1980 Ltd., L.P.,
a Delaware limited partnership,
its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company
its: General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------
Name: Judy P. Manansala
-----------------
Title: Trust Officer
-------------
18
<PAGE>
ACCEPTED AND AGREED
-------------------
COSO LAND COMPANY,
a California general partnership
By: Caithness Acquisition Company, LLC,
a Delaware limited liability company,
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Geothermal 1980 Ltd., L.P.,
a Delaware limited partnership,
its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company
its: General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
19
<PAGE>
Exhibit 10.37
PROMISSORY NOTES SECURITY AGREEMENT
Dated as
of May 28, 1999
Between
CAITHNESS COSO FUNDING CORP.,
a Delaware corporation,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
PREFACE............................................................. 1
1. Definitions...................................................... 1
2. Assignment, Pledge and Grant of Security Interest................ 2
3. Obligations Secured.............................................. 3
4. Events of Default................................................ 3
5. Remedies......................................................... 3
6. Remedies Cumulative; Delay Not Waiver............................ 4
7. Covenants........................................................ 5
8. Representations and Warranties................................... 5
9. Notices.......................................................... 6
10. Further Assurances.............................................. 6
11. Place of Perfection; Records.................................... 7
12. Continuing Assignment and Security Interest; Transfer of Loans.. 7
13. Attorneys' Fees................................................. 7
14. Severability.................................................... 8
15. Time............................................................ 8
16. Liability....................................................... 8
17. Governing Law................................................... 8
18. Attorney-In-Fact................................................ 8
19. Reinstatement................................................... 9
20. Waiver of Jury Trial............................................ 9
21. Amendment....................................................... 9
22. Regarding the Collateral Agent.................................. 9
</TABLE>
i
<PAGE>
PROMISSORY NOTES SECURITY AGREEMENT
This Promissory Notes Security Agreement ("Agreement"), dated as of
---------
May 28, 1999, is entered into by and between CAITHNESS COSO FUNDING CORP., a
Delaware corporation ("Grantor"), and U.S. BANK TRUST NATIONAL ASSOCIATION i
-------
its capacity as collateral agent ("Collateral Agent") for U.S. BANK TRUST
----------------
NATIONAL ASSOCIATION in its capacity as trustee ("Trustee") for the holders of
-------
all senior secured notes (the "Senior Secured Notes") issued pursuant to that
certain Indenture dated as of May 28, 1999 (the "Indenture"), among Grantor,
---------
Trustee, Coso Finance Partners, a California general partnership ("Navy I"),
------
Coso Energy Developers, a California general partnership ("BLM"), and Coso Power
---
Developers, a California general partnership ("Navy II," and together with Navy
-------
I and BLM, the "Guarantors") and all other Permitted Additional Senior Lenders
----------
(as defined in the Indenture.)
PREFACE
-------
A. Grantor has, simultaneously with the execution and delivery of
this Agreement, issued and sold Senior Secured Notes in the principal amount of
$413,000,000 (the "Issuance"), the proceeds of which will be used to make loans
--------
to the Guarantors (the "Partnership Loans").
-----------------
B. Each of the Guarantors has entered into a Credit Agreement with
Grantor and each Guarantor has executed a Promissory Note in favor of Grantor to
evidence such Guarantor's obligation to repay its respective Partnership Loan.
C. Grantor desires now to grant the Collateral Agent, for the
benefit of the Trustee, the Holders of the Senior Secured Notes and the
Permitted Additional Senior Lenders, a security interest in the Promissory Notes
(as defined below) as security for the payment and performance of Grantor's
obligations under the Indenture.
AGREEMENT
---------
In consideration of the premises herein, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with the Collateral Agent as follows:
1. Definitions. (a) Unless otherwise defined, all terms used herein
-----------
which are defined in the Indenture shall have their respective meanings therein
defined and the Rules of Interpretation included in the Indenture shall apply
hereto. All terms defined in the UCC shall have the respective meanings given
to those terms in the UCC; and (b) "UCC" shall mean the Uniform Commercial Code
---
as the same may, from time to time, be in effect in the State of New York;
provided, however, in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of the security interest in
any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State
1
<PAGE>
of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect
---
in such other jurisdiction for purposes of the provisions hereof relating to
such attachment, perfection or priority and for purposes of definitions related
to such provisions.
2. Assignment, Pledge and Grant of Security Interest.
-------------------------------------------------
(a) To secure the timely payment and performance of the Obligations
(as that term is defined in Section 3), Grantor does hereby assign, grant and
pledge to, and subject to a security interest in favor of, the Collateral Agent,
on behalf of the Trustee, the Holders of the Senior Secured Notes and the
Permitted Additional Senior Lenders, if any, all the estate, right, title and
interest of Grantor, whether now owned or hereafter acquired, in, to and under:
(i) that certain Promissory Note made by Navy I in favor of
Grantor, dated as of the date hereof (the "Navy I Promissory Note");
----------------------
(ii) that certain Promissory Note made by BLM in favor of
Grantor, dated as of the date hereof (the "BLM Promissory Note");
-------------------
(iii) that certain Promissory Note made by Navy II in favor
of Grantor, dated as of the date hereof (the "Navy II Promissory Note," together
-----------------------
with the Navy I Promissory Note and the BLM Promissory Note, the "Promissory
----------
Notes"); and
- -----
(iv) all interest on and all of the proceeds of all of the
foregoing (all of the collateral described in clauses (i) through (iv) being
herein collectively referred to as the "Collateral"), including without
----------
limitation (1) all rights of Grantor to receive moneys due and to become due
under or pursuant to the Collateral, (2) all rights of Grantor to terminate,
amend, supplement, modify or waive performance under the Promissory Notes, to
perform thereunder and to compel performance and otherwise exercise all remedies
thereunder and (3) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed of, whether voluntarily or
involuntarily.
(b) In order to effectuate the foregoing, Grantor has heretofore
delivered or concurrently with the delivery hereof is delivering to the
Collateral Agent, the original Promissory Notes, duly endorsed (without
recourse) and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to enable Collateral Agent to
enforce the provisions of this Agreement and the security interests described
herein.
(c) Upon the occurrence and during the continuance of an Event of
Default, Grantor does hereby constitute the Collateral Agent, acting for and on
behalf of the Trustee, the Holders of the Senior Secured Notes and the
Permitted Additional Senior Lenders, if any, and each successor or assign of the
Holders of the Senior Secured Notes and the Permitted Additional Senior Lenders,
if any, the true and lawful attorney of Grantor, irrevocably, with
2
<PAGE>
full power coupled with an interest (in the name of Grantor or otherwise) to
ask, require, demand, receive, compound and give acquittance for any and all
moneys and claims for moneys due and to become due under or arising out of the
Promissory Notes or any of the other Collateral, including without limitation to
elect remedies thereunder, to endorse any checks or other instruments or orders
in connection therewith and to file any claims or take any action or institute
any proceedings in connection therewith which the Collateral Agent may deem to
be necessary or advisable; provided, however, that the Collateral Agent shall
give Grantor notice of any action taken by it as such attorney-in-fact promptly
after taking any such action.
3. Obligations Secured. This Agreement and all of the Collateral
-------------------
secure the payment and performance of Grantor's obligations under the Indenture,
the Senior Secured Notes and the Senior Indebtedness, if any, including, but not
limited to, the payment of all amounts owed to Collateral Agent of every kind
and description (whether or not evidenced by any note or instrument and whether
or not for the payment of money), direct or indirect, absolute or contingent,
due or to become due, now existing or hereafter arising, pursuant to the terms
of the Indenture, this Agreement of the other Financing Documents, including all
interest, fees, charges, expenses, attorney's fees and accountant's fees (all
such obligations being herein called the "Obligations").
-----------
4. Events of Default. The occurrence and continuance of an Event of
-----------------
Default, whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body, shall constitute an Event of Default
hereunder.
5. Remedies.
--------
(a) Subject to the terms of the Indenture, if any Event of Default
has occurred and is continuing, the Collateral Agent may (i) exercise the rights
of acceleration set forth in Section 5.02 of the Indenture; (ii) proceed to
protect and enforce the rights vested in it by this Agreement, including, but
not limited to, the right to collect and enforce the Promissory Notes and cause
all principal and interest payable pursuant to the Promissory Notes to be paid
directly to it, and to enforce its rights hereunder to such payments and all
other rights hereunder by such appropriate judicial proceedings as it shall deem
most effective to protect and enforce any of such rights, either at law or in
equity or otherwise, or in aid of the exercise of any power therein or herein
granted, or for any foreclosure hereunder and sale under a judgment or decree in
any judicial proceeding, or to enforce any other legal or equitable right vested
in it by this Agreement or by law; (iii) cause any action at law or suit in
equity or other proceeding to be instituted and prosecuted to collect or enforce
any Obligations or rights included in the Collateral, or to foreclose or enforce
any other agreement or other instrument by or under or pursuant to which such
Obligations are issued or secured, either in Grantor's name or in Collateral
Agent's name as Collateral Agent may deem necessary, subject in each case to the
provisions and requirements thereof; (iv) incur expenses, including
3
<PAGE>
reasonable attorneys' fees, consultants' fees, and other costs appropriate to
the exercise of any right or power under this Agreement; (v) perform any
obligation of Grantor hereunder or under any other Financing Document, and make
payments, purchase, contest or compromise any encumbrance, charge, or lien, and
pay taxes and expenses, without, however, any obligation so to do; or (vi)
exercise any other or additional rights or remedies granted to a secured party
under the UCC. If, pursuant to applicable law, prior notice of any such action
is required to be given to Grantor, Grantor hereby acknowledges that the minimum
time required by such applicable law, or if no minimum is specified, ten (10)
Business Days, shall be deemed a reasonable notice period. Notwithstanding
anything herein to the contrary, any purchase price obtained by the Collateral
Agent in a foreclosure sale instituted and prosecuted in accordance with the
terms hereof shall be deemed binding and conclusive on the parties hereto and
the Trustee, the Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any.
(b) All costs and expenses (including, but without being limited to,
reasonable agent's and attorneys' fees and expenses) incurred by the Collateral
Agent in connection with any such suit or proceeding, or in connection with the
performance by the Collateral Agent of any of Grantor's agreements contained
herein or in any exercise of Collateral Agent's rights or remedies hereunder,
together with interest thereon computed at a rate per annum equal to the "Prime
Rate" of U.S. Bank Trust National Association, as such rate is announced from
time to time, plus one percent (1%), said rate to change when and as the said
Prime Rate changes, or, if lower, the maximum interest rate permitted by law,
from the date on which such costs or expenses are incurred to the date of
payment thereof, shall constitute additional indebtedness secured by this
Agreement and shall be paid by Grantor to the Collateral Agent on demand.
6. Remedies Cumulative; Delay Not Waiver.
-------------------------------------
(a) No right, power or remedy herein conferred upon or reserved to
the Collateral Agent is intended to be exclusive of any other right, power or
remedy, and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Resort to any or all security now or hereafter held by the
Collateral Agent, may be taken concurrently or successively and in one or
several consolidated or independent judicial actions or lawfully taken
nonjudicial proceedings, or both.
(b) No delay or omission of the Collateral Agent to exercise any
right or power accruing upon the occurrence and during the continuance of any
Event of Default as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein; and every power and remedy given by this Agreement may be exercised
from time to time, and as often as shall be deemed expedient, by the Collateral
Agent.
4
<PAGE>
(c) The net proceeds of any foreclosure, collection, recovery,
receipt, appropriation, realization or sale of the Collateral shall be applied
in the order of priority specified in Section 5.10 of the Indenture. If all
Obligations and any other amounts due under this Agreement have been
indefeasibly paid, satisfied and discharged in full, any surplus then remaining
shall be paid to Grantor, if it is lawfully entitled to receive the same, or
shall be paid to whomsoever a court of competent jurisdiction may direct.
7. Covenants. Grantor covenants as follows:
---------
(a) Any action or proceeding to enforce this Agreement or any
Promissory Note may be taken by the Collateral Agent either in Grantor's name or
in the Collateral Agent's name, as the Collateral Agent may deem necessary.
(b) Except as otherwise permitted under the Indenture, Grantor shall
not without the prior written consent of the Collateral Agent, (i) modify,
amend, terminate, waive or supplement any provision of the Promissory Notes, or
(ii) fail to take such actions, as directed by the Collateral Agent, with
respect to exercising promptly and diligently each and every material right
which it may have under each Promissory Note.
(c) Grantor shall give to the Collateral Agent prompt written notice
of any material event of default under any Promissory Note, of which Grantor has
knowledge or as to which Grantor has received notice.
8. Representations and Warranties. Grantor represents and warrants
------------------------------
as follows:
(a) Each Promissory Note, a true and complete original of which has
been delivered to the Collateral Agent, has not been amended or otherwise
modified, and is in full force and effect and is binding upon and enforceable
against the respective Guarantors in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
affecting the rights of creditors generally, and to the exercise of judicial
discretion in accordance with general principles of equity. There exists no
default under any such Promissory Notes by the Guarantors.
(b) No effective financing statement or other instrument similar in
effect covering all or any part of Grantor's interest in the Collateral is on
file in any recording office, except such as may have been filed pursuant to
this Agreement and the other Financing Documents.
(c) Grantor is lawfully possessed of ownership of the Collateral and
has full right, title and interest in all rights purported to be granted to it
under the Promissory Notes, subject to no liens, charges, or encumbrances other
than Permitted Liens, and has full power and lawful authority to grant and
assign the Collateral hereunder. Grantor will, so long as any
5
<PAGE>
obligations shall be outstanding, warrant and defend its title to the Collateral
against any claims and demands which may affect to a material extent its title
to, or the Collateral Agent's right or interest in, the Collateral.
(d) Grantor has not assigned any of its rights under the Promissory
Notes except as provided in this Agreement. Grantor will not make any other
assignment (other than to Collateral Agent) of its rights under the Promissory
Notes.
9. Notices. Unless otherwise specifically herein provided, all
-------
notices required or permitted under the terms and provisions hereof shall be in
writing and any such notice shall become effective if given in accordance with
Section 10.02 of the Indenture.
10. Further Assurances.
------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or required, or that the
Collateral Agent may reasonably request, in order to perfect and protect the
assignment and security interest granted or intended to be granted hereby or to
enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of
the foregoing, Grantor will execute and file such financing or continuation
statements, or amendments thereto, and such other instruments, endorsement or
notices, as may be necessary or required, or as the Collateral Agent may
reasonably request, in order to perfect and preserve the assignments and
security interests granted or purported to be granted hereby; it being
understood and agreed that the Collateral Agent shall have no obligation in
respect of filing such statements or the perfection or preservation of any such
security interests.
(b) Grantor hereby authorizes the Collateral Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of Grantor where
permitted by law. Copies of any such statement or amendment thereto shall
promptly be delivered to Grantor.
(c) Grantor shall pay all filing, registration and recording fees or
refiling, re-registration and re-recording fees, and all expenses incident to
the execution and acknowledgment of this Agreement, any instruments of further
assurance, and (except as otherwise provided in the Indenture) all federal,
state, county and municipal stamp taxes and other taxes, duties, imports,
assessments and charges arising out of or in connection with the execution and
delivery of this Agreement, any agreement supplemental hereto and any
instruments of further assurance.
11. Place of Perfection; Records. The location of Grantor's chief
----------------------------
executive office and place of business is 1114 Avenue of the Americas, New York,
New York 10036. Grantor shall give the Collateral Agent at least forty-five (45)
days prior written notice before it changes the location of its chief executive
office and shall at the expense of Grantor execute
6
<PAGE>
and deliver such instruments and documents as required to maintain a prior
perfected security interest and as requested by the Collateral Agent.
12. Continuing Assignment and Security Interest; Transfer of Senior
---------------------------------------------------------------
Secured Notes. This Agreement shall create a continuing assignment of and
- -------------
security interest in the Collateral and shall (i) remain in full force and
effect until payment in full of the Obligations, (ii) be binding upon Grantor,
its successors and assigns and (iii) inure, together with the rights and
remedies of the Collateral Agent, to the benefit of the Trustee, the Holders of
the Senior Secured Notes and the Permitted Additional Senior Lenders, if any,
and their respective successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), but subject to Section 2.06 of the
Indenture, the Holders of the Senior Secured Notes may assign or otherwise
transfer their Senior Secured Notes to any other Person, and such other Person
shall thereupon become vested with all or an appropriate part of the benefits in
respect thereof granted to the Holders of the Senior Secured Notes herein or
otherwise. The release of the security interest in any or all of the
Collateral, the taking or acceptance of additional security, or the resort by
Collateral Agent to any security it may have in any order it may deem
appropriate, shall not affect the liability of any person on the indebtedness
secured hereby. Upon the payment in full of the Obligations, the security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to Grantor. Upon any such termination, the Collateral Agent shall, at
Grantor's expense, return the Promissory Notes to Grantor and execute and
deliver to Grantor such documents as Grantor shall reasonably request to
evidence such termination. If this Agreement shall be terminated or revoked by
operation of law, Grantor will indemnify and save Collateral Agent, Trustee, the
Holders of the Senior Secured Notes and the Permitted Additional Senior Lenders,
if any, harmless from any loss which may be suffered or incurred by Collateral
Agent, Trustee, the Holders of the Senior Secured Notes and the Permitted
Additional Senior Lenders, if any, in acting hereunder prior to the receipt by
Collateral Agent, its successors, transferees, or assigns of written notice of
such termination or revocation.
13. Attorneys' Fees. In the event any legal action or proceeding
---------------
(including without limitation any of the remedies provided for herein or at law)
is commenced to enforce or interpret this Agreement or any provision thereof,
the prevailing party shall be entitled to recover its reasonable attorneys' fees
and other reasonable costs and expenses incurred therein from the losing party,
and, if a judgment or award is entered in any such action or proceeding, such
attorneys' fees and other costs and expenses may be made a part of such judgment
or award.
14. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. Time. Time is of the essence of this Agreement.
----
7
<PAGE>
16. Liability. The obligations hereunder are subject to the
---------
limitations set forth in Section 10.07 of the Indenture, the provisions of which
are hereby incorporated by reference.
17. Governing Law. This Agreement, including all matters of
-------------
construction, validity, performance and the creation, validity, enforcement or
priority of the lien of, and security interests created by, this Agreement in or
upon the Collateral shall be governed by the laws of the State of New York,
without reference to conflicts of law (other than Section 5-1401 of the New York
General Obligations Law), except as required by mandatory provisions of law and
except to the extent that the validity or perfection of the lien and security
interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the State of
New York.
18. Attorney-In-Fact. Grantor hereby constitutes and appoints
----------------
Collateral Agent, acting for and on behalf of itself, the Holders of the Senior
Secured Notes, the Permitted Additional Senior Lenders, if any, and each
successor or assign of Collateral Agent, Trustee, the Holders of the Senior
Secured Notes and the Permitted Additional Senior Lenders, if any, the true and
lawful attorney-in-fact of Grantor, with full power upon the occurrence and
during the continuance of an Event of Default (in the name of Grantor or
otherwise) to enforce all rights of Grantor with respect to the Collateral,
including, without limitation, the right:
(a) to ask, require, demand, receive and give acquittance for any and
all moneys and claims for moneys due and to become due under or arising out of
the Promissory Notes;
(b) to elect remedies thereunder and to endorse any checks or other
instruments or orders in connection therewith;
(c) to file any claims or take any action or institute any
proceedings in connection therewith which Collateral Agent may reasonably deem
to be necessary or advisable to protect the Collateral; and
(d) in connection with any acceleration and foreclosure, to do any
and every act which Grantor may do on its behalf with respect to the Collateral
or any part thereof and to exercise any or all of Grantor's rights and remedies
under any or all of the Collateral.
19. Reinstatement. This Agreement shall continue to be effective or
-------------
be reinstated, as the case may be, if at any time any amount received by
Collateral Agent in respect of the Obligations is rescinded or must otherwise be
restored or returned by Collateral Agent upon the insolvency, bankruptcy,
reorganization or liquidation of Grantor or upon the dissolution of, or
appointment of any intervenor or conservator of, or trustee or similar official
for, Grantor or any substantial part of Grantor's assets, or otherwise, all as
though such payments had been made.
8
<PAGE>
20. WAIVER OF JURY TRIAL. GRANTOR AND COLLATERAL AGENT HEREBY
--------------------
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN), OR ACTIONS OF COLLATERAL AGENT OR GRANTOR. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR COLLATERAL AGENT TO ENTER INTO THIS AGREEMENT.
21. Amendment. No modification or waiver of any of the provisions of
---------
this Agreement shall be binding on Collateral Agent, except as expressly set
forth in a writing duly signed and delivered by Collateral Agent and which is
otherwise in accordance with Article 8 of the Indenture.
22. Regarding the Collateral Agent. The Collateral Agent shall be
------------------------------
afforded all of the rights, powers, protections, immunities and indemnities set
forth in that certain Security Agreement dated as of the date hereof between
Navy I and Collateral Agent, as if the same were specifically set forth herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this
Security Agreement to be duly executed by their officers thereunto duly
authorized, as of the day and year first above written.
CAITHNESS COSO FUNDING CORP., a
Delaware corporation,
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------
Name: Judy P. Manansala
[its] Title: Trust Officer
10
<PAGE>
Exhibit 10.38
-------------
CONTRACT NO. N62474-79-C-5382
-----------------------------
The China Lake Joint Venture
October 19, 1983
<PAGE>
Contract No. N62474-79-C-5382
DEPARTMENT OF THE NAVY
GEOTHERMAL POWER DEVELOPMENT
SERVICE CONTRACT
<TABLE>
<CAPTION>
U.S. NAVAL WEAPONS CENTER CHINA LAKE INYO CALIFORNIA
- ----------------------------------------------------------------------------------------------------
(Premises to be served) (City) (County) (State)
<S> <C> <C> <C>
and others as noted
CHINA LAKE JOINT VENTURE, c/o CALIFORNIA ENERGY COMPANY, INC.
A JOINT VENTURE OF SUITE 100
CALIFORNIA ENERGY COMPANY, INC. 3333 MENDOCINO AVENUE
AND CAITHNESS GEOTHERMAL 1980 LTD. SANTA ROSA, CALIFORNIA 95401
- ----------------------------------------------------------------------------------------------------
(Contractor) (Contractor's Address) (Zip)
</TABLE>
Premises are: (X) Government-Owned
( ) Government-Leased
Symbol No. of Lease:
Name of Lessor:
Estimated Annual Cost Hereunder: 56 Mills per KWH, as specified hereinafter
Bills will be rendered in QUINTUPLICATE to: As listed on Electric Service
Specifications
Payments will be made by: Disbursing Officer
Code 0862
Naval Weapons Center
China Lake, CA 93555
Communications: All communications and modifications regarding this contract
shall be addressed as follows:
Contractor: China Lake Joint Venture,
c/o California Energy Company, Inc. and
Caithness Geothermal 1980 Ltd., a Joint Venture
3333 Mendocino Avenue, Suite 100
Santa Rosa, CA 95401
Copy to: Caithness Geothermal 1980 Ltd.
c/o Caithness Corp.
380 Lexington Avenue
New York, New York 10017
Government: Commanding Officer, Western Division
Naval Facilities Engineering Command
P. O. Box 727
San Bruno, California 94066
Appropriations chargeable -
For Recurring Billing Charges: Applicable funds will be cited on invoices or
delivery orders issued against this contract.
i
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Pages
- ------- -----
<S> <C> <C>
I Introduction/Project Information Abstract 01-06
II Constraints 07-10
III Pricing, Escalation and Payments 11-12
IV Geothermal Power Generation/Electric Service Specifications 13-16
V Environmental and Cultural Resources Protection Programs 17-19
VI Technical Specifications 20-26
VII General Provisions 27
VIII Special Provisions 28-33
IX Signature Page 34
</TABLE>
Appendicies
- -----------
A Real Estate Property Descriptions
B Coso Central Bibliography
C Coso Geothermal Index
D Map
E Designated Delivery Points
F Ceiling Rate Definition
G Pertinent NAVWPNCEN China Lake Instructions
H CECI Price and Technical Proposals
I General Provisions
ii
<PAGE>
CONTRACT NO. N62474-79-C-5382
CONTRACT MODIFICATION P0004
---------------------------
I. INTRODUCTION
A. Background
----------
This modification P0004 as of its effective date constitutes a complete
rewriting and integration of the provisions of contract N62474-79-C-5382.
Except as expressly incorporated herein by reference, all the previously
effective provisions of the contract are superseded hereby. Prior to the
effective date of this modification, the previously effective provisions of the
contract govern.
As awarded on December 6, 1979, this contract, entered into by and between
the United States of America, hereafter called the Government, and California
Energy Company, Inc., hereafter called CECI, granted to the CECI an exclusive
right to explore, develop and utilize, in accordance with the terms of this
contract, any an all geothermal resources on and under the developable lands and
to produce electric power therefrom. At that time the developable lands
included approximately 2,315 acres, or about 3 1/2 square miles, of land at the
Naval Weapons Center (NAVWPNCEN), China Lake, California, in an area of
NAVWPNCEN known as the Coso Known Geothermal Resources Area (KGRA) and
identified in Appendices B and E to RFTP N62474-79-R-5382. By modification
P0001 the contract was modified to reflect the revision of the operating
interest of CECI and to substitute the China Lake Joint Venture, a joint venture
of CECI and Caithness Geothermal 1980 Ltd., as the Contractor. The Contractor
and the Government have now agreed to modify the contract to include within the
developable lands at NAVWPNCEN, China Lake, an additional area of approximately
4 square miles as described in Appendix A, at page A-4, in which the Contractor
shall have the same exclusive right.
With regard to the additional area of approximately 4 square mile section
included in the developable lands by this modification, the Contractor
specifically agrees as follows:
(a) Within 18 months of the date of the execution of this modification, to
complete drilling at least 4 core holes (each with a minimum depth of 2,000
feet) on the additional developable lands, one on each square mile; and
//PLEASE NOTE P00005 amplifies paragraph 1.A.(a) as indicated:
"Drill the fourth core hole on the Wheller Prospect Site in lieu of
NWC 4"//
(b) At the completion of field exploration (drilling) (a) above, to
provide an analysis and evaluation of the results of these investigations
prepared by the contractor at his expense. The contractor shall prepare within
60 days a formal report evaluating the reservoir and determining the feasibility
of producing electric power therefrom. As part of this report, contractor shall
utilize data developed from the drilling and will evaluate the resources and the
economic factors affecting geothermal development, including construction and
operation of electric power generating facilities.
In addition, the parties mutually agree that if the Contractor has not, for
whatever reason, completed drilling of at least one production size exploratory
test well on the additional developable lands within 24 months of the date of
the execution of this modification, then at the government's option (and as its
exclusive remedy) the Government may terminate the Contractor's exclusive right
to explore, develop and utilize the geothermal resource on the additional
developable lands without cost to the Government or adjustment in the contract
price.
1
<PAGE>
In the event of said termination of contractor's right with regard to the
additional developable lands:
(a) the Government shall acquire the rights to all data developed, and all
the Contractor's rights and interest in the project relating to the additional
developable lands are terminated;
(b) Government may proceed with development thereon as it may determine to
be in the best interest of the Department of Defense without any continuing
obligation to the contractor;
(c) the following conditions of completed or unfinished wells or borings
on the additional developable lands will apply:
(1) Any casing or plugs set into the well shall remain in place, and
title to such items shall automatically pass to the Government
upon the termination.
(2) All non-productive wells will be plugged and abandoned in
accordance with GRO Order No. 3 prior to final abandonment of
the project;
(d) The Government shall have:
(1) The option to purchase the Contractor-owned fixtures, facilities
and equipment or part thereof on the additional developable
lands at a price to be determined and the Contractor shall leave
in place any such fixtures, facilities and equipment; or
(2) The Government shall require the Contractor to remove same and
restore the site at no cost to the Government within a
reasonable time after termination.
If the parties are unable to agree upon the option price, the Disputes
Clause shall apply.
B. Scope. Subject to the terms and conditions hereinafter set forth, the
-----
Contractor shall deliver to the Government and the Government shall receive from
the Contractor electric service (hereinafter called service) as requested by the
Government from the Contractor at the designated delivery point(s) for the
premises hereunder (hereinafter called the service locations) all in accordance
with the Proposal, Technical and General Provisions, and the Electric Service
Specifications.
//Modification P000011 deleted the original Section I.C. above and
replaced it with the amended Section I.C. at the top of page 3.
[intentionally left blank]
2
<PAGE>
//Page 3, item [2] of Modification P000011 amended Section I.C. to
read in full as follows://
[intentionally left blank]
//Page 2, item [1] of Modification P000012 amended Section I.C to read
in full as follows://
C. Term.
----
This contract shall continue in effect for a period of thirty years from the
date of award. The Government has a unilateral right to extend the term of this
Contract for an additional ten (10) year term by the giving of written notice to
the contractor not less than 180 days in advance of the contract completion
date. If the government shall exercise this option, the extended contract shall
not be considered to include this option provision. The Contractor understands
that the Government requires Congressional approval to exercise any option for
the extension of the term of this Contract pursuant to this clause. If the
Government shall exercise this option, the Government's compensation from the
Units shall be as follows: (a) such compensation from Unit I-1 shall remain as
provided under IV.C hereof; (b) the Government's share of all gross PURPA
revenues for the option period from Unit I-2 and/or Unit I-3 shall be twenty-two
(22) percent; and (c) the Government's share of all gross PURPA revenues for the
option period from either or any of Unit II-1, Unit II-2, and Unit II-3 shall be
twenty-two (22) percent.
3
<PAGE>
D. Real Property Entry Permit.
--------------------------
1. The Government hereby grants to the Contractor, free of any rental or
similar charge, but subject to the limitations specified in this contract, a
revocable permit to enter the service location for any proper purpose under this
contract, including use of the site or sites agreed upon by the parties hereto
for the installation, operation, and maintenance of the facilities of the
Contractor required to be located upon Government premises. Authorized
representatives of the Contractor will be allowed access to the facilities of
the Contractor at suitable times to perform the obligations of the Contractor
with respect to these facilities. It is expressly understood that the
Government may limit or restrict the right of access herein granted in any
manner considered to be necessary for the national security.
2. The facilities shall be removed, wells abandoned and capped as
appropriate, and Government premises restored to their original condition,
ordinary wear and tear excepted, by the Contractor at his expense within a
reasonable time after the Government shall revoke the permit herein granted and
in any event within a reasonable time after termination of this contract,
provided, that in the event of termination due to fault of the Contractor these
facilities may be retained in place at the option of the Government until
service comparable to that provided for hereunder is obtained elsewhere.
//Paragraph 1 on page 2 of P00008 provided a new section I.D.3, which
is added to the Contract to read in full as follows://
"3. It is understood and agreed that the revocation of said permit shall
constitute a termination by the Government within the meaning of Section VIII.2.
of the Contract. Further, if Government's limitation or restriction of said
permit is imposed in such a manner as to prevent the Contractor, its
subcontractors, or its assigns from exercising their rights as contemplated in
this Contract, then Government shall provide the appropriate extension for delay
and appropriate monetary compensation for lost revenues within the dollar
guidelines of said Section VIII.2."
E. BONDS/INSURANCE
---------------
The following provisions relating to Bonds and Insurance from the original
RFTP continue as obligations of the Contractor herein.
3a
<PAGE>
BONDS
-----
The successful Contractor will be required to furnish a BOND in the penal
sum of $100,000.00 conditioned on compliance with the Geothermal Resources
Operational Order No. 3, "Plugging and Abandonment of Wells." The bond of any
surety company holding a certification of authority from the Secretary of the
Treasury as an acceptable surety on Federal bonds will be accepted. Individual
sureties will be accepted if each surety deposits with the Contracting Officer,
cash, bonds or notes of the United States, or certified check drawn to the order
of Commanding Officer, Western Division, Naval Facilities Engineering Command,
or such other security as the Contracting Officer may deem necessary for the
required amount of the guarantee, under the agreement that the collateral so
deposited shall remain in the possession and control of the Contracting Officer
for at least one year after completion of the contract.
INSURANCE
---------
Within fifteen days after the award of this contract, the Contractor shall
furnish the Contracting Officer a Certificate of Insurance as evidence of the
existence of the following insurance coverage in amounts not less than the
amounts specified below in accordance with the clause entitled "INSURANCE (1977
JAN)" contained in the GENERAL PROVISIONS.
<TABLE>
<CAPTION>
COVERAGE
------------------------------------
PER PER
PERSON ACCIDENT PROPERTY
-------- -------- --------
<S> <C> <C> <C>
a. Comprehensive General Liability $100,000 $300,000 $10,000
b. Automobile Liability $100,000 $300,000 $10,000
c. Workmen's Compensation AS REQUIRED BY STATE LAW
d. (Other as Required by State Law)
</TABLE>
The Certificate of Insurance shall further provide for thirty day's written
notice to the Contracting Officer by the insurance company prior to cancellation
or material change in policy coverage. Other requirements and information are
contained in the Clause entitled "INSURANCE (1977 JAN)" contained in the GENERAL
PROVISIONS.
F. PRECEDENCE
----------
In the event of conflict or inconsistency between any of the provisions of
the various portions of this contract (the reconciliation of which is not
otherwise provided for here) precedence shall be given in the following order,
the provisions of any particular portion prevailing over those of a subsequently
listed portion.
(1) Typewritten portions of the contract, excluding the General Provisions
and appendices.
(2) General Provisions and the appendices.
(3) The contents of the Contractor's proposal, including but not limited
to his forwarding letter, drawings, outline specifications, accepted alternates,
or additives, and materials, tests or other data (including all supplements,
amendments and modification thereto).
4
<PAGE>
G. PROJECT INFORMATION ABSTRACT - The following provisions from the original
----------------------------
RFTP are specifically included in the terms
of this contract.
1. Project Description
-------------------
The Western Division, Naval Facilities Engineering Command
(WESTNAVFACENGCOM) wishes to develop geothermal power as an alternative to
conventional power sources at the Naval Weapons Center (NAVWPNCEN), China Lake,
California. Preliminary investigations under the auspices of NAVWPNCEN, the
U.S. Geological Survey, and the Department of Energy indicate a potential source
of geothermal power in an area of NAVWPNCEN identified as the Coso Known
Geothermal Resources Area (KGRA). WESTNAVFACENGCOM is issuing this Request for
Technical Proposals (RFTP) in order to develop approximately 3 1/2 square miles
of this potential resource for which the Navy has authority to develop.
After determining the capacity, nature and reliability, of the
resource through his own exploration program, the Contractor shall build, own,
operate and maintain one or more geothermal power plants and necessary power
lines, power transformer substations and associated equipment and facilities to
deliver, initially, the full electrical energy requirements of NAVWPNCEN China
Lake and subsequently other Navy activities, but not to exceed 75MW to the Navy
at the designated delivery points (see Appendix "E"). The price bid under Step
Two of this RFTP shall be all-inclusive for supply of power to NAVWPNCEN China
Lake as more fully described in Section III. The price for power to other Navy
activities will be negotiated under the Changes Clause. Delivered power at each
designated delivery point must meet the total electrical load at each point and
at no time shall the total cost per kilowatthour (WH) to the Navy be above 95
percent of the Ceiling Rate as defined in Appendix "F". The exploration,
development, commercial operation, and maintenance of the Contractor's
facilities and delivery of power must be at no capital cost to the Department of
Defense. Title to the geothermal resource or electricity produced therefrom
must remain in the Government except as further described for electricity in
Section VI.A. The Government will provide the Contractor a real estate entry
permit and will pay the Contractor his bid rate in price per KWH received by the
Government, as escalated by the Coso Geothermal Index (CGI) and constrained by
the Ceiling Rate (see Appendix "F") during the thirty year term of the contract.
At no time during the term of the contract will the Department of Defense be
obligated to pay more than 95 percent of the then established Ceiling Rate.
This RFTP defines the project parameters and solicits responsive proposals from
qualified offerors.
A two-step RFTP is being solicited. The step-one proposals shall be
limited to technical, business, environmental and other matters, and they must
not contain any cost information. After evaluation for technical adequacy,
acceptable offerors will then be invited in Step-Two to submit a cost proposal.
The contract award will be made to the offeror submitting the lowest bid in
price per kilowatthour for electric energy receive by the Government at
NAVWPNCEN China Lake designated delivery point provided that the bid price is
less than the Ceiling Rate as defined in Appendix "F". The Navy reserves the
right to reject all bids if no bid is below the Ceiling Rate.
5
<PAGE>
The Contractor shall explore, evaluate, and develop the geothermal
resource; construct, operate and maintain a geothermal power plant; and deliver
power to the Government as rapidly as possible within certain constraints,
including that there be NO CAPITAL EXPENSE TO THE DEPARTMENT OF DEFENSE, that
-----------------------------------------------
there be NO ADVERSE IMPACT UNACCEPTABLE TO THE NAVY ON THE MISSION OF NAVWPNCEN
----------------------------------------------------------------------
and that there be a NET COST SAVINGS TO THE GOVERNMENT. Development and
----------------------------------
extraction of geothermal by-products will require specific Navy approval and be
accomplished in accordance with existing law.
The Navy desires to expeditiously develop the full potential of its
resource. Subsequent development and delivery of power in excess of 75 MW will
be negotiated under the contract Changes Clause. The Government will consider
such further development of Navy fee-acquired land up to the then existing
southern California Navy loads. These Navy loads are currently served by
Commercial Utility Companies under standard rate schedules.
\\Modification P000011 deleted the first paragraph of Section II below
and replaced it with that shown on the top of page 7.\\
[intentionally left blank]
6
<PAGE>
\\Modification P000011 changed the first paragraph of Section II to
read as follows:\\
II. CONSTRAINTS
-----------
It shall be the responsibility of the Contractor to conform to and abide by all
legally applicable statutes; ordinances; rules and regulations and all permit,
approval, and easement requirements relating to the development of the
geothermal resource at the Coso KGRA area, access to and from the general sites,
and construction on and use of property under the control of NAVWPNCEN China
Lake. In addition to the laws and regulations identified in Environmental
Protection Plan, Section V, and the terms of this contract, the Contractor is
referred to Naval Weapons Center Instructions (see Appendix "G"); the Geothermal
Resources Operational Orders as published by the Geological Survey; the
Geothermal Steam Act; the Geothermal Energy Research, Development and
Demonstration Act; the Federal Land Planning and Management Act; the Defense
Withdrawal Act of 1958 (P.L. 85-337); Title 30, the Code of Federal Regulations;
and the Occupational Safety and Health Act, or any successor statutes thereto,
all as from time to time amended. Unless specifically advised by the
Contracting Officer to the contrary, the Contractor shall meet the legally
applicable requirements of all State and Local Laws and Regulations. This list
is not all inclusive and it is the sole responsibility of the Contractor to
acquaint itself with all legally applicable Federal, State and local laws,
regulations, and other legal constraints or requirements. Because of the nature
of the NAVWPNCEN mission, the Government has placed certain constraints on
geothermal operations within the boundaries of NAVWPNCEN. These constraints
ensure the safe and economical development and production of those geothermal
resources within the NAVWPNCEN boundary and ensure that any exploration,
development, or production does not conflict with the mission of NAVWPNCEN. All
on-site and other inspection performed by the Government will be at Government's
cost.
A. Administrative Responsibility
-----------------------------
The Commander, NAVWPNCEN is the responsible agent of the Federal
Government for the utilization of the land and airspace of NAVWPNCEN. As such,
the Commander, NAVWPNCEN is responsible for the protection of the health and
safety of all personnel, military and civilian, within the confines of
NAVWPNCEN, and is responsible for the continuing preservation of the ability of
NAVWPNCEN to perform its mission of air weapon research, development, test and
evaluation.
B. Access
------
Access to NAVWPNCEN is a privilege granted by Commander, NAVWPNCEN.
Exercise of this privilege requires adherence to Navy traffic regulations,
check-in/check-out procedures, radiation control measures, environmental
controls, area access limitations, and electronic emission
7
<PAGE>
controls. Access to range lands shall be on a not-to-interfere basis with Navy
test schedules and shall be limited to that specific area being explored,
developed or produced. Access schedules shall be established on a weekly basis
with the Navy. The Public Works officer, NAVWPNCEN will have the authority to
provide emergency access for reasons of geothermal safety or other drilling
incidents requiring uninterrupted short term access to a specific site or
geothermal operation. Access shall require that there be identified one
responsible contact point for the Contractor who shall at all times know who is
present on NAVWPNCEN lands, and this contact point shall be reachable at all
times in event evacuation is ordered. Experience to date shows, in any given
month, scheduled and unscheduled daylight downtime will not regularly exceed ten
percent and scheduled and unscheduled nighttime downtime will not regularly
exceed two percent.
C. Security
--------
Contractor personnel do not have to be U.S. Nationals, but the mission
of the NAVWPNCEN is such that personnel cannot be granted access to NAVWPNCEN
lands without being cleared for entry by the Navy. All non-citizen visits must
be arranged through the Navy with a minimum notice of 96 hours for non-iron-
curtain-bloc visitors. The latter will be considered on a case by case basis.
The accessible areas and routes from these areas will be stipulated by the Navy.
D. Environmental
-------------
All vehicular traffic shall be limited to routes approved by the Navy.
The Navy will retain the right to suspend any operation judged by the Navy to
present an imminent threat to the environment. During all operations, all
federal, state, and local environmental requirements shall be rigorously
observed. The Navy shall have the right to impose emission standards required
to protect the mission of NAVWPNCEN.
\\Paragraph 2 on page 2 of P00008 provides Section II E of the
contract is amended to read in full as follows:
"E Sites and Routes
----------------
Power plant sites, drill pads, pipeline and power transmission
routes will be selected subject to Navy approval to ensure such
sites will have a minimum impact on NAVWPNCEN range operations.
All site plans shall be submitted to the Navy for approval.
Routes to and from work areas will be approved by the Navy."\\
F. Shelters
--------
Operators and other Contractor personnel shall have the option of
either evacuating NAVWPNCEN upon request or retiring to Navy approved personnel
shelters during those times when NAVWPNCEN operations require personnel
protection at the project site. Construction criteria for personnel shelters
are included in the Technical Specifications, and installation will be totally
at Contractor's expense.
8
<PAGE>
G. Radioactive Sources
-------------------
No radioactive sources shall be brought into NAVWPNCEN until
appropriate Navy permits have been obtained. These permits will be issued upon
the Navy verifying the license of the operator to be valid for the proposed
effort, and the Navy approving a standard operating procedure for dealing with
lost sources and handling damaged sources.
H. Injuries and Accidents
----------------------
All disabling injuries occurring on NAVWPNCEN land will be reported
within 24 hours to the Navy. The Navy will retain the right to suspend any
operation judged by the Navy to present an imminent danger to people or to
government property.
I. Electronic Radiation
--------------------
No electronic radiation will be permitted within NAVWPNCEN until a
permit is obtained which certifies this emission will not interfere with the
NAVWPNCEN mission. The Navy may, at times, require electronic emission silence
for up to four hours.
J. Plant Protection
----------------
To prevent damage, all wellheads shall be revetted as specified in the
Technical Specifications, all wells shall be fitted with an approved below-
ground flow limiter, all pipe lines fitted with automatic flow limiters, and all
power plants equipped with a hardened control room.
K. Public Release of Information
-----------------------------
There shall be no public release of information or photographs
concerning the aspects of this contract or other documents resulting therefrom
without prior written approval of the Navy.
L. Military/Government Property
----------------------------
As a result of past and ongoing NAVWPNCEN operations, the existence of
unexploded ordnance and other hazardous material in the Coso KGRA is very
likely. The danger that such material represents cannot be overemphasized.
Therefore, all military or government property found on the land surface or
embedded in the land shall be left in place. The Navy shall be informed of the
presence of all hazardous or potentially hazardous ordnance or other material at
once and Navy personnel will inspect and remove such material in a timely
manner.
9
<PAGE>
M. Data Exchange
-------------
Data on flow, chemistry of fluids and reservoir conditions and
structure shall be provided to the Navy within 90 days of the date the data is
obtained by the Contractor with such data to remain proprietary to the
Contractor for five years or contract termination, whichever occurs first. The
Navy may use such data for independently evaluating the resource.
N. Legal Jurisdiction
------------------
Law enforcement on NAVWPNCEN lands will remain the responsibility of
the Navy except that the Navy may permit Inyo County deputized corporate
security guards on NAVWPNCEN lands following Navy acceptance of specific
Contractor security plans.
O. Blowout Contingency Plan
------------------------
Prior to the commencement of any drilling into the geothermal
reservoir, the Contractor shall prepare a contingency plan acceptable to the
Navy for use in the event of a blowout of a geothermal well.
P. Geothermal Resources Operational (GRO) Orders
---------------------------------------------
The GRO Orders, as published by the United States Department of
Interior, Geological Survey, Conservation Division, Office of the Area
Geothermal Supervisor, and Title 30, Chapter II of the Code of Federal
Regulations shall be adhered to subject to certain interpretations that are
discussed in more detail under Technical Specifications, Section VI.
Q. Right of Inspection
-------------------
Navy shall have the right of inspection to ensure and verify
compliance with these constraints.
R. These constraints shall be included in all subcontracts.
10
<PAGE>
III. PRICING, ESCALATION AND PAYMENTS
--------------------------------
A. General
-------
The Government will accept from the Contractor electric energy service
for Navy loans listed in Appendix "E". The Government will pay Contractor on a
monthly basis for delivery of such electric energy as metered at the designated
delivery points. Payments will be made solely for electrical energy consumed by
the Government as recorded on a watthour meter at the designated delivery
points, and not for energy that is available to the Government but not actually
consumed. The Government will pay the Contractor 56 mils per KW escalated by
the Coso Geothermal Index (but never more than 95 percent of the Ceiling Rate
defined in Appendix "F") for each KWH consumed by the Government as metered at
NAVWPNCEN China Lake designated delivery point identified in paragraph A of
Appendix "E". After serving NAVWPNCEN China Lake, the Contractor shall serve
additional designated delivery points as his generating capacity permits at a
rate to be negotiated under the Changes Clause. Once the Contractor has agreed
to supply electrical energy to a delivery point, he shall be solely responsible
to provide all electrical energy needs to that delivery point.
It is understood that the Navy loans listed in Appendix "E" are
presently being serviced by a utility company under contract to the U.S. Navy.
It is agreed that the Contractor will pay for any costs of termination involved
in such existing contracts, and that the sole payment by the Navy under this
contract is for the price bid by the successful Contractor. Similarly, the
Government will not make payment for any additional items of cost including, but
not limited to, wheeling, banking, standby, emergency, backup, line transmission
loss, metering loss, transformer loss, power factor, demand, termination
charges, and the like.
As additional generating capacity is installed, the Contractor is
required to serve additional designated delivery points if technically feasible
at a rate to be negotiated under the Changes Clause.
B. Power Availability
------------------
Electric service shall be available at the designated delivery points
which the Contractor has agreed to serve 100 percent of the time subject to
force majeure. The Contractor shall use reasonable diligence to provide a
regular and uninterrupted supply of service at the service locations, but shall
not be liable to the Government for damages, breach of contract, or otherwise,
for failure, suspension, diminution, or other variations of service occasioned
by any cause beyond the control and without the fault or negligence of the
Contractor.
11
<PAGE>
C. Price Escalation
----------------
On 1 February and 1 August of each year, the contract unit price will
be adjusted for the following six month period to reflect the percent change
(increase or decrease) in the Coso Geothermal Index (See Appendix "C") during
the previous six month period. The first escalation will occur on 1 August 1984
based on the previous six month period.
D. Incremental Development of Geothermal Power Generation
------------------------------------------------------
\\Page 3, item [3] of Modification P000011 amends Section III.D.1 to
read in full as follows:\\
1. At such time as the existence of a commercial geothermal resource
has been established by the Contractor, the Contractor shall proceed to
design and install power generation plant(s) of sufficient capacity to
produce and deliver the proposed capacity adequate to provide electrical
service to at least NAVWPNCEN China Lake, but not in excess of the
generating capacity for which the parties have agreed to hereunder.
2. Should the Government determine that further development of the
resource beyond 75 MW is feasible and that it is in the best interest of the
Department of Defense so to do, the Government may, by the Changes Clause
authorize Contractor to proceed with development of the field and production of
electrical power.
3. The Contractor's plan for the development of the geothermal
resource shall include procedures to ensure close coordination of plant
development and distribution of energy with changing Navy requirements. The
Government will also closely coordinate with the Contractor on planned changes
in Navy requirements.
\\Page 3, item [4] of Modification P000011 adds a new Section III.E.
to read in full as follows:\\
E. Expansion Beyond NAVWPNCEN
--------------------------
The Government and the Contractor have determined that the entitlement
provided to the Government with respect to NAVWPNCEN pursuant to Section
IV.C.1 of the contract is not appropriate as Government entitlement with
respect to expansion beyond the generating capacity of Unit I-1. A
different method for determination of such entitlement has accordingly been
negotiated and agreed to by the parties and the provisions controlling said
expansion and Government's entitlement shall supersede the provisions of
paragraphs A, B, C and D of Section III of the contract.
12
<PAGE>
IV. GEOTHERMAL POWER GENERATION/ELECTRIC SERVICE SPECIFICATIONS
-----------------------------------------------------------
A. Technical Provisions for Utility Service
----------------------------------------
1. Measurement of Service
----------------------
(a) All service furnished by the Contractor at the designated
delivery points shall be measured by metering equipment of standard manufacture,
furnished, installed, maintained, calibrated, and read by the Contractor at his
expense. In the event that any meter fails to register or registers
incorrectly, the quantity of service delivered through it during that period
shall be determined and an equitable adjustment based thereon shall be made in
the Government's bills (for this purpose any meter which registers not more than
2 percent slow or fast shall be deemed correct). Failure to agree on any
adjustment shall be a dispute concerning a question of fact within the meaning
of the "Disputes" clause of this contract.
(b) The Contractor shall read all meters at periodic intervals of
approximately thirty days. All billings based on meter readings of less than
twenty-seven days or more than thirty-two days shall be prorated accordingly.
2. Meter Test
----------
The Contractor, at his expense, shall periodically inspect and test
the meters at intervals of no longer than six months. At the written request of
the Contracting Officer, the Contractor shall make tests of any or all of such
meters in the presence of Government representatives. The cost of such tests
shall be borne by the Government if the percentage of error is found to be not
more than 2 percent slow or fast. No meter shall be placed in service which on
test registers in excess of 100 percent under normal operating conditions. Upon
request, the Contractor will provide copies of all test data to the Government.
B. General Provisions for Utility Service
--------------------------------------
1. Payment
-------
(a) The Contractor shall submit invoices monthly to locations as
listed on the Electric Service Specifications and payments hereunder shall be
made by the designated disbursing officer for service furnished hereunder at the
rate specified.
(b) All bills for service shall be paid without penalty or
interest, except as provided for in Public Law 97-177.
13
<PAGE>
(c) Invoices for service rendered hereunder shall be submitted
monthly, indicating dates of the billing period, and shall contain information
on meter readings at the beginning and at the end of the billing period, energy
delivered in KWH, the demand in KW, a summary of outages and their duration for
the billing period, and such other pertinent data as shall be required by the
Government.
2. Rates and Charges
-----------------
(a) For all service furnished under this contract to the service
location the Government shall pay the Contractor at the accepted rate in
kilowatthours (KWH). In no case shall the rate exceed 95 percent of the Ceiling
Rate defined in Appendix "F".
(b) Adjustments. The rate and charges specified herein may be
------------
adjusted in conformance with the Special Circumstances and Conditions as set
forth in (c) below. In the event that changes have occurred in any of the
Special Circumstances and Conditions, the rates and changes will, buy mutual
agreement and execution of a Supplemental Agreement to the contract at the times
specified, be changed accordingly and will apply until the next Supplemental
Agreement. Item (c)(1) (Service Charges) will be reviewed semi-annually and the
adjustments made effective 1 February or 1 August as appropriate, of each
contract year.
(c) Special Circumstances and Conditions
------------------------------------
(1) Service Charges: the basic rate per kilowatthour will be
increased or decreased to reflect the changes as they occur to the Coso
Geothermal Index on a semiannualized basis and constrained to never exceed the
Ceiling Rate.
(2) Development to 75 MW: A rate for power in excess of the
requirements of NAVWPNCEN China Lake but not exceeding 75 MW will be negotiated
under the Changes Clause.
(3) Development beyond 75 MW: Should Navy determine that further
development of the resource beyond 75 MW is in the best interest of the
Government, Navy will enter into a Supplemental Agreement to this contract for
delivery of generated power above the capacity covered under this contract.
\\Paragraph 3 on page 2 of P00008 provides a new subparagraph 4 is
added to Section IV.B2(c) as follows:\\
"4. It is understood and agreed that the price (the
"NAVWPNCEN Price") established, adjusted and limited in
accordance with Section III.A and IV.B2(c)(1) of the Contract for
NAVWPNCEN Power (as defined at Section IV.C.3(d)(1) hereof) is
not subject to change, whether upon or as part of the negotiation
of prices under the Changes Clause hereof for electrical energy
delivered to designated delivery points ('DDP'), in addition to
that point for NAVWPNCEN ('NAVWPNCEN DDP,' as defined in Section
VI.C.3(a) hereof), or otherwise, without the written consent of
the Initial Consortium, described in Section IV.C.2(a) hereof."
3. Continuity of Service and Consumption
-------------------------------------
(a) The Contractor shall use reasonable diligence to provide a regular
and uninterrupted supply of service at the service locations, but shall not be
liable to the Government for damages, breach of contract, or otherwise, for
failure, suspension, diminution, or other variations of service occasioned by
any cause beyond the control and without the fault or negligence of the
Contractor. Such causes may include, but are not restricted to, acts of God or
of the public enemy, acts of the Government in either its sovereign
14
<PAGE>
or contractual capacity, fires, floods, epidemics, quarantine restrictions,
strikes, or failure or breakdown of transmission or other facilities.
4. Contractor's Facilities
-----------------------
(a) The Contractor, at his expense, shall furnish, install,
operate, and maintain all facilities required to furnish service hereunder, and
to measure the service at the point of delivery specified in the Technical
Specifications. Title to all of these facilities shall remain in the Contractor
as long as the contract is in effect, and he shall be responsible for all loss
or damage to those facilities except that arising out of the fault or negligence
of the Government. All taxes and other charges in connection therewith, together
with all liability arising out of the negligence of the Contractor in the
construction, operation, or maintenance of these facilities shall be assumed by
the Contractor.
(b) Upon expiration of the contract, title to wells and casings
shall revert to the Government at no cost. Title to all other Contractor-owned
fixtures, facilities and equipment shall remain with the Contractor; provided,
however, that (1) the Government shall have the option to purchase such
fixtures, facilities and equipment or any part thereof at a price to be
determined and the Contractor shall leave in place those fixtures, facilities
and equipment; or (2) the Government shall require the Contractor to remove same
and restore the site at not cost to the Government within a reasonable time
after expiration. If the parties are unable to agree on the option price the
Disputes clause shall apply.
5. Multiple Service Locations
--------------------------
The Contractor with the Contracting Officer's concurrence may at
any time designate any service location within the franchise areas of San Diego
Gas and Electric Company and Southern California Edison Company at which service
shall be furnished thereunder, and the contract shall be modified in writing
accordingly by adding to the service specifications the name and location of the
appropriate service location.
6. Supporting Utilities
--------------------
The Contractor shall be responsible for all costs and effects
associated with the installation, operation and maintenance of any utility
system which it may install.
7. Security Fencing
----------------
Contractor shall erect a chain-link fence, or equivalent, on the
boundary of the plant site allocated to it. Contractor will furnish the
Commanding Officer, Naval Weapons Center, China Lake duplicate sets of keys to
all gates and locks in Contractor security fence for use by the Naval Weapons
Center Security or Fire Department in case of emergency.
8. Alterations and Additions
-------------------------
The Contractor shall, as agreed upon by the parties, modify and/or
replace his pipelines and related equipment necessitated by age and
deterioration of the installed facilities.
9. Fire Protection
---------------
Fire Protection shall be the responsibility of the Contractor.
15
<PAGE>
\\PLEASE NOTE - P00008, beginning on page 2 and ending on page 9:
1) deleted Section IVC on page 16 of P00004,
2) added a new Section IVC to read as set forth on pages 2 through 9
of P00008 and added new Sections IVD and IVE to P00004.
These provisions are set forth on pages 16-a to 16-h.\\
16
<PAGE>
[4][4] Section IV.C of the Contract is deleted and a new Section IV.C is
added to read in full:
"C. Provisions Governing Service to NAVWPNCEN.
------------------------------------------
1. In General. The Contractor is prepared to proceed with the Phase C
----------
construction of a geothermal power plant designed to serve
NAVWPNCEN. Said work will be performed pursuant to agreements by
and between the Contractor and an 'Initial Consortium' (as herein
defined). In order to arrange financing and assistance for said
plant the following will take place:
Modification P00008
Contract N62474-79-C-5382
Page 2 of 10
16a
<PAGE>
(a) The Contractor will assign to the Initial Consortium certain
rights which Contractor has been granted under the Contract
(subject to the Contractor's right to reacquire the same). Such
assignment shall be effected by an 'Assignment and Consent' to be
executed by and between Contractor and the Initial Consortium in a
form approved and agreed to by the Government (hereafter the same
is referred to as the "Initial Plant Assignment").
(b) Pursuant to appropriate documentation, the Initial Consortium
intends to further assign certain rights and interests under the
Contract and in the Initial Plant and Initial Project (both
defined herein) to a third party which may be a lender ('Lender')
or a lessor ('Lessor'). In this regard, it is intended that if the
financing is to be provided through a lease, then the Lessor will
transfer to the Initial Consortium a leasehold interest (the
'Lease') in the Initial Plant with full authority to operate the
Initial Project for a term of approximately 15 years, plus
extensions, if any. Upon the termination of said Lease, the rights
in the Initial Plant/Project would revert to the Lessor and its
successors and assigns. The Initial Consortium, the Lender, the
Lessor and their respective successors and assigns are sometimes
referred to herein individually as the 'Financing Party' and
collectively as the 'Financing Parties'.
2. Definitions. Unless the context otherwise clearly requires, each of
the following terms, when used in this Contract or in any appendix,
exhibit or attachment thereto with initial capitals, shall have the
meaning set forth for such term below:
(a) 'Initial Consortium' means a joint venture or other business
--------------------
combination, identified in the Initial Plant Assignment which
includes one or more engineering and construction companies
and/or one or more equipment suppliers for the Initial Plant.
\\Page 3, item [5] of Modification P000011 amends Section IV.C.2.(b)
to change "Unit 1" to read Unit I-1".\\
(b) 'Initial Plant' means Unit I 1 of the geothermal power plant
and------------- --------its associated facilities as constructed
by the Initial Consortium, (including and not limited to surface
steam gathering system, brine disposal system, power transmission
facilities, substation, interconnection facilities and other
facilities and equipment necessary to generate, sell and deliver
power from such plant); but excludes all geothermal resource and
wells.
(c) 'Initial Project' means all elements of permitting, licensing,
---------------
designing, constructing, erecting, financing, owning, operating,
leasing, and maintaining the Initial Plant, and of generating,
selling and delivering power therefrom, and receiving, utilizing
and disbursing the revenues generated thereby; but excludes all
elements of producing and bringing to the surface the geothermal
resources.
Modification P00008
Contract N62474-79-C-5382
Page 3 of 10
16b
<PAGE>
3. Contractor's Delivery of Electric Service for NAVWPNCEN. The
--------------------------------------------------------
Contractor's obligations under the Contract with respect to the
'NAVWPNCEN DDP' (defined herein) shall be satisfied by performance
under coordinated contracts as follows:
(a) Government's Existing NAVWPNCEN/SCE Contract Continues. The
-------------------------------------------------------
NAVWPNCEN DDP is the present point of delivery under contract with
Southern California Edison Company ('SCE') N62474-70-C-1201, Item
1054 ('NAVWPNCEN/SCE Contract'). Present service by SCE to the
NAVWPNCEN DDP shall remain in place after the Initial Service Date
(as defined herein), uninterrupted, under the SCE/NAVWPNCEN
Contract and shall be deemed to be full utility service by the
Contractor so long as the Contractor complies with the provisions
of this Section IV.C.3. If SCE fails to provide service to
NAVWPNCEN DDP under the SCE/NAVWPNCEN Contract, the Contractor,
the Initial Project, and the Financing Parties shall not be
responsible for such failure.
(b) Initial Plant Output and The PURPA Contract. Subject to the
--------------------------------------------
Government's rights and powers as otherwise provided herein, the
Initial Plant is authorized at all times to be operated at full
capacity. All power from the Initial Plant shall be sold by
Contractor or its assigns to SCE pursuant to an appropriate
contract (the 'PURPA Contract'). All payments from the PURPA
Contract shall be paid to and belong to the Contractor or its
assigns and they are authorized to apply the same to pay SCE for
NAVWPNCEN Power, to operate and maintain the Initial Plant, to
service debt, to realize a recovery of and return on their capital
expenditures, to operate and maintain the geothermal resource,
wells, and related facilities for the Initial Project, and for
other purposes.
(c) Initial Service Date. The date of the commencement of service
---------------------
pursuant to the Contract (herein the 'Initial Service Date')
shall occur upon the earlier of (a) a date stipulated by
written notice to the Government by the Initial Consortium, or
(b) 1 February 1987, as such date may be hereby or hereafter
modified, taking into account all applicable extensions or
excusable delays pursuant to the Contract.
(d) Payment for NAVWPNCEN Power (Including Conserved Power).
--------------------------------------------------------
Contractor shall pay for (or shall discharge all payments due from
the Government to SCE for) NAVWPNCEN Power delivered from and
after the Initial Service Date through the term of the Contract.
Said payment or discharge shall be made subject to the following
terms and conditions:
Modification P00008
Contract N62474-79-C-5382
Page 4 of 10
16c
<PAGE>
(1) NAVWPNCEN Power is defined to be the amount of electrical
energy equal to (A) the lesser of (i) 100,000 MWH per year
adjusted cumulatively from 1 January 1986 by a 3% per year
load growth factor and properly adjusted by a fraction (e.g.
30/365 for a 30 day billing period) to reflect the portion of
a year covered by the billing period in question or (ii) the
actual amount of energy delivered by SCE to the NAVWPNCEN DDP
pursuant to the SCE/NAVWPNCEN Contract during the billing
period in question, reduced by (B) the amount by which the net
output of the Initial Plant delivered to SCE under the PURPA
Contract for the billing period in question is less than the
amount computed under Clause (A) of this subparagraph (1) as a
result of a Force Majeure event or other limiting provision of
the Contract (including but not limited to Sections III.B,
VIII.3, and VIII.4 of the Contract). Events which are defined
as Force Majeure events herein shall constitute Force Majeure
in connection with any inability of Contractor or the
Financing Parties to make delivery to SCE under the PURPA
Contract.
(2) Such payment or discharge shall constitute timely
delivery of supplies and performance of services by
Contractor within the meaning of the Contract, as hereby
modified, and in particular within the meaning of Section
VIII.4(a) thereof.
(3) Such payments or discharge shall be on behalf of
Government against its SCE bills under the SCE/NAVWPNCEN
Contract.
(4) If, for a given year, the amount of electrical energy for
which the Government is billed by SCE falls short of an
amount computed according to Section IV.C.3(d)(1)(A)(i) and
reduced according to Section IV.C.3(d)(1)(B) (such shortfalls
here called "Conserved Power"), the Government shall be
entitled to a credit equal to the difference between (A) the
price that the Contractor would have paid to SCE for the
Conserved Power had it been used and (B) the price that the
Government would have paid to the Contractor for the
conserved power had it been used. Such credit shall be
determined in accordance with the procedures set forth in
Section IV.C.3(g)(8) hereof.
(e) Service From Initial Project. Neither the Initial Project nor
----------------------------
anyFinancing Party for the Initial Project shall be obligated
to or liable to the Government to provide or pay for (or to
compensate the Government for any failure to provide or pay
for) any electrical service to Government in excess of
NAVWPNCEN Power, or any electric service from Contractor or
otherwise delivered to or metered at any DDP other than the
NAVWPNCEN DDP.
Modification P00008
Contract N62474-79-C-5382
Page 5 of 10
16d
<PAGE>
(f) Government's Right to Pay NAVWPNCEN/SCE Contract. If any SCE
------------------------------------------------
invoice for NAVWPNCEN Power has not been paid within sixty (60)
days following its date, the Government, at is Option, may pay
such invoice and seek reimbursement for the amount thereof
(including any interest and penalties due to SCE with respect to
late payment) pursuant to the Contract. In the event of repeated
or extended failure to pay, the Contractor shall provide a
detailed report of the cause and proposed cure therefor. If such
report or performance thereunder is not reasonably satisfactory
to the Government, the Government shall have grounds for
termination under Section VIII.4 hereof.
(g) Government's Payment of Contract Price to Contractor or Its
-----------------------------------------------------------
Assigns. The Government shall pay to the Contractor or its
-------
assignee an amount equal to the NAVWPNCEN Price times the
NAVWPNCEN Power for each Billing Period (as herein defined) from
and after the Initial Service Date, subject to the following terms
and conditions:
(1) The NAVWPNCEN Price has a base rate of 56 mills per KWh
which is subject to adjustment after August 1, 1984, as
provided in the Contract.
(2) In no case shall the NAVWPNCEN Price for NAVWPNCEN Power
exceed 95% of the applicable Ceiling Rate for the same (as
defined in Appendix F to the Contract).
(3) Each Billing Period shall have the same frequency and
duration as each billing period of the SCE/NAVWPNCEN Contract.
\\Modification P00009 included the following change to the last
sentence of Section IV.C.3.(g)(4) below:\\
(4) Proof of payment to SCE for NAVWPNCEN Power shall be
required as a condition precedent to the obligation of the
Government to pay Contractor for the corresponding amount of
NAVWPNCEN Power pursuant to the Contract. "Full payment to
contractor or its assignee shall be made immediately upon
receipt of such proof." (Modification P00009)
(5) The service provided under the SCE/NAVWPNCEN Contract will
be measured by the metering procedures presently followed
under that contract. The Government shall provide the
Contractor the results of such measurements and such other
information the Contractor reasonably requires to compute
payments for NAVWPNCEN Power. Contractor shall be allowed (at
its own cost) to Install its own meter and procedure to
monitor the service and bills received by Government from SCE
under the SCE/NAVWPNCEN Contract.
(6) The Government's obligation to pay for NAVWPNCEN Power
shall not be conditioned upon operation of the Initial Plant.
Modification P00008
Contract N62474-79-C-5382
Page 6 of 10
16e
<PAGE>
(7) The invoice for NAVWPNCEN Power shall be submitted to
Naval Weapons Center, China Lake, California, 93555. The
billing period will correspond to the referrable SCE billing
period under the SCE/NAVWPNCEN Contract. Payment of each such
invoice shall be made by the Disbursing Officer, Code 0862,
Naval weapons Center, China Lake, California, 93555, as
directed by the Contractor or its assignee under the Initial
Plant Assignment.
(8) In the first calendar quarter of each year the Government
and the Contractor shall audit the invoices, payments, and
power output and consumption figures for the prior calendar
year, reconcile all differences between them, and close the
books for that year for all purposes hereunder. The Government
shall be credited on the last day of such quarter with an
amount for the prior year computed in accordance with Section
IV.C.3(d)(4) hereof.
4. Restriction on Assignment. It is prohibited for the Contractor, its
--------------------------
assigns, or their subassigns to assign any right under the
Contract to or for the benefit of (a) any individual who is a
national of, or any entity which is owned or effectively
controlled by any government or governmental agency of or national
or nationals of, any country which may from time to time be listed
in Country Group S, Y or Z of Supplement No. 1 to Part 370 of the
Code of Federal Regulations, or any regulations which are
hereafter promulgated in substitution therefor or replacement
thereof, as from time to time in effect, or (b) any individual or
entity to whom any such assignment is then prohibited pursuant to
any other law or regulation of the United States.
5. Quiet Enjoyment. Without prejudice to the Government's rights and
----------------
remedies against the Contractor, in order to provide security to the
Financing Parties for their respective rights and interests in the
Initial Plant and the Initial Project, and in order to permit the
financing of the Initial Plant and the Initial Project in accordance
with the Contract, (any other provision of this Contract
notwithstanding) it is understood and agreed for the benefit of the
Contractor and each Financing Party as follows:
(a) So long as no default shall have occurred and be continuing,
and shall be uncured (either by Contractor or the Financing
Parties), pursuant to the Contract in direct connection with the
Initial Project, or arising from any failure to provide or pay for
NAVWPNCEN Power (as limited in sections IV.C.3(d) and IV.C.3(e)
hereof), the possession and enjoyment by the contractor and each
Financing Party of any rights assigned to it as authorized hereby
or by the Initial Plant Assignment shall be without hindrance,
ejection, molestation or interruption by reason of the action,
inaction, or default of Contractor or any other person or entity.
Modification P00008
Contract N62474-79-C-5382
Page 7 of 10
16f
<PAGE>
(b) If the Contractor should fail to perform or comply with any of
its obligations pursuant to the Contract the failure to perform or
comply with which might have any material, adverse affect on any
Financing Party or the Initial Project, then any Financing Party
may, but shall not be obligated to, itself perform or comply with
such obligations and charge the reasonable costs of such
performance or compliance to the Contractor.
(c) The Financing Parties, or any of them, may exercise such
rights, powers and privileges of the Contractor pursuant to the
Contract to supply the geothermal resource or reinjection
necessary to operate the Initial Plant at full capacity as they
may acquire by virtue of their assignment of rights referred to in
the Initial Plant Assignment.
6. General Description of the Initial Plant. The Initial Plant will be
-----------------------------------------
designed, manufactured and installed by the Initial Consortium to
include a turbine which has two entries, one for high pressure
steam and one for low pressure steam. The projected gross output
(before parasitic load) will be no greater than 32,100 KW at a wet
bulb operating temperature of 26.6 Degrees Fahrenheit.
7. Initial Plant/Project Work Schedule Under Contract Section VI.5.
----------------------------------------------------------------
<TABLE>
<CAPTION>
Work Item Completion Maximum Time from
-------------------- Contract Award
--------------
<S> <C>
Field Investigation and Research (Phase A) Completed
Field Exploration (Drilling) (Phase 8) Completed
Field Development (Contract Phase C)
(Initial Plant Construction)
</TABLE>
<TABLE>
<C> <S> <C> <C> <C>
a. Complete Site Surveys 1 March 1986
b. Complete General Site Excavation 1 June 1986
c. Complete Concrete Foundations 1 February 1987
d. Turbine Condenser on Site 1 March 1987
e. Complete Cooling Tower 1 April 1987
f. Initial Plant on Line 30 June 1987
(90.8 months after 6 Dec. 1979)
</TABLE>
Notwithstanding the terms of the above schedule, Contractor will commence
payment of Government's NAVWPNCEN/SCE Contract for NAVWPNCEN Power as
provided in Section IV.C.3(d). In the event that the Initial Service Date
does not occur on or before 30 November 1986, the Contractor shall pay to
the Government the sum of $100,000 on or before 10 December 1986.
Modification P00008
Contract N62474-79-C-5382
Page 8 of 10
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8. Consideration. Contractor and the Government have determined that
-------------
over theremaining term of the Contract the Initial
Plant is projected to generate a total output in excess of the
output Contractor is required to produce to satisfy its
obligation for NAVWPNCEN Power. Use of the geothermal resource
for that purpose by the Contractor is authorized by this
Modification P00008. In consideration for such use of the
resource as well as the other changes contained in this
Modification P00008, the Contractor hereby obligates itself and
promises to pay the Government the sum of $25,000,000 on or
before 31 December 2009. That payment shall be secured by funds
placed monthly by Contractor in escrow beginning two months after
commercial operations for the Initial Plant have commenced at a
rate sufficient to total (assuming interest at a rate of 10% per
annum, adjusted annually according to experience) no less than
$25,000,000 on 31 December 2009. A default pursuant to this
Section IV.C.8 shall not affect the right of the Financing
Parties to Quiet Enjoyment."
\\Page 4, item [6] of Modification P000011 replaces Section IV
Paragraph D below which was added with Modification P00008 with the
new Paragraph D which follows it.\\
[intentionally left blank]
\\Below is Section IV, Paragraph D as amended by Modification P000011.
This has been replaced by the Modification P000012 amendment of this
section which follows the deleted Paragraph D.\\
N62474-79-C-5382
Modification P00008 and
Modification P000011
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Modification P000011
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Modification P000011
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\\Below is the new Section IV Paragraph D as amended beginning on page
2, item [2] of Modification P000012.\\
D. Provisions Governing Electric Generating Capacity Beyond NAVWPNCEN To and
-------------------------------------------------------------------------
Including 160 MW of Service
---------------------------
In General, the Government and the Contractor have mutually agreed to increase
the amount of power than can be developed from the Government's geothermal
resource at NAVWPNCEN beyond the requirement of NAVWPNCEN as provided under
Section IV.C hereof to 160 MW of nominal nameplate rating. It is acknowledged
that the nominal nameplate rating of the geothermal plants installed by the
Contractor may differ as much as 25% plus or minus from the generating capacity
of said geothermal plants. In order to arrange for equity and debt financing
and assistance for the field and development to 160 MW of generating capacity
the Government and Contractor will cooperate as follows:
1. Contractor will assign to one or more legal entities (partnerships,
corporations or proprietorships) involving other parties certain rights which
Contractor has been granted under the Contract. All such assignments require
Government's consent and such consent will not be unreasonably withheld. If
consent is given by Government, no additional consideration is required. The
Government will not consent to assignments that contain legal constraints on
Government or are contrary to prior assignment. Such assignments, lacking
Government consent, shall not be effective.
2. The right of reassignment is extended to Contractor's assignees and their
assignments, provided that all such reassignments require the Government's
consent in order to be effective. If consent is given by the Government, no
additional consideration is required.
3. Definitions
-----------
Unless the context otherwise clearly requires, each of the following terms, when
used in this contract or in any appendix or attachment thereto with initial
capitals, will have the meaning set forth for such term below:
(a) "Unit" means a specific turbine-generator set and its associated
facilities, exclusive of all geothermal resources and wells, designated by a
number. For example, the facility for NAVWPNCEN is referred to as Unit I-1 in
Section IV.C.2(b) hereof. As of the execution date of this contract
modification P00012, Contractor contemplates increasing the generating
facilities located at the developable lands in five increments. Each increment
is expected to consist of a Unit with a nominal nameplate rating of 25 MW. Two
such increments are contemplated to be located at or adjoining the site of the
Initial Plant (Unite I-1). These two increments are hereby designated Unit I-2
and Unit I-3, respectively. Three additional increments are also contemplated
to be added to the developable lands at a single site expected to be located
within the five square mile area described in Appendix A at page A-4 hereof.
These three increments are hereby designated Unit II-1, Unit II-2, and Unit II-3
respectively. Not withstanding the above, the parties understand and agree that
the contemplated number of units may be increased or decreased to accommodate
development requirements and in such event this agreement will be
administratively amended to reflect such a change.
N62474-79-C-5382
Modification P00012
16k
<PAGE>
(b) "Unit Owner" means the joint venture, corporation or other business
combination identified as the owner of a Unit in an assignment of rights by
Contractor under this contract.
(c) "Unit Financing Party" means the firm or firms identified as such with
respect to a Unit in an assignment of right by Contractor under this contract.
(d) "Unit Resource" means the geothermal resources and wells associated
with a specific Unit.
(e) "Unit Project" means all elements of permitting, licensing, designing,
constructing, erecting, financing, owning, operating, leasing, and manufacturing
a specific Unit and/or (where specifically indicated) Unit Resource and
receiving, utilizing and disbursing the revenues generated thereby.
(f) "PURPA Revenues" means any and all sums of money payable to Contractor
or its assigns under the provisions of its PURPA Contract with Southern
California Edison Company as capacity payments, energy payments and bonus
capacity payments.
(g) "SCE" means the Southern California Edison Company, as defined in the
PURPA Contracts.
(h) "On Line" means the first date a Unit is deemed by the parties to have
commenced commercial operation under the construction contract for such Unit.
4. Pricing Mechanism
-----------------
(a) Unit I-2 and Unit I-3. The Contractor or its assigns shall pay the
government a share of all gross PURPA revenues earned by the Contractor or its
assigns from Southern California Edison pursuant to the PURPA Contract for
electricity generated from Unit I-2 and Unit I-3. The Government share of gross
PURPA revenue shall be as follows:
<TABLE>
<S> <C>
First three years after first such Unit goes On Line 4 percent
- --------------------------------------------------------------------
Next seven years 10 percent
- --------------------------------------------------------------------
Next five years 15 percent
- --------------------------------------------------------------------
Remaining years until contract completion 20 percent
- --------------------------------------------------------------------
</TABLE>
(b) Unit II-1, Unit II-2 and Unit II-3. The Contractor or its assigns
shall pay the Government a share of all gross PURPA revenues earned by the
Contractor or its assigns from Southern California Edison pursuant to the PURPA
Contract for electricity generated from Unit II-1, Unit II-2 and Unit II-3. The
Government share of gross PURPA revenue shall be as follows:
<TABLE>
<S> <C>
First five years after first such Unit goes On Line 4 percent
- -------------------------------------------------------------------
Next five years 10 percent
- -------------------------------------------------------------------
Next five years 18 percent
- -------------------------------------------------------------------
Remaining years until contract completion 20 percent
- -------------------------------------------------------------------
</TABLE>
N62474-79-C-5382
Modification P00012
16l
<PAGE>
(c) The payments due to the Government hereunder shall begin for each Unit
separately with the date upon which that Unit first goes On Line and said
payments shall continue until the completion date of this Contract with respect
to each such Unit, including all extensions hereof.
(d) The SCE payments for Units I-2 and I-3 are governed by the Southern
California Edison PURPA Contract for the initial Turbine and therefore as a
condition to implementing the provisions of Section IV.D. hereof, the Government
and the Contractor do hereby agree to negotiate in good faith to establish
appropriate allocation provisions affecting the relative rights of Government,
Contractor, and the Owners and Financing Parties of the Initial Plant in said
SCE PURPA Contract and payments thereunder. Allocation provisions shall be
based on metered output of each of units I-1, I-2, and I-3.
(e) Inasmuch as the construction of all the additional Units is subject to
many uncertainties, if these unknown factors affect the expected development
plan the parties agree to accommodate those changes by providing for alternate
equivalent arrangements.
\\Above is the end of Section IV Paragraph D as amended by
Modification P000012. Below is Paragraph E as added by Modification
P00008.\\
"E. Precedence of this Modification P00008. Notwithstanding anything in the
---------------------------------------
Contract, or appendices or exhibits thereto, the provisions of this Modification
P00008 shall take precedence over all other typewritten portions of the Contract
and/or its appendices, General Provisions, and other writings."
\\Page 6, item [7] of Modification P000011 added a new Section IV.F to
read as follows:\\
F. Provisions Governing Service from Subsequent Projects.
-----------------------------------------------------
The Contractor will become obligated to provide electric service beyond the
requirements provided for in Section IV.D. of the contract when contract
negotiations for a contemplated additional geothermal plant are completed. Such
negotiations shall address terms and conditions necessary and appropriate to
provide the Contractor a basis to seek financing for the design, construction
and operation of such additional plant. The Government agrees to proceed in
good faith with the intent to commence, carry on and complete said negotiations
in a timely manner.
16m
<PAGE>
V. ENVIRONMENTAL AND CULTURAL RESOURCES PROTECTION PROGRAMS
--------------------------------------------------------
A. General
-------
The Contractor has the major responsibility for carrying out the
environmental and cultural resources protection programs in a manner that will
ensure smooth operation during all phases of the development without any
conflicts. The Navy will have the final review and approval authority on all
aspects of the environmental and cultural resources protection programs. On a
routine basis the Contractor shall maintain close coordination with the Navy in
order to ensure that NAVWPNCEN China Lake can carry out its mission and land
management responsibilities without any conflict with environmental and cultural
resources protection requirements. Navy has prepared a programmatic
Environmental Impact Statement (EIS) and Determination of Effect on Cultural
Resources (DECR) that will fulfill the initial requirements and provide general
environmental management guidelines. The environmental and cultural resources
protection programs shall ensure compliance with all applicable laws and
regulations which include, but are not limited to, the following Federal and
State requirements:
National Environmental Policy Act (NEPA)
National Historic Preservation Act
Executive Order 11593
P. L. 92-195, Wild and Free Roaming Horses and Burros
Endangered Species Act of 1973
Occupational Safety and Health Act of 1971
Rules and Regulations of the Great Basin Unified Air Pollution
Control District
Water Quality Control Plans and Orders of the California
Regional Water Quality Control Board, Lahontan Region
Resources Conservation and Recovery Act of 1976
California Environmental Quality Act
B. Environmental Impact Statement Responsibilities
-----------------------------------------------
A programmatic Environmental Impact Statement has been prepared by the
Navy. It is the Contractor's responsibility to have prepared at his cost a
draft EIS for each subsequent phase of development as indicated in the
programmatic EIS. The documents shall be prepared by a subcontractor to the
Prime Contractor, which subcontractor will be subject to approval by the Navy,
as will the subcontract Scope of Work. The Prime Contractor will coordinate the
subcontractor's activities with the Navy. The subcontractor must be prepared to
affirm his disassociation with any future financial gain associated with the
program (apart from follow-on of optional environmental effort as part of his
scope of effort). Approval of the Navy with respect to contents of the EIS to
ensure compliance is required. Final review and public disclosure of the EIS(s)
prepared will be the responsibility of the Navy as the lead agency for
implementation of the proposed development. In this regard, an appropriate
schedule for Navy review of the ongoing environmental documentation shall be
established to ensure conformity with compliance requirements. Additionally,
the EIS(s) for each contractual phase shall
17
<PAGE>
define the environmental protection and management programs, including
mitigation measures, for the next phase of development in detail.
C. Permit Requirements for Environmental Issues
--------------------------------------------
The Contractor will be responsible for obtaining all necessary
approvals, permits, etc. at his expense including, but not limited to, those of
wastewater discharges, air pollution control and solid waste disposal associated
with operation of the various developments. An outline of a program to obtain
all required permits shall therefore be included in the offeror's proposal. The
outline should demonstrate knowledge in dealing with the various permitting
agencies and familiarity with recent changes in Federal, State and local laws.
It also shall identify how permit coordination will be maintained with the Navy.
D. Environmental Management Plan (EMP)
-----------------------------------
The Contractor shall indicate how the EMP will be prepared for each
phase of development and what its content will include. This plan is closely
related to the EIS prepared at each phase, and shall also address itself to the
following items:
1. Adherence to mitigating procedures proposed in the EIS.
2. Compliance with monitoring operation and maintenance programs
required by the various permits.
3. Coordination procedures with the Navy
4. Field closure and necessary remedial measures.
5. Protection and preservation of natural resources.
E. Determination of Effect on Cultural Resources Responsibilities
--------------------------------------------------------------
A programmatic Determination of Effect on Cultural Resources has been
prepared by the Navy. It is the Contractor's responsibility to have prepared at
his cost the necessary documentation for each subsequent phase of development as
stated in the programmatic DECR. The documents shall be prepared by a
subcontractor to the Prime Contractor, which subcontractor will be subject to
approval by the Navy, as will the subcontract Scope of Work. The Prime
Contractor will coordinate the subcontractor's activities with the Navy. The
subcontractor must be prepared to affirm his disassociation with any future
financial gain associated with the program (apart from follow-on of optional
effort as part of his scope of work). Approval of the Navy with respect to
contents of the necessary documentation to ensure compliance is required.
Procedural compliance with concerned Native Americans, the State
18
<PAGE>
Historic Preservation Office (SHPO), and the Advisory Council on Historic
Preservation (ACHP) will be the responsibility of the Navy as lead agency. An
appropriate schedule for Navy review of the ongoing documentation shall be
established to ensure compliance with the applicable statutory requirements. The
documentation for each contractual phase shall define the cultural resources
protection, preservation, management and/or scientific salvage techniques
including avoidance or mitigation measures, in detail for the next phase of
development.
F. Cultural Resources Management Plan (CRMP)
-----------------------------------------
The Contractor is responsible to propose how the CRMP will be prepared
for each phase of development and what its content will include. This plan is
subject to review by the Navy, concerned Native Americans, SHPO and ACHP, and it
shall address:
1. Mitigation or avoidance of adverse effect on cultural resources.
2. Compliance with applicable regulations of Title 36, Code of
Federal Regulations (CFR), Chapter VIII, Section 800.
3. Consultation procedures with concerned Native Americans, SHPO and
ACHP.
4. Protection, preservation and/or scientific salvage of cultural
resources in compliance with applicable county, state and federal statutes.
G. Contingency Plans
-----------------
Contingency plans shall be prepared containing plans for immediate
implementation of corrective actions in case of emergency situations resulting
from operational or equipment failure causing hazardous conditions (for example:
blow-outs, wastewater spills, excessive emissions to the atmosphere, fire and
safety hazards, etc.).
19
<PAGE>
VI. TECHNICAL SPECIFICATIONS
------------------------
A. Developable Lands
-----------------
Fee title to the surface and mineral rights of the land available to
the Contractor for exploration and development is vested in the United States of
America. This property is identified in Appendix "A" and the attached map
(Appendix D"). The Navy has authority to authorize a Contractor to explore and
to develop the geothermal resource for the purpose of producing electric energy.
Four non-contiguous fee-owned land areas are in the Coso area. The largest
contains approximately 1,920 acres; the other three contain about 640 acres, 320
acres and 40 acres. Generally excluded from development or exploration is
approximately 605 acres of the 1,920 acre parcel identified in the National
Register of Historic Places. This excluded area is identified in Appendices "A"
and "D". The total area available to the Contractor for development
(hereinafter called developable lands) is therefore about 2,315 acres, or about
3 1/2 square miles, as well as the approximate 4 square miles added to this
contract as a result of this modification. The Contractor shall have the sole
right to investigate, explore, develop and produce electricity from the
developable lands as defined above during the term of the contract. Except as
provided in this contract, no interest in steam, electricity, water, earth,
gravel, rocks or minerals will be conveyed to the Contractor who explores the
resource and develops the electric power. This does not preclude the
Contractor's transfer of electricity as a form of payment for services rendered.
Necessary quantities of these resources may be used by the Contractor at no
charge subject to Navy approval and provided that:
1. The resource is incidental to the performance of the contract;
and
2. The resource is obtained by the Contractor from:
a. Developable lands
b. The surface of NAVWPNCEN lands in the Coso area, excluding
therefrom lands identified in the National Register of Historic Places, or
c. In the case of water, no deeper than 1,000 feet below the
surface of NAVWPNCEN lands in the Coso area, excluding therefrom any public
water reserves; and
3. The resource (other than electricity) is not transported outside
NAVWPNCEN boundaries; and
4. The resource (other than electricity) is not sold to anyone or
transferred to a party other than a subcontractor to the Contractor; and
5. The resource is utilized for the purpose intended by this
contract.
20
<PAGE>
The electricity may be bartered, traded or sold as a means of paying
for peak Navy energy requirements as well as such items as wheeling, banking,
standby, emergency, backup, line transmission loss, metering loss, transformer
loss, power factor, demand, termination charges, and the like.
Development and extraction of geothermal by-products will require
specific Navy approval and be accomplished in accordance with existing law.
B. Hardening
---------
The Navy may require, from time to time, personnel on the NAVWPNCEN
China Lake ranges to evacuate NAVWPNCEN ranges or take shelter. Until such time
as an acceptable hardened facility of sufficient size to protect all personnel
is constructed, all unprotected personnel shall evacuate NAVWPNCEN ranges when
so ordered. After completion of the hardened facility, personnel shall either
evacuate the ranges or take shelter in the hardened facilities, whichever can be
done most expeditiously. Contractor has the option to provide hardened
facilities during drilling operations.
C. Financial
---------
All work under the contract shall be at Contractor's expense. The
Contractor shall be responsible for determining the requirements and obtaining
at his expense, any and all approvals, easements, or permits from governmental
agencies or private parties having jurisdiction. The Contractor shall be solely
responsible for any taxes, bonding, third party insurance, wheeling, banking,
and all other charges associated with this contract.
D. Maintenance
-----------
Existing roads on or serving the area under this contract shall not be
impaired by the Contractor. Road maintenance will be required based on
Contractor's usage and will be the responsibility of the Contractor.
E. GRO Orders
----------
All work under the contract shall be performed in accordance with the
GRO Orders, except where this contract specifies differently. The GRO Orders
refer to the Geothermal Resources Operational Orders as published by the United
States Department of Interior, Geological Survey, Conservation Division, Office
of the Area Geothermal Supervisor. The latest draft of GRO Order 5 shall apply,
until the final version is published. The following substitutions of
terminology, however, will apply to the work done under this contract: the
terms "Area Geothermal Supervisor", "Supervisor", "U.S. Geological Survey
Geothermal District Office", "Secretary" or "Director" are to mean the Navy;
"lessee" or "operator" are to mean the Contractor; and "lease" is to mean the
Entry Permit. The GRO Orders make reference to Chapter 11 of Title 30, the Code
of Federal Regulations. Where applicable, the modifications to the language and
intent of the original regulations, as noted above, shall apply to this
contract. Plans and reporting requirements
21
<PAGE>
identified in this contract shall meet the Contractor's obligation, provided
that where data is requested by GRO Orders or the regulations and not in this
contract, such data shall be provided by the Contractor.
F. Protection and Closing of Wells
-------------------------------
Geothermal wells shall be provided with a flow limiter below the
surface of the ground. In addition, the wellheads shall be revetted. Earth
berms or, at some locations, a culvert arch (open at both ends) covered with
several feet of dirt and rock rubble are typical of the required revetments. If
work under this contract is terminated at the direction of either party, the
following conditions of completed or unfinished wells or borings will apply:
1. Any casing or plugs set into the well shall remain in place, and
title to such items will automatically pass to the Government upon the decision
to terminate.
2. All non-productive wells will be plugged and abandoned in
accordance with GRO Order No. 3 prior to final abandonment of the project.
3. Any producing well will be fitted with a valving or regulating
mechanism to allow either a complete shutdown of the well or withdrawal of the
geothermal resource in a regulated and controlled manner as specified in GRO
Order No. 2, paragraph 5.B.
G. Contractual Phases of Work
--------------------------
The exploration and development of the resource and operation of the
power plant is divided into five phases as follows: Field Investigation and
Research (Phase A), Field Exploration (Drilling) (Phase B), Field Development
(Power Plant Construction) (Phase C), Power Production and Field Operation
(Phase D), and Field Closure (Phase E).
H. Termination During Exploration
------------------------------
The Contractor may elect to terminate work on the project during the
first two phases. Such termination is to be at Contractor's expense including
costs for site restoration and equipment removal. In the event that the
Contractor elects to terminate the work, the Navy will acquire the rights
(including right to further distribution without incurring obligation) to all
data developed, and all the Contractor's rights and interest in the project are
terminated. Navy may proceed with such development as Navy may determine to be
in the best interest of the Government without any continuing obligation to
Contractor.
I. Capacity
--------
Throughout this contract, capacities refer to electric paver in
megawatts (MW) as delivered to the designated delivery points. The initial
minimum acceptable capacity is the full electrical energy requirements of
NAVWPNCEN China Lake. The maximum acceptable capacity (at any time during this
contract term unless so modified under the Changes Clause) is 75 MW.
22
<PAGE>
The Navy desires to develop the full potential of its resource. The
Contractor, therefore, should identify how and when he plans to develop from the
initial capacity to 75 MW. Subsequent capacity beyond the first 75 MW will be
negotiated under the Changes Clause.
Paragraph 7 on page 10 of 10 to P00008 provides Section VI.J. of the Contract is
amended to read as follows:
"J. Schedule. The schedule for completion of work to be performed with
--------
respect to each geothermal power plant under this Contract is set forth in
the appropriate portion of Section IV.C or IV.D hereof. Each such schedule
is intended to specify maximum periods of time for the key elements of work
unless unforeseen delays (including and not limited to regulatory agency
approvals) are encountered which cannot be overcome by the parties
exercising due diligence. Each such schedule represents the maximum times
the Navy considers appropriate, but the Navy is desirous of completing each
phase in the least time possible."
\\Page 6, item [8] of Modification P000011 amended VI.J to add the
following sentence:\\
Unit I-2 and Unit I-3 shall be complete and shall be on-line on or before June
3, 1989.
\\Page 5, item [3] of Modification P000012 amends Section VI.J to add
the following:\\
Unit II-1, Unit II-2 and Unit II-3 shall be complete and shall be on-line on or
before January 31, 1990.
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K. Recording Requirements
----------------------
Status reports will be provided the Navy annually during the term of
the contract. Well logs and other technical data shall be provided the Navy no
later than 90 days (or less if so identified in the applicable version of GRO
Order No. 5) after data is obtained by the Contractor. Other technical data may
include any or all data identified in GRO Order No. 5.
The Navy will have the right to data obtained by the Contractor during
the term of the contract from geophysical investigations, exploratory wells,
development wells, and reinjection wells. Such data to be treated as
proprietary to the Navy and Contractor for five years or contract termination
whichever occurs first. The data will be for Navy use in conducting an
independent evaluation of the resource.
L. Field Investigation and Research (Phase A)
------------------------------------------
A substantial body of research data has already been compiled
regarding the potential geothermal resource at Coso. The Contractor will use
this information, plus any additional data that is available or obtained by the
Contractor, to select exploratory drill site locations. It is anticipated that
this phase of the operation will be limited, both in terms of time and the
amount of additional field data (such as additional temperature gradient holes)
that will be required. At the completion of the Field Investigation and
Research, an analysis and evaluation of the results of these investigations will
be conducted by the Contractor and a determination made as to the feasibility of
proceeding with an exploratory drilling program. At that time, the Contractor
will update as necessary his submitted plan for Field Exploration (Drilling)
phase. The plan shall identify, at a minimum, the drilling company and
contract; size, depth, and the location of exploratory wells; the schedule for
obtaining necessary approvals, if any, from regulatory agencies; waste disposal
methods; and methods of well testing.
23a
<PAGE>
M. Field Exploration (Drilling (Phase B)
-------------------------------------
During the Field Exploration (Drilling) phase, the Contractor shall
drill deep geothermal wells as necessary to further evaluate, identify and
locate the geothermal reservoir. Flow testing of the wells shall be performed
as required. Once the flow testing is completed, an exploratory well can be
shut-in if it is not commercially productive, or it can be left on a slow bleed
to be converted to a production well at a later date if the flow is adequate.
At the completion of Field Exploration (Drilling), an analysis and evaluation of
the results of these investigations will be conducted by the Contractor at his
expense and a determination made as to the practicality of proceeding with a
geothermal electric power plant. At that time, the Contractor shall prepare a
formal report evaluating the reservoir and determining the feasibility of
producing electric power therefrom. This report shall utilize data developed
from the drilling and testing of exploratory wells. Contractor will evaluate
the resource and the economic factors affecting geothermal development,
including construction and operation of electric power generating facilities.
Reliability of the resource will be established by the Contractor.
Also at the completion of Field Exploration (Drilling), the Contractor
shall update his submitted plans for Field Development (Power Plant
Construction) phase and Power Production and Field Operation phase to reflect
results of the exploratory phases. Specific production well, reinjection well,
personnel shelter, power plant, and transmission line siting data shall be
submitted to the Navy for approval at this time.
N. Field Development (Power Plant Construction) (Phase C)
------------------------------------------------------
The Contractor shall design and construct a power plant and related
facilities and drill production and reinjection wells in accordance with his
plans and schedules at his expense. Construction activities during this phase
include drill sites and wells; power generating plant and associated support
facilities; geothermal steam or fluid pipelines; transmission lines; and access
roads to drill sites, power plants, and along the transmission lines and
pipelines. The personnel shelters, if any, and the power plant control room(s)
shall be hardened. The control room(s) may serve as the personnel shelter if it
is of sufficient size. Sufficient hardened space shall be provided to shelter
the minimum number of personnel, including visitors and drill crews, required to
remain on site during the operational phase. The hardened areas shall be
constructed to be equivalent to two feet of reinforced concrete (compression
strength of 3,000 psi in 28 days) covered with five feet of earth and two
courses of fresh granite rubble 18 to 24 inches thick. The Navy must review and
approve the final design of the hardened structure(s).
The power plant shall be restricted in size to provide the required
capacity of Subsection I above. The Contractor was obligated to identify the
initial size in his proposal, and the power plant shall be designed to provide
that power at state-of-the-art availability. The Contractor shall interconnect
with a commercial utility. The interconnection point shall be located on
24
<PAGE>
NAVWPNCEN China Lake property and shall not be less than twenty feet nor more
than two hundred feet easterly from the western boundary of Section 16, Township
22 South, Range 38 East, Mount Diablo Base Line and Meridian.
\\Paragraph 8 on page 10 of 10 P00008 has added the following insert
to Section VI.N
"or SCE Inyokern substation SE Corner Section 20, Township 26 South,
Range 39 East Mount Diablo Base Line and Meridian."\\
The Contractor shall install at the interconnection point and maintain a
watthour demand meter meeting Navy specifications recording the total electrical
power and energy transmitted off Navy property. Data shall be provided to Navy
monthly on the power and energy transmitted off Navy property.
Production wells shall be drilled and a waste fluid disposal system
established. Contractor shall identify, at a minimum, size, depth, and location
of wells; the schedule for obtaining the necessary approvals, if any, from
regulatory agencies; waste disposal methods; and methods of well testing. The
Contractor shall obtain required approvals, easements, and permits, if any, and
construct the power plant on property made available by the Government. The
Contractor, at his expense, shall construct the wellheads; pipelines; generating
plant and its associated controls; electric power lines; and switching,
transformer, motoring, and other equipment associated with the electric
interconnection. The Contractor shall install adequate equipment to ensure that
reverse electrical flow cannot possibly go through the circuit. Contractor's
electricity needs (for start-up, for example) if supplied by a commercial
utility shall be separately metered.
In the annual status reports, as a minimum, and six months prior to
the power plant becoming operational, the Contractor shall advise the Navy in
writing of any modifications to his plan for his power plant design. If any
modification has impact on the capacity of the power plant or power availability
or the location of the designated delivery points or the characteristics of the
electricity to be delivered to the Navy, the Contractor shall advise the Navy in
writing within seven days of the time the Contractor is aware of the requirement
for the modification, and the modification shall be subject to Navy approval.
O. Power Production and Field Operation (Phase D)
----------------------------------------------
The Contractor shall update his submitted plan for Power Production
and Field Operation annually. The updated plan shall include items such as
schedules of preventive maintenance, drilling of new production wells, contracts
for drilling, contracts for the operation of the power plant, and staffing. The
Contractor shall operate and maintain the power plant and related facilities and
continue field development to 75 MW in accordance with his plans and schedules
at his expense. Contractor shall be solely responsible for delivery of all
electrical requirements for servicing needs at the designated delivery point(s)
he has agreed to serve. Delivery of the electric energy is to be to the
designated delivery point(s) and in conformance with standard utility industry
practice. Contractor will be responsible for continued operation of the
geothermal field, including but not limited to well maintenance, drilling of
supplemental wells, and maintenance of power plant and related facilities.
25
<PAGE>
P. Field Closure (Phase E)
-----------------------
During Field Closure, at the option of the Government if desired, the
facilities shall be removed, wells abandoned and capped as appropriate, and
Government premises restored to their original condition, ordinary wear and tear
excepted, by the Contractor at his expense within a reasonable time after
termination or expiration of the contract.
26
<PAGE>
VII. GENERAL PROVISIONS
------------------
The General Provisions are contained in Appendix I.
27
<PAGE>
VIII.SPECIAL PROVISIONS
------------------
1. TERMINATION BY CONTRACTOR
-------------------------
The Contractor may elect to terminate work on the project during the
exploratory phases of work (Phase A and B) up to the time the Contractor submits
his final report evaluating the geothermal resource by giving 90 days written
notice to Navy. Such termination is at Contractor's expense including costs for
site restoration and equipment removal. In the event the Contractor elects to
terminate during the exploratory phases, (a) the Contractor shall prepare a
report evaluating the reservoir and discuss the feasibility of producing
electric power from the geothermal reservoir; (b) the Navy shall acquire the
rights to all data developed, and all the Contractor's rights and interest in
the project are terminated; (c) Navy may proceed with development as Navy may
determine to be in the best interest of the Government without any continuing
obligation to the Contractor; (d) the following conditions of completed or
unfinished wells or borings will apply:
1. Any casing or plugs set into the well shall remain in place, and
title to such items shall automatically pass to the Government upon the decision
to terminate.
2. All non-productive wells will be plugged and abandoned in
accordance with GRO Order No. 3 prior to final abandonment of the project.
3. Any producing well will be fitted with a valving or regulating
mechanism to allow either a complete shutdown of the well or withdrawal of the
geothermal resource in a regulated and controlled manner as specified in GRO
Order No. 2, paragraph 5.B;
and (e) Title to all other Contractor-owned fixtures, facilities and equipment
shall remain with the Contractor; provided, however, that (a) the Government
shall have the option to purchase such fixtures, facilities and equipment or any
part thereof at a price to be determined and the Contractor shall leave in place
those fixtures, facilities and equipment; or (b) the Government shall require
the Contractor to remove same and restore the site at no cost to the Government
within a reasonable time after termination. If the parties are unable to agree
on the option price the Disputes clause shall apply.
During Phase C (Field Development (Power Plant Construction)),
Contractor may terminate in the same manner and on the same terms as aforesaid;
including that (a) the Government shall have the option to purchase such
fixtures, facilities and equipment or any part thereof at a price to be
determined and the Contractor shall leave in place those fixtures, facilities
and equipment; or (b) the Government shall require the Contractor to remove same
and restore the site at no cost to the Government within a reasonable time after
termination. If the parties are unable to agree on the option price the
Disputes clause shall apply. To the extent that engineering calculations,
studies, and plans and specifications of the power plant(s) have been completed,
Contractor shall provide a copy thereof to Navy at no expense to Navy.
During Phase D (Power Production and Field Operation), the Contractor
may effect termination, by giving one year prior written notice to Navy, at
which time all monthly payments shall cease, and (a) the Government shall have
the option to purchase such fixtures, facilities and equipment or
28
<PAGE>
any part thereof at a price to be determined and the Contractor shall leave in
place those fixtures, facilities and equipment; and (b) the Government shall
require the Contractor to remove same and restore the site at no cost to the
Government within a reasonable time after termination. If the parties are
unable to agree on the option price the Disputes clause shall apply. In the
event of such termination, the Contractor is solely responsible and liable for
any and all costs associated with cessation and reestablishment of electric
services to the designated Navy facilities and premises involved. In no event
shall Contractor liability hereunder cover any costs incurred more than one year
from the effective data of such termination.
2. TERMINATION BY GOVERNMENT
-------------------------
The Government at any time during the term of this contract shall have
the right to terminate this contract by giving six months prior written notice
for reasons of national security, national defense preparedness, national
emergency, or for any reasons the Contracting Officer shall determine that such
termination is in the best interest of the Government. The Government shall pay
Contractor the price for the unamortized portion of the exploratory investment
(Phase A and B) and for the Contractor's investment in his installed power plant
facilities (Phase C).
(a) The Contractor shall submit his termination claim to the
Contracting Officer promptly after receipt of a Notice of Termination, but in no
event later chan one year from the effective date thereof, unless one or more
extensions in writing are granted by the Contracting Officer upon written
request of the Contractor within such one year period or authorized extension
thereof. Upon failure of the Contractor to submit his termination claim within
the time allowed, the Contracting Officer may determine, on the basis of
information available to him, the amount, if any, due to the Contractor by
reason of termination and shall thereupon pay to the Contractor the amount so
determined.
(b) Any disputes as to questions of fact which may arise hereunder
shall be subject to the "Disputes" clause of this contract.
\\Modification P000010 deleted Section VIII.2.(c) below and replaced
it with the paragraph beginning near the top of page 29a hereof.\\
[intentionally left blank]
29
<PAGE>
[intentionally left blank]
\\Section VIII.2.(c) above which had been amended by P000010 has been
deleted and replaced with a new Section VIII.2.(c) (page 5, item [4]
of Modification P000012) to read in full as follows:\\
(c) Ceiling amount for Units I-1, I-2, and I-3: So long as the parties have
agreed on a delivered price and a delivery schedule for the Contractor to
provide electric power service only to NAVWPNCEN, the Governments's liability to
the Contractor pursuant to this clause shall not exceed $67,500,000. This
ceiling amount is derived by multiplying 25 megawatts by $2,700,00 per megawatt.
When and as the parties agree on a delivered price and a delivery schedule for
the Contractor to provide electric power service to designated delivery points
in addition to NAVWPNCEN, the foregoing $67,500,000 ceiling shall be increased
by an amount equal to the average peak load (expressed in megawatts) of these
additional designated delivery points during the prior twelve months multiplied
by $2,500,000 per megawatt until the average peak load of the designated
delivery points for which the parties have agreed on a delivered price and a
delivery schedule (including NAVWPNCEN) totals 50 megawatts. Thereafter, until
the average peak load of the designated delivery points for which the parties
have agreed on a delivered price and a delivery schedule (including NAVWPNCEN)
totals 75 megawatts, the multiplier shall be $1,400,000 per megawatt. Thus, at
the time that the parties agree on a delivered price and a delivery schedule for
designated delivery points (including NAVWPNCEN) with an average peak load of 75
megawatts, the ceiling amount shall be $165,000,000.
29a
<PAGE>
\\Page 5, item [5] of Modification P000012 added a new Section
VIII.2.(d) to read in full as follows:\\
(d) Ceiling amount for Units II-1, II-2, and II-3: So long as the
parties have agreed on a delivered price and a delivery schedule for the
Contractor to provide additional electric power beyond that covered under
paragraph VIII.2.(c) above, the ceiling amount shall be derived as follows: for
the first additional 25 megawatts of installed nameplate capacity, the amount
due to Contractor hereunder shall not exceed $67,500,000. This ceiling amount
is derived by multiplying 25 megawatts by $2,700,00 per megawatt. This ceiling
amount shall be increased by $2,500,000 per megawatt for each additional
megawatt of nameplate capacity between 25 megawatts and 50 megawatts and shall
be increased by $2,300,000 per megawatt for each additional megawatt of
nameplate capacity between 50 megawatts and 75 megawatts. Thus at the time the
total additional nameplate capacity for Units II-1, II-2, and II-3 totals 75
megawatts, the ceiling amount under this Section VIII.2.(d) shall be
$187,500,000.
29b
<PAGE>
3. Force Majeure
-------------
Notwithstanding anything to the contrary in this contract, if the
Contractor shall fail to perform any obligation (except pecuniary obligation)
hereby imposed upon it, and such failure shall be caused or materially
contributed to by act of God; a public enemy; sabotage; strikes; lockouts;
riots; rebellions; injunctions or interference through legal proceedings;
Municipal, State, or Federal laws or regulations; breakage or accident to the
resource production facilities or generating plant and related equipment, wells,
machinery, equipment or lines of pipe; washouts; earthquakes; storms; freezing
of lines; the availability of equipment, material or labor on the open market;
or any cause or causes of whatsoever nature (whether like or unlike those herein
enumerated) beyond Contractor's reasonable repairs to or reconditioning the
generating plant and related equipment, wells, machinery, equipment or lines of
pipe, such failure shall not be deemed to be a violation of the obligations of
the Contractor hereunder. Contractor shall, however, use reasonable diligence
to put itself again in a position to carry out its obligations hereunder.
Contractor agrees that it shall maintain a full stock of spare parts
to accomplish foreseeable repairs on the facilities. Failure of Contractor to
maintain such stock of spare parts shall not be excused by this provision.
4. Default (1969 AUG) 7-302.9
-------
(a) The Government may, subject to the provisions of paragraph (c)
below, by written notice of default to the Contractor, terminate the whole or
any part of this contract in any one of the following circumstances:
(i) if the Contractor fails to make delivery of the supplies or
to perform the services within the time specified herein or
any extension thereof; or
(ii) if the Contractor fails to perform any of the other
provisions of this contract, or so fails to make progress as
to endanger performance of this contract in accordance with
its terms, and in either of these two circumstances does not
cure such failure within a period of 60 days (or such longer
period as the Contracting Officer may authorize in writing)
after receipt of notice from the Contracting Officer
specifying such failure.
(b) In the event the Government terminates this contract in whole or
in part as provided in paragraph (a) of this clause, the Government may procure,
upon such terms and in such manner as the Contracting Officer may deem
appropriate, supplies or services similar to those so terminated, and the
Contractor shall be liable to the Government for any excess costs for such
similar supplies or services; provided, that the Contractor shall continue the
performance of this contract to the extent not terminated under the provisions
of this clause.
30
<PAGE>
(c) Except with respect to defaults of subcontractors, the Contractor
shall not be liable for any excess Costs if the failure to perform the contract
arises out of causes beyond the control and without the fault or negligence of
the Contractor. Such causes may include, but are not restricted to, acts of God
or of the public enemy, acts of the Government in either its sovereign or
contractual capacity, fires, floods, epidemics, quarantine restrictions,
strikes, freight embargoes, and unusually severe weather; but in every case the
failure to perform must be beyond the control and without the fault or
negligence of the Contractor. If the failure to perform is caused by the default
of a subcontractor, and if such default arises out of causes beyond the control
of both the Contractor and subcontractor, and without the fault or negligence of
either of them, the Contractor shall not be liable for any excess costs for
failure to perform, unless the supplies or services to be furnished by the
subcontractor were obtainable from other sources in sufficient time to permit
the Contractor to meet the required delivery schedule.
(d) If this contract is terminated as provided in paragraph (a) of
this clause, the Government, in addition to any other rights provided in this
clause, may require the Contractor to transfer title and deliver to the
Government, in the manner and to the extent directed by the Contracting Officer,
(i) any completed supplies, and (ii) such partially completed supplies and
materials, parts, tools, dies, jigs, fixtures, plans, drawings, information, and
contract rights (hereinafter called "manufacturing materials") as the Contractor
has specifically produced or specifically acquired for the performance of such
part of this contract as has been terminated; and the Contractor shall, upon
direction of the Contracting Officer, protect and perserve property in the
possession of the Contractor in which the Government has an interest. Payment
for completed supplies delivered to and accepted by the Government shall be at
the contract price. Payment for manufacturing materials delivered to and
accepted by the Government and for the protection and preservation of property
shall be in an amount agreed upon by the Contractor and Contracting Officer;
failure to agree to such amount shall be a dispute concerning a question of fact
within the meaning of the clause of this contract entitled "Disputes". The
Government may withhold from amounts otherwise due the Contractor for such
completed supplies or manufacturing materials such sum as the Contracting
Officer determines to be necessary to protect the Government against loss
because of outstanding liens or claims of former lien holders.
(e) If, after notice of termination of this contract under the
provisions of this clause, it is determined for any reason that the Contractor
was not in default under the provisions of this clause, or that the default was
excusable under the provisions of this clause, the rights and obligations of the
parties shall, if the contract contains a clause providing for termination for
convenience of the Government, be the same as if the notice of termination had
been issued pursuant to such clause. If, after notice of termination of this
contract under the provisions of this clause, it is determined for any reason
that the Contractor was not in default under the provisions of this clause, and
if this contract does not contain a clause providing for termination for
convenience of the Government, the contract shall be equitably adjusted to
compensate for such termination and the contract modified accordingly; failure
to agree to any such adjustment shall be a dispute concerning a question of fact
within the meaning of the clause of this contract entitled "Disputes".
31
<PAGE>
(f) The rights and remedies of the Government provided in this clause
shall not be exclusive and are in addition to any other rights and remedies
provided by law or under this contract.
(g) As used in paragraph (c) of this clause, the terms
"subcontractor" and "subcontractors" mean subcontractor(s) at any tier.
7-302.9
5. Liquidated Damages
------------------
A. Notwithstanding anything to the contrary in paragraph 4, Section
VIII herein, the Contractor shall remain liable to the Navy for any excess
procurement costs for electrical power obtained by the Navy to make up the
amount of electrical power which should have been provided by the Contractor for
whatever period (not to exceed one year) the Navy requires with the exercise of
reasonable diligence to reestablish electric service by a public utility.
Thereafter the Navy shall forgo its rights to excess reprocurement costs and to
any other rights or remedies arising from the default if the Contractor,
promptly following the effective date of default termination, provides the Navy
an amount equal to $56,000 times the average load during the prior twelve months
(expressed in megawatts) of the designated delivery point (points) for which the
Contractor and the Government have agreed to a delivered price and delivery
schedule to supply electric power service and which is (are) terminated for
default.
B. At any time during the term of this contract, Navy shall have the
option to consider, as an alternative remedy to termination, allowing any
financing institution which has an interest in Contractor's facilities to cure
Contractor's default. Should Navy elect this remedy, Contractor shall promptly
assign all of its rights to said financial institution or its designee, which
assignment shall require specific prior written approval by Navy.
6. Standards of Conduct
--------------------
The Contractor shall maintain during the term of the contract a
Standards of Conduct Program to ensure that the highest standards of ethical
conduct are adhered to by representatives of the Contractor in dealing with the
Navy. Upon request the Navy shall be provided access to the Plan and the
reports under the Plan submitted by the Compliance Officer to the Government
Relations Committee of the Contractor.
7. Release
-------
The revisions in contract price and schedule established by this
modification take into account all changes (constructive, written, or oral) to
this contract as of the data of this modification and constitute the full and
complete equitable adjustment to which the Contractor and the Government are
entitled for said changes. The equitable adjustment provided herein takes into
account all claims arising out of or relating to this contract as of the date of
this modification, including but not limited to all delays, disruptions,
dislocations, accelerations, interest costs, lost business opportunities,
financing, legal and accounting expenses, bid and proposal costs, inefficiencies
in performance and additional costs of whatever nature,
32
<PAGE>
known or unknown, arising from or relating to this contract as of the date of
this modification and to the changes effected by this modification. This
modification also settles, and constitutes an accord and satisfaction with
respect to, any claims by either party, whether or not asserted, that the
contract was breached, or subject to termination for any reason, as a result of
events arising prior or relating to this contract as of the date of this
modification.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this contract as of
19 October 1983.
THE UNITED STATES OF AMERICA
By:
/s/ signature illegible
------------------------
CHINA LAKE JOINT VENTURE
/s/ Charles T. Condy
- --------------------
Charles T. Condy, Chairman
California Energy Company, Inc.
/s/ James D. Bishop
- -------------------
James D. Bishop, Chairman
Caithness Corporation
General Partner, Caithness Geothermal 1980 Ltd.
34
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 1 Pages
1. AMENDMENT/MODIFICATION NO. P00005
----------------------------------
2. EFFECTIVE DATE
----------------------------------
3. REQUISITION/PURCHASE REQ. NO. 1135E
----------------------------------
4. PROJECT NO. (If applicable) 022.3:EDL:KM
----------------------------------
5. ISSUED BY
Western Division (Code 022)
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, California 94066
6. ADMINISTERED BY (if other than block 5)
PLEASE NOTE Block 6 of this P00005 modified by P00006 as follows:
Disbursing Officers Code 0862
Naval Weapons Center
China Lake, California 93555
7. CONTRACTOR NAME AND ADDRESS Code Facility Code
---------- ---------
CALIFORNIA ENERGY COMPANY, INC. AND
CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
3333 Mendocino Avenue, Suite 100
Santa Rosa, California 95401
8. __AMENDMENT OF SOLICITATION NO.______________
DATED_______________(See block 9)
X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ----------------
DATED 79DEC06 (See block 11)
---------
9. THIS BLOCK APPLIES ONLY TO AMENDMENTS OF SOLICITATIONS
____The above numbered solicitation is amended as set forth in block 12.
The hour and date specified for receipt of Offers _____ is extended,
_____ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the
following methods:
(a) By signing and returning ____________ copies of this amendment; (b)
By acknowledging receipt of this amendment on each copy of the offer
submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE ISSUING OFFICE PRIOR TO THE HOUR
AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If, by virtue
of this amendment you desire to change an offer already submitted, such
change may be made by telegram or letter, provided such telegram or
letter makes reference to the solicitation and this amendment, and is
received prior to the opening hour and date specified.
10. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
---
11. THIS BLOCK APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS
(a) X This Change Order is issued pursuant to Clause 2 of the General
--- -----------------------
Provisions
----------
The Changes set forth in block 12 are made to the above numbered
contract/order.
(b) ___ The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in block 12.
___ This Supplemental Agreement is entered into pursuant to
authority of ___________________________________________________
It modifies the above numbered contract as set forth in block 12.
12. DESCRIPTION OF AMENDMENT/MODIFICATION
Subject: Geothermal Power Development at the Naval Weapons Center, China Lake,
California
Section I, Page 1, Paragraph I.A.(a) of Modification P00004 to the subject
contract is hereby changed as follows:
Drill the fourth core hole on the Wheeler Prospect Site in lieu of NWC-4
The contract price remains unchanged.
Except as provided herein, all terms and conditions of the document referenced
in block 8, as heretofore changed, remain unchanged and in full force and
effect.
13. ___ CONTRACTOR/OFFEROR IS NOT REQUIRED TO SIGN THIS DOCUMENT
X CONTRACTOR/OFFEROR IS REQUIRED TO SIGN THIS DOCUMENT AND RETURN
---
original COPIES TO ISSUING OFFICE
----------
<TABLE>
<S> <C> <C>
14. NAME OF CONTRACTOR/OFFEROR BY /s/ Harold H. Robinson III (Signature of person authorized to sign)
-----------------------------
15. NAME AND TITLE OF SIGNER (Type or print) Harold H. Robinson III
President, California Energy Co., Inc.
--------------------------------------
16. DATE SIGNED Jun 18, 1984
------------
17. UNITED STATES OF AMERICA BY _____________________________ (Signature of Contracting Officer)
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
18. NAME OF CONTRACTING OFFICER (Type or print) B.E. Hill
Head, Contract
Administration Branch
for Commander, Naval Facilities, Engineering Command
Contracting Officer
----------------------------------------------------
</TABLE>
19. DATE SIGNED 21 Jun 1984
-------------
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<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 1 Pages
1. AMENDMENT/MODIFICATION NO. P00006
------
2. EFFECTIVE DATE _______________
3. REQUISITION/PURCHASE REQ. NO. 1135E
-----
4. PROJECT NO. (if applicable) 022.3C:KM:elg
-------------
5. ISSUED BY
Western Division (Code 022)
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, California 94066
6. ADMINISTERED BY (if other than block 5)
PAYMENTS WILL BE MADE BY
Disbursing Officer, Code 0862
Naval Weapons Center
China Lake, California 93555
7. CONTRACTOR NAME AND ADDRESS Code Facility Code
---------- ---------
CALIFORNIA ENERGY COMPANY, INC.
AND CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
3333 Mendocino Avenue, Suite 100
Santa Rosa, California 95401
8. AMENDMENT OF SOLICITATION NO.
-------- ---------
DATED (See block 9)
X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ----------------
DATED 79DEC06 (See block 11)
-------
9. THIS BLOCK APPLIES ONLY TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in block 12.
The hour and date specified for receipt of Offers
is extended, is not extended.
--- ----
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By signing and returning ____________ copies of this amendment; (b) By
acknowledging receipt of this amendment on each copy of the offer
submitted; or (c) By separate letter or telegram which includes a reference
to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT
TO BE RECEIVED AT THE ISSUING OFFICE PRIOR TO THE HOUR AND DATE SPECIFIED
MAY RESULT IN REJECTION OF YOUR OFFER. If, by virtue of this amendment you
desire to change an offer already submitted, such change may be made by
telegram or letter, provided such telegram or letter makes reference to the
solicitation and this amendment, and is received prior to the opening hour
and date specified.
10. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
------------------------
11. THIS BLOCK APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS
(a) ___ This Change Order is issued pursuant to_________________________
The Changes set forth in block 12 are made to the above numbered
contract/order.
(b) X The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in block 12.
___ This Supplemental Agreement is entered into pursuant to authority
of ________________________ It modifies the above numbered contract
as set forth in block 12.
12. DESCRIPTION OF AMENDMENT/MODIFICATION
Subject: Geothermal Power Development at the Naval Weapons Center, China Lake,
California
The data cited in Block 6 of Modification P00005 to the subject contract is
deleted in its entirety and the following data is substituted:
PAYMENT WILL BE MADE BY: Disbursing Officer, Code 0862
Naval Weapons Center
China Lake, California 93555
The contract price remains unchanged.
Except as provided herein, all terms and conditions of the document referenced
in block 8, as heretofore changed, remain unchanged and in full force and
effect.
13. X CONTRACTOR/OFFEROR IS NOT REQUIRED TO SIGN THIS DOCUMENT
---
CONTRACTOR/OFFEROR IS REQUIRED TO SIGN THIS DOCUMENT AND RETURN
---
COPIES TO ISSUING OFFICE
14. NAME OF CONTRACTOR/OFFEROR BY ______________________ (Signature of person
authorized to sign)
15. NAME AND TITLE OF SIGNER (Type or print) __________________________
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
16. DATE SIGNED________________
17. UNITED STATES OF AMERICA BY /s/ B.E. Hill (Signature of Contracting Officer)
---------------------
18. NAME OF CONTRACTING OFFICER (Type or print) B.E. Hill
Head, Contract
Administration Branch
for Commander, Naval Facilities, Engineering Command
Contracting Officer
---------------------------------------------------------
19. DATE SIGNED 28 Jun 19
-------------
</TABLE>
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<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. AMENDMENT/MODIFICATION NO. P00007
----------
2. EFFECTIVE DATE _____________
3. REQUISITION/PURCHASE REQ. NO. 1135E
-----------
4. PROJECT NO. (if applicable) 022.3A:PAM:ma
----------------------
5. ISSUED BY
Western Division (Code 022)
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, California 94066
6. ADMINISTERED BY (if other than block 5)
PAYMENTS WILL BE MADE BY
Disbursing Officer, Code 0862
Naval Weapons Center
China Lake, California 93555
7. CONTRACTOR NAME AND ADDRESS Code _________ Facility Code __________
CALIFORNIA ENERGY COMPANY, INC.
AND CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
3333 Mendocino Avenue, Suite 100
Santa Rosa, California 95401
8. ____ AMENDMENT OF SOLICITATION NO.________
DATED (See block 9)
X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- -----------------
DATED 79DEC06 (See block 11)
---------
9. THIS BLOCK APPLIES ONLY TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in block
12. The hour and date specified for receipt of Offers
___ is extended, ____ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the
following methods: (a) By signing and returning ____________ copies of
this amendment; (b) By acknowledging receipt of this amendment on each
copy of the offer submitted; or (c) By separate letter or telegram which
includes a reference to the solicitation and amendment numbers. FAILURE
OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE ISSUING OFFICE PRIOR TO THE
HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If, by
virtue of this amendment you desire to change an offer already
submitted, such change may be made by telegram or letter, provided such
telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
10. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
---------------------
TIME
11. THIS BLOCK APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS
(a) X This Change Order is issued pursuant to Clause 2
--- ----------------------
The Changes set forth in block 12 are made to the above numbered
contract/order.
(b) ___ The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in block 12.
___ This Supplemental Agreement is entered into pursuant to
authority of _____________________________________ It modifies
the above numbered contract as set forth in block 12.
12. DESCRIPTION OF AMENDMENT/MODIFICATION
Subject: Geothermal Power Development at the Naval Weapons Center, China Lake,
California
The schedule for completion of work item Field Development (Power Plant
Construction) (Phase C) as specified in contract Section VI, paragraph J, and
modified by contract Modification P00004, is extended for a period of twelve
(12) months from 30 September 1985 to 30 September 1986.
This modification takes into account all changes (constructive, written, or
oral) to this contract as of the date of this modification and constitutes the
full and complete equitable adjustment to which the Contractor and the
Government are entitled for said changes. The equitable adjustment provided
herein takes into account all claims arising out of or relating to this contract
as of the date of this modification, including but not limited to all delays,
disruptions, dislocations, accelerations, interest costs, lost business
opportunities, financing, legal and accounting expenses, bid and proposal costs,
inefficiencies in performance and additional costs of whatever nature, known or
unknown, arising from or relating to this contract as of the date of this
modification and to the changes effected by this modification. This
modification also settles, and constitutes an accord and satisfaction with
respect to, any claims by either party,
Except as provided herein, all terms and conditions of the document referenced
in block 8, as heretofore changed, remain unchanged and in full force and
effect.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
13. ___ CONTRACTOR/OFFEROR IS NOT REQUIRED TO SIGN THIS DOCUMENT
X CONTRACTOR/OFFEROR IS REQUIRED TO SIGN THIS DOCUMENT AND RETURN original COPIES
--- ------------
TO ISSUING OFFICE
</TABLE>
R&M-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
14. NAME OF CONTRACTOR/OFFEROR BY /s/ Harold H. Robinson III (Signature of person authorized to sign)
-----------------------------------------
15. NAME AND TITLE OF SIGNER (Type or print)
Harold H. Robinson III, President
CALIFORNIA ENERGY COMPANY, INC.
16. DATE SIGNED Nov. 7, 1984
------------
17. UNITED STATES OF AMERICA BY /s/ R.D. Eber (Signature of Contracting Officer)
------------------------
18. NAME OF CONTRACTING OFFICER (Type or print)
R.D. Eber, Capt. CEC. USA
for Commander, Naval Facilities, Engineering Command
Contracting Officer
19. DATE SIGNED 14 Nov 1984
------------
R&M-2
</TABLE>
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACTPage 1 of 10 Pages
1. CONTRACT ID CODE
2. AMENDMENT/MODIFICATION NO. P00008
------
3. EFFECTIVE DATE 13 Feb 86
------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ____________
6. ISSUED BY Code 0223
------
Western Division
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, California 94066
7. ADMINISTERED BY (if other than Item 6) Code __________
Payments will be made by
Disbursing Officer, Code 0862
Naval Weapons Center
China Lake, California 93555
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
CALIFORNIA ENERGY COMPANY, INC. AND
CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
333 Mendocino Avenue, Suite 100
Santa Rosa, California 95401
Code __________ Facility Code_____________
9. ___AMENDMENT OF SOLICITATION NO.
DATED (See Item 11)_________
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 79 Dec 06
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
X The above numbered solicitation is amended as set forth in Item 14.
---
The hour and date specified for receipt of Offers
---
___ is extended, _____ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer already
submitted, such change may be made by telegram or letter, provided each
telegram or letter makes reference to the solicitation and this amendment, and
is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A_________________________________
B. ___ The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. X This Supplemental Agreement is entered into pursuant to authority of
---
Changes Clause
--------------
D. X Other (Specify type of modification and authority)
---
E. IMPORTANT: Contractor _____ is not, X is required to sign this 2
---
document and return copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
SUJECT: GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER, CHINA LAKE
CALIFORNIA (CONTINUED ON NEXT PAGE)
<TABLE>
<S> <C>
CHINA LAKE JOINT VENTURE (CLJV) By: California Energy Co. Inc.
(CECI) as a CLJV Venturer
By Caithness Geothermal 1980 Ltd (CG80) By By /s/ Charles T. Cordy
as a CLJV Venturer ---------------------------
By Caithness Corporation, a general partner of CG80 Charles T. Condy
By /s/ James D. Bishop Chairman of CECI
-----------------------------------
JAMES D. BISHOP, Chairman of Caithness Corporation
</TABLE>
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
R&M-1
<PAGE>
<TABLE>
<S> <C>
15A. NAME AND TITLE OF SIGNER (Type or print)
15B. CONTRACTOR/OFFEROR ________________________
15C. DATE SIGNED ______________
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) T.D. SABBADINI, FOR COMMANDER, NAVAL
------------------------------------
FACILITIES ENGINEERING COMMAND
------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ T.D. Sabbadini (Signature of Contracting Officer)
-------------------
16C. DATE SIGNED 13 Feb 86
------------
</TABLE>
R&M-2
<PAGE>
This Modification P00008 refers to Contract N62474-79-C-5382 of December 6,
1979, as modified from time to time (the "Contract"). The Contract is hereby
modified as follows:
[1] A new Section I.D.3, is added to the Contract to read in full as follows:
"3. It is understood and agreed that the revocation of said permit shall
constitute a termination by the Government within the meaning of Section
VIII.2. of the Contract. Further, if Government's limitation or restriction
of said permit is imposed in such a manner as to prevent the Contractor, its
subcontractors, or its assigns from exercising their rights as contemplated in
this Contract, then Government shall provide the appropriate monetary
compensation for lost revenues within the dollar guidelines of said Section
VIII.2."
[2] Section II E of the contract is amended to read in full as follows:
"E Sites and Routes
----------------
Power plant sites, drill pads, pipeline and power transmission routes will be
selected subject to Navy approval to ensure such sites will have a minimum
impact on NAVWPNCEN range operations. All site plans shall be submitted to
the Navy for approval. Routes to and from work areas will be approved by the
Navy."
[3] To section IV.B2(c) a new subparagraph 4 is added as follows:
"4. It is understood and agreed that the price (the "NAVWPNCEN Price")
established, adjusted and limited in accordance with Section III.A. and
IV.B2(c)(1) of the Contract for NAVWPNCEN Power (as defined at Section
IV.C.3(d)(1) hereof) is not subject to change, whether upon or as part of the
negotiation of prices under the Changes Clause hereof for electrical energy
delivered to designated delivery points ('DDP'), in addition to that point for
NAVWPNCEN ('NAVWPNCEN DDP,' as defined in Section VI.C.3(a) hereof), or
otherwise, without the written consent of the Initial Consortium, described in
Section IV.C.2(a) hereof."
[4] Section IV.C of the Contract is deleted and a new Section IV.C is added to
read in full:
"C. Provisions Governing Service to NAVWPNCEN
-----------------------------------------
1. In General. The Contractor is prepared to proceed with the Phase C
----------
construction of a geothermal power plant designed to serve NAVWPNCEN. Said
work will be performed pursuant to agreements by and between the Contract or
and an 'Initial Consortium' (as herein defined). In order to arrange
financing and assistance for said plant the following will take place:
Modification P00008
Contract N62474-79-C-5382
Page 2 of 10
R&M-3
<PAGE>
(a) The Contractor will assign to the Initial Consortium certain rights
which Contractor has been granted under the Contact (subject to the
Contractor's right to reacquire the same). Such assignment shall be
effected by an 'Assignment and Consent' to be executed by and between
Contractor and the Initial Consortium in a form approved and agreed to by
the Government (hereafter the same is referred to as the "Initial Plant
Assignment").
(b) Pursuant to appropriate documentation, the Initial Consortium intends
to further assign certain rights and interests under the Contract and in
the Initial Plant and Initial Project (both defined herein) to a third
party which may be a lender ('Lender') or a lessor ('Lessor'). In this
regard, it is intended that if the financing is to be provided through a
lease, then the Lessor will transfer to the Initial Consortium a leasehold
interest (the 'Lease') in the Initial Plant with full authority to operate
the Initial Project for a term of approximately 15 years, plus extensions,
if any. Upon the termination of said Lease, the rights in the Initial
Plant/Project would revert to the Lessor and its successors and assigns.
The Initial Consortium, the Lender, the Lessor and their respective
successors and assigns are sometimes referred to herein individually as the
'Financing Party' and collectively as the 'Financing Parties'.
2. Definitions. Unless the context otherwise clearly requires, each of the
following terms, when used in this Contract or in any appendix, exhibit or
attachment thereto with initial capitals, shall have the meaning set forth for
such term below:
(a) 'Initial Consortium' means a joint venture or other business
------------------
combination, identified in the Initial Plant assignment which includes one
or more engineering and construction companies and/or one or more equipment
suppliers for the Initial Plant.
(b) 'Initial Plant' means Unit 1 of the geothermal power plant and its
------------- ------
associated facilities as constructed by the Initial Consortium, (including
and not limited to surface steam gathering system, brine disposal, system,
power transmission facilities, substation, interconnection facilities and
other facilities and equipment necessary to generate, sell and deliver
power from such plant); but excludes all geothermal resource and wells.
(c) 'Initial Project' means all elements of permitting, licensing,
---------------
designing, constructing, erecting, financing, owning, operating, leasing,
and maintaining the Initial Plant, and of generating, selling and
delivering power therefrom, and receiving, utilizing and disbursing the
revenues generated thereby; but excludes all elements of producing and
bringing to the surface the geothermal resources.
Modification P00008
Contract N62474-79-C-5382
Page 3 of 10
R&M-4
<PAGE>
3. Contractor's Delivery of Electric Service for NAVWPNCEN. The Contractor's
-------------------------------------------------------
obligations under the contract with respect to the 'NAVWPNCEN DDP' (defined
herein) shall be satisfied by performance under coordinated contracts as
follows:
(a) Government's Existing NAVWPNCEN/SCE Contract Continues. The NAVWPNCEN
------------------------------------------------------
DDP is the present point of delivery under contract with Southern
California Edison Company ('SCE') N62474-70-C-1201, Item 1054
('NAVWPNCEN/SCE Contract'). Present service by SCE to the NAVWPNCEN DDP
shall remain in place after the Initial Service Date (as defined herein),
uninterupted, under the SCE/NAVWPNCEN Contract and shall be deemed to be
full utility service by the Contractor so long as the Contractor complies
with the provisions of this Section IV.C.3. If SCE fails to provide
service to NAVWPNCEN DDP under the SCE/NAVWPNCEN Contract, the Contractor,
the Initial Project, and the Financing Parties shall not be responsible for
such failure.
(b) Initial Plant Output and The PURPA Contract. Subject to the
-------------------------------------------
Government's rights and powers as otherwise provided therein, the Initial
Plant is authorized at all times to be operated at full capacity. All
power from the Initial Plant shall be sold by Contractor or its assigns to
SCE pursuant to an appropriate contract (the 'PURPA Contract'). All
payments from the PURPA Contract shall be paid to and belong to the
Contractor or its assigns and they are authorized to apply the same to pay
SCE for NAVWPNCEN Power, to operate and maintain the Initial Plant, to
service debt, to realize a recovery of and return on their capital
expenditures, to operate and maintain the geothermal resource, wells, and
related facilities for the Initial Project, and for other purposes.
(c) Initial Service Date. The date of the commencement of service pursuant
--------------------
to the Contract (herein the 'Initial Service Date') shall occur upon the
earlier of (a) a date stipulated by written notice to the Government by the
Initial Consortium, or (b) 1 February 1987, as such date may be hereby or
hereafter modified, taking into account all applicable extensions or
excusable delays pursuant to the Contract.
(d) Payment for NAVWPNCEN Power (Including Conserved Power). Contractor
-------------------------------------------------------
shall pay for (or shall discharge all payments due from the government to
SCE for) NAVWPNCEN Power delivered from and after the Initial Service Date
through the term of the Contract. Said payment or discharge shall be made
subject to the following terms and conditions:
Modification P00008
Contract N62474-79-C-5382
Page 4 of 10
R&M-5
<PAGE>
(1) NAVWPNCEN Power is defined to be the amount of electrical energy
equal to (A) the lesser of (i) 100,000 MWH per year adjusted cumulatively
from 1 January 1986 by a 3% per year load growth factor and properly
adjusted by a fraction (e.g. 30/365 for a 30 day billing period) to
reflect the portion of a year covered by the billing period in question or
(ii) the actual amount of energy delivered by SCE to the NAVWPNCEN DDP
pursuant to the SCE/NAVWPNCEN Contract during the billing period in
question, reduced by (B) the amount by which the net output of the Initial
Plant delivered to SCE under the PURPA Contract for the billing period in
question is less than the amount computed under Clause (A) of this
Subparagraph(1) as a result of a Force Majeure event or other limiting
provision of the Contract (including but not limited to Sections III.B,
VIII.3, and VIII.4 of the Contract). Events which are defined as Force
Majeure events herein shall constitute Force Majeure in connection wth any
inability of Contractor or the Financing Parties to make delivery to SCE
under the PURPA Contract.
(2) Such payment or discharge shall constitute timely delivery of supplies
and performance of services by Contractor within the meaning of the
Contract, as hereby modified, and in particular within the meaning of
Section VIII.4(a) thereof.
(3) Such payments or discharge shall be on behalf of Government against
its SCE bills under the SCE/NAVWPNCEN Contract.
(4) If, for a given year, the amount of electrical energy for which the
Government is billed by SCE falls short of an amount computed according to
Section IV.C.3(d)(1)(A)(i) and reduced according to Section
IV.C.3(d)(1)(B) (such shortfalls here called "Conserved Power"), the
Government shall be entitled to a credit equal to the difference between
(A) the price that the Contractor would have paid to SCE for the Conserved
Power had it been used and (B) the price that the Government would have
paid to the Contractor for the conserved power had it been used. Such
credit shall be determined in accordance with the procedures set forth in
Section IV.C.3(g)(8) hereof.
(e) Service From Initial Project. Neither the Initial Project nor any
----------------------------
financing Party for the Initial Project shall be obligated to or liable to the
Government to provide or pay for (or to compensate the Government for any
failure to provide or pay for) any electrical service to Government in excess of
NAVWPNCEN Power, or any electric service from Contractor or otherwise delivered
to or metered at any DDP other than the NAVWPNCEN DDP.
Modification P00008
Contract N62474-79-C-5382
Page 5 of 10
R&M-6
<PAGE>
(f) Government's Right to Pay NAVWPNCEN/SCE Contract. If any SCE invoice for
------------------------------------------------
NAVWPNCEN Power has not been paid within sixty (60) days following its
date, the Government, at is option, may pay such invoice and seek
reimbursement for the amount thereof (including any interest and penalties
due to SCE with respect to late payment) pursuant to the Contract. In the
event of repeated or extended failure to pay, the Contractor shall provide
a detailed report of the cause and proposed cure therefor. If such report
or performance thereunder is not reasonably satisfactory to the
government, the Government shall have grounds for termination under
Section VIII.4 hereof.
(g) Government's Payment of Contract Price to Contractor or Its Assigns.
-------------------------------------------------------------------
The Government shall pay to the Contractor or its assignee an amount equal
to the NAVWPNCEN Price times the NAVWPNCEN Power for each Billing Period
(as herein defined) from and after the Initial Service Date, subject to the
following terms and conditions:
(1) The NAVWPNCEN Price has a base rate of 56 mills per KWh which is
subject to adjustment after August 1, 1984, as provided in the Contract.
(2) In no case shall the NAVWPNCEN Price for NAVWPNCEN Power exceed 95%
of the applicable Ceiling Rate for the same (as defined in Appendix F to
the Contract).
(3) Each Billing Period shall have the same frequency and duration as
each billing period of the SCE/NAVWPNCEN Contract.
(4) Proof of payment to SCE for NAVWPNCEN Power shall be required as a
condition precedent to the obligation of the Government to pay Contractor
for the corresponding amount of NAVWPNCEN Power pursuant to the Contract.
Full payment to Contractor or its assignee shall be made promptly upon
such proof.
(5) The service provided under the SCE/NAVWPNCEN Contract will be
measured by the metering procedures presently followed under that
contract. The Government shall provide the Contractor the results of
such measurements and such other information the Contractor reasonably
requires to compute payments for NAVWPNCEN Power. Contractor shall be
allowed (at its own cost) to install its own meter and procedure to
monitor the service and bills received by Government from SCE under the
SCE/NAVWPNCEN Contract.
(6) The Government's obligation to pay for NAVWPNCEN Power shall not be
conditioned upon operation of the Initial Plant.
Modification P00008
Contract N62474-79-C-5382
Page 6 of 10
R&M-7
<PAGE>
(7) The invoice for NAVWPNCEN Power shall be submitted to Naval Weapons
center, China Lake, California, 93555. The billing period will correspond
to the referrable SCE billing period under the SCE/NAVWPNCEN Contract.
Payment of each such invoice shall be made by the Disbursing Officer,
Code 0862, Naval Weapons Center, China Lake, California, 93555, as
directed by the Contractor or its assignee under the Initial Plant
Assignment.
(8) In the first calendar quarter of each year the Government and the
Contractor shall audit the invoices, payments, and power output and
consumption figures for the prior calendar year, reconcile all
differences between them, and close the books for that year for all
purposes hereunder. The Government shall be credited on the last day of
such quarter with an amount for the prior year computed in accordance
with Section IV.C.3(d)(4) hereof.
4. Restriction on Assignment. It is prohibited for the Contractor, its
-------------------------
assigns, or their subassigns to assign any right under the Contract to or for
the benefit of (a) any individual who is a national of, or any entity which is
owned or effectively controlled by any government or governmental agency of or
national or nationals of, any country which may from time to time be listed in
country Group S, Y or Z of Supplement No. 1 to Part 370 of the Code of Federal
Regulations, or any regulations which are hereafter promulgated in
substitution therefor or replacement thereof, as from time to time in effect,
or (b) any individual or entity to whom any such assignment is then prohibited
pursuant to any other law or regulation of the United States.
5. Quiet Enjoyment. Without prejudice to the Government's rights and
---------------
remedies against the Contractor, in order to provide security to the Financing
Parties for their respective rights and interests in the Initial Plant and the
Initial Project, and in order to permit the financing of the Initial Plant and
the Initial Project in accordance with the Contract, (any other provision of
this Contract notwithstanding) it is understood and agreed for the benefit of
the Contractor and each Financing Party as follows:
(a) So long as no default shall have occurred and be continuing, and shall
be uncured (either by Contractor or the financing Parties), pursuant to the
Contract in direct connection with the Initial Project, or arising from any
failure to provide or pay for NAVWPNCEN Power (as limited in sections
IV.C.3(d) and IV.C.3(e) hereof), the possession and enjoyment by the
contractor and each Financing Party of any rights assigned to it as
authorized hereby or by the Initial Plant Assignment shall be without
hindrance, ejection, molestation or interruption by reason of the action,
inaction, or default of Contractor or any other person or entity.
Modification P00008
Contract N62474-79-C-5382
Page 7 of 10
R&M-8
<PAGE>
(b) If the Contractor should fail to perform or comply with any of its
obligations pursuant to the Contract the failure to perform or comply with
which might have any material, adverse affect on any Financing Party or the
Initial Project, then any Financing Party may, but shall not be obligated
to, itself perform or comply with such obligations and charge the
reasonable costs of such performance or compliance to the Contractor.
(c) The Financing Parties, or any of them, may exercise such rights, powers
and privileges of the Contractor pursuant to the Contract to supply the
geothermal resource or reinjection necessary to operate the Initial Plant
at full capacity as they may acquire by virtue of their assignment of
rights referred to in the Initial Plant Assignment.
6. General Description of the Initial Plant. The Initial Plant will be
-----------------------------------------
designed, manufactured and installed by the Initial Consortium to include a
turbine which has two entries, one for high pressure steam and one for low
pressure steam. The projected gross output (before parasitic load) will be no
greater than 32,100 KW at a wet bulb operating temperature of 26.6 Degrees
Fahrenheit.
7. Initial Plant/Project Work Schedule Under Contract Section VI.5.
----------------------------------------------------------------
<TABLE>
<CAPTION>
Maximum Time from
Work Item Completion Contract Award
- --------------------- --------------------
<S> <C>
Field Investigation and Research (Phase A) Completed
Field Exploration (Drilling) (Phase B) Completed
Field Development (Contract Phase C)
(Initial Plant Construction)
a. Complete Site Surveys 1 March 1986
b. Complete General Site Excavation 1 June 1986
c. Complete Concrete Foundations 1 February 1987
d. Turbine Condenser on Site 1 March 1987
e. Complete Cooling Tower 1 April 1987
f. Initial Plant on Line 30 June 1987
(90.8 months after 6 Dec. 1979)
</TABLE>
Notwithstanding the terms of the above schedule, Contractor will commence
payment of Government's NAVWPNCEN/SCE Contract for NAVWPNCEN Power as provided
in Section IV.C.3(d). In the event that the Initial Service Date does not
occur on or before 30 November 1986, the Contractor shall pay to the
Government the sum of $100,000 on or before 10 December 1986.
Modification P00008
Contract N62474-79-C-5382
Page 8 of 10
R&M-9
<PAGE>
8. Consideration. Contractor and the Government have determined that over the
-------------
remaining term of the Contract the Initial Plant is projected to generate a
total output in excess of the output Contractor is required to produce to
satisfy its obligation for NAVWPNCEN Power. Use of the geothermal resource
for that purpose by the Contractor is authorized by this Modification
P00008. In consideration for such use of the resource as well as the other
changes contained in this Modification P00008, the Contractor hereby
obligates itself and promises to pay the Government the sum of $25,000,000
on or before 31 December 2009. That payment shall be secured by funds
placed monthly by Contractor in escrow beginning two months after
commercial operations for the Initial Plant have commenced at a rate
sufficient to total (assuming interest at a rate of 10% per annum, adjusted
annually according to experience) no less than $25,000,000 on 31 December,
2009. A default pursuant to this Section IV.C.8 shall not affect the right
of the Financing Parties to Quiet Enjoyment."
[5] A new Section IV.D. is added to the Contract to read in full as follows:
"D. Provisions Governing Service from Subsequent Plants/Projects.
-------------------------------------------------------------
Contractor will become obligated to provide electric service beyond the
requirements of NAVWPNCEN Power when the contract negotiations for a
subsequent geothermal plant are completed. Contractor is in Phases A or B
with respect to all contract work except the work relating to the Initial
Plant which is in Phase C. Pursuant to the terms of the Contract, the
Contractor agrees to submit to Government by 28 February 1986, the cost and
price data to begin the negotiations with the Government. Such negotiations
shall address the price and other terms and conditions necessary and
appropriate to provide Contractor a basis to seek financing for the design,
construction and operation of two additional geothermal energy turbine
plants with characteristics similar to those described in Section IV.D.6
hereof. Upon receipt of such data, Government agrees to proceed in good
faith with the intent to commence, carry won and complete the said
negotiations with Contractor as soon as practicable."
[6] A new Section IV.E is added to the Contract to read in full as follows:
"E. Precedence of this Modification P00008. Notwithstanding anything
---------------------------------------
in the Contract, or appendices or exhibits thereto, the provisions of this
Modification P00008 shall take precedence over all other typewritten
portions of the Contract and/or its appendices, General Provisions, and
other writings."
Modification P00008
Contract N62474-79-C-5382
Page 9 of 10
R&M-10
<PAGE>
[7] Section VI.J. of the Contract is amended to read as follows:
"J. Schedule. The schedule for completion of work to be performed with
--------
respect to each geothermal power plant under this Contract is set forth in
the appropriate portion of Section IV.C or IV.D hereof. Each such schedule
is intended to specify maximum periods of time for the key elements of work
unless unforeseen delays (including and not limited to regulatory agency
approvals) are encountered which cannot be overcome by the parties
exercising due diligence. Each such schedule represents the maximum times
the Navy considers appropriate, but the Navy is desirous of completing each
phase in the least time possible."
[8] Section VI.N of the contract is modified to include an additional
interconnection point by adding the following after the word "Meridian" on
line 3 of pg 25 Contract Modification P00004:
"or SCE Inyokern substation SE Corner Section 20, Township 26 South, Range
39 East Mount Diablo Base Line and Meridian."
[9] The first full paragraph on page E-4 of Appendix E to the Contract is
deleted and a new paragraph is added to read in full as follows:
"The designated delivery point at NAVWPNCEN China Lake is that point at
which electrical service is delivered to NAVWPNCEN Under the Utility
Service Contract No. N62474-70-C-1201/1054 (the 'SCE/NAVWPNCEN Contract')
by and between Government and Southern California Edison company ('SCE').
Government and Contractor agree the additional designated delivery points
described in paragraph B of this Appendix E for NAVWPNCEN (to wit: Harvey
Field, I.D. No. 2 and Laurel Mountain, I.D. No. 99) are not included in the
service provided under the SCE/NAVWPNCEN Contract and are not a service to
be provided by Contractor."
[10] The effective date of this modification P00008 is 13 Feb 86 .
------------
Modification P00008
Contract N62474-79-C-5382
Page 10 of 10
R&M-11
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACTPage 1 of 2 Pages
1. CONTRACT ID CODE _____________
2. AMENDMENT/MODIFICATION NO. P00009
--------
3. EFFECTIVE DATE 87 APR 10
-----------
4. REQUISITION/PURCHASE REQ. NO.
5. PROJECT NO. (if applicable)
6. ISSUED BY Code N62474
--------
Western Division
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, California 94066-0720
7. ADMINISTERED BY (if other than Item 6) Code
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
CALIFORNIA ENERGY COMPANY, INC. AND
CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
333 Mendocino Avenue, Suite 100
Santa Rosa, California 95401
Code ____________ Facility Code ____________
9. _____ AMENDMENT OF SOLICITATION NO. _____________
DATED (See Item 11) ____________
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 79 Dec 06
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
____ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers _______ is extended,
_____ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) See page 2
--------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. X The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority of
D. ___ Other (Specify type of modification and authority)
E. ___ IMPORTANT: Contractor X is not, _____ is required to sign this
---
document and return _____ copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER, CHINA LAKE,
CALIFORNIA
Continued on next page
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
15B. CONTRACTOR/OFFEROR _______________ (Signature of person authorized to sign)
15C. DATE SIGNED _______________
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Joseph A. Dodson, Head, South Service
-------------------------------------
Contracts Branch
-------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ Joseph A. Dodson (Signature of
----------------------------
Contracting Officer)
16C. DATE SIGNED 4/10/87
-------------------
R&M-1
<PAGE>
N62474-79-C-5382
Modification P00009
Page 2 of 2
A. The following funds are hereby obligated:
AA 17X4912 3733 000 7777 0 060530 2F 2151N79C5382 $5,000,000.00.
B. Change the last sentence of Section IV.C.3(g)(4) to read as follows:
"Full payment to contractor or its assignee shall be made immediately upon
receipt of such proof."
C. All payments to the contractor for services through June 30, 1987 shall be
made to the following payee:
Atkinson MHIA Joint Venture
c/o Guy F. Atkinson Company
10 West Orange Avenue
P.O. Box 593
South San Francisco, CA 94080
ATTN: L. Magelitz
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACTPage 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00010
--------
3. EFFECTIVE DATE 87 JUL 02
-------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N62472
--------
Western Division
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, California 94066-0720
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
CALIFORNIA ENERGY COMPANY, INC. AND
CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
333 Mendocino Avenue, Suite 100
Santa Rosa, California 95401
Code ____________ Facility Code _____________
9. AMENDMENT OF SOLICITATION NO.
DATED (See Item 11)
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 79 Dec 06
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
---------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. X The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority of
D. ___ Other (Specify type of modification and authority) _________________
E. IMPORTANT: Contractor ____ is not, X is required to sign this document
---
and return 2 copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER, CHINA LAKE,
CALIFORNIA
See P00012 Item [4]
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
Robert D. Tibbs, Executive Vice President
-----------------------------------------
15B. CONTRACTOR/OFFEROR /s/ Robert D. Tibbs (Signature of person
-----------------------
authorized to sign)
15C. DATE SIGNED 7/2/87
------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Joseph A. Dodson, Contracting Officer
-------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ Joseph A. Dodson (Signature of
------------------------
Contracting Officer)
16C. DATE SIGNED 7/2/87
----------
R&M-1
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 6 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00011
--------
3. EFFECTIVE DATE 87 AUG 17
-------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N62472
--------
Western Division
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, California 94066-0720
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
CALIFORNIA ENERGY COMPANY, INC. AND
CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
333 Mendocino Avenue, Suite 100
Santa Rosa, California 95401
Code ____________ Facility Code _____________
9. AMENDMENT OF SOLICITATION NO.
DATED (See Item 11)
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 79 Dec 06
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
<TABLE>
<S> <C>
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
---------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. X This Supplemental Agreement is entered into pursuant to authority of Changes Clause
--- --------------------
D. ___ Other (Specify type of modification and authority) _________________
E. IMPORTANT: Contractor ____ is not, X is required to sign this document
---
and return 2 copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER, CHINA LAKE,
CALIFORNIA
See P00012 Item [4]
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
Robert D. Tibbs, Executive Vice President
-----------------------------------------
15B. CONTRACTOR/OFFEROR (Signature of person
-----------------------
authorized to sign)
15C. DATE SIGNED 8/17/87
------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
T.D. Sabbadini Director, Service Contracts Division
-----------------------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ T.D. Sabbadini (Signature of
------------------------
Contracting Officer)
16C. DATE SIGNED 17 AUG 1987
---------------
</TABLE>
R&M-1
<PAGE>
N62474-79-C-5382
Modification P00011
Page 2 of 6
This modification P00011 refers to Contract N62474-79-C-5382 of December 6,
1979, as modified from time to time (the "Contract"). Unless modified in
subsequent paragraphs of this modification P00011, all terms and conditions of
this Contract remain the same. The Contract is hereby modified as follows:
[1] The first paragraph of Section II. is changed to read as follows:
II. CONSTRAINTS
-----------
It shall be the responsibility of the Contractor to conform to and abide by
all legally applicable statutes; ordinances; rules and regulations and all
permit, approval, and easement requirements relating to the development of
the geothermal resource at the Coso KGRA area, access to and from the
general sites, and construction on and use of property under the control of
NAVWPNCEN China Lake. In addition to the laws and regulations identified in
Environmental Protection Plan, Section V, and the terms of this contract,
the Contractor is referred to Naval Weapons Center Instructions (see
Appendix "G"); the Geothermal Resources Operational Orders as published by
the Geological Survey; the Geothermal Steam Act; the Geothermal Energy
Research, Development and Demonstration Act; the Federal Land Planning and
Management Act; the Defense Withdrawal Act of 1958 (P.L. 85-337); Title 30,
the Code of Federal Regulations; and the Occupational Safety and Health
Act, or any successor statutes thereto, all as from time to time amended.
Unless specifically advised by the Contracting Officer to the contrary, the
Contractor shall meet the legally applicable requirements of all State and
Local Laws and Regulations. This list is not all inclusive and it is the
sole responsibility of the Contractor to acquaint itself with all legally
applicable Federal, State and local laws, regulations, and other legal
constraints or requirements. Because of the nature of the NAVWPNCEN
mission, the Government has placed certain constraints on geothermal
operations within the boundaries of NAVWPNCEN. These constraints ensure the
safe and economical development of and production of the geothermal
resources within the NAVWPNCEN boundary and ensure that any exploration,
development, or production does not conflict with the mission of NAVWPNCEN.
All on-site and other inspection performed by the Government will be at
Government's cost.
R&M-2
<PAGE>
N62474-79-C-5382
Modification P00011
Page 3 of 6
[2] Section I.C. is amended to read in full as follows:
C. Term.
----
This contract shall continue in effect for a period of thirty years from
the date of award. The Government has a unilateral right to extend the term
of this Contract for an additional ten (10) year term by the giving of
written notice to the Contractor not less than 180 days in advance of the
contract completion date. If the Government shall exercise this option, the
extended contract shall not be considered to include this option provision.
The Contractor understands that the Government requires Congressional
approval to exercise any option for the extension of the term of this
Contract pursuant to this clause. If the Government shall exercise this
option, the Government's compensation from the Units shall be as follows:
(a) such compensation from Unit I-1 shall remain as provided under IV.C
hereof; and (b) Government's share of all PURPA revenues for the option
period from Unit I-2 and/or Unit I-3 shall be twenty-two (22) percent.
[3] Section III.D.1. is amended to read in full as follows:
D. Incremental Development of Geothermal Power Generation
------------------------------------------------------
1. At such time as the existence of a commercial geothermal resource has
been established by the Contractor, the Contractor shall proceed to design
and install power generation plant(s) of sufficient capacity to produce and
deliver the proposed capacity adequate to provide electrical service to at
least NAVWPNCEN China Lake, but not in excess of the generating capacity
for which the parties have agreed to hereunder.
[4] A new Section III.E. is added to the contract to read in full as follows:
E. Expansion Beyond NAVWPNCEN
--------------------------
The Government and the Contractor have determined that the entitlement
provided to the Government with respect to NAVWPNCEN pursuant to Section
IV.C.1 of the contract is not appropriate as Government entitlement with
respect to expansion beyond the generating capacity of Unit I-1. A
different method for determination of such entitlement has accordingly been
negotiated and agreed to by the parties and the provisions controlling said
expansion and Government's entitlement shall supersede the provisions of
paragraphs A, B, C and D of Section III of the contract.
[5] Section IV.C.2.(b) is amended to change "Unit 1" to read "Unit I-1".
R&M-3
<PAGE>
N62474-79-C-5382
Modification P00011
Page 4 of 6
[6] Section IV. Paragraph D. is amended to read in full as follows:
D. Provisions Governing Electric Generating Capacity Beyond NAVWPNCEN To
---------------------------------------------------------------------
and Including 75 MW of Service
------------------------------
In General, the Government and the Contractor have mutually agreed to
increase the amount of power than can be developed from the Government's
geothermal resource at NAVWPNCEN beyond the requirement of NAVWPNCEN as
provided under Section IV.C hereof to 75 MW of nameplate rating. It is
acknowledged that the nameplate rating of the geothermal plants installed
by the Contractor may differ as much as 25% plus or minus from the
generating capacity of said geothermal plants. In order to arrange for
equity and debt financing and assistance for the field and development to
75 MW of generating capacity the Government and Contractor will cooperate
as follows:
1. Contractor will assign to one or more legal entities (partnerships,
corporations or proprietorships) involving other parties certain rights which
Contractor has been granted under the Contract. All such assignments require
Government's consent and such consent will not be unreasonably withheld. If
consent is given by Government, no additional consideration is required. The
Government will not consent to assignments that contain legal constraints on
Government or are contrary to prior assignment. Such assignments, lacking
Government consent, shall not be effective.
2. The right of reassignment is extended to Contractor's assignees and their
assignments, provided that all such reassignments require the Government's
consent in order to be effective. If consent is given by the Government, no
additional consideration is required.
3. Definitions
-----------
Unless the context otherwise clearly requires, each of the following terms,
when used in this contract or in any appendix or attachment thereto with
initial capitals, will have the meaning set forth for such term below:
(a) "Unit" means a specific turbine-generator set and its associated
facilities, exclusive of all geothermal resources and wells, designated by a
number. For example, the facility for NAVWPNCEN is referred to as Unit I-1 in
Section IV.C.2(b) hereof. As of the execution date of this contract
modification P00011, Contractor contemplates increasing the generating
facilities located at the developable lands in two increments. Each increment
is expected to consist of a Unit with a nameplate rating of 25 MW and will be
located at or adjoining the site of the Initial Plant (Unit I-1). These two
increments are hereby designated Unit I-2 and Unit I-3, respectively.
R&M-4
<PAGE>
N62474-79-C-5382
Modification P00011
Page 5 of 6
(b) "Unit Owner" means the joint venture, corporation or other business
combination identified as the owner of a Unit in an assignment of rights by
Contractor under this contract.
(c) "Unit Financing Party" means the firm or firms identified as such
with respect to a Unit in an assignment of right by Contractor under this
contract.
(d) "Unit Resource" means the geothermal resources and wells associated
with a specific Unit.
(e) "Unit Project" means all elements of permitting, licensing,
designing, constructing, erecting, financing, owning, operating, leasing,
and manufacturing a specific Unit and/or (where specifically indicated)
Unit Resource and receiving, utilizing and disbursing the revenues
generated thereby.
(f) "PURPA Revenues" means any and all sums of money payable to
Contractor or its assigns under the provisions of its PURPA Contract with
Southern California Edison Company as capacity payments, energy payments
and bonus capacity payments.
(g) "SCE" means the Southern California Edison Company, as defined in the
PURPA Contracts.
(h) "On Line" means the first date a Unit is deemed by the parties to
have commenced commercial operation under the contract for such Unit.
4. Pricing Mechanism
-----------------
(a) Unit I-2 and Unit I-3. The Contractor or its assigns shall pay the
Government a share of all gross PURPA revenues earned by the Contractor or
its assigns from Southern California Edison pursuant to the PURPA Contract
for electricity generated from Unit I-2 and Unit I-3. The Government share
of gross PURPA revenue shall be as follows:
First three years after first such Unit goes On Line 4 percent
Next seven years 10 percent
Next five years 15 percent
Remaining years until contract completion 20 percent
(b) The payments due to the Government hereunder shall begin for each
Unit separately with the date upon which that Unit first goes On Line and
said payments shall continue until the completion date of this Contract
with respect to each such Unit, including all extensions hereof.
R&M-5
<PAGE>
N62474-79-C-5382
Modification P00011
Page 6 of 6
(c) The SCE payments for Units I-2 and I-3 are governed by the Southern
California Edison PURPA Contract for initial Turbine and therefore as a
condition to implementing the provisions of Section IV.D.3 hereof, the
Government and the Contractor do hereby agree to negotiate in good faith to
establish appropriate allocation provisions affecting the relative rights
of Government, Contractor, and the Owners and Financing Parties of the
Initial Plant in said SCE PURPA Contract and payments thereunder.
(d) Inasmuch as the construction of all the additional Units is subject
to many uncertainties, if these unknown factors affect the expected
development plan the parties agree to accommodate those changes by
providing for alternate equivalent arrangements.
[7] Add a new Section IV.F. to read as follows:
F. Provisions Governing Service from Subsequent Projects.
-----------------------------------------------------
The Contractor will become obligated to provide electric service beyond the
requirements provided for in Section IV.D. of the contract when contract
negotiations for a contemplated additional geothermal plant are completed.
Such negotiations shall address terms and conditions necessary and
appropriate to provide the Contractor a basis to seek financing for the
design, construction and operation of such additional plant. The Government
agrees to proceed in good faith with the intent to commence, carry on and
complete said negotiations in a timely manner.
[8] Section VI.J. is amended to add the following:
Unit I-2 and Unit I-3 shall be complete and shall be on-line on or before
June 3, 1989.
R&M-6
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 5 Pages
1. CONTRACT ID CODE _____________
2. AMENDMENT/MODIFICATION NO. P00012
-------
3. EFFECTIVE DATE 18 SEP 1987
-----------
4. REQUISITION/PURCHASE REQ. NO.__________
5. PROJECT NO. (if applicable)________________
6. ISSUED BY Code N62474
-------
Western Division
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, CA 94066-0720
7. ADMINISTERED BY (if other than Item 6) Code _________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
CALIFORNIA ENERGY COMPANY, INC. AND
CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
3333 Mendocino Avenue, Suite 100
Santa Rosa, California 95401
Code _________ Facility Code _________
9. _____ AMENDMENT OF SOLICITATION NO. _____
DATED (See Item 11)________
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 79 DEC 06
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
_____ The above numbered solicitation is amended as set forth in
Item 14. The hour and date specified for receipt of Offers
_____ is extended, _____ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods: (a) By completing Items 8 and 15, and returning ____________
copies of this amendment; (b) By acknowledging receipt of this amendment on
each copy of the offer submitted; or (c) By separate letter or telegram
which includes a reference to the solicitation and amendment numbers.
FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR
THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN
REJECTION OF YOUR OFFER. If, by virtue of this amendment you desire to
change an offer already submitted, such change may be made by telegram or
letter, provided each telegram or letter makes reference to the
solicitation and this amendment, and is received prior to the opening hour
and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) ____________________
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. _____ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in
Item 10A
B. _____ The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C. X This Supplemental Agreement is entered into pursuant to authority
-----
of Changes Clause
----------------
D. _____ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor is not, X is required to sign this document
---
and return 2 copies to the issuing office.
-------
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER, CHINA LAKE,
CALIFORNIA
Continued on next page
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
<TABLE>
<S> <C>
15A. NAME AND TITLE OF SIGNER (Type or print) Robert D. Tibbs, Executive Vice President
-----------------------------------------
15B. CONTRACTOR/OFFEROR /s/ Robert D. Tibbs (Signature of person authorized to sign)
-------------------
15C. DATE SIGNED 9/18/87
-----------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) T.D. Sabbadini, Director, Service Contracts Division
-----------------------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ T.D. Sabbadini (Signature of Contracting Officer)
-----------------------
16C. DATE SIGNED 18 SEP 1987
-----------------------
</TABLE>
R&M-1
<PAGE>
N62474-79-C-5382
Modification P00012
Page 2 of 5
This modification P00012 refers to Contract N62474-79-C-5382 of December 6, 1979
as modified from time to time (the "Contract"). Unless modified in subsequent
paragraphs of this modification P00012, all terms and conditions of this
Contract remain the same. The Contract is hereby modified as follows:
[1] Section I.C. is amended to read in full as follows:
C. Term.
----
This contract shall continue in effect for a period of thirty years from
the date of award. The Government has a unilateral right to extend the term
of this Contract for an additional ten (10) year term by the giving of
written notice to the Contractor not less than 180 days in advance of the
contract completion date. If the Government shall exercise this option, the
extended contract shall not be considered to include this option provision.
The Contractor understands that the Government requires Congressional
approval to exercise any option for the extension of the term of this
Contract pursuant to this clause. If the Government shall exercise this
option, the Government's compensation from the Units shall be as follows:
(a) such compensation from Unit I-1 shall remain as provided under IV.C
hereof; (b) the Government's share of all gross PURPA revenues for the
option period from Unit I-2 and/or Unit I-3 shall be twenty-two (22)
percent; and (c) the Government's share of all gross PURPA revenues for the
option period from either or any of Unit II-1, Unit II-2, and Unit II-3
shall be twenty-two (22) percent.
[2] Section IV. Paragraph D. is amended to read in full as follows:
D. Provisions Governing electric Generating Capacity Beyond NAVWPNCEN To
---------------------------------------------------------------------
and Including 160 MW of Service
-------------------------------
In General, the Government and the Contractor have mutually agreed to
increase the amount of power than can be developed from the Government's
geothermal resource at NAVWPNCEN beyond the requirement of NAVWPNCEN as
provided under Section IV.C hereof to 160 MW of nominal nameplate rating.
It is acknowledged that the nominal nameplate rating of the geothermal
plants installed by the Contractor may differ as much as 25% plus or minus
from the generating capacity of said geothermal plants. In order to arrange
for equity and debt financing and assistance for the field and development
to 160 MW of generating capacity the Government and Contractor will
cooperate as follows:
1. Contractor will assign to one or more legal entities (partnerships,
corporations or proprietorships) involving other parties certain rights
which Contractor has been granted under the Contract. All such assignments
require Government's consent and such consent will not be unreasonably
withheld. If consent is given by Government, no additional consideration is
required. The Government will not consent to assignments that contain legal
constraints on Government or are contrary to prior assignment. Such
assignments, lacking Government consent, shall not be effective.
R&M-2
<PAGE>
N62474-79-C-5382
Modification P00012
Page 3 of 5
2. The right of reassignment is extended to Contractor's assignees and
their assignments, provided that all such reassignments require the
Government's consent in order to be effective. If consent is given by the
Government, no additional consideration is required.
3. Definitions
-----------
Unless the context otherwise clearly requires, each of the following terms,
when used in this contract or in any appendix or attachments thereto with
initial capitals, will have the meaning set forth for such term below:
(a) "Unit" means a specific turbine-generator set and its associated
facilities, exclusive of all geothermal resources and wells, designated by
a number. For example, the facility for NAVWPNCEN is referred to as Unit I-
1 in Section IV.C.2(b) hereof. As of the execution date of this contract
modification P00012, Contractor contemplates increasing the generating
facilities located at the developable lands in five increments. Each
increment is expected to consist of a Unit with a nominal nameplate rating
of 25 MW. Two such increments are contemplated to be located at or
adjoining the site of the Initial Plant (Unit I-1). These two increments
are hereby designated Unit I-2 and Unit I-3, respectively. Three additional
increments are also contemplated to be added to the developable lands at a
single site expected to be located within the five square mile are
described in Appendix A at page A-4 hereof. These three increments are
hereby designated Unit II-1, Unit II-2, and Unit II-3 respectively. Not
withstanding the above, the parties understand and agree that the
contemplated number of units may be increased or decreased to accommodate
development requirements and in such event this agreement will be
administratively amended to reflect such a change.
(b) "Unit Owner" means the joint venture, corporation or other business
combination identified as the owner of a Unit in an assignment of rights by
Contractor under this contract.
(c) "Unit Financing Party" means the firm or firms identified as such
with respect to a Unit in an assignment of right by Contractor under this
contract.
(d) "Unit Resource" means the geothermal resources and wells associated
with a specific Unit.
(e) "Unit Project" means all elements of permitting, licensing,
designing, constructing, erecting, financing, owning, operating, leasing,
and manufacturing a specific Unit and/or (where specifically indicated)
Unit Resource and receiving, utilizing and disbursing the revenues
generated thereby.
(f) "PURPA Revenues" means any and all sums of money payable to
Contractor or its assigns under the provisions of its PURPA Contract with
Southern California Edison Company as capacity payments, energy payments
and bonus capacity payments.
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<PAGE>
N62474-79-C-5382
Modification P00012
Page 4 of 5
(g) "SCE" means the Southern California Edison Company, as defined in
the PURPA Contracts.
(h) "On Line" means the first date a Unit is deemed by the parties to
have commenced commercial operation under the construction contract for
such Unit.
4. Pricing Mechanism
-----------------
(a) Unit I-2 and Unit I-3. The Contractor or its assigns shall pay the
Government a share of all gross PURPA revenues earned by the Contractor or
its assigns from Southern California Edison pursuant to the PURPA Contract
for electricity generated from Unit I-2 and Unit I-3. The Government share
of gross PURPA revenue shall be as follows:
First three years after first such Unit goes On Line 4 percent
Next five years 10 percent
Next five years 18 percent
Remaining years until contract completion 20 percent
(b) Unit II-1, Unit II-2 and Unit II-3. The Contractor or its assigns
shall pay the Government a share of all gross PURPA revenues earned by the
Contractor or its assigns from Southern California Edison pursuant to the
PURPA Contract for electricity generated from Unit II-1, Unit II-2 and Unit
II-3. The Government share of gross PURPA revenue shall be as follows:
First five years after first such Unit goes On Line 4 percent
Next five years 10 percent
Next five years 18 percent
Remaining years until contract completion 20 percent
(c) The payments due to the Government hereunder shall begin for each
Unit separately with the date upon which that Unit first goes On Line and
said payments shall continue until the completion date of this Contract
with respect to each such Unit, including all extensions hereof.
(d) The SCE payments for Units I-2 and I-3 are governed by the Southern
California Edison PURPA Contract for the initial Turbine and therefore as a
condition to implementing the provisions of Section IV.D. hereof, the
Government and the Contractor do hereby agree to negotiate in good faith to
establish appropriate allocation provisions affecting the relative rights
of Government, Contractor, and the Owners and Financing Parties of the
Initial Plant in said SCE PURPA Contract and payments thereunder.
Allocation provisions shall be based on metered output of each of units I-
1, I-2, and I-3.
R&M-4
<PAGE>
N62474-79-C-5382
Modification P00012
Page 5 of 5
(e) Inasmuch as the construction of all the additional Units is subject
to many uncertainties, if these unknown factors affect the expected
development plan the parties agree to accommodate those changes by
providing for alternate equivalent arrangements.
[3] Section VI.J. is amended to add the following:
Unit II-1, Unit II-2 and Unit II-3 shall be complete and shall be on-line
on or before January 31, 1990.
[4] Section VIII.2.(c) is amended to read in full as follows:
(c) Ceiling amount for Units I-1, I-2, and I-3: So long as the parties
have agreed on a delivered price and a delivery schedule for the Contractor
to provide electric power service only to NAVWPNCEN, the Governments's
liability to the Contractor pursuant to this clause shall not exceed
$67,500,000. This ceiling amount is derived by multiplying 25 megawatts by
$2,700,00 per megawatt. When and as the parties agree on a delivered price
and a delivery schedule for the Contractor to provide electric power
service to designated delivery points in addition to NAVWPNCEN, the
foregoing $67,500,000 ceiling shall be increased by an amount equal to the
average peak load (expressed in megawatts) of these additional designated
delivery points during the prior twelve months multiplied by $2,500,000 per
megawatt until the average peak load of the designated delivery points for
which the parties have agreed on a delivered price and a delivery schedule
(including NAVWPNCEN) totals 50 megawatts. Thereafter, until the average
peak load of the designated delivery points for which the parties have
agreed on a delivered price and a delivery schedule (including NAVWPNCEN)
totals 75 megawatts, the multiplier shall be $1,400,000 per megawatt. Thus,
at the time that the parties agree on a delivered price and a delivery
schedule for designated delivery points (including NAVWPNCEN) with an
average peak load of 75 megawatts, the ceiling amount shall be
$165,000,000.
[5] Add a new Section VIII.2.(d) to read in full as follows:
(d) Ceiling amount for Units II-1, II-2, and II-3: So long as the
parties have agreed on a delivered price and a delivery schedule for the
Contractor to provide additional electric power beyond that covered under
paragraph VIII.2.(c) above, the ceiling amount shall be derived as follows:
for the first additional 25 megawatts of installed nameplate capacity, the
amount due to Contractor hereunder shall not exceed $67,500,000. This
ceiling amount is derived by multiplying 25 megawatts by $2,700,00 per
megawatt. This ceiling amount shall be increased by $2,500,000 per megawatt
for each additional megawatt of nameplate capacity between 25 megawatts and
50 megawatts and shall be increased by $2,300,000 per megawatt for each
additional megawatt of nameplate capacity between 50 megawatts and 75
megawatts. Thus at the time the total additional nameplate capacity for
Units II-1, II-2, and II-3 totals 75 megawatts, the ceiling amount under
this Section VIII.2.(d) shall be $187,500,000.
R&M-5
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00013
--------
3. EFFECTIVE DATE 87 OCT 13
-------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N62474
--------
Western Division (Code 0211)
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, California 94066-0720
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
CALIFORNIA ENERGY COMPANY, INC. AND
CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
333 Mendocino Avenue, Suite 100
Santa Rosa, California 95403
Code ____________ Facility Code _____________
9. ___ AMENDMENT OF SOLICITATION NO. ________________
DATED (See Item 11) ________________
10. ___ MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
------------------
DATED (See Item 13) 79 DEC 06
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
---------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. X The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority of
D. ___ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor X is not, ___ is required to sign this document
---
and return ____ copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
Subject: GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER, CHINA
LAKE, CALIFORNIA
Description of this Modification begins on Page 2.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
15B. CONTRACTOR/OFFEROR (Signature of person
-----------------------
authorized to sign)
15C. DATE SIGNED ____________
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Joseph A. Dodson, Contracting Officer
-------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ Joseph A. Dodson (Signature of
------------------------
Contracting Officer)
16C. DATE SIGNED 10/13/87
----------
R&M-1
<PAGE>
N62474-79-C-5382
Modification P00013
Page 2 of 2
In accordance with the Consent to Assignments by U.S. Navy dated July 10, 1987,
all payments by the Navy pertaining to Navy Plant #1-1 shall be made to the
following address:
COSO Finance Partners
c/o: Credit Suisse
100 Wall Street
New York, New York 10005
Attn: Account #198536
All other terms and conditions remain unchanged.
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00014
--------
3. EFFECTIVE DATE 16 FEB 1988
----------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N62474
--------
Officer in Charge
Western Division
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, California 94066-0720
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company, Inc. and
Caithness Geothermal 1980 Ltd.
A Joint Venture
333 Mendocino Avenue, Suite 100
Santa Rosa, California 95401
Code ____________ Facility Code _____________
9. ____ AMENDMENT OF SOLICITATION NO. ____________________
DATED (See Item 11) ________________
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 06 DEC 79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) See Page 2.
---------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. X The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority of
D. ___ Other (Specify type of modification and authority) _________________
E. IMPORTANT: Contractor X is not, ___ is required to sign this document
---
and return copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER, CHINA LAKE,
CALIFORNIA
Description of this Modification begins on Page 2.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
15B. CONTRACTOR/OFFEROR ________________________ (Signature of person
authorized to sign)
15C. DATE SIGNED
------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
T.D. Sabbadini, Director, Contracting Officer
---------------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ T.D. Sabbadini (Signature of
------------------------
Contracting Officer)
16C. DATE SIGNED 2/16/88
-----------
R&M-1
<PAGE>
N62474-79-C-5382
Modification P00014
Page 2 of 2
- --------------------------------------------------------------------------------
BLOCK 14. DESCRIPTION OF MODIFICATION
- --------------------------------------
The following is hereby obligated to provide additional funding for
reimbursement on the subject contract to cover the cost of Naval Weapons Center
Southern California Edison electric bill at the contractor's reduced price:
AA 17X4912 3733 000 77777 0 060530 2F 215IN79C5382 $5,000,000.00
RCP# N6053087RC26255
- --------------------------------------------------------------------------------
Writer: K. Szymkowicz, Code 0224H, Telephone 415-742-7810
Typist: M.D. Weil, Code 0224S, Wang 2667T, Pages 2
- --------------------------------------------------------------------------------
DISTRIBUTION AFTER SIGNATURE:
Contract Division (02) Official Contract File: Signed Original & 3 copies
Contractor: Duplicate Original
NWC China Lake: 4 copies + 1 copy to ROIC China Lake
Workload Analysis (09A2B.10): 1 copy
Contract Reports (0231PA): 1 copy
Management Analyst (0224D): 1 copy
Engineer-in-Charge (1135CK): 1 copy
- --------------------------------------------------------------------------------
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00015
--------
3. EFFECTIVE DATE
-------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N62474
--------
Western Division
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, California 94066-0720
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
CALIFORNIA ENERGY COMPANY, INC. AND
CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
333 Mendocino Avenue, Suite 100
Santa Rosa, California 95401
Code ____________ Facility Code _____________
9. ___AMENDMENT OF SOLICITATION NO._________
DATED (See Item 11)___________
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 79 Dec 06
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
____ is extended, _____ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required)________________
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. X The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority
of _______________
D. ___ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor X is not, ____ is required to sign this document
---
and return _____ copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER, CHINA LAKE,
CALIFORNIA
Description of this Modification begins on Page 2.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print) __________________________
15B. CONTRACTOR/OFFEROR ______________________ (Signature of person
authorized to sign)
15C. DATE SIGNED ______________
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
T.D. Sabbadini, Director, Service Contracts Division
----------------------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ T.D. Sabbadini (Signature of
------------------------
Contracting Officer)
16C. DATE SIGNED 7/22/88
-----------
R&M-1
<PAGE>
N62474-79-C-5382
P00015
Page 2 of 2
BLOCK 14. DESCRIPTION OF MODIFICATION
- -------------------------------------
This administrative modification hereby changes the contractor's address from:
CALIFORNIA ENERGY COMPANY, INC., AND
CAITHNESS GEOTHERMAL, 1980 LTD.
A JOINT VENTURE
333 MENDOCINO AVENUE, SUITE 100
SANTA ROSA, CALIFORNIA 95401
to:
CALIFORNIA ENERGY COMPANY, INC., AND
CAITHNESS GEOTHERMAL, 1980, LTD.
A JOINT VENTURE
601 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94108
DISTRIBUTION AFTER SIGNATURE:
Contracts Department (02) Official Contract File: Signed Original & 3 copies
Contractor: Duplicate Original
NWC China Lake: 4 copies & 1 copy to ROIC China Lake
Workload Analysis (09A2B.10): 1 copy
Contract Reports (0231PA): 1 copy
Management Analyst (0224D): 1 copy
Engineer-in-Charge (1135CK): 1 copy
1217f
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE_______________
2. AMENDMENT/MODIFICATION NO. P00016
-------
3. EFFECTIVE DATE See Blk 16C
-----------
4. REQUISITION/PURCHASE REQ. NO.____________
5. PROJECT NO. (if applicable)________________
6. ISSUED BY Code N62474
-------
Officer in Charge
Western Division (Code 0222)
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, California 94066-0720
7. ADMINISTERED BY (if other than Item 6) Code _________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
CALIFORNIA ENERGY COMPANY, INC. AND
CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
601 California Street
San Francisco, California 45108
Code _____________ Facility Code ____________
9. ____ AMENDMENT OF SOLICITATION NO. _______________
DATED (See Item 11) _______________
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 79 DEC 06
------------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
_____ The above numbered solicitation is amended as set forth in
Item 14. The hour and date specified for receipt of Offers
______ is extended, ______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) See Page 2.
-----------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ____ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in
Item 10A _________________________
B. X The above numbered contract/order is modified to reflect the
----
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C. ____ This Supplemental Agreement is entered into pursuant to authority
of_________________________
D. ____ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor X is not, ____ is required to sign this
---
document and return _______ copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER, CHINA LAKE,
CALIFORNIA Description of this Modification begins on Page 2.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
<TABLE>
<S> <C>
15A. NAME AND TITLE OF SIGNER (Type or print) _______________________________
15B. CONTRACTOR/OFFEROR _________________________ (Signature of person authorized to sign)
15C. DATE SIGNED _____________
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) T.D. Sabbadini, Director, Service Contracts Branch
-------------------------------------------------
16B. UNITED STATES OF AMERICA, BY /s/ T.D. Sabbadini (Signature of Contracting Officer)
--------------------
16C. DATE SIGNED 2/2/89
--------
</TABLE>
R&M-1
89
<PAGE>
N62474-79-C-5382
Modification P00016
Page 2 of 2
BLOCK 14. DESCRIPTION OF MODIFICATION
- --------------------------------------
The following is hereby obligated to provide additional funding for
reimbursement on the subject contract to cover the cost of Naval Weapons Center
Southern California Edison electric bill at the contractor's reduced price.
AA 17X4912 3733 000 77777 0 060530 2F 2151N79C5382 $5,000,000
RCP# N50530 87RC26255
Writer: J. Cross, Code 0222E, Telephone 415-742-7810
Typist: S. Ciriales, Code 0222S, Wang # #1642f, Pages 8 & 9
DISTRIBUTION AFTER SIGNATURE:
Contract Division (02) Official Contract File: Signed Original & 3 copies
Contractor: Duplicate Original
NYC China Lake: 4 copies
ROIC China Lake: 1 copy
Fiscal (01311): 4 copies
Acquisition Analysis (09A2B.10): 1 copy
Program Coordinator (0932): 1 copy
Engineer-in-Charge (1644CK): 1 copy
Contract Reports (0231PA): 1 copy
0222 Secretary (0222S): 1 copy
R&M-2
90
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00017
--------
3. EFFECTIVE DATE See Blk 16C
---------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N62474
--------
Officer in Charge
Western Division (Code 0222)
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, California 94066-0720
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
CALIFORNIA ENERGY COMPANY, INC. AND
CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
601 California Street
San Francisco, California 94108
Code ____________ Facility Code _____________
9. ____AMENDMENT OF SOLICITATION NO._______
DATED (See Item 11)__________
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 79 DEC 06
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
---------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in
Item 10A ______________________________________________
B. ___ The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C. X This Supplemental Agreement is entered into pursuant to authority
---
of:__________________
D. ___ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor ____ is not, X is required to sign this document
---
and return orig. +2 copies to the issuing office.
----------
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER (NWC), CHINA
LAKE, CALIFORNIA
Description of this Modification begins on Page 2.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
Robert D. Tibbs, Executive Vice President, Resource
---------------------------------------------------
15B. CONTRACTOR/OFFEROR /s/ Robert D. Tibbs (Signature of person
-----------------------
authorized to sign)
15C. DATE SIGNED 2/17/89
------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
T.D. Sabbadini, Director, Service Contracts Branch
16B. UNITED STATES OF AMERICA BY /s/ Robert D. Tibbs (Signature of
------------------------
Contracting Officer)
16C. DATE SIGNED 3/1/89
----------
R&M-1
<PAGE>
N62474-79-C-5382
Modification P00017
Page 2 of 3
- --------------------------------------------------------------------------------
BLOCK 14. DESCRIPTION OF MODIFICATION
- --------------------------------------
Item #8 of Modification P00008 to the Contract, executed on February 13, 1986,
described an interconnection point with a commercial utility which shall be
located on NWC China Lake property. The purpose of this modification will be to
provide a legal description and map for the proposed location of the aforesaid
interconnection point, which may be referred to as "Southern California Edison
(SCE) substation site." In addition, the SCE substation site will be located
within the coordinates established by the following legal description;
LEGAL DESCRIPTION
That certain real property lying within the Southeast quarter of Section 20,
Township 26 South, Range 39 East, Mount Diablo Meridian in the County of Kern,
State of California, described as follows:
BEGINNING at a point in the Northerly line of Parcel 2 of that certain Record
of Survey filed in Book 9, page 147 of Records of Survey, in the office of the
County Recorder of said county, said point bearing North 89(degrees) 34' 05"
West, 385.23 feet measured along said Northerly line from the Northeast corner
of said Parcel 2, said point also bears South 89(degrees) 34' 05" East, 368.57
feet measured along the said Northerly line from the Northwest corner of said
Parcel 2; thence North 0(degrees) 25' 55" East, 90.00 feet; thence North
89(degrees) 34' 05" West, 80.00 feet; thence South 0(degrees) 25' 55" West,
90.00 feet to a point in said Northerly line of Parcel 2; thence Easterly 80.00
feet measured along said Northerly line of Parcel 2 to the Point of Beginning.
A map of the SCE substation site is shown on page 3 of this modification and
depicts the aforementioned legal description.
R&M-2
<PAGE>
N62474-79-C-5382
Modification P0001
Page 3 of 3
[Chart]
R&M-3
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00019
--------
3. EFFECTIVE DATE See Block 14
---------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N62474
--------
Engineering Field Activity, West
Naval Facilities Engineering Command
900 Commodore Drive
San Bruno, California 94066-5006
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company, Inc. and
302 South 36 Street, Suite 400
Omaha, Nebraska 68131
Code ____________ Facility Code _____________
9. AMENDMENT OF SOLICITATION NO. ________________
DATED (See Item 11)
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 06 Dec 79
------------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
---------------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority
of: ______________________________
D. X Other (Specify type of modification and authority) FAR 42.12
--- -------------
Novation and Change of Name Agreements
-----------------------------------------------
E. IMPORTANT: Contractor X is not, is required to sign this document
--- ---
and return copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER, CHINA LAKE,
CALIFORNIA
DESCRIPTION OF THIS MODIFICATION BEGINS ON PAGE 2.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print) ____________________________
15B. CONTRACTOR/OFFEROR (Signature of person
-----------------------
authorized to sign)
15C. DATE SIGNED
------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Catherine B. Morris, Head, Environmental Service Contracts
-----------------------------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ Catherine Morris (Signature of
---------------------------
Contracting Officer)
16C. DATE SIGNED 1 Aug 95
-------------
R&M-1
<PAGE>
N62474-79-C-5382
Modification P000019
Page 2 of 3
Block 14. DESCRIPTION OF MODIFICATION
- --------------------------------------
1. By this modification the Government recognizes the following transfers, in
accordance with the terms and conditions of the "Novation Agreement Under
Contract N62474-79-C-5382 Concerning Navy II Lands Assignment of Contractual
Rights and Obligations From China Lake Joint Venture to Coso Energy Developers
and From Coso Energy Developers to Coso Power Developers (Navy II Project
Novation Agreement)" executed 16 December 1992, a copy of which is attached
hereto and incorporated herein, of the rights, interests, and obligations under
the contract pertaining to the Navy II lands:
a. Effective 30 December 1988, from China Lake Joint Venture (CLJV) to Coso
Energy Developers (CED), a single purpose California general partnership.
b. Effective 31 July 1989, from CED to Coso Power Developers (CPD), a single
purpose California general partnership.
2. By this modification the Government also recognizes, in accordance with the
terms and conditions of the "Consent Under Contract N62474-79-C-5382 Concerning
the Navy II Project Assignment of Contractual Rights and Obligations From Coso
Power Developers to Bank of America" executed 13 October 1992 and effective 16
December 1992, a copy of which is attached hereto and incorporated herein, the
assignment by CPD to Lender (Bank of America National Trust and Savings
Association not in its individual capacity, but solely as trustee pursuant to a
Trust Indenture between Bank of America NT&SA and Coso Funding Corporation) as
security interest all of CPD's right, title, and interest in the Contract.
3. Notices from the Navy concerning the rights, interests or obligations of the
parties with respect to the Navy II lands and the Navy II project and the
contract will be sent to:
China Lake Joint Venture
c/o California Energy Company, Inc.
10831 Old Mill Road
Omaha, Nebraska 68154
Coso Power Developers
c/o Coso Technology Corporation
10831 Old Mill Road
Omaha, Nebraska 68154
<PAGE>
N62474-79-C-5382
Modification P000019
Page 3 of 3
Bank of America National Trust and
Savings Association
Attn: Corporate Trust
One Embarcadero Center
20th Floor
San Francisco, CA 94111
4. All other terms and conditions of the contract remain unchanged.
R&M-3
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00020
--------
3. EFFECTIVE DATE See Block 14
----------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N62474
--------
Engineering Field Activity West
Naval Facilities Engineering Command
900 Commodore Drive
San Bruno, California 94066-5006
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company
302 South 36 Street, Suite 400
Omaha, NE 68131
Code ____________ Facility Code _____________
9. ___ AMENDMENT OF SOLICITATION NO. ________________
DATED (See Item 11) ____________________
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 06 Dec 79
------------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
---------------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority
of: ______________________________
D. XX Other (Specify type of modification and authority) FAR 42.12
---- -------------
Novation and Change of Name Agreements
-----------------------------------------------
E. IMPORTANT: Contractor XX is not, is required to sign this document
---- ---
and return copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
Subj: GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL AIR WEAPONS STATION,
CHINA LAKE, CALIFORNIA
DESCRIPTION OF THIS MODIFICATION BEGINS ON PAGE 2.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print) ____________________________
15B. CONTRACTOR/OFFEROR (Signature of person
-----------------------
authorized to sign)
15C. DATE SIGNED
------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Catherine B. Morris, Head, Environmental Service Contracts
----------------------------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ Catherine B. Morris (Signature of
---------------------------
Contracting Officer)
16C. DATE SIGNED 1 Aug '95
-------------
R&M-1
<PAGE>
N62474-79-C-5382
Modification P000020
Page 2 of 2
BLOCK 14. DESCRIPTION OF MODIFICATION
- --------------------------------------
By this modification the Government acknowledges, and incorporates into the
contract its previously executed and delivered consent to the assignment by
China Lake Joint Venture and Atkinson-Mitsubishi Joint Venture to Coso Finance
Partners of certain contract rights and interests pertaining to the "Initial
Plant," "Initial Project" "Initial Project Area," and the "Initial Project
Rights," hereafter known as Navy I, Units I-1, I-2, and I-3, in accordance with
the terms and conditions of the following Consents to Assignment and Amendments
thereof, copies of which are attached hereto and incorporated herein:
1. Consent to Assignment by U.S. Navy executed on 10 July 1987
2. Amendment to Consent to Assignment by U.S. Navy executed on 15 July 1988
3. Amendment to Consent to Assignments by U.S. Navy executed on 1 November
1988
4. Second Amendment to Consent to Assignments by U.S. Navy executed 13 October
1992
5. Third Amendment to Consent to Assignments by U.S. Navy executed 13 October
1992
Addresses
For Borrower
------------
c/o California Energy Company, Inc.
10831 Old Mill Road
Omaha, Nebraska 68154
For Lender
----------
Bank of America National Trust
and Savings Association
One Embarcadero Center
20th Floor
San Francisco, CA 94111
Attn: Corporate Trust
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00021
--------
3. EFFECTIVE DATE See Block 16C
---------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N62474
--------
Officer in Charge
Western Division (Code 0222)
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, CA 94066-0720
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
China Lake Joint Venture (CLJV), Coso Finance Partners
(CFP), and Coso Energy Developers (CED)
c/o California Energy Co., Inc. (CECI)
601 California Street
San Francisco, CA 94108
Code ____________ Facility Code _____________
9. ___ AMENDMENT OF SOLICITATION NO. ________________
DATED (See Item 11) _____________
10. X MODIFICATION OF CONTRACT/ORDER NO. N624/4-79-C-5382
--- ------------------
DATED (See Item 13) 06 Dec 79
------------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) See Page 2
---------------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in
Item 10A. ______________________________________________
B. X The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority
of: ---------------
D. ___ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor X is not, is required to sign this document
--- ---
and return copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible.)
GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER (NWC), CHINA LAKE,
CALIFORNIA
Description of this modification begins on Page 2.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
15B. CONTRACTOR/OFFEROR (Signature of person
-----------------------
authorized to sign)
15C. DATE SIGNED
------------------
<TABLE>
<S> <C>
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) Elaine D. Leder, Head, South Service
-------------------------------------
Contracts Branch
-------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ Elaine D. Leder (Signature of Contracting Officer)
------------------------
</TABLE>
16C. DATE SIGNED 9/19/89
-----------
R&M-1
<PAGE>
N62474-79-C-5382
Modification P00021
Page 2 of 2
BLOCK 14. DESCRIPTION OF MODIFICATION
- -------------------------------------
The following is hereby obligated to provide additional funding for
reimbursement on the subject contract to cover the cost of Naval Weapons Center
Southern California Edison electric bill at the contractor's reduced price:
AA 17X4912 3733 000 77777 0 060530 2F 2151N79C5382 $5,000,000.00
RCP# N6053087RC26255
Writer: J. Cross Code 0222E, Telephone 415-742-7810
DISTRIBUTION AFTER SIGNATURE:
Contract Division (02) Official Contract File: Signed Original & 3 copies
Contractor: Duplicate Original
NWC China Lake 4 copies & 1 copy to ROIC China Lake
Workload Analysis (09A2B.10): 1 copy
Contract Reports (0231PA): 1 copy
Engineer-in-Charge (1644CK): 1 copy
Fiscal (01311): 4 copies
WPC 1218f
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE J
--------------
2. AMENDMENT/MODIFICATION NO. P00022
------
3. EFFECTIVE DATE SEE BLOCK #16
-------------------
4. REQUISITION/PURCHASE REQ. NO. _____________
5. PROJECT NO. (if applicable) ____________________
6. ISSUED BY Code N62474
------
Officer in Charge
Western Division (Code 0221)
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, California 94066-0720
7. ADMINISTERED BY (if other than Item 6) Code ____________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
CALIFORNIA ENERGY COMPANY, INC. &
CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
601 California Street
San Francisco, California 94108
Code ________ Facility Code ________
9. ______ AMENDMENT OF SOLICITATION NO. _________________
DATED (See Item 11) ________________
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 06Dec79
---------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
_______ The above numbered solicitation is amended as set forth in Item
14. The hour and date specified for receipt of Offers
_______ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
---
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A.____ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in
Item 10A _______________________
B. X The above numbered contract/order is modified to reflect the
----
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C.____ This Supplemental Agreement is entered into pursuant to authority of
_______________________
D.____ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor X is not, is required to sign this document
--- ----
and return ________ copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
SUBJECT: GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER, CHINA
LAKE, CALIFORNIA
Revenue checks made by the Contractor to the Government shall show the
payee to be "U.S. Treasury" with no mailing address on the face of the
check. These checks shall be mailed to:
Resident Officer in Charge of Geothermal Development
Naval Weapons Center
China Lake, California 93555
<TABLE>
<S> <C>
The contract price and completion time remain unchanged. DUPLICATE ORIGINAL
---------------------
</TABLE>
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
15B. CONTRACTOR/OFFEROR_________________(Signature of person authorized to sign)
R&M-1
<PAGE>
15C. DATE SIGNED _____________________
<TABLE>
<S> <C> <C>
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) Robert M. Griffin, Jr., Contracting Officer
-------------------------------------------
Director, Services/Environmental Contracts
------------------------------------------
Div.
----
16B. UNITED STATES OF AMERICA By /s/ Robert M. Griffin (Signature of Contracting Officer)
--------------------------------
16C. DATE SIGNED 8/15/80
--------------------
</TABLE>
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACTPage 1 of 1 Pages
1. CONTRACT ID CODE J
-----------
2. AMENDMENT/MODIFICATION NO. P00023
------
3. EFFECTIVE DATE SEE BLOCK #16
------------------------------
4. REQUISITION/PURCHASE REQ. NO.
5. PROJECT NO. (if applicable)
6. ISSUED BY Code N62474
___________ ------
Officer in Charge
Western Division (Code 0221)
Naval Facilities Engineering Command
P.O. Box 727
San Bruno, California 94066-0720
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
CALIFORNIA ENERGY COMPANY, INC. &
CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
601 California Street
San Francisco, California 94108
Code _______ Facility Code ______________
9. ___ AMENDMENT OF SOLICITATION NO.
DATED (See Item 11) ______________
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
---- ------------------
DATED (See Item 13) 06Dec79
---------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
____ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
______ is extended, ______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required)
AA 17X4912.3733 000 77777 0 60530 2F 2151N79C5382 RCP #N6053087RC26255
$10,000,000.00
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A.____ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in
Item 10A
B. X The above numbered contract/order is modified to reflect the
----
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C.____ This Supplemental Agreement is entered into pursuant to authority of
D.____ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor X is not, is required to sign this document
--- ----
and return _____ copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
SUBJECT: GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER, CHINA
LAKE, CALIFORNIA.
This modification is to provide additional funding for reimbursement on the
subject contract to cover the cost of Naval Weapons Center Southern
California Edison electric bill at the Contractor's reduced price.
Contract term remains unchanged. DUPLICATE _____________
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
15B. CONTRACTOR/OFFEROR __________________________ (Signature of person
authorized to sign)
15C. DATE SIGNED ______________________
R&M-1
<PAGE>
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) Robert M. Griffin,
------------------
Jr., Contracting Officer Director, Services/Environmental Contracts Div.
------------------------------------------------------------------------
16B. UNITED STATES OF AMERICA By /s/ Robert M. Griffin (Signature of Contracting
-----------------------
Officer)
16C. DATE SIGNED 8/15/90
-----------
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<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 1 Pages
1. CONTRACT ID CODE J
------------------
2. AMENDMENT/MODIFICATION NO. P00024
--------
3. EFFECTIVE DATE SEE BLOCK 16C
-----------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N62474
--------
Western Division
Naval Facilities Engineering Command
900 Commodore Drive
San Bruno, California 94066-2402
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
CALIFORNIA ENERGY COMPANY, INC. AND
CAITHNESS GEOTHERMAL 1980 LTD.
A JOINT VENTURE
P.O. Box 1420
Inyokern, CA 93527
Code ____________ Facility Code _____________
9. ____ AMENDMENT OF SOLICITATION NO.________
DATED (See Item 11)
10. ____MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
DATED (See Item 13) ____________
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
<TABLE>
<S> <C>
12. ACCOUNTING AND APPROPRIATION DATA (If required) AA 17X4912.3733 000 77777 0 60530 2F
-----------------------------------------
2151N79C5382 RCP #N6053087RC26255
-----------------------------------------
$40,000,000.00
---------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. X The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority of
D. ___ Other (Specify type of modification and authority) _________________
E. IMPORTANT: Contractor X is not, ______ is required to sign this document
---
and return _______ copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
a. To reflect a change in activity designation, replace "Naval Weapons
Center, China Lake" with "Naval Air Weapons Station, China Lake".
b. Modify the contract to incorporate the accounting data in Block 12 in
order to increase the contract funding by $10,000,000.00, to a new total of
$40,000,000.00. The contract funding is available to reimburse, at the
reduced contract price, the Contractor for the Contractor's payment of
Southern California Edison's bill for electricity furnished to Naval Air
Weapons Station, China Lake.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
15B. CONTRACTOR/OFFEROR _________________________________ (Signature of person authorized to sign)
15C. DATE SIGNED ______________
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) Dennis McAuley, Head, Utilities Contracts
-----------------------------------------
Branch
------
16B. UNITED STATES OF AMERICA BY /s/ Dennis McAuley (Signature of Contracting Officer)
------------------------
16C. DATE SIGNED 24 Feb 92
-------------
</TABLE>
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<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00025
--------
3. EFFECTIVE DATE SEE BLOCK 16C
---------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code __________________
Western Division (Code 0221)
Naval Facilities Engineering Command
900 Commodore Drive
San Bruno, CA 94066-2402
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company, Inc. and
Caithness Geothermal 1980 LTD.
A Joint Venture
10831 Old Mill Road
Omaha, Nebraska 68154
Code ____________ Facility Code _____________
9. ___ AMENDMENT OF SOLICITATION NO. __________________
DATED (See Item 11) _______________
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 06Dec79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
---------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. ___ The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. X This Supplemental Agreement is entered into pursuant to authority
---
of: _______________________________________
D. ___ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor ____ is not, X is required to sign this document
---
and return 2 copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
SUBJ: GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL AIR WEAPONS STATION, CHINA
LAKE, CALIFORNIA. (DESCRIPTION OF THIS MODIFICATION BEGINS ON
PAGE 2)
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
John G. Sylvia, Chief Financial Officer
-----------------------------------------
15B. CONTRACTOR/OFFEROR /s/ John G. Sylvia (Signature of person
---------------------
authorized to sign)
15C. DATE SIGNED 10/12/92
------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Dennis J. McAuley, Contracting Officer
--------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ Dennis J. McAuley (Signature of
------------------------
Contracting Officer)
16C. DATE SIGNED 12 OCT 1992
---------------
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<PAGE>
Attached to and made a part
of Contract Modification
N62474-79-C-5382-P00025
Page 2 of 2
Effective 1 December 1992, delete Section IV.C.8 of modification P00008 in its
entirety and replace it with the following:
8. Consideration.
-------------
a. Contractor and the Government have determined that over the remaining
term of the Contract the initial plant is projected to generate a total output
in excess of the output Contractor is required to produce to satisfy its
obligation for Naval Air Weapons Station, China Lake power. Use of the
geothermal resource for production of such excess output is authorized by this
Modification P00008.
b. In consideration for such use of the resource as well as the other
changes contained in this Modification P00008, the Contractor hereby obligates
itself and promises to pay the Government the sum of $25,000,000 on or before 31
December 2009. That payment shall be secured by funds placed monthly by
Contractor in escrow beginning two months after commercial operations of the
Initial Plant have commenced. However, existence of the escrow does not relieve
Contractor of the obligation to ensure that the Government receives a total of
$25,000,000 as previously stated.
c. The escrow shall be established with an institution insured by the
Federal Deposit Insurance Corporation. Terms and conditions of the escrow
agreement shall be subject to approval by the Government and shall be
substantially the same as those in the attached draft agreement, Exhibit "A";
permitted investments for the escrow fund shall be only those listed in the
attached Exhibit "A". The escrow agreement shall require the escrow agent to
periodically provide the Government with statement showing escrow account
activity and balance. Government shall have the right to audit the escrow
account from time to time.
d. Contractor shall deposit in escrow each month an amount of not less than
$50,000. Without approval in advance by the Government, Contractor shall
neither make withdrawals from, nor encumber, the escrow fund.
f. A default pursuant to this Section IV.C.8 shall not affect the right of
the Financing Parties to quiet enjoyment.
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<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00026
--------
3. EFFECTIVE DATE SEE BLOCK 16C
---------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code
--------
Western Division (Code 0221)
Naval Facilities Engineering Command
900 Commodore Drive
San Bruno, CA 94066-2402
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
Coso Finance Partners
10831 Old Mill Road
Omaha, Nebraska 68154
Code ____________ Facility Code _______
9. ____ AMENDMENT OF SOLICITATION NO. __________
DATED (See Item 11)
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 06Dec79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
---------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in
Item 10A ______________________________________________
B. ___ The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C. X This Supplemental Agreement is entered into pursuant to authority
---
of: _________________
D. ___ Other (Specify type of modification and authority) _________________
E. IMPORTANT: Contractor ____ is not, X is required to sign this document
---
and return 2 copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
SUBJ: GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL AIR WEAPONS STATION, CHINA
LAKE, CALIFORNIA. (DESCRIPTION OF THIS MODIFICATION BEGINS ON
PAGE 2).
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
<TABLE>
<S> <C>
15A. NAME AND TITLE OF SIGNER (Type or print) S. McArthur, Vice President 12/16/92
-------------------------------------------
15B. CONTRACTOR/OFFEROR /s/ S. McArthur (Signature of person authorized to sign)
---------------
15C. DATE SIGNED 12/16/92
----------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) Dennis J. McAuley, Contracting Officer
----------------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ Dennis J. McAuley (Signature of Contracting Officer)
------------------------
16C. DATE SIGNED 18 FEB 93
------------
</TABLE>
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<PAGE>
Attached to and made a part
of Contract Modification
N62474-79-C-5382-P00026
Page 2 of 2
1. Replace the first sentence of Modification N62474-79-C-5382-P00025 with the
following:
Effective 18 December 1992, delete Section IV.C.8 of modification P00008
in its entirety and replace it with the following:
2. Change the name of the contractor for Navy I, Units 1, 2, and 3
From: California Energy Co., Inc. and
Caithness Geothermal 1980 LTD.
A Joint Venture
10831 Old Mill Road
Omaha, Nebraska 68154
To: Coso Finance Partners
10831 Old Mill Road
Omaha, Nebraska 68154
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 1 Pages
1. CONTRACT ID CODE
2. AMENDMENT/MODIFICATION NO. P00027
------
3. EFFECTIVE DATE SEE BLOCK 16C
--------------
4. REQUISITION/PURCHASE REQ. NO. _______________
5. PROJECT NO. (if applicable)______________________
6. ISSUED BY Code 0221
-------
Commander
Western Division
Naval Facilities Engineering Command
900 Commodore Drive
San Bruno, California 94066-2402
7. ADMINISTERED BY (if other than Item 6) Code _______________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
COSO FINANCE PARTNERS
10831 Old Mill Road
Omaha, Nebraska 68154
Code ___________ Facility Code
9. _____ AMENDMENT OF SOLICITATION NO.____________
DATED (See Item 11)___________________
10. ____ MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
------------------
DATED (See Item 13) 06 Dec 79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
____ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
______ is extended, ______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
<TABLE>
<S> <C>
12. ACCOUNTING AND APPROPRIATION DATA (If required) AA 97X4930 NH2F 000 77777 0 60530 2 F 2151N
--------------------------------------------------
RCP #N60530-87RC26255 $10,000,000.00
--------------------------------------
</TABLE>
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A.____ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in
Item 10A
B. X The above numbered contract/order is modified to reflect the
----
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C.____ This Supplemental Agreement is entered into pursuant to authority of
93-47-487 15-2
D.____ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor X is not, ___ is required to sign this document
---
and return ____ copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
a. Modify the contract to incorporate the accounting data in Block 12 in
order to increase the contract funding by $10,000,000.00, to a new total of
$50,000,000.00. The contract funding is available to reimburse, at the
reduced contract price, the Contractor for the Contractor's payment of
Southern California Edison's bill for electricity furnished to Naval Air
Weapons Station, China Lake.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
15B. CONTRACTOR/OFFEROR ________________(Signature of person authorized to sign)
15C. DATE SIGNED_____________________
<TABLE>
<S> <C>
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) Catherine B. Morris, Head, Service Contacts
-------------------------------------------
Branch
------
</TABLE>
R&M-1
<PAGE>
<TABLE>
<S> <C>
16B. UNITED STATES OF AMERICA By /s/ Catherine B. Morris (Signature of Contracting Officer)
------------------------------------
</TABLE>
16C. DATE SIGNED 25 June 1993
--------------
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 1 Pages
1. CONTRACT ID CODE
2. AMENDMENT/MODIFICATION NO. P00028
------
3. EFFECTIVE DATE SEE BLOCK 16C
---------------------
4. REQUISITION/PURCHASE REQ. NO. _____________
5. PROJECT NO. (if applicable) ____________
6. ISSUED BY Code 0221
-------
Commander
Western Division
Naval Facilities Engineering Command
900 Commodore Drive
San Bruno, California 94066-2402
7. ADMINISTERED BY (if other than Item 6) Code _______________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
COSO FINANCE PARTNERS
10831 Old Mill Road
Omaha, Nebraska 68154
Code ______________________ Facility Code ________________
9. ____ AMENDMENT OF SOLICITATION NO. ____________________
DATED (See Item 11) _______________
10. ____ MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
------------------
DATED (See Item 13) 06 Dec 79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
____ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
______ is extended, ______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) _________________________
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A._____ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in
Item 10A
B. X The above numbered contract/order is modified to reflect the
-----
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C._____ This Supplemental Agreement is entered into pursuant to authority
of 93-47-487 15-2
--------------
D._____ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor X is not, ___ is required to sign this document
---
and return ____ copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
a. Contract Modification "P00025" to Contract N62474-79-C-5382 dated 25
June 1993 is corrected to read N62474-79-C-5382-P00027.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
15B. CONTRACTOR/OFFEROR ________________(Signature of person authorized to sign)
15C. DATE SIGNED _________________
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) Catherine B. Morris,
--------------------
Head, Service Contracts Branch
------------------------------
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<PAGE>
16B. UNITED STATES OF AMERICA BY /s/ Catherine Morris (Signature of Contracting
----------------------
Officer)
16C. DATE SIGNED 28 June 1993
----------------
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 3 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00029
--------
3. EFFECTIVE DATE SEE BLOCK 16C
-----------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code
--------
Commander (0221)
Western Division
Naval Facilities Engineering Command
900 Commodore Drive
San Bruno, CA 94066-2402
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company, Inc.
10831 Old Mill Road
Omaha, Nebraska 68154
Code ____________ Facility Code _____________
9. AMENDMENT OF SOLICITATION NO.
DATED (See Item 11)
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 06 Dec 79
------------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) Not Applicable
------------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. ___ The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority of
D. ___ Other (Specify type of modification and authority) _________________
E. IMPORTANT: Contractor ____ is not, XX is required to sign this document
----
and return two copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER, CHINA LAKE,
CALIFORNIA
(Description of this Modification on Page 2)
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
Thomas R. Mason, Sr. V.P.
-----------------------------------------
15B. CONTRACTOR/OFFEROR /s/ Thomas R. Mason Sr. V.P. (Signature of person
-------------------------------
authorized to sign)
15C. DATE SIGNED 9/26/94
------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Catherine B. Morris, Head Service Contracts Br.
-----------------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ Catherine B. Morris (Signature of
------------------------
Contracting Officer)
16C. DATE SIGNED 4 OCT 94
------------
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<PAGE>
ATTACHED TO AND MADE A PART OF CONTRACT
MODIFICATION N62474-79-C-5382-P00029
The Navy herein consents to the exchange and transfer of steam between the Navy
I and Navy II facilities located at Coso subject to the following conditions:
1. Transfers will be of steam for production purposes of generating electric
power. Transfers of brine and/or condensate may be either for flashing to
power-generating steam, for injection, or for prevention of scale.
2. All transfers shall be strictly monitored by the Navy and California Energy
Company, Inc. (CECI) by means of continuous flow gauging and recording of flow
through the gauge(s). Such gauging shall be by means of mutually-agreed upon
devices which shall be calibrated and certified prior to installation and
operation. Each gauge shall be re-calibrated at least once a year by using a
mutually-agreed-upon technique. The Navy may require that this re-calibration
be performed by an independent third-party, to be approved by the Navy.
3. Gauging points for particular pipeline(s) to be used for steam, brine,
and/or condensate transfer between Navy I and Navy II producing areas shall be
agreed upon by the Navy and CECI in advance of installation and operation of
such pipeline(s). Flow at the gauging points shall be recorded daily in units
of pounds of mass and shall be reported to the Navy on a weekly basis as part of
routine reporting of geothermal fluid production and electric power generation.
4. The Navy shall be compensated according to the formulas found in the
Exchange Agreement dated January 11, 1994, Exhibit "A", which was signed by the
partners in the Navy I and Navy II development projects. The partners may amend
these formulas from time to time, with the Navy's consent.
5. In the event it is determined that the transfer of steam, brine, and/or
condensate between facilities is materially detrimental* to the Navy, the Navy
reserves the right to suspend, terminate, or withdraw its consent to the
transfers at any time, notwithstanding any provision in the Exchange Agreement
or in this modification to the contrary. CECI shall hold the Navy harmless from
any and all related monetary damages resulting from such suspension,
termination, or withdrawal and agrees to indemnify the Navy against all claims
of itself, its partners, and any other parties in this regard.
6. Such suspension, termination, or withdrawal shall be effective no later
than 15 days after delivery to CECI of written notice to cease such exchanges.
The navy may, in its discretion, cancel its notice of suspension, termination,
or withdrawal prior to the notice taking effect.
R&M-2
<PAGE>
ATTACHED TO AND MADE A PART OF CONTRACT
MODIFICATION N62474-79-C-5382-P00029
7. Reservoir model simulations shall be run at least every six months, or more
frequently, as needed, using up-to-date production and monitoring information.
The results of such simulations shall be conveyed to the Geothermal Program
Office immediately upon completion.
*NOTE: For the purposes of this modification, materially detrimental is defined
as:
Any reservoir-related change in the overall production enthalpy or steam rate
within the Navy I and Navy II areas which is beyond one standard deviation from
CECI's simulation-based forecast of such values, using the most recent of these
forecasts prior to the observed change. The simulation-based forecast shall be
updated every six months, or more frequently, as needed. The standard deviation
is calculated on the differences between monthly measurements and history-
matched values in the simulator for the period from the start of production to
the time of the forecast. The size of these historical differences is a
statistical measure of the quality of the simulation; and the accuracy of the
forecast based on the simulation is not expected to be any better than the
accuracy of the history-match. Observed changes in enthalpy or steam rate may
occur in a period of time as short as one month, or they may be more protracted
(such as over a six-month period). Changes of this nature can be construed as
materially detrimental to the Navy to the extent that they would impact the
Navy's ability to realize its long-term goals for the geothermal resource at
Coso.
R&M-3
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 4 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00030
--------
3. EFFECTIVE DATE SEE BLOCK 16C
---------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N62474
--------
Commanding Officer (0221)
Engineering Field Activity West
Naval Facilities Engineering Command
900 Commodore Drive
San Bruno, CA 94066-5006
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company, Inc.
10831 Old Mill Road
Omaha, Nebraska 68154
Code ____________ Facility Code _____________
9. ____AMENDMENT OF SOLICITATION NO._________
DATED (See Item 11)__________
10. XXX MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
----- ------------------
DATED (See Item 13) 06 Dec 79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) Not Applicable
-------------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. ___ The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority of
D. ___ Other (Specify type of modification and authority) _________________
E. IMPORTANT: Contractor ____ is not, XX is required to sign this document
----
and return two copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
SUBJ: GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS CENTER, CHINA
LAKE, CALIFORNIA
(Description of this Modification begins on Page 2)
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
Thomas R. Mason, Senior. V.P.
-----------------------------------------
15B. CONTRACTOR/OFFEROR /s/ Thomas R. Mason (Signature of person
-----------------------
authorized to sign)
15C. DATE SIGNED 12/14/94
------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Catherine B. Morris, Head, Service Contracts Br.
------------------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ Catherine B. Morris (Signature of
---------------------------
Contracting Officer)
16C. DATE SIGNED 19 Dec 94
-------------
R&M-1
<PAGE>
ATTACHED TO AND MADE A PART OF CONTRACT
MODIFICATION N62474-79-C-5382-P00030
PAGE 2 OF 4
The Navy herein consents to the exchange and transfer of steam between the Navy
and Bureau of Land Management (BLM) facilities located at Coso subject to the
following conditions:
1. Transfers will be of steam for the purpose of generating electric power.
Transfers of brine and/or condensate will be for injection or prevention of
scale.
2. All transfers shall be strictly monitored by the Navy and California
Energy Company, Inc. (CECI) by means of continuous flow gauging and recording of
flow through the gauge(s). Such gauging shall be by means of mutually-agreed-
upon devices which shall be calibrated and certified prior to installation and
operation. Each gauge shall be re-calibrated at least once a year by using a
mutually-agreed-upon technique. The Navy may require that this re-calibration
be performed by an independent third-party, to be approved by the Navy.
3. Gauging points for particular pipeline(s) to be used for steam, brine,
and/or condensate transfer between Navy contract lands and BLM lease lands shall
be agreed upon by the Navy, BLM, and CECI in advance of installation and
operation of such pipeline(s). Flow at the gauging points shall be recorded
daily in units of pounds of mass and shall be reported to the Navy on a weekly
basis as part of routine reporting of geothermal fluid production and electric
power generation.
4. The Navy shall be compensated on the basis of Equivalent Megawatt-Hours
(MWh) for steam transferred to BLM power plants. Determination of the MWh shall
be made by first calculating the Thermal Capacity (in BTU/1b-m) of steam
transferred using a formula that is mutually-agreed upon by the Navy, BLM and
CECI. Using this formula, the total Thermal Value (in BTU) of the steam that is
transferred shall be determined by multiplying the Thermal Capacity by the total
mass that passes by the gauge. Determination of the Thermal Capacity of the
steam shall take into account the temperature, pressure, and amount of non-
condensible gas that the steam contains. This value shall be updated as
necessary to ensure accurate determination of Thermal Value, Thermal Value shall
be converted into MWh and shall be the basis for calculating revenue due to the
Navy. The MWh shall be based on the average efficiency of the Navy turbines in
converting steam to electricity.
5. Revenues due the Navy for steam transferred by CECI from the Navy contract
lands to power plants on BLM lands shall be calculated by multiplying the MWh
times the prevailing energy price ($/MWh) for the originating project.
Prevailing energy price for a given monthly billing period is defined as an
amount equal to the Total Current Energy Payment divided by the net MWh as shown
on the Southern California Edison Company - Statement of Energy Purchased. This
value shall then be multiplied by the average of the prevailing revenue share
rates for Navy I and Navy II to determine the amount due the Navy.
R&M-2
<PAGE>
ATTACHED TO AND MADE A PART OF CONTRACT
MODIFICATION N62474-79-C-5382-P00030
PAGE 3 OF 4
In the event steam transferred from Navy to BLM during the given month results
in CECI's BLM power plants receiving capacity payments, the Navy shall be
compensated on a pro rata basis for steam contributed toward earning those
capacity payments. Such capacity payments shall include "capacity", "bonus
capacity", and "as available capacity payments". The extent of the Navy
contribution, if any, toward reaching capacity payment thresholds shall be based
on the amount of MWh produced with Navy steam. The Navy-produced portion of
those payments will then be subject to revenue sharing based on the average of
the prevailing revenue share rates for Navy I and Navy II.
6. The Navy shall also be compensated for steam transferred from BLM lease
lands to Navy Power plants in the same manner as above with the following
exception:
The Navy revenue share rate for MWh transferred from the BLM lease lands
to power plants on Navy contract lands shall be the difference between:
a. the average of the prevailing royalty rates for Navy I and Navy II;
and
b. the actual percentage of the gross value of the transferred MWh,
paid to the Minerals Management Service (MMS) based on the netback calculation
at the BLM project. CECI will document this actual percentage by submitting to
the Navy, each month, a copy of the Southern California Edison Company
"Statement of Energy Purchased" and a copy of the "Report of Sales and Royalty
Remittance" (MMS-2014) for the BLM project.
7. Revenues due the Navy from the transfer of steam shall be calculated and
paid on a monthly basis along with the revenue from sale of electricity at Navy
I and Navy II. They shall, however, be separately listed from the Navy
electricity sales revenue amounts.
8. In the event it is determined that the transfer or exchange of steam
between facilities is materially detrimental* to the Navy, the Navy reserves the
right to suspend, terminate, or withdraw its consent to such transfers at any
time notwithstanding any provision in other contract modifications or in this
modification to the contrary. CECI shall hold the Navy harmless from any and
all related monetary damages resulting from such suspension, termination, or
withdrawal and agrees to indemnify the Navy against all claims of itself, its
partners, and any other parties in this regard.
9. Such suspension, termination, or withdrawal shall be effective no later
than 15 days after delivery to the CECI of written notice to cease such
exchanges. The Navy may, in its discretion, cancel its notice of suspension,
termination, or withdrawal prior to the notice taking effect.
10. Reservoir model simulations shall be run at least every six (6) months,
or more frequently, as needed, using up to date production and monitoring
information. The results of such simulations shall be conveyed to the
Geothermal Program Office immediately upon completion.
R&M-3
<PAGE>
ATTACHED TO AND MADE A PART OF CONTRACT
MODIFICATION N62474-79-C-5382-P00030
PAGE 4 OF 4
*NOTE: For the purposes of this modification, materially detrimental is defined
as:
Any reservoir-related change in the overall production enthalpy or steam rate
within the Navy I and Navy II, or BLM producing areas which is beyond one
standard deviation from CECI's simulation-based forecast of such values, using
the most recent of these forecasts prior to the observed change. The
simulation-based forecast shall be updated every six months, or more frequently,
as needed. The standard deviation is calculated on the differences between
monthly measurements and history-matched values in the simulator for the period
from the start of production to the time of the forecast. The size of these
historical differences is a statistical measure of the quality of the
simulation, and the accuracy of the forecast based on the stimulation is not
expected to be any better than the accuracy of the history-match. Observed
changes in enthalpy or steam rate may occur in a period of time as short as one
month, or they may be more protracted (such as over a six-month period).
Changes of this nature can be construed as materially detrimental to the Navy or
BLM to the extent that they would impact the either the Navy's or BLM's ability
to realize its long-term goals for the geothermal resource at Coso.
R&M-4
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 1 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00031
--------
3. EFFECTIVE DATE See Block 16C
-------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code 0221
------
Commanding Officer
Engineering Field Activity West
Naval Facilities Engineering Command
900 Commodore Drive
San Bruno, California 94066-5006
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
COSO FINANCE PARTNERS
10831 Old Mill Road
Omaha, Nebraska 68154
Code ____________ Facility Code _____________
9. ____ AMENDMENT OF SOLICITATION NO._______
DATED (See Item 11)____________
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 06 Dec 79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
<TABLE>
<S> <C>
12. ACCOUNTING AND APPROPRIATION DATA (If required) AA 97X4930 NH2F 000 77777 0 60530 2 F 2151N
--------------------------------------------------
RCP #N60530-87RC26255 $10,000,000.00
---------------------------------------
</TABLE>
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in
Item 10A ______________________________________________
B. ___ The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority
of 93-47-487 15-2
--------------
D. ___ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor X is not, ____ is required to sign this document
---
and return _____ copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
a. Modify the contract to incorporate the accounting data in Block 12 in
order to increase the contract funding by $10,000,000.00, to a new total of
$60,000,000.00. The contract funding is available to reimburse, at the
reduced contract price, the Contractor for the Contractor's payment of
Southern California Edison's bill for electricity furnished to Naval Air
Weapons Station, China Lake.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
<TABLE>
<S> <C>
15A. NAME AND TITLE OF SIGNER (Type or print)
15B. CONTRACTOR/OFFEROR _________________________ (Signature of person authorized to sign)
15C. DATE SIGNED ______________
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) Catherine B. Morris, Head, Service Contracts
--------------------------------------------
Branch
------
</TABLE>
R&M-1
<PAGE>
<TABLE>
<S> <C>
16B. UNITED STATES OF AMERICA BY /s/ Catherine Morris (Signature of Contracting Officer)
----------------------
16C. DATE SIGNED 19 DEC 1993
-----------
</TABLE>
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00032
--------
3. EFFECTIVE DATE 15 August 1995
-----------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N62474
--------
Commanding Officer (0221)
Engineering Field Activity West
Naval Facilities Engineering Command
900 Commodore Drive
San Bruno, CA 94066-5006
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company
302 South 36 Street, Suite 400
Omaha, Nebraska 68131
Code ____________ Facility Code _____________
9. ___AMENDMENT OF SOLICITATION NO.________
___DATED (See Item 11)________
10. X MODIFICATION OF CONTRACT/ORDER NO. N62474-79-C-5382
--- ------------------
DATED (See Item 13) 06Dec79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required)
---------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A. ______________________________________________
B. XXXX The above numbered contract/order is modified to reflect the
------
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C. X This Supplemental Agreement is entered into pursuant to authority
---
of:______________________
D. ___ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor ____ is not, XX is required to sign this document
----
and return two originals to the issuing office.
----------------
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible.)
SUBJ: GEOTHERMAL POWER DEVELOPMENT AT THE NAVAL WEAPONS STATION, CHINA
LAKE, CALIFORNIA.
DESCRIPTION OF THIS MODIFICATION BEGINS ON PAGE 2.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
Thomas R. Mason, President and Chief Operating Officer
------------------------------------------------------
15B. CONTRACTOR/OFFEROR (Signature of person authorized to sign)
---------------
15C. DATE SIGNED 9/5/95
------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Catherine B. Morris, Head Environmental Service Contracts
---------------------------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ Catherine B. Morris (Signature of
--------------------------
Contracting Officer)
16C. DATE SIGNED 11 Sep 95
------------
R&M-1
<PAGE>
N62474-79-C-5382
MODIFICATION P00032
PAGE 2 of 2
a. Modify P00025, paragraph 8d as follows:
Delete the first sentence and insert "Contractor shall deposit in escrow, by
the last day of each month, an amount of not less than $50,000.00".
b. Modify the basic contract and existing modifications to transfer contracting
authority.
FROM: Commanding Officer (0221)
Engineering Field Activity, West
Naval Facilities Engineering Command
900 Commodore Drive
San Bruno, CA 94066-5006
TO: Commanding Officer
NAVFACCO, Bldg 41, Code 271
Port Hueneme, CA 93043-4301
c. Change the Unit Identification Code on the contract number from "N62474" to
"N47408". The resulting contract number will be N47408-79-C-5382.
d. All other provisions will remain the same.
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE ________________
2. AMENDMENT/MODIFICATION NO. P00033
------
3. EFFECTIVE DATE 95DEC08
---------
4. REQUISITION/PURCHASE REQ. NO. N/A
-------
5. PROJECT NO. (if applicable) ____________
6. ISSUED BY Code N47408
------
Commanding Officer
Attn: NAVFACCO, Code 2711, Bldg. 41
Construction Battalion Center
1000 23rd Avenue
Port Hueneme, CA 93043-4301
POC: Marcia A. Barnard, Code 271A, (805) 982-5094
7. ADMINISTERED BY (if other than Item 6) Code
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company
302 South 36 Street, Suite 400
Omaha, NE 68131
Code _________ Facility Code ________
9. ___ AMENDMENT OF SOLICITATION NO. ________
DATED (See Item 11) ________________
10. X MODIFICATION OF CONTRACT/ORDER NO. N47408-79-C-5382
--- ------------------
DATED (See Item 13) 06 Dec 79
-----------
11. ____ THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
____ The above numbered solicitation is amended as set forth in Item
14. The hour and date specified for receipt of Offers
_____ is extended, ____ is not extended.
Offers must acknowledge receipt of this amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If by virtue of this amendment you desire to change an offer already
submitted, such change may be made by telegram or letter, provided each
telegram or letter makes reference to the solicitation and this amendment,
and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
------
13. THIS ITEM APPLIES ONLY TO MODIFICATION OF CONTRACTS/ORDERS,
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ____ This Change Order is issued pursuant to: (Specify authority) The
change set forth in Item 14 are made in the Contract Order No. in
Item 10A. _______________________________________________
B. ____ The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C. X This Supplemental Agreement is entered into pursuant to authority
---
of: FAR 52.243-1 - Changes - Fixed Price
-------------------------------------------
D. ____ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor ____ is not, X is required to sign this
----
document and return 2 copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section heading,
including solicitation/contract subject matter where feasible)
1. The purpose of this modification is to revise the method of calculating
the value of transferred steam for the Navy revenue purposes and to
incorporate the requirement for the submittal of an annual "Escrow
Assurance Plan".
SEE PAGE 2 OF 2
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A as heretofore changed, remains unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print) Thomas R. Mason, President
--------------------------------
15B. CONTRACTOR/OFFEROR
/s/ Thomas R. Mason (Signature of person authorized to sign)
------------------------------------------------------------
15C. DATE SIGNED 12/20/95
--------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Sally K. Middlebrooks, Contracting Officer
------------------------------------------
16B. UNITED STATES OF AMERICA BY
/s/ Sally K. Middlebrooks (Signature of Contracting Officer)
--------------------------------------------------------------
16C. DATE SIGNED 1/8/96
--------
R&M-1
<PAGE>
N47408-97-C-5382
MODIFICATION P00033
PAGE 2 OF 2
2. Delete: "Coso Geothermal Project Exchange Agreement" dated January 11,
1994, Exhibit "A" that was executed as part of Modification P00029.
Incorporate: Exhibit "A" CALCULATION OF PAYMENTS FOR TRANSFERS OF STEAM AT
COSO, dated April 12, 1995.
3. By the 31st day of January, each calendar year the contractor shall submit,
to the Contracting Officer, an "Escrow Assurance Plan". The plan shall reflect
the escrow account balance as of 31 December of the previous year. The
contractor shall illustrate the compounded interest rate necessary to ensure
that the account will contain $25,000,000 on or before 31 December 2009. The
plan will also discuss all relevant financial data, such as investments,
shrinking or increasing interest rates, etc. to demonstrate that the account is
being monitored on a regular basis.
4. ALL OTHER TERMS AND CONDITIONS REMAIN THE SAME.
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00034
------
3. EFFECTIVE DATE 95FEB08
----------
4. REQUISITION/PURCHASE REQ. NO. N/A
-------
5. PROJECT NO. (if applicable) _____________
6. ISSUED BY Code N47408
------
Commanding Officer
Attn: NAVFACCO, Code 2711, Bldg. 41
Construction Battalion Center
1000 23rd Avenue
Port Hueneme, CA 93043-4301
POC: Marcia A. Barnard, Code 271A, (805) 982-5094
7. ADMINISTERED BY (if other than Item 6) Code ____________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company
302 South 36 Street, Suite 400
Omaha, NE 68131
Code ______ Facility Code ______
9. ______ AMENDMENT OF SOLICITATION NO. ___________________
DATED (See Item 11) ________________
10. X MODIFICATION OF CONTRACT/ORDER NO. N47408-79-C-5382
--- ------------------
___ DATED (See Item 13) 06 Dec 79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
______ The above numbered solicitation is amended as set forth in Item
14. The hour and date specified for receipt of Offers
______ is extended, ______ is not extended.
Offer must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following
methods
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If by virtue of this amendment you desire to change an offer already
submitted, such change may be made by telegram or letter, provided each
telegram or letter makes reference to the solicitation and this amendment,
and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
------------------------
13. THIS ITEM APPLIES ONLY TO MODIFICATION OF CONTRACTS/ORDERS,
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ______ This Change Order is issued pursuant to: (Specify authority)
The change set forth in Item 14 are made in the Contract Order
No. i n Item 10A.
B. ______ The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C. X This Supplemental Agreement is entered into pursuant to
______
authority of: FAR 52.245-4 - Government Furnished Property
----------------------------------------------
(Short Form)
-----------------------------------------------------------
D.______ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor is not, X is required to sign this document
---- ----
and return 2 copies to the issuing office.
----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section heading,
including solicitation/contract subject matter where feasible).
1. The purpose of this modification is to transfer Government Furnished
Property to California Energy Company, Inc. for a period not to exceed six
months from the effective date of this modification.
SEE PAGE 2 OF 2
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A as heretofore changed, remains unchanged and in full force and
effect.
<TABLE>
<CAPTION>
<S> <C>
15A. NAME AND TITLE OF SIGNER (Type or print) Douglas L. Anderson, Assistant General Counsel, U.S. and
---------------------------------------------------------
Corporate
---------------------------------------------------------
15B. CONTRACTOR/OFFEROR /s/ Douglas L. Anderson (Signature of person authorized to sign)
------------------------------
15C. DATE SIGNED ____________________________
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) M.A. Barnard, Contracting Officer
-----------------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ M.A. Barnard (Signature of Contracting Officer)
------------------------
16C. DATE SIGNED 2/8/96
------
</TABLE>
R&M-1
<PAGE>
N47408-97-C-5382
MODIFICATION P00034
PAGE 2 OF 2
<TABLE>
<CAPTION>
ITEMS QUANTITY ACQN COST
- ----- -------- ---------
<S> <C> <C>
Acropolis 1.2 BG, 3.5 inch disk drive 1 $2,095.00
storage subsystem, Serial #92150136,
NAWS Plant Account #458571
Artecon Model DSU 1-331 1 $1,330.00
330 Mbyte External Hard Disk Drive,
Serial #7998, NAWS Plant Account #445381
Artecon Model DSU 351 1 $1,978,00
---------
660 Mbyte External Hard Disk Drive,
Serial #7242, NAWS Plant Account #445384
TOTAL VALUE GFE $5,430.00
</TABLE>
2. Add the following clause to Section VII Appendix I, "General Provisions" FAR
52.245-4 Government-Furnished Property (Short Form) (APR 1984)
3. ALL OTHER TERMS AND CONDITIONS REMAIN THE SAME.
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACTPage 1 of 1 Pages
1. CONTRACT ID CODE ___________
2. AMENDMENT/MODIFICATION NO. P00035
------
3. EFFECTIVE DATE 95FEB08
-----------
4. REQUISITION/PURCHASE REQ. NO. N/A
-------
5. PROJECT NO. (if applicable)
6. ISSUED BY ______ Code N47408
------
Commanding Officer
Attn: NAVFACCO, Code 2711, Bldg. 41
Construction Battalion Center
1000 23rd Avenue
Port Hueneme CA 93043-4301
POC: Marcia A. Barnard, Code 271A, (805) 982-5094
7. ADMINISTERED BY (if other than Item 6) Code
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
Code __________ Facility Code __________
9. ___ AMENDMENT OF SOLICITATION NO.
DATED (See Item 11)
10. X MODIFICATION OF CONTRACT/ORDER NO. N47408-79-C-5382
--- ------------------
DATED (See Item 13) 06 Dec 79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
____ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
_______ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A.____ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in
Item 10A
B. X The above numbered contract/order is modified to reflect the
----
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C.____ This Supplemental Agreement is entered into pursuant to authority of
93-47-487 15-2
--------------
D.____ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor X is not, is required to sign this document
---- ----
and return copies to the issuing office.
----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
1. The purpose of this modification is to revise data cited in block 6 of
the SF form 30, Modification P00006 to the above referenced contract.
Delete: Disbursing Officer Insert: Commander
Code 0862 Code 761100B, Costing Branch
Naval Weapons Center NAVAIRWARCENWPNDIV
China Lake, CA 93555 1 Administration Circle
China Lake, CA 93555-6001
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)____________________________
15B. CONTRACTOR/OFFEROR________________ (Signature of person authorized to sign)
15C. DATE SIGNED ___________________
R&M-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
16A. NAME AND TITLE Of CONTRACTING OFFICER (Type or print) M.A. Barnard, Contracting Officer
--------------------------------------
16B. UNITED STATES OF AMERICA By /s/ M.A. Barnard (Signature of Contracting Officer)
----------------
16C. DATE SIGNED 2/8/96
------
</TABLE>
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00036
--------
3. EFFECTIVE DATE 96 APRIL 19
---------------
4. REQUISITION/PURCHASE REQ. NO. N/A
---------------
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N47408
--------
Commanding Officer
Attn: NAVFACCO, Code 2711, Bldg. 41
Construction Battalion Center
1000 23rd Avenue
Port Hueneme, CA 93043-4301
POC: Marcia A. Barnard, Code 271A, (805) 982-5094
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company
302 South 36 Street, Suite 400
Omaha, NE 68131
Code ____________ Facility Code _____________
9. AMENDMENT OF SOLICITATION NO. ______________
___ DATED (See Item 11) ________________
10. X MODIFICATION OF CONTRACT/ORDER NO. N47408-79-C-5382
--- ------------------
DATED (See Item 13) 06 Dec 79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
---------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. X The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority of
D. ___ Other (Specify type of modification and authority) _________________
E. IMPORTANT: Contractor X is not, is required to sign this document
--- ---
and return copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
1. The purpose of this modification is to establish revised procedure for the
submission of invoices and processing of payments relating to Navy Plant I,
Unit One.
SEE PAGE 2 OF 2
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print) _______________________________
15B. CONTRACTOR/OFFEROR ____________________________ (Signature of person
authorized to sign)
15C. DATE SIGNED __________________
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
M.A. Barnard, Contracting Officer
---------------------------------
16B. UNITED STATES OF AMERICA BY /s/ M.A. Barnard (Signature of
------------------------
Contracting Officer)
16C. DATE SIGNED 4/19/96
------------
R&M-1
<PAGE>
N47408-79-C-5382
MODIFICATION P00036
PAGE 2 OF 2
a. Contractor invoices, with proof of the Naval Air Weapons Station monthly
electricity bill, shall be submitted to the following address:
Commanding Officer (Code 823GOOD)
Geothermal Program Office ATTN: Ken Newton
Naval Air Weapons Station
1 Administration Circle
China Lake, CA 93555-6001
b. Payment will be made by:
Defense Finance and Accounting Service
Cleveland Center (DFAS-CL)
Operating Location (OPLOC) San Diego
937 N. Harbor Drive., San Diego, CA 92132-5111
c. Modification P00013 to the above referenced contract, in accordance with
Consents to Assignment signed by the Navy, states that all payments by the Navy
pertaining to Navy Plant I, Unit One, will be made to Credit Suisse.
Modification P00020 to the above referenced contract amends the Navy consent to
state that all references to Credit Suisse are modified to refer to Bank of
America National Trust and Savings Association. First Trust California has
acquired the corporate trust, agency, and global escrow accounts previously held
by Bank of America. All payments by the Navy will be remitted to "Coso Finance
Partners" (Revenue Fund) and sent to the following address:
Mr. Garland Murphy (Corporate Trust)
First Trust
One California St.
4th Floor
San Francisco, CA 94111
2. ALL OTHER TERMS AND CONDITIONS REMAIN THE SAME.
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00037
--------
3. EFFECTIVE DATE 96 MAY 20
---------------
4. REQUISITION/PURCHASE REQ. NO. N6053096RCM678
-----------------
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N47408
--------
Commanding Officer
Attn: NAVFACCO, Code 2711, Bldg. 41
Construction Battalion Center
1000 23rd Avenue
Port Hueneme, CA 93043-4301
POC: Marcia A. Barnard, Code 271A, (805) 982-5094
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company
302 South 36th Street, Suite 400
Omaha, NE 68131
Code ____________ Facility Code _____________
9. AMENDMENT OF SOLICITATION NO.
DATED (See Item 11)
10. X MODIFICATION OF CONTRACT/ORDER NO. N47408-79-C-5382
--- ------------------
DATED (See Item 13) 06 DEC 79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) AC 97X4930 NH2C 000 77777
-------------------------
0 068936 2F 000000 5306RAMC6780 $10,000,000.00
----------------------------------------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. X The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority of
D. ___ Other (Specify type of modification and authority) _________________
E. IMPORTANT: Contractor X is not, ___ is required to sign this document
---
and return copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
1. The purpose of this modification is to increase the funding and make
administrative corrections to the above referenced contract.
2. The contract funding is increased by $10,000,000.00 to a new total of
$70,000,000.00 to reimburse, at the reduced contract price, the contractor for
the contractor's payment of Southern California Edison's bill for electricity
furnished to Naval Air Weapons Station, China Lake, CA.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print) ________________________________
15B. CONTRACTOR/OFFEROR (Signature of person
---------------------------
authorized to sign)
15C. DATE SIGNED ________________
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Sally K. Middlebrooks, Contracting Officer
------------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ Sally K. Middlebrooks (Signature of
-----------------------------
Contracting Officer)
16C. DATE SIGNED 5/20/96
------------
R&M-1
<PAGE>
N47408-97-C-5382
MODIFICATION P00037
PAGE 2 OF 2
3. Block 12 of P00024 is corrected to read
"AA 17X4912.3733 000 77777 0 60530 2F 2151N79C5382 RCP#N6053087RC26255
$10,000,000.00"
4. Block 12 of P00027 and P00028 are corrected to read
"AB 97X4930 NH2F 000 77777 0 60530 2F 2151N RCP#N6053087RC26255 $10,000,000.00"
5. ALL OTHER TERMS AND CONDITIONS REMAIN THE SAME.
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00038
--------
3. EFFECTIVE DATE 97Aug22
-------------
4. REQUISITION/PURCHASE REQ. NO. N6053097RC04547
---------------
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N47408
--------
Commanding Officer
NAVFACCO, Code 2711, Bldg. 41
Naval Construction Battalion Center
1000 23rd Avenue
Port Hueneme, CA 93043-4301
POC: Marcia Barnard, Code 271A, (805) 982-5094
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company
302 South 36th Street, Suite 400
Omaha, NE 68131
Code ____________ Facility Code _____________
9. ____AMENDMENT OF SOLICITATION NO._____
DATED (See Item 11)
10. X MODIFICATION OF CONTRACT/ORDER NO. N47408-79-C-5382
--- ---------------------
DATED (See Item 13) 06 Dec 79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
<TABLE>
<S> <C>
12. ACCOUNTING AND APPROPRIATION DATA (If required) AD 97X4930 NH2C 000 77777 0 068936 2F 000000
--------------------------------------------------
5307RA045470 $10,000,000.00 INCREASE
---------------------------------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. X The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority of 93-47-487 15-2
----------------
D. ___ Other (Specify type of modification and authority) _________________
E. IMPORTANT: Contractor X is not, _____ is required to sign this document
---
and return copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
1. The purpose of this modification is to increase contract funidng by
$10,000,000.00 to a new total of $80,000,000.00 to reimburse, at the reduced
contract price, the contractor for the contract's payment of Southern
California Edison's bill for electricity furnished to Naval Air Weapons
Station, China Lake, CA.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
15B. CONTRACTOR/OFFEROR ___________________ (Signature of person authorized to sign)
15C. DATE SIGNED _________
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) Sally K. Middlebrooks, Contracting Officer
------------------------------------------
</TABLE>
R&M-1
<PAGE>
<TABLE>
<S> <C>
16B. UNITED STATES OF AMERICA BY /s/ Sally Middlebrooks (Signature of Contracting Officer)
---------------------------
16C. DATE SIGNED 8/22/97
-----------
</TABLE>
R&M-2
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00039
--------
3. EFFECTIVE DATE N/A
---------------
4. REQUISITION/PURCHASE REQ. NO. ______________
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N47408
--------
Naval Facilities Engineering Command
Contracts Office, NFECD, SLC
4111 San Pedro St., (Code 2715, Bldg 41)
Port Hueneme, CA 93043-4410
7. ADMINISTERED BY (if other than Item 6) Code ___________
Retained by the PCO
See Block 6
POC: Marcia Barnard
(805) 982-5094
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company
302 South 36 Street, Suite 400
Omaha, NE 681318.
Code ____________ Facility Code 06-810-6400
-------------
9. AMENDMENT OF SOLICITATION NO.
DATED (See Item 11)
10. X MODIFICATION OF CONTRACT/ORDER NO. N47408-79-C-5382
--- ------------------
DATED (See Item 13) 06 DEC 79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required)
---------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. ___ The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. X This Supplemental Agreement is entered into pursuant to authority
---
of: FAR 52.243-1, Changes-Fixed Price
-----------------------------------
D. ___ Other (Specify type of modification and authority) _________________
E. IMPORTANT: Contractor ____ is not, X is required to sign this document
---
and return 2 copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
1. The purpose of this modification is to incorporate changes to Attachment 1
to Modification P00033 of the above referenced contract, entitled "Exhibit
A, Calculation of Payments for Transfers of Steam at Coso", to include a
provision for "in-kind" steam transfers.
2. CalEnergy (the Contractor) has acquired development rights to BLM Leases
CA-11383, CA-11384, and CA-11385. This acreage will be referred to
hereinafter as "BLM North". As these leases are located remotely from the
BLM power plants, the parties have agreed that it is currently best for all
entities concerned that steam from BLM North be utilized by facilities on
Navy contract lands subject to the terms and conditions of this contract.
SEE PAGE 2 OF 2
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
Thomas R. Mason - President California Energy Co.
-------------------------------------------------
15B. CONTRACTOR/OFFEROR /s/ Thomas R. Mason (Signature of person
-----------------------
authorized to sign)
15C. DATE SIGNED 11/19/98
------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Marcia A. Barnard, Contracting Officer
--------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ Marcia A. Barnard (Signature of
--------------------------
Contracting Officer)
16C. DATE SIGNED 11/19/98
------------
R&M-1
<PAGE>
N47408-97-C-5382
Modification P00039
Page 2 of 2
3. An "in-kind" transfer is defined to mean that the megawatt hour equivalent of
steam transferred from BLM North to Navy facilities is offset by an equal
megawatt hour equivalent of steam transferred from Navy II to BLMM. "In-
kind" amounts are not included in the calculation of Navy revenues. Nave
revenues on steam transfers other than "in-kind" are addressed in P00033 and
are unchanged by this modification.
4. Accuracy of the metering and instrumentation installed at any new intertie
between BLM leased lands and Navy contract lands shall be equal to or better
than the devices in use at the existing Navy II-BLM intertie.
5. The amendment to Exhibit A, Calculation of Payments for Steam Transfers at
Coso, dated October 7, 1998, is hereby incorporated in the contract.
6. ALL OTHER TERMS AND CONDITIONS REMAIN THE SAME
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<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00043
--------
3. EFFECTIVE DATE 24 Feb 1999
---------------
4. REQUISITION/PURCHASE REQ. NO. N6053099RC09872
-------------------
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N47408
--------
Naval Facilities Engineering Command
Contracts Office, 2715, Bldg. 41
NAVFACENGCOMDET-SLC
4111 San Pedro Street
Port Hueneme, CA 93043-4410
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
California Energy Company
302 South 36th Street, Suite 400
Omaha, NE 68131
Code ____________ Facility Code _____________
9. ____AMENDMENT OF SOLICITATION NO._____
DATED (See Item 11)___________
10. X MODIFICATION OF CONTRACT/ORDER NO. N47408-79-C-5382
--- ---------------------
DATED (See Item 13) 06 Dec 79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
________ is extended, _______ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
<TABLE>
<S> <C>
12. ACCOUNTING AND APPROPRIATION DATA (If required) AF 97X4930 NH2C 000 77777 0 068936 2F 000000
--------------------------------------------------
5309RA098720 $10,000,000.00
-------------------------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in Item
10A ______________________________________________
B. X The above numbered contract/order is modified to reflect the
---
administrative changes (such as changes in paying office, appropriation
date, etc.) set forth in Item 14, pursuant to the authority of FAR
43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority of 93-47-487 15-2
-------------------
D. ___ Other (Specify type of modification and authority)
E. IMPORTANT: Contractor X is not, _____ is required to sign this document
---
and return copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
1. The purpose of this modification is to increase contract funding by
$10,000,000.00 to a new total of $90,000,000.00 to reimburse, at the reduced
contract price, the contractor for the contract's payment of Southern
California Edison's bill for electricity furnished to Naval Air Weapons
Station, China Lake, CA.
2. Document Number providing funds is N6053099RC09872, information for Block
4 above.
3. There are no modifications P00040 and P00041. Numbering sequence is a
result of DOD Standard Procurement System.
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
15B. CONTRACTOR/OFFEROR ___________________ (Signature of person authorized to sign)
15C. DATE SIGNED _________
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) Katherine Volpe/Contracts
------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
16B. UNITED STATES OF AMERICA BY /s/ Katherine Volpe (Signature of Contracting Officer)
--------------------------
16C. DATE SIGNED 24 Feb 1999
---------------
</TABLE>
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<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT Page 1 of 2 Pages
1. CONTRACT ID CODE _______________
2. AMENDMENT/MODIFICATION NO. P00044
--------
3. EFFECTIVE DATE 25 May 1999
---------------
4. REQUISITION/PURCHASE REQ. NO. N6053099RC09872
-----------------
5. PROJECT NO. (if applicable) ________________
6. ISSUED BY Code N47408
--------
Naval Facilities Engineering Command
Contracts Office, 2715, Bldg. 41
NAVFACENGCOMDET-SLC
4111 San Pedro Street
Port Hueneme, CA 93043-4410
7. ADMINISTERED BY (if other than Item 6) Code ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
CLJV/O OPERATING COMPANY LLC
900 NORTH HERITAGE, BLDG D
RIDGECREST, CA 93555-5517
Code ____________ Facility Code _____________
9. ___AMENDMENT OF SOLICITATION NO.________
DATED (See Item 11)____________
10. X MODIFICATION OF CONTRACT/ORDER NO. N47408-79-C-5382
--- ------------------
DATED (See Item 13) 06 Dec 79
-----------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item 14.
The hour and date specified for receipt of Offers
___ is extended, ___ is not extended.
Offerors must acknowledge receipt of the amendment prior to the hour and
date specified in the solicitation or as amended, by one of the following
methods:
(a) By completing Items 8 and 15, and returning ____________ copies of this
amendment; (b) By acknowledging receipt of this amendment on each copy of
the offer submitted; or (c) By separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF
OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR
OFFER. If, by virtue of this amendment you desire to change an offer
already submitted, such change may be made by telegram or letter, provided
each telegram or letter makes reference to the solicitation and this
amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) SEE SCHEDULE
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS.
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
A. ___ This Change Order is issued pursuant to: (Specify authority) The
changes set forth in Item 14 are made in the Contract Order No. in
Item 10A ______________________________________________
B. ___ The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to the
authority of FAR 43.103(b).
C. ___ This Supplemental Agreement is entered into pursuant to authority of
D. X Other (Specify type of modification and authority) _________________
---
E. IMPORTANT: Contractor X is not, ___ is required to sign this document
---
and return copies to the issuing office.
-----
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible)
SEE PAGE TWO
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remain unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print) Christopher T. McCallion
15B. CONTRACTOR/OFFEROR /s/ Christopher T. McCallion (Signature of person
-------------------------------
authorized to sign)
15C. DATE SIGNED May 18, 1999
------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Marcia Barnard/Contracts
--------------------------------------
16B. UNITED STATES OF AMERICA BY /s/ Marcia Barnard (Signature of
------------------------
Contracting Officer)
16C. DATE SIGNED May 25, 1999
---------------
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<PAGE>
N47408-79-C-5382, P00044
Page 2 of 2
1. Incorporate provisions of the fully executed Novation Agreement,
Exhibit (A) China Lake Joint Venture is the responsible entity under the
Novation and has designated Coso Operating Company, LLC as its agent under the
contract.
2. The Government acknowledges the assignments set forth in the Coso
Financing documents listed on Exhibit B and are hereby incorporated into the
contract.
3. The government consents to the Assignment of claims attached as
Exhibit C to this modification.
4. (a) The Contracting Officer hereby appoints the following individual
as Contracting Officer's Representative (COR) for this contract:
Kenneth Bonin, Sr.
Code 83G000D
Naval Air Weapons Station
1 Administrative Circle
China Lake, CA 93555-6100
(760) 939-4049
(b) It is emphasized that only the Contracting Officer has the
authority to modify the terms of the contract, therefore, in no event will any
understanding, agreement, modification, change order, or other matter deviating
from the terms of the contract between the Contractor and any other person be
effective or binding on the Government. When/If, in the opinion of the
Contractor, an effort outside the existing scope of the contract is requested,
the Contractor shall promptly notify the Procuring Contracting Officer (PCO) in
writing. No action must be taken by the Contractor unless the PCO has issued a
contractual change.
(c) In the absence of the COR named above, all responsibilities and
functions assigned to the COR shall be the responsibility of the Alternate COR
acting in behalf of the COR. The Contracting Officer hereby appoints the
following individual as the Alternative COR:
Francis C. Monastero
Code 83G0000D
Naval Air Weapons Station
1 Administrative Circle
China Lake, CA 93555-6100
(760) 939-4046
5. There is no Modification P00042. Numbering sequence is a result of
DOD Standard Procurement System.
6. All other terms and conditions remain unchanged.
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<PAGE>
NOVATION AGREEMENT
UNDER CONTRACT N62474-79-C-5382
CHINA LAKE JOINT VENTURE ("CLJV"), a California joint venture general
partnership between Caithness Acquisition Company, LLC, a Delaware limited
liability company, as assignee of CalEnergy Company, Inc., a Delaware
corporation ("CECI"), and Caithness Geothermal 1980 Limited, a Delaware Limited
Partnership ("CG80"); and the UNITED STATES OF AMERICA through the NAVAL
FACILITIES ENGINEERING COMMAND (the "Navy") enter into this Agreement as of the
date set forth below.
I. THE PARTIES AGREE TO THE FOLLOWING FACTS:
A. The Government represented by various contracting officers of the
Naval Facilities Engineering Command previously entered into a certain contract,
contract no. N62474-79-C-5382 (hereinafter the "Contract"), with CECI. By
modification No. P00001 to the Contract, the Navy recognized CLJV as the
successor in interest to all contractual rights and obligations of CECI under
the Contract. The term "the Contract" as used in this Agreement means the above
contract and purchase orders, including all modifications thereto made before
the effective date of this Agreement. Included in the term "the Contract" are
also all modifications made under the terms and conditions of this Contract and
purchase orders on or after the effective date of this Agreement. Pursuant to
the Contract, the Navy granted to CLJV, among other things, the right to develop
electric power from the geothermal resources on public lands located in Inyo
County, California. The purpose of this Agreement is to recognize Caithness
Acquisition Company LLC as the indirect successor in interest to CECI in CLJV
and its contractual rights and obligations under the Contract pertaining to such
public lands and to further recognize Caithness Acquisition Company LLC as the
successor-in-interest to CECI in CLJV and its contractual rights and obligations
under the Contract.
B. As of March 17, 1989, CLJV transferred to Coso Energy Developers, a
California general partnership ("CED") all rights, interests and obligations
under the Contract pertaining to the Navy II Lands (the "Navy II Project"),
subject to the terms of this Agreement, and CED assumed all obligations and
liabilities of CLJV under the Contract pertaining to the Navy II Lands.
C. As of July 31, 1989, CED transferred to Coso Power Developers, a
California general partnership ("CPD") all rights, interests, and obligations
under the Contract pertaining to the Navy II Lands and the Navy II Project, and
CPD assumed all obligations and liabilities of CED under the Contract pertaining
to the Navy II Lands.
II. IN CONSIDERATION OF THESE FACTS, THE PARTIES AGREE THAT BY THIS AGREEMENT -
A. The Navy hereby consents to the transfer made by CECI to Caithness
Acquisition Company, LLC ("CAC") in CLJV pursuant to the terms of the assignment
dated February 25, 1999, a copy of which is attached hereto as Exhibit A, and
the terms and conditions of the Agreement.
B. THE PARTIES FURTHER AGREE THAT IN CONSIDERATION OF THE FOREGOING TERMS
AND CONSENTS, THE PARTIES AGREE THAT THIS AGREEMENT --
1. CECI waives any claims and rights against the Navy that it now
has or may have in the future in connection with the Navy II Project.
2. CAC ratifies all previous actions taken by CLJV and CECI with
respect to the Contract, with the same force and effect as if the action had
been taken by CAC.
3. The Navy recognizes CAC as CECI's successor in interest to the
Contract. CAC by this Agreement becomes entitled to all rights, titles, and
interests of CECI in and to the Contract, as if CAC were the original party to
the Contract.
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<PAGE>
4. Except as expressly provided in this Agreement, nothing in it
shall be construed as a waiver of any rights of the Navy against CECI.
5. All payments and reimbursements previously made by the Navy to
CLJV or CECI, and all previous actions taken by the Navy under the Contract,
shall be considered to have discharged those parts of the Navy's obligations
under the Contract. Except as otherwise provided by this Agreement, all
payments and reimbursements made by the Navy after the date of this Agreement in
the name of or to CAC shall have the same force and effect as if made to CLJV,
and shall constitute a complete discharge to the extent of the amounts paid or
reimbursed.
6. CECI, Caithness Acquisition Company LLC and CLJV agree that the
Navy is not obligated to pay or reimburse any of them for, or otherwise give
effect to, any costs, taxes or other expenses, or any related increase, directly
or indirectly arising out of or resulting from the transfer of this Agreement,
other than those that the Navy in the absence of this transfer or Agreement
would have been obligated to pay or reimburse under the terms of the Contract.
7. Caithness Acquisition Company LLC consents to any future
modifications of the Contract made by the Navy and CLJV.
8. The Contract shall remain in full force and effect, except as
modified by this Agreement. Each party by its signature agrees to this
Agreement as of the day and year written above.
9. After the date of this Agreement, CLJV consists of CAC and CG80.
III. MISCELLANEOUS
1. Until notified otherwise, notices from the Navy concerning the
rights of Caithness Acquisition Company LLC and CLJV with respect to the
Contract shall be sent to:
For Caithness Acquisition Company LLC
-------------------------------------
Caithness Acquisition Company, LLC
c/o Coso Operating Company, LLC,
900 North Heritage, Building D
Ridgecrest, CA 93555-5517
Attention: Barbara Bishop Gollan
Vice President
Tel: (760) 499-2300
With a copy to:
Caithness Acquisition Company, LLC
1114 Avenue of the Americas, 41/st/ Floor
New York, NY 10036
Attention: Christopher T. McCallion
Executive Vice President
Tel: (212) 921-9099
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<PAGE>
For CLJV
--------
China Lake Joint Venture
c/o Coso Operating Company, LLC,
900 North Heritage, Building D
Ridgecrest, CA 93555-5517
Attention: Barbara Bishop Gollan
Vice President
Tel: (760) 499-2300
With a copy to:
Caithness Acquisition Company, LLC
1114 Avenue of the Americas, 41/st/ Floor
New York, NY 10036
Attention: Christopher T. McCallion
Executive Vice President
Tel: (212) 921-9099
2. This instrument may be executed in any number of counterparts,
each of which shall be deemed an original, with the same effect as if the
signatures thereto and hereto were the same instrument.
IN WITNESS WHEREOF, the parties set forth below have executed this
Instrument effective as of the dates set forth below:
<TABLE>
<S> <C>
"Navy"
UNITED STATES DEPARTMENT OF THE NAVY
Date: 25 May 1999 By: /s/ M.A. Barnard
-------------------------------------------------
Name: M.A. Barnard
-------------------------------------------------
Contracting Officer
"CLJV"
CHINA LAKE JOINT VENTURE, a California joint
venture general partnership
By: Caithness Acquisition Company, LLC,
a Delaware limited liability company,
Its General Partner
By: Caithness Energy, L.L.C.,
a Delaware limited liability company,
Its Managing Member
Date: May 25, 1999 By: /s/ Christopher T. McCallion
--------------------------------------------------
Christopher T. McCallion
Executive Vice President
</TABLE>
R&M-5
<PAGE>
By: Caithness Geothermal 1980, Ltd.,
a Delaware limited partnership,
Its General Partner
By: Caithness Power, L.L.C.,
a Delaware limited liability company,
Its General Partner
By: Caithness Energy, L.L.C.,
a Delaware limited liability company,
Its Managing Member
Date: ____________________ By: /s/ Christopher T. McCallion
----------------------------------
Christopher T. McCallion
Executive Vice President
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<PAGE>
EXHIBIT B
---------
COSO FINANCING DOCUMENTS LIST
(1) Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement (Navy I)
(2) Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement (BLM)
(3) Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement (Navy II)
(4) Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement (CLJV)
(5) Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement (CLC)
(6) Deed of Trust, Assignment of Rents, Fixture Filing and Security
Agreement (CTLP)
(7) Security Agreement (Governmental Approvals) between Coso Finance
Partners and U.S. Bank Trust National Association, as Collateral Agent
(8) Security Agreement (Governmental Approvals) between Coso Energy
Developers and U.S. Bank Trust National Association, as Collateral Agent
(9) Security Agreement (Governmental Approvals) between Coso Power
Developers and U.S. Bank Trust National Association, as Collateral Agent
(10) Co-Tenancy Agreement Coso Finance Partners, Coso Energy Developers,
and Coso Power Developers, as tenants in common, regarding certain leaseholds,
rights of way and improvements
(11) Special Power of Attorney granted by Coso Finance Partners in favor of
U.S. Bank Trust National Association
(12) Special Power of Attorney by Coso Power Developers in favor of U.S.
Bank Trust National Association
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<PAGE>
Exhibit 10.39
Escrow No. 1967
ESCROW AGREEMENT
----------------
ESCROW AGREEMENT made and entered into as of the 16th day of December, 1992
by and between the United States Government ("Navy"), Coso Finance Partners
("CFP") and Bank of America N.A. ("Agent"). CFP and the Navy are sometimes
collectively referred to herein as the Parties.
WHEREAS, CFP is a California general partnership composed of China Lake
Operating Company, a Delaware corporation ("CLOC"), and ESCA Limited
Partnership, a California limited partnership ("ESCA") the General Partners of
which are ESI Geothermal Inc., a Florida corporation, and Mojave Power, Inc., a
Delaware corporation;
WHEREAS, the Agent is a National Banking Association;
WHEREAS, the Navy and CFP are parties to that certain U.S. Government
Contract No. N62474-79-C-5382, dated February 16, 1988 originally entered into
between the Navy and China Lake Joint Venture, as subsequently modified and
amended (the "Navy Contract");
WHEREAS, pursuant to Section IV.C.8 of Modification P00008 to the Navy
Contract, as further modified by Modification P00025, CFP is required to
establish an escrow account (the "Account") to secure the payment of $25,000,000
to the Navy on or before December 31, 2009;
WHEREAS, simultaneously with the execution of this Agreement CFP is causing
the delivery to the Agent of the current balance of the Account.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, and subject to and on the terms and conditions herein set
forth, the parties hereto agree as follows:
Section 1. Deposit of Items Escrowed.
-------------------------
CFP has hereby caused to be delivered to Agent, and the Agent hereby
acknowledges receipt of, the balance of the Account aggregating $2,040,410.55
(the "Balance"), to be held by the Agent in accordance with the terms and
conditions of this Escrow Agreement.
1
<PAGE>
The Balance and any other sums from time to time held by the Escrow Agent
pursuant to the terms hereof, including all interest thereon, are herein
referred to as the "Escrow Fund," which shall be deemed to be deposited with the
Escrow Agent for the account of The Navy, subject to the terms and conditions of
this Agreement.
Section 2. Investment of Escrow Fund.
-------------------------
The Escrow Agent shall invest the Escrow Fund in any one or more of the
following:
(a) direct obligations of the United States of America (including
obligations issued or held in book entry form on the books of the Department of
Treasury of the United States of America) or obligations the timely payment of
the principal of and interest on which are fully guaranteed by the United States
of America; or
(b) fully collaterized repurchase agreements; or
(c) certificates of deposit, banker's acceptances, and other liquid
instruments offered by banks in the United States with net assets in excess of
$500 million; or
(d) prime commercial paper; or
(e) a taxable government money market portfolio, restricted to obligations
issued or guaranteed as to payment of principal and interest by the full faith
and credit of the United States.
For the purpose of investing funds held in escrow, Agent may accept and act
upon the oral instructions of John Sylvia, or such other person designated by
CFP to the Agent in writing (an "Authorized Caller"). Agent will confirm all
oral investment instructions in writing within three (3) business days. If
there is any discrepancy between any oral instructions and a written
confirmation of that instruction, Agent's records of the oral instructions shall
govern.
CFP shall indemnify and hold Agent harmless from any and all liability for
acting on an oral investment instruction purported to be given by an Authorized
Caller. Agent shall not be responsible for the authenticity of any
instructions, or be in any way liable for any unauthorized instruction or for
acting on such an instruction, whether or not the person giving the instructions
was, in fact, an Authorized Caller. In no event shall Agent be liable to the
Parties for any consequential, special, or exemplary
2
<PAGE>
damages, including but not limited to lost profits from any cause whatsoever
arising out of, or in any way connected with acting upon oral instructions
believed by Agent to be genuine.
Agent will act upon investment instructions the day that such instructions
are received, provided the requests are communicated within a sufficient amount
of time to allow Agent to make the specified investment. Instructions received
after an applicable investment cutoff deadline will be treated as being received
by Agent on the next business day, and Agent shall not be liable for any loss
arising directly or indirectly, in whole or in part, from the inability to
invest funds on the day the instructions are received. Agent shall not be
liable for any loss incurred by the actions of third parties or by any loss
arising by error, failure, or delay in making of an investment which is caused
by circumstances beyond Agent's reasonable control.
Section 3. Termination of Escrow.
---------------------
The escrow of the Escrow Fund (the "Escrow") will terminate at 11:59 PM,
Pacific Standard Time, upon the earlier of (a) or (b) below:
(a) The date upon which (i) the Escrow Agent receives a written or
telecopied letter from CFP directing the termination of the escrow and (ii) the
balance of the Escrow Fund equals or exceeds $25,000,000.
(b) December 31, 2009, if the event described in (a) above has not
occurred.
Promptly upon the termination of the Escrow, the Agent shall remit the
balance of the Escrow Fund up to the amount of $25,000,000 to the Navy. To the
extent that the balance of the Escrow Fund exceeds $25,000,000, amounts in
excess of $25,000,000 shall be disbursed in such manner as CFP may direct.
Section 4. Taxes.
-----
CFP shall be responsible for determining any requirements for paying taxes
or reporting any payments for tax purposes. CFP may give written directions to
the Escrow Agent to prepare and file tax information or to withhold any payments
hereunder for tax purposes. CFP agrees to indemnify and hold the Escrow Agent
harmless against all liability for tax withholding and/or reporting for any
payments made by the Escrow Agent pursuant to this Agreement.
3
<PAGE>
Section 5. Reports.
-------
Agent shall periodically provide the Parties with reports of the balance of
and activity in the Account.
Section 6. Amendments.
----------
No amendment, modification or addition hereto shall have effect or be
binding unless in writing and executed by all of the parties hereto or their
respective duly authorized representatives.
Section 7. Limitations of Duties of Agent.
------------------------------
In performing any duties under the Agreement, the Agent shall not be liable
to any Party for damages, losses, or expenses, except for negligence or willful
misconduct on the part of the Agent. Agent shall not incur any such liability
for (i) any act or failure to act made or omitted in good faith, or (ii) any
action taken or omitted in reliance upon any instrument, including any written
statement or affidavit provided for in this Agreement that Agent shall in good
faith believe to be genuine, nor will Agent be liable or responsible for
forgeries, fraud, impersonations, or determining the scope of any representative
authority. In addition, Agent may consult with legal counsel in connection with
Agent's duties under this Agreement and shall be fully protected in any act
taken, suffered, or permitted by it in good faith in accordance with the advice
of counsel. Agent is not responsible for determining and verifying the
authority of any person acting or purporting to act on behalf of any party to
this Agreement.
Section 8. Controversies.
-------------
If any controversy arises between the parties to this Agreement, or with
any other Party, concerning the subject matter of this Agreement, its terms or
conditions, Agent will not be required to determine the controversy or to take
any action regarding it. Agent may hold all documents and funds and may wait
for settlement of any such controversy by filing appropriate legal proceedings
or other measures as, in Agent's discretion, Agent may deem to be required,
despite what may be set forth elsewhere in this Agreement. In such event, Agent
will not be liable for interest or damage.
Furthermore, Agent may at its option, file an action of interpleader
requiring the Parties to answer and litigate any claims and rights among
themselves. Agent is
4
<PAGE>
authorized to deposit with the clerk of the court all funds held in escrow,
except all costs, expenses, charges and reasonable attorney fees incurred by
Agent due to the interpleader action and which the Parties jointly and severally
agree to pay. Upon initiating such action, Agent shall be fully released and
discharged of and from all obligations and liability imposed by the terms of
this Agreement.
Section 9. Indemnification of Agent.
------------------------
CFP agrees to indemnify and hold Agent harmless against any and all losses,
claims, damages, liabilities, and expenses, including reasonable costs of
investigation, counsel fees, including allocated costs of in-house counsel and
disbursements that may be imposed on Agent or incurred by Agent in connection
with the performance of his/her duties under this Agreement, including, but not
limited to, any litigation arising from this Agreement or involving its subject
matter. Agent shall have first lien on the property and papers held under this
Agreement for such compensation and expenses.
Section 10. Payment of Expenses.
-------------------
It is understood that the fees and usual charges on the schedule attached
hereto as Exhibit I agreed upon for services of Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
Agent renders any service not provided for in this Agreement, or if the Parties
request a substantial modification of its terms, or if any controversy arises,
or if Agent is made a Party to, or intervenes in, any litigation pertaining to
this escrow or its subject matter, Agent shall be reasonably compensated for
such extraordinary services and reimbursed for all costs, attorney's fees,
including allocated costs of in-house counsel, and expenses occasioned by such
default, delay, controversy or litigation and Agent shall have the right to
retain all documents and/or other things of value at any time held by Agent, in
this escrow until such compensation, fees, costs and expenses are paid. The
Parties jointly and severally promise to pay these sums upon demand. Unless
otherwise provided, the Agent may deduct such sums from the funds deposited.
Section 11. Notices.
-------
All notices, reports, instructions, requests and other communications given
under this Agreement shall be
5
<PAGE>
either (i) sent in writing and delivered to a responsible officer at the party's
offices as follows:
Escrow Agent: Bank of America NT&SA
Corporate Escrow No. 3960
One Embarcadero Center
Fifth Floor
San Francisco, CA 94111
CFP: Coso Finance Partners
c/o California Energy Company, Inc.
10831 Old Mill Road
Omaha, NE 68154
The Navy: Commander (Code 022)
Western Division, Naval Facilities
Engineering Command
900 Commodore Drive
San Bruno, CA 94066-2402
or delivered by first class, registered or certified U.S. mail, return receipt
requested, postage prepaid; or (ii) set by telex or telecopier and then
acknowledged as received by return telex or telecopier by the intended
recipient. Notices shall be deemed received only upon receipt. Notices shall be
directed to the addresses or telex or telecopier numbers indicated above;
provided, that a party may change its address or numbers for notices by giving
written notice to all other parties in accordance with this paragraph.
Section 12. Resignation of Escrow Agent.
---------------------------
Agent may resign at any time upon giving at least thirty (30) days written
notice to the Parties; provided however, that no such resignation shall become
effective until the appointment of a successor escrow agent which shall be
accomplished as follows: The Parties shall use their best efforts to mutually
agree on a successor escrow agent within thirty (30) days after receiving such
notice. If the Parties fail to agree upon a successor escrow agent within such
time, Agent, shall have the right to appoint a successor escrow agent authorized
to do business in the State of California. The successor escrow agent shall
execute and deliver an instrument accepting such appointment and it shall,
without further acts, be vested with all the estates, properties, rights,
powers, and duties of the predecessor escrow agent as if originally named as
escrow agent. Agent shall be discharged from any further duties and liability
under this Agreement.
6
<PAGE>
Section 13. Choice of Law; Merger; Successors; Waiver, etc.
-----------------------------------------------
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California. This Agreement, together
with any Exhibits and/or Schedules referred to herein, constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements and undertakings of the
parties in connection herewith. All of the terms, covenants, conditions and
provisions of this Agreement shall bind and inure to the benefit of the parties
hereto and to their respective successors and assigns. No failure or delay on
the part of the Escrow Agent in exercising any right, power or remedy may be, or
may be deemed to be, a waiver thereof; nor may any single or partial exercise of
any right, power or exercise of any right, power or remedy preclude any other
further exercise of any right, power or remedy. The invalidity of any provision
hereof shall in no way affect the validity of any other provision hereof. Each
of the parties hereto shall, at the request of the other party, deliver to the
requesting party all further documents or other assurances as may reasonably be
necessary or desirable in connection with this Agreement. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be one
and the same instrument. In the event of any dispute arising out of the subject
matter of this Agreement, the prevailing party shall recover, in addition to any
other damages assessed, its attorneys' fees and court costs incurred in
litigation or otherwise settling or resolving such dispute. Titles or captions
contained in this Agreement are inserted only as a matter of convenience and for
reference, and in no way define, limit, extend or describe the cope of this
Agreement or the intent of any provision hereof.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereunder set their hands and seals as of
the date and year first above written.
COSO FINANCE PARTNERS
By: China Lake Operating Company
General Partner
By: /s/ signature illegible
----------------------------
Title: Vice President
ESCA LIMITED PARTNERSHIP
By: Mojave Power, Inc.
By: /s/ Hiram A. Bingham
----------------------------
Title: President
BANK OF AMERICA, N.A.
By: /s/ Barbara Wise
----------------------------
Title: Vice President
-------------------------
UNITED STATES GOVERNMENT
By: /s/ Michael F. Howard
----------------------------
Michael F. Howard
Head, Contracts Department
Western Division
Naval Facilities Engineering
Command
Contracting Officer
W48679(14409/6)
8
<PAGE>
Exhibit 10.40
-------------
3200-24 FORM APPROVED
(May 1984) UNITED STATES OBM No. ___________
(Formerly 3200-8 & 3200-21) DEPARTMENT OF THE INTERIOR Expires January 31,1986
BUREAU OF LAND MANAGEMENT
OFFER TO LEASE AND LEASE FOR GEOTHERMAL RESOURCES Serial No. CA 11402
The undersigned have reserved others to lease all or any of the lands in item 2
that are available for lease pursuant to the Geothermal Steam Act of 1970
________________________.
Read Instructions Before Completing
1. Name California Energy Company, Inc.
Street 3333 Mendocino Ave., Suite 100
City, State, Zip Code Santa Rosa, California 95401
- ----------------------------------------------------------------
2. Surface managing agency if other than BLM ____________Unit Project_________
Legal description of land requested (segregate by public domain and
acquired lands):
T. 22 S., R. 39 E., Meridian Mt. Diablo State California County Inyo
Sec. 19, lots 1 to 4, E1/2, E1/2W1/2;
Secs. 20 and 29;
Sec. 30, lots 1 to 4, E1/2, E1/2W1/2.
<TABLE>
<S> <C> <C>
Total acres applied for 2,554.04
--------
Percent U.S. interest __________
Amount remitted: Filing fee$_____ Rental fee $5,110.00 Total $ 5,110.00
-------- ------------
_________________________________________________________________________________________________
DO NOT WRITE BELOW THIS LINE
</TABLE>
3. Land included in lease:
T. R. Meridian State County
Same as Item 2.
Total acres in lease 2554.04
Rental retained $5110.00
________________________________________________________________________________
In accordance with the above offer, or the previously submitted competitive bid,
this lease is issued granting the exclusive right to drill for, extract,
produce, remove, utilize, sell, and dispose of all the geothermal resources in
the lands described in item 3 together with the right to build and maintain
necessary improvements thereupon, for a primary term of 10 years. Rights
granted are subject to applicable laws, the terms, conditions, and attached
stipulations of this lease, the Secretary of Interior's regulations
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<PAGE>
and formal orders in effect as of lease issuance and, when not inconsistent with
lease rights granted or specific provisions of this lease, regulations and
formal orders hereafter promulgated.
<TABLE>
<S> <C>
THE UNITED STATES OF AMERICA
Type of lease:
by /s/ Joan B. Russell
------------------------------
Noncompetitive
- ---
Chief, Leasable Minerals Section
-----------------------------------
X Competitive Coso KGRA; Parcel 20
- ---
Other Lease Sale of 9/15/81 EFFECTIVE DATE OF LEASE MAY 1, 1985
- --- ---------------------------- --------------
</TABLE>
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<PAGE>
4. (a) Undersigned certifies that
(1) Offeror is a citizen of the United States; an association of such
citizens; a municipality; or a corporation organized under the laws of
the United States, any State or the District of Columbia; (2) All parties
holding an interest in the offer are in compliance with 43 CFR 3200 and
the authorizing Act; (3) Offeror's chargeable interests, direct and
indirect, do not exceed that allowed under the Act; and (4) Offeror is
not considered a minor under the laws of the State in which the lands
covered by this offer are located.
(b) Undersigned agrees that signature to this offer constitutes acceptance of
this lease, including all terms, conditions and stipulations of which offeror
has been notice, and any amendment or separate lease that may cover any land
described in this offer open to lease application at the time this offer was
filed but omitted for any reason from this lease. The offeror further agrees
that this offer cannot be withdrawn, either in whole or part, unless the
withdrawal is received by the BLM State Office before this lease, an amendment
to this lease, or a separate lease, whichever covers the land described in the
withdrawal, has been signed on behalf of the United States.
This offer will be rejected and will afford the offeror no priority if it is
not properly completed and executed in accordance with the regulations, or if it
is not accompanied by the required payments. Title 18 U.S.C. Sec. 1001 makes it
a crime for any person knowingly and willfully to make to any Department or
agency of the United States any false, fraudulent, or untrue statements or
representations as to any matter within its jurisdiction.
Duly executed this 19th day of April , 1985 /s/ signature illegible
------------- -- ----------------------------
- ---------------------------------------------------------------
LEASE TERMS
Sec. 1. Rentals -- Rentals shall be paid to proper office of lessor in advance
of each lease year until there is production in commercial quantities from the
leased lands. Annual rental rates per acre or fraction thereof are: $1 for
noncompetitive leases and $2 for competitive leases.
If this lease or a portion thereof is committed to an approved cooperative or
unit plan which includes a well capable of producing leased resources, and the
plan contains a provision for allocation of production, royalties shall be paid
on the production allocated to this lease. However, annual rentals shall
continue to be due for those lands not within a participating area.
Failure to pay annual rental, if due, on or before the anniversary date of
this lease (or next official working day if office is closed) shall
automatically terminate this lease by operation of law. Rentals may be
suspended by the Secretary upon a sufficient showing by lessor.
Sec. 2. Royalties -- Royalties shall be paid to proper office of lessor.
Royalties shall be computed in accordance with regulations and orders. Royalty
rates on production are: 10 percent for steam, heat, or energy; 5 percent for
byproducts; and 5 percent for demineralized water.
Lessor reserves the right to establish reasonable minimum values on production
after giving lessee notice and an opportunity to be heard. Royalties shall be
due and payable on the last day of the month following the month in which
production occurred.
Minimum royalty shall be due for any lease year beginning on or after the
commencement of production in commercial quantities in which royalty payments
aggregate less than $2 per acre. Lessor shall pay such difference at the end of
lease year. This minimum royalty may be waived, suspended, or reduced, and the
above royalty rates may be reduced for all or portions of this lease if the
Secretary determines that such action is necessary to encourage the greatest
ultimate recovery of the leased resources, or is otherwise justified.
Sec. 3. Bonds -- Lessee shall file and maintain any bond required under
regulations.
Sec. 4. Diligence, rate of development, unitization, and drainage -- Lessee
shall perform diligent exploration as required by regulations and shall prevent
unnecessary damage to, loss of, or waste of leased resources. Lessor reserves
right to specify rates of development and production in the public interest and
to require lessee to subscribe to a cooperative or unit plan, within 30 days of
notice, if deemed necessary for proper development and operation of the area,
field, or pool embracing these leased lands. Lessee shall drill and produce
wells necessary to protect leased lands from drainage or pay compensatory
royalty for drainage in amount determined by lessor.
Sec. 5. Documents, evidence, and inspection -- Lessee shall file with proper
office of lessor, not later than (30) days, after effective date thereof, any
contract or evidence of other arrangement for the sale or disposal of
production. At such times and in such form as lessor may prescribe, lessee
shall furnish detailed statements showing amounts and quality of all products
removed and sold, proceeds therefrom, and amount used for production purposes or
unavoidably lost. Lessee shall be required to provide
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<PAGE>
plots and schematic diagrams showing development work and improvements, and
reports with respect to parties in interest, expenditures, and depreciation
costs.
In the form prescribed by lessor, lessee shall keep a daily drilling record, a
log, and complete information on well surveys and tests and keep a record of
subsurface investigations and furnish copies to lessor when required. Lessee
shall keep open at all reasonable times for inspection by any authorized officer
or lessor, the leased premises and all wells, improvements, machinery, and
fixtures thereon, and all books, accounts, maps, and records relative to
operations, surveys, or investigations on or in the leased lands. Lessee shall
maintain copies of all contracts, sales agreements, accounting records, and
documentation such as billings, invoices, or similar documentation that support
costs claimed as manufacturing, preparation, and/or transportation costs. All
such records shall be maintained in lessee's accounting offices for future audit
by lessor. Lessee shall maintain required records for 6 years after they are
generated or, if an audit or investigation is underway, until released of the
obligation to maintain such records by lessor.
Notwithstanding existence of this lease, information obtained under this
section shall be closed to inspection by the public in accordance with the
Freedom of Information Act (5 U.S.C. 552).
Sec. 6. Conduct of operations -- Lessee shall conduct operations in a manner
that minimizes adverse impacts to the land, air, and water, to cultural,
biological, visual, and other resources, and to other land uses or users.
Lessee shall take reasonable measures deemed necessary by lessor to accomplish
the intent of this section. To the extent consistent with leased rights
granted, such measures may include, but are not limited to, modification to
siting or design of facilities, timing of operations, and specification of
interim and final reclamation measures. Lessor reserves the right to continue
existing uses and to authorize future uses upon or in the leased lands,
including the approval of easements or rights-of-ways. Such uses shall be
conditioned so as to prevent unnecessary or unreasonable interference with
rights of lessees.
Prior to disturbing the surface of the leased lands, lessee shall contact
lessor to be appraised of procedures to be followed and modification or
reclamation measures that may be necessary. Areas to be disturbed may require
inventories or special studies to determine the extent of impacts to other
resources. Lessee may be required to complete minor inventories or short term
special studies under guidelines provided by lessor. If in the conduct of
operations, threatened or endangered species, objects of historic or scientific
interest, or substantial unanticipated environmental effects are observed,
lessee shall immediately contact lessor. Lessee shall cease any operations that
would result in the destruction of such species or objects.
Sec. 7. Production of byproducts -- If the production, use, or conversion of
geothermal resources from these leased lands is susceptible of producing a
valuable byproduct or byproducts, including commercially demineralized water for
beneficial uses in accordance with applicable State water laws, lessor may
require substantial beneficial production or use thereof by lessee.
Sec. 8. Damages to property -- Lessee shall pay lessor for damage to lessor's
improvements, and shall save and hold lessor harmless from all claims for damage
or harm to persons or property as a result of lease operations.
Sec. 9. Protection of diverse interests and equal opportunity -- Lessee shall
maintain a safe working environment in accordance with standard industry
practices and take measures necessary to protect the health and safety of the
public. Lessor reserves the right to ensure that production is sold at
reasonable prices and to prevent monopoly.
Lessee shall comply with Executive Order No. 11246 of September 24, 1965, as
amended, and regulations and relevant orders of the Secretary of Labor issued
pursuant thereto. Neither lessee nor lessee's subcontractor shall maintain
segregated facilities.
Sec. 10. Transfer of lease interests and relinquishment of lease -- As required
by regulations, lessee shall file with lessor, any assignment or other transfer
of an interest in this lease. Lessor may relinquish this lease or any legal
subdivision by filing in the proper office a written relinquishment, which shall
be effective as of the date of filing, subject to the continued obligation of
the lessee and surety to pay all accrued rentals and royalties.
Sec. 11. Delivery of premises -- At such time as all or portions of this lease
are returned to lessor, lessee shall place all wells in condition for suspension
or abandonment, reclaim the land as specified by lessor, and within a reasonable
period of time, remove equipment and improvements not deemed necessary by lessor
for preservation of producible wells or continued protection of the environment.
Sec. 12. Proceedings in case of default -- If lessee fails to comply with any
provisions of this lease, and the noncompliance continues for 30 days after
written notice thereof, this lease shall be subject to cancellation in
accordance with the Act. However, if this lease includes land known to contain
a well capable of production in commercial quantities, it may be cancelled only
by judicial proceedings. This provision shall not be construed to prevent the
exercise by lessor of any other legal and equitable remedy, including waiver of
1986the default. Any such remedy or waiver shall not prevent later cancellation
for the same default recurring at any other time.
R&M-4
<PAGE>
Whenever the lessee fails to comply in a timely manner with any of the
provisions of the Act, this lease, the regulations, or formal orders, and
immediate action is required, the Lessor may enter on the leased lands and take
measures deemed necessary to correct the failure at the expense of the Lessor.
Sec. 13. Heirs and successors-in-interest -- Each obligation of this lease
shall extend to and be binding upon, and every benefit hereof shall inure to,
the heirs, executors, administrators, successors, or assignees of the respective
parties hereto.
R&M-5
<PAGE>
Navy Constraints On Naval Weapon Center Lands
In addition to the lease terms and requirements contained in the lease forms,
the lessee shall comply with the following Navy constraints unless they are
jointly modified by the Commander, NWC, and the Authorized Officer, Bureau of
Land Management, with the concurrence of the Deputy Conservation Manager (DCM)
for Geothermal, USGS.
The Commander, NWC, is the responsible agent of the Federal Government for the
utilization of the land surface and airspace of NWC. As such, the Commander,
NWC, is responsible for the protection of the health and safety of all
personnel, military and civilian, within the confines of NWC, and is responsible
for the continuing preservation of the ability of NWC to perform its mission of
air delivered weapons research, development, test, and evaluation.
1. Access.
Access to the NWC is a privilege granted by the Commander, NWC. Exercise of
this privilege requires adherence to NWC traffic regulations, check-in/
check-out procedures, radiation control measures, environmental controls,
area access limitations, and electronic emission controls and such other
published administrative regulations as appropriate. Access shall be on a
not-to-interfere basis with NWC test schedules, and shall be limited to that
specific lease block or area being explored, developed or produced. Access
schedules shall be established on a weekly basis with NWC. NWC shall provide
uninterrupted short term access for reasons of geothermal safety or other
drilling incidents requiring access to a specific site for geothermal
operations. Experience to date shows that in any given month, scheduled and
unscheduled daylight downtime will not regularly exceed 10% and nighttime
downtime will not regularly exceed 2%. Access shall require that for each
lease holder, one responsible contact point shall at all times know who is
present on NWC lands, and this contact point shall be reachable at all times
in event evacuation is ordered.
2. Security.
The mission of the NWC is such that visitors cannot be granted access to NWC
lands without going through NWC security procedures. All non-citizen visits
must be arranged through NWC with a minimum notice of 96 hours for non-
communist-bloc visitors. The latter will be considered on a case-by-case
basis. Accessible areas visitors use will be delineated by NWC.
R&M-6
<PAGE>
3. Environmental.
NWC retains the right to suspend any operation judged by the Center to
present an imminent threat to the environment. During all operations, all
federal, state and local environmental standards shall be rigorously
observed. No components of the environment shall be unnecessarily disturbed.
NWC shall have the right to impose those emission standards required to
protect the Center's mission.
4. Sites and Routes.
All vehicular traffic shall be limited to routes approved by NWC. Power
plant sites, drill pad sites, and pipe line routes will be selected subject
to NWC approval to ensure that such sites will have a minimum impact on NWC
range operations. All site plans shall be submitted to NWC for review and
approval. Routes to and from work areas within lease blocks shall be
approved by NWC.
5. Shelters.
Lease operators shall have the option of either moving employees outside NWC
boundaries upon request of the designated representatives of the Commander,
NWC, or retiring to NWC approved personnel shelters provided by the lessee
during those times when the NWC operations require personnel protection at
the work site.
6. Radioactive Sources.
No radioactive sources shall be brought into NWC until appropriate Navy
permits have been obtained. These permits will be issued after NWC has
verified the license of the operator to be valid for the proposed effort and
has approved written standard procedures for use and for handling lost or
damaged sources.
7. Injuries and Accidents.
All disabling injuries occurring within NWC boundaries will be reported
within 24 hours to NWC. NWC will have the right to suspend any operation
judged by NWC to present an imminent danger to any personnel on NWC property
or to government property.
8. Electronic Radiation.
Electronic emissions will not be permitted without prior review and
authorization by the NWC. Periods of emission will be coordinated with the
Center and, at times, the Center may require electronic emission silence for
periods of up to four hours.
2
R&M-7
<PAGE>
9. Plant Protection.
All wet-heads shall be revetted to a degree acceptable to NWC; all wells so
designated by NWC shall be fitted with an approved below ground or revetted
flow limiter; all pipe lines shall be fitted with automatic flow limiters as
approved by NWC and all power plants shall be equipped with a hardened
control room approved for continuous occupancy during NWC tests.
10. Information.
All information on incidents involving both NWC equipment and/or personnel
and the geothermal operators will be released to the public jointly by NWC
and the Department of Interior. Particular attention will be given to
information concerning incidents that have the potential for high public
interest. Any serious injury or fatality and any geothermal blowout will be
reported at once to NWC.
11. Military/Government Property.
All military and government property found on the land surface or embedded
in the land shall be left in place. NWC shall be informed of the presence of
all suspected or potentially hazardous material immediately and NWC
personnel will inspect and remove such material in a timely manner. In case
of doubt, NWC is to be called for an inspection.
12. Data Exchange.
Data on flow, chemistry of fluids and reservoir conditions and structure
shall be provided to NWC with such data to remain proprietary in accordance
with current practices and procedures as developed by the Deputy
Conservation Manager and set forth in 30 CFR 270.
13. Legal Jurisdiction.
Law enforcement on NWC lands will remain the responsibility of NWC. The use
of geothermal operator employees in a guard function or the contracting by
the geothermal operator for security guards on NWC lands will be subject to
review and approval by NWC.
14. Right of Inspection.
NWC shall have the right of inspection at all times to ensure and verify
compliance with these constraints.
15. Minor administrative costs incurred by the Naval Weapons Center, i.e.,
scheduling to avoid conflict with Weapons Center range use, will be
chargeable to the leaseholder. For more information call Dr. Carl Austin,
(714) 939-3411, extension 228.
3
R&M-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Form 3200-17 UNITED STATES FORM APPROVED
(August 1982) DEPARTMENT OF THE INTERIOR OMB NO. 1004-0074
BUREAU OF LAND MANAGEMENT Expires: April 30, 1985
Serial No. CA11402
</TABLE>
ASSIGNMENT AFFECTING RECORD TITLE
TO GEOTHERMAL RESOURCES LEASE New Serial No.
PART I
COSO LAND COMPANY
c/o California Energy Company, Inc.
3333 Mendocino Ave., Suite 100
Santa Rosa, CA 95401
The undersigned, as owner of 100% percent of record title of the above-
designated geothermal resources lease issued effective (date) May 1, 1985,
hereby transfers and assigns to the assignee shown above, the record title
interest in and to such lease as specified below.
________________________________________________________________________________
- --
2. Describe the lands affected by this assignment (43 CFR 3241.2-5)
T. 22 S., R. 39 E., Mt. Diablo, Meridian
Sec. 19, Lots 1-4, Inclusive, E1/2, E1/2W1/2
Sec. 20,
Sec. 29,
Sec. 30, Lots 1-4, Inclusive, E1/2, E1/2W1/2
Total Area 2,554.04
________________________________________________________________________________
3. What part of assignor(s) record title interest is being conveyed to
assignee? (Give percentage or share) 100%
________________________________________________________________________________
4. What part of the record title interest is being retained by assignor(s)?
NONE
________________________________________________________________________________
5a. What overriding royalty or production payments is the assignor reserving
herein? (See Item 4 of General Instructions; specify percentage; no
assignment will be approved which does not comply with 43 CFR 3241.7-2 on
limitation of overriding royalties)
NONE
b. What overriding royalties or production payments, if any, were previously
reserved or conveyed? (Percentage only) NONE
________________________________________________________________________________
It is agreed that the obligation to pay any overriding royalties or payments out
of production of geothermal resources created herein, which, when added to
overriding royalties or payments out of production previously created, aggregate
in excess of 50 percent, of the rate of royalty due the United States, shall be
suspended.
I CERTIFY That the statements made herein are true, complete, and correct to the
best of my knowledge and belief and are made in good faith.
Executed this 17th day of May, 1985
California Energy Company, Inc.
<TABLE>
<S> <C> <C> <C>
By: /s/ Kenneth P. Nemzer 3333 Mendocino Ave., Suite 100
-------------------------------------- ------------------------------------------------------
(Assignor's Signature) (Assignor's Address)
Kenneth P. Nemzer
Secretary and General Counsel Santa Rosa, CA 95401
------------------------------------------------------
(City) (State) (Zip Code)
</TABLE>
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<PAGE>
_______________________________________________________________________________
Title 18 U.S.C., Section 1001, makes it a crime for any person knowingly and
willfully to make to any department or agency of the United States any false,
fictitious, or fraudulent statements or representations as to any matter within
its jurisdiction.
_______________________________________________________________________________
THE UNITED STATES OF AMERICA
Assignment approved as to the lands described below:
Same as Item #2
<TABLE>
<S> <C>
Assignment approved effective Jul 1, 1985 By /s/ Joan B. Russell
---------------- -----------------------------------------------
(Authorized Officer)
Chief, Leasable Minerals Section Jun 24, 1985
--------------------------------------------------
(Title) (Date)
</TABLE>
================================================================================
==
NOTE: This form may be reproduced provided that copies are exact reproductions
on one sheet of both sides of this official form in accordance with the
provisions of 43 CFR 3241.2-4
================================================================================
==
R&M-10
<PAGE>
PART II
________________________________________________________________________________
ASSIGNEE'S REQUEST FOR APPROVAL OF ASSIGNMENT
________________________________________________________________________________
A. ASSIGNEE CERTIFIES THAT
1. Assignee is qualified to hold a geothermal resources lease under 43 CFR
3202.1
2. Assignee is ____ Individual ____ Municipality X Association
-----
____ Corporation
3. Assignee is the sole party in interest in this assignment (information as
to interests of other parties in this assignment must be furnished as
prescribed in Specific Instructions)
4. Filing fee of $50 is attached (See Item 2 of General Instructions)
5. Assignee's interests, direct and indirect, in geothermal resources leases,
do not exceed 20,480 chargeable acres (43 CFR 3201.2)
B. ASSIGNEE AGREES to be bound by the terms and provisions of the lease
described here, provided the assignment is approved by the Authorized
Officer.
C. IT IS HEREBY CERTIFIED That the statements made herein are true, complete,
and correct to the best of undersigned's knowledge and belief and are made in
good faith.
Executed this 17th day of May, 1985
Coso Land Company
By: /s/ Kenneth P. Nemzer
-----------------------------------
(Assignee's Signature)
Kenneth P. Nemzer
Secretary and General Counsel
California Energy Company, Inc.
Joint Venture (Operator)
3333 Mendocino Ave., Suite 100
Santa Rosa, CA 95401
----------------------------------
(Address, include zip code)
_______________________________________________________________________________
Title 18 U.S.C. Section 1001, makes it a crime for any person knowingly and
willfully to make to any department or agency of the United States any false,
fictitious, or fraudulent statements or representations as to any matter within
its jurisdiction.
________________________________________________________________________________
GENERAL INSTRUCTIONS
1. Use of form - Use only for assignment of record title interest in geothermal
resources leases, and for assignments of working or royalty interests,
operating agreements, or subleases. An assignment of record title may only
cover lands in one lease. If more than one assignment is made out of a
lease, file a separate instrument of transfer with each assignment.
2. Filing and number of copies - File three (3) completed and manually signed
copies in proper BLM office. A $50 nonrefundable filing fee must accompany
assignment. File assignment within ninety (90) days after date of final
execution.
3. Effective date of assignment - Assignment, if approved, takes effect on the
first day of the month following the date of filing of all required papers.
4. Overriding royalties or payments out of production - Describe in an accompany
statement any overriding royalties or payments out of production created by
assignment but not set out therein. If payments out of production are
reserved by assignor, outline in detail the amount, method of payment, and
other pertinent terms.
5. Effect of assignment - Approval of assignment of a definitely described
portion of the leased lands creates separate leases. Assignee, upon approval
of assignment, becomes lessee of the Government as to the assigned interest
and is responsible for
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<PAGE>
complying with all lease terms and conditions,
including timely payment of annual rental and maintenance of any required
bond; except in the case of assignment of undivided interests, royalties, and
operating agreements.
6. A copy of the executed lease, out of which this assignment is made, should be
made available to assignee by assignor.
SPECIFIC INSTRUCTIONS
(Items not specified are self-explanatory)
PART I
Item 1 - Type of print plainly, in ink, between and below heavy dots, the
assignee's full name and mailing address, including zip code.
PART II
A. Certification of assignee
3. If assignee is an association or partnership, assignee must furnish a
certified copy of its articles of association or partnership, with a statement
that (a) it is authorized to hold geothermal resources leases; (b) that the
person executing the assignment is authorized to act on behalf of the
organization in such matters; and (c) names and addresses of members controlling
more than 10 percent interest.
If assignee is a corporation, it must submit a statement containing the
following information: (a) State in which it was incorporated; (b) that it is
authorized to hold geothermal resources leases; (c) that officer executing
assignment is authorized to act on behalf of the corporation in such matters;
and (d) percentage of voting stock and percentage of all stock owned by aliens
or those having addresses outside the United States. If 10 percent or more of
the stock of any class is owned or controlled by or on behalf of any one
stockholder, a separate showing of his citizenship and holdings must be
furnished.
If evidence of qualifications and ownership has previously been furnished as
required by the above, reference by serial number of record in which it was
filed together with a statement to any amendments. Qualifications of assignee
must be in full compliance with the regulations (43 CFR 3241.1-2).
4. Statement of interests - Assignee must indicate whether or not he is the
sole party in interest in the assignment; if not, assignee must submit, at time
assignment is filed, a signed statement giving the names of other interested
parties. If there are other parties interested in the assignment, a separate
statement must be signed by each assignee, giving the nature and extent of the
interest of each, the nature of agreement between them, if oral; and a copy of
agreement, if written. All interested parties must furnish evidence of their
qualifications to hold such lease interests. Separate statements and written
agreements, if any, must be filed with the filing of the assignment.
The Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.) requires us to
inform you that:
This information is being collected in accordance with 73 CFP 3241.
This information will be used to identify and communicate with the parties
involved
[sentence illegible
R&M-12
<PAGE>
<TABLE>
<CAPTION>
Form_000-3 UNITED STATES
(December 198_) DEPARTMENT OF THE INTERIOR FORM APPROVED
(FORMERLY 3106-5 & 3200-17) BUREAU OF LAND MANAGEMENT OMB NO. 1004-
0034
Expires: August 31,
1989
<S> <C> <C> <C> <C> <C>
ASSIGNMENT OF RECORD TITLE INTEREST IN A
LEASE FOR OIL AND GAS OR GEOTHERMAL RESOURCES Lease Serial No.
Mineral Leasing Act of 1920 (30 U.S.C. 181 et seq.) CA-11402
Act for Acquired Lands of 1947 (30 U.S.C. 351-359) New Serial No.
Geothermal Steam Act of 1970 (30 U.S.C. 101-1025)
Department of the Interior Appropriations Act, Fiscal Year 1981 (P.L. 96-514)
Type or print plainly in ink and sign in ink.
PART A: ASSIGNMENT
1. Assignee Coso Geothermal Company
Street 601 California Street, Suite 1111
City, State San Francisco, California
Zip Code 94108
Additional Assignees None
This record title assignment is for:(Check one) __ Oil and Gas Lease, or /X/ Geothermal Lease
Interest conveyed: (Check one or both, as appropriate) /X/ Record Title, /__/ Overriding Royalty, payment out of
production or other similar
interests or payments
2. This assignment conveys the following interest:
Land Description Percent of Interest Percent of
Additional space on reverse, if needed. Do not submit Owned Conveyed Retained Overriding Royalty
documents other than this form; or Similar Interests
such documents should only Reserved Previously
be referenced herein. reserved
or conveyed
a b c d e f
T. 22 S., R. 39 E., Mt. Diablo Meridian
100% 100% 0% 0% 0%
Sec. 19, Lots 1-4, Inclusive, E1/2, E1/2W1/2
Sec. 20,
Sec. 29,
Sec. 30, Lots 1-4, Inclusive, E1/2, E 1/2W1/2
Total Area 2,554.04
</TABLE>
FOR BLM USE ONLY
UNITED STATES OF AMERICA
This assignment is approved solely for administrative purposes. Approval does
not warrant that either party to this assignment holds legal or equitable title
to this lease.
X Assignment approved for above described lands: ___ Assignment approved
- --- for attached land
description
Assignment approved effective May 1 1988
By /s/ Fred O'Ferrall Chief, Leasable Minerals Section Apr 20 1988
(Authorized Officer) (Title) (Date)
R&M-13
<PAGE>
No. 2 Continued: ADDITIONAL SPACE for Land Description. in Item No. 2 if
needed.
PART B: CERTIFICATION AND REQUEST FOR APPROVAL
1. The assignor certifies as owner of an interest in the above designated lease
that he/she hereby assigns to the above assignee(s) the rights specified
above.
2. Assignee certifies as follow: (a) Assignee is a citizen of the United
States; an association of such citizens; a municipality; or a corporation
organized under the laws of the United States or of any State or territory
thereof. For the assignment of NPR-A leases, assignee is a citizen, nation,
or resident alien of the United States or association of such citizen,
nationals, resident aliens or private, public or municipal corporations, (b)
Assignee is not considered a minor under the laws of the State in which the
lands covered by this assignment are located; (c) Assignee's chargeable
interests, direct and indirect, in either public domain or acquired lands, do
not exceed 200,000 acres in oil and gas options or 246,080 in oil and gas
leases in the same State, or 300,000 acres in leases and 200,000 options in
each leasing District in Alaska, of this is an oil and gas lease issued in
accordance with the Mineral Leasing Act of 1920 or 51,200 acres in any one
State if this is a geothermal lease; and (d) All parties holding an interest
in the assignment are otherwise in compliance with the regulations (43 CFR
Group 3100 or 3200) and the authorizing Acts.
3. Assignee's signature to this assignment constitutes acceptance of all
applicable terms, conditions, stipulations and restrictions pertaining to the
lease described herein.
For oil and gas assignments, the obligation to pay overriding royalties, payment
out of production, carried interests, net profit interests, or such similar
payments or interests increased herein, which, when added to overriding
royalties or payments out of production or other similar interests or payments
previously created, may be suspended by the Secretary at any time upon a
determination that the excess constitutes a burden on lease operations in
accordance with 43 CFR 3103.
For geothermal assignments, an overriding royalty may not be less than one-
fourth (1/4) of one percent of the value of output, nor greater than 50 percent
of the rate of royalty due to the United States when this assignment is added to
all previously created overriding royalties (43 CFR 3241).
I certify that the statements made herein by me are true, complete, and correct
to the best of my knowledge and belief and are made in good faith.
<TABLE>
<CAPTION>
Assignor /s/ Richard A. Nishkian
-------------------------------------------
Executed this 15th day of April , 1988 or Richard A. (Signature) Nishkian
Attorney-in-fact Senior Vice President*
(Signature)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Name of assignor as shown on current lease or assignment Coso Land Company
601 California Street, Suite 1111, San Francisco, California 94108
(Assignor's Address) (City) (State) (Zip Code)
Assignee /s/ Richard A. Nishkian
-------------------------------------------
Executed this 15th day of April , 1988 or Richard A. (Signature) Nishkian
Attorney-in-fact Senior Vice President and **
(Signature)
</TABLE>
18 U.S.C. Sec. 1001 makes it a crime for any person knowingly and willfully to
make to any Department or agency of the United States any false, fictitious or
fraudulent statements or representations as to any matter within its
jurisdiction.
* and Chief Financial Officer, California Energy Company,
Inc., Operator for Coso Land Company
** Chief Financial Officer, California Energy Company, Inc., Operator for Coso
Geothermal Company
R&M-14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Form 3000-3 UNITED STATES
(December 1986) DEPARTMENT OF THE INTERIOR FORM APPROVED
(formerly 3106-5 & 3200-17) BUREAU OF LAND MANAGEMENT OMB NO. 1004-0034
Expires: August 31, 1989
ASSIGNMENT OF RECORD TITLE INTEREST IN A Lease Serial No.
LEASE FOR OIL AND GAS OR GEOTHERMAL RESOURCES
Mineral Leasing Act of 1920 (30U.S.C. 181 et seq.) CA-11402
Act for Acquired Lands of 1947 (30U.S.C. 351-359) New Serial NO.
Geothermal Steam Act of 1970 (30 U.S.C. 1001-1025)
Department of the Interior Appropriations Act, Fiscal year 1981 (P.L. 96-514)
Type or print plainly in ink and sign in ink.
PART A: ASSIGNMENT
</TABLE>
1. Assignee Coso Energy Developers
Street 601 California Street, Suite 1111
City, State San Francisco, California
Zip Code 94108
Additional Assignees None
<TABLE>
This record title assignment is for: (Check one) __ Oil and Gas Lease, or X Geothermal Lease
---
<S> <C>
Interest conveyed: (Check one or both, as appropriate) X Record Title, __ Overriding Royalty, payment out of production or
other similar interests or payments
2. This assignment conveys the following interest:
Land Description Percent of Interest Percent of
Additional space on reverse, if needed. Do not submit Owned Conveyed Retained Overriding Royalty
documents other than this form: such documents should only or Similar
Interests
be referenced herein. Reserved Previously
reserved or conveyed
<S> <C> <C> <C> <C> <C>
a b c d e f
T. 22 S., R. 39 E., Mt. Diablo Meridian 100% 100% 0% 0% 0%
Sec. 19, lots 1-4, Inclusive, E1/2, E1/2W1/2
Sec. 20,
Sec. 29,
Sec 30, Lots 1-4, Inclusive, E1/2, E1/2W1/2
Total Area 2,554.04
</TABLE>
FOR BLM USE ONLY
UNITED STATES OF AMERICA
This assignment is approved solely for administrative purposes. Approval does
not warrant that either party to this assignment holds legal or equitable title
to this lease.
<TABLE>
<S> <C>
X Assignment approved for above described lands: __ Assignment approved for attached land description
- ---
Assignment approved effective May 1 1988
By /s/ Fred O'Ferral Chief, Leasable Minerals Section Apr 20 1988
--------------------------- (Title)
(Authorized Officer)
</TABLE>
R&M-15
<PAGE>
No. 2 Continued: ADDITIONAL SPACE for Land Description in Item No 2 if needed.
PART B: CERTIFICATION AND REQUEST FOR APPROVAL
1. The assignor certifies as owner of an interest in the above designated lease
that he/she hereby assigns to the above assignee(s) the rights specified
above.
2. Assignee certifies as follows: (a) Assignee is a citizen of the United
States: an association of such citizens; a municipality; or a corporation
organized under the laws of the United States or of any State or territory
thereof. For the assignment of NPR-A leases, assignee is a citizen, nation,
or resident alien of the United States or association of such citizen,
nationals, resident aliens or private, public or municipal corporations, (b)
Assignee is not considered a minor under the laws of the State in which the
lands covered by this assignment are located; (c) Assignee's chargeable
interests, direct and indirect, in either public domain or acquired lands, do
not exceed 200,000 acres in oil and gas options or 246,080 in oil and gas
leases in the same State, or 300,000 acres in leases and 200,000 acres in
options in each leasing District in Alaska, if this is an oil and gas lease
issued in accordance with the Mineral Leasing Act of 1920 or $1,200 acres in
any one State if this is a geothermal lease; and (d) All parties holding an
interest in the assignment are otherwise in compliance with the regulations
(43 CFR Group 3100 or 3200) and the authorizing Acts.
3. Assignee's signature to this assignment constitutes acceptance of all
applicable terms, conditions, stipulations and restrictions pertaining to the
lease described herein.
For oil and gas assignments, the obligation to pay overriding royalties, payment
out of production, carried interests, net profit interests, or such similar
payments or interests created herein, which when added to overriding royalties
or payments out of production or other similar interests or payments previously
created, may be suspended by the Secretary at any time upon a determination that
the excess constitutes a burden on lease operations in accordance with 43 CFR
3103.
For geothermal assignments, an overriding royalty may not be less than one-
fourth (1/4) of one percent of the value of output, nor greater than 50 percent
of the rate of royalty due to the United States when this assignment is added to
all previously created overriding royalties (43 CFR 3241).
I certify that the statements made herein by me are true, complete, and correct
to the best of my knowledge and belief and are made in good faith.
Assignor /s/ Richard A. Nishkian
---------------------------
Executed this 15th day of April 1988 Richard A. Nishkian
Attorney-in-fact Senior Vice
President and*
(Signature)
Name of assignor as shown on current lease or assignment Coso Geothermal Company
601 California Street, Suite 1111, San Francisco, California 94108
(Assignor's Address) (City) (State) (Zip Code)
Assignee /s/ Richard A. Nishkian
--------------------------
Executed this 15th day of April , 1988 or Richard A. Nishkian
Attorney-in-fact Senior Vice
President and **
(Signature)
18 U.S.C. Sec. 1001 makes it a crime for any person knowingly and willfully to
make to any Department or agency of the United States any false, fictitious or
fraudulent statements or representations as to any matter within its
jurisdiction.
* Chief Financial Officer, California Energy Company, Inc.,
Operator for Coso Geothermal Company
Coso Hotsprings Inetrmountain Power, Inc., General Partner of Coso Energy
Developers
R&M-16
<PAGE>
Exhibit 10.41
-------------
Form 3200-21 UNITED STATES Serial Number CA 11383
(May 1974) DEPARTMENT OF THE INTERIOR USGS - KGRA Determination:
BUREAU OF LAND MANAGEMENT
GEOTHERMAL RESOURCES LEASE Parcel 13
/X/Competitive / / Noncompetitive Coso KGRA
________________________________________________________________________________
In consideration of the terms and conditions contained herein, and the grant
made hereby, this lease is entered into by the UNITED STATES OF AMERICA
(hereinafter called the "Lessor"), acting through the Bureau of Land Management
(hereinafter called the "Bureau") of the Department of the Interior (hereinafter
called the "Department"), and The City of Los Angeles, Department of Water and
------------------------------------------------
Power, Engineer of Resource Development, Room 1149, General Office Building,
- ----------------------------------------------------------------------------
P.O. Box 111, Los Angeles, California 90051 (hereinafter called the "Lessee").
- --------------------------------------------
This lease is made pursuant to the Geothermal Steam Act of 1970 (84 Stat. 1566;
30 U.S.C. 1001-1025) (hereinafter called "the Act") to be effective on November
--------
1, 1983 (hereinafter called the "effective date"). It is subject to all the
- -------
provisions of the Act and to all the terms, conditions, and requirements of (a)
all regulations promulgated by the Secretary of the Interior (hereinafter called
"the Secretary") in existence upon the effective date, specifically including,
but not limited to, 43 CFR Parts 3000 and 3200 and 30 CFR Parts 270 and 271, (b)
all geothermal resources operational orders (hereinafter called "GRO orders")
issued pursuant thereto, all of which are incorporated herein and by reference
made a part hereof, and (c) any regulations hereafter issued by the Secretary
(except those inconsistent with any specific provisions of this lease other than
regulations incorporated herein by reference) all of which shall be, upon their
effective date, incorporated herein and, by reference, made a part hereof.
Sec. 1. GRANT -- The Lessor hereby grants and leases to the Lessee the
exclusive right and privilege to drill for, extract, produce, remove, utilize,
sell, and dispose of geothermal steam and associated geothermal resources,
(hereinafter called "geothermal resources"), in or under the following described
lands situated within the County of Inyo, State of California:
---- ----------
________________________________________________________________________________
National Resource Lands Acquired Lands
T. 21 S.; R. 39 E.; Mount Diablo Meridian T. ;R. ; Meridian
Sec. 32, All;
Sec. 33, N1/2, N1/2S1/2, S1/2SW1/4, SW1/4SE1/4.
T. 22 S., R. 39 E.,
Sec. 4, lots 2, 3, and 4;
Sec. 5, lots 1 to 4, inclusive, S1/2N1/2,
N1/2S1/2.
Total Area 1,839.32 Total Area
________________________________________________________________________________
Containing 1,839.32 acres (hereinafter called the "leased area" or "leased
--------
lands"), together with:
(a) The nonexclusive right to conduct within the leased area geological
and geophysical exploration in accordance with applicable regulations; and
(b) The right to construct or erect and to use, operate, and maintain
within the leased area, together with ingress and egress thereupon all wells,
pumps, pipes, pipelines, buildings, plants, sumps, brine pits, reservoirs,
tanks, waterworks, pumping stations, roads, electric power generating plants,
transmission lines, industrial facilities, electric, telegraph or telephone
lines, and such other works and structures and to use so much of the surface of
the land as may be necessary or reasonably convenient for the production,
utilization, and processing of geothermal resources or to the full enjoyment of
the rights granted by this lease, subject to compliance with applicable laws and
regulations; Provided that, although the use of the leased area for an electric
power generating plant or transmission facilities or a commercial or industrial
facility is authorized hereunder, the location of such facilities and the terms
of occupancy therefor shall be under separate instruments issued under any
applicable laws and regulations; and
(c) The nonexclusive right to drill potable water wells in accordance with
state water laws within the leased area and to use the water produced therefrom
for operations on the leased lands free of cost, provided that such drilling and
development are conducted in accordance with procedures approved by the
Supervisor of the Geological Survey (hereinafter called "Supervisor"); and
<PAGE>
(d) The right to convert this lease to a mineral lease under the Mineral
Leasing Act of February 25, 1920, as amended, and supplemented (30 U.S.C. 181-
287) or under the Mineral Leasing Act for Acquired Lands (30 U.S.C. 351-359),
whichever is appropriate, if the leasehold is primarily valuable for the
production of one or more valuable by-products which are leasable under those
statutes, and the lease is incapable of commercial production or utilization of
geothermal steam; Provided that, an application is made therefor prior to the
expiration of the lease extension by reason of by-product production as
hereinafter provided and subject to all the terms and conditions of said
appropriate Acts. The Lessee is also granted the right to locate mineral
deposits under the mining laws (30 U.S.C. 21-54), which would constitute by-
products if commercial production or utilization of geothermal steam continued,
but such a location to be valid must be completed within ninety (90) days after
the termination of this lease. Any conversion of this lease to a mineral lease
or a mining claim is contingent on the availability of such lands for this
purpose at the time of the conversion. If the lands are withdrawn or acquired
in aid of a function of any Federal Department or agency, the mineral lease or
mining claim shall be subject to such additional terms and conditions as may be
prescribed by such Department or agency for the purpose of making operations
thereon consistent with the purposes for which these lands are administered; and
(e) The right, without the payment of royalties hereunder, to reinject
into the leased lands geothermal resources and condensates to the extent that
such resources and condensates are not utilized, but their reinjection is
necessary for operations under this lease in the recovering or processing of
geothermal resources. If the Lessee, pursuant to any approved plan, disposes of
the unusable brine and produced waste products into underlying formations, he
may do so without the payment of royalties.
Sec. 2. TERM
(a) This lease shall be for a primary term of ten (10) years from the
effective date and so long thereafter as geothermal steam is produced or
utilized in commercial quantities but shall in no event continue for more than
forty (40) years after the end of the primary term. However, if at the end of
that forty-year period geothermal steam is being produced or utilized in
commercial quantities, and the leased lands are not needed for other purposes,
the Lessee shall have a preferential right to a renewal of this lease for a
second forty-year term in accordance with such terms and conditions as the
Lessor deems appropriate.
(b) If actual drilling operations are commenced on the leased lands or
under an approved plan or agreement on behalf of the leased lands prior to the
end of the primary term, and are being diligently prosecuted at the end of the
primary term, this lease shall be extended for five (5) years and so long
thereafter, but not more than thirty-five (35) years, as geothermal steam is
produced or utilized in commercial quantities. If at the end of such extended
term geothermal steam is being produced or utilized in commercial quantities,
the Lessee shall have a preferential right to a renewal for a second term as in
(a) above.
(c) If the Lessor determines at any time after the primary term that this
lease is incapable of commercial production and utilization of geothermal steam,
but one or more valuable by-products are or can be produced in commercial
quantities, this lease shall be extended for so long as such by-products are
produced in commercial quantities but not for more than five (5) years from the
date of such determination.
R&M-2
<PAGE>
Sec. 3. RENTALS AND ROYALTIES
(a) Annual Rental -- For each lease year prior to the commencement of
production of geothermal resources in commercial quantities on the leased lands,
the Lessee shall pay the Lessor on or before the anniversary date of the lease a
rental of $2.00 for each acre or fraction thereof in excess of $2.00 per acre or
---- ----
fraction thereof due the Lessor for that or any future year.
(c) Royalty -- On or before the last day of the calendar month after the
month of commencement of production in commercial quantities of geothermal
resources and thereafter on a monthly basis, the Lessee shall pay to the Lessor:
(1) A royalty of 10 percent on the amount or value of steam, or any
--
other form of heat or other associated energy produced, processed, removed,
sold, or utilized from this lease or reasonably susceptible to sale or
utilization by the Lessee.
(2) A royalty of 5 percent of the value of any by-product derived
-
from production under this lease, produced, processed, removed, sold, or
utilized from this lease or reasonably susceptible of sale or utilization by the
Lessee, except that as to any by-product which is a mineral named in Sec. 1 of
the Mineral Leasing Act of February 25, 1920, as amended, (30 U.S.C. 181), the
rate of royalty for such mineral shall be the same as that provided in that
statute and the maximum rate of royalty for such mineral shall not exceed the
maximum royalty applicable under that statute.
(3) A royalty of 5 percent of the value of commercially demineralized
-
water which has been produced from the leased lands, and has been sold or
utilized by the Lessee or is reasonably susceptible of sale or utilization by
the Lessee. In no event shall the Lessee pay to the Lessor, for the lease year
beginning on or after the commencement of production in commercial quantities on
the leased lands or any subsequent lease year, a royalty of less than two (2)
dollars per acre or fraction thereof. If royalty paid in production during the
lease year has not satisfied this requirement, the Lessee shall pay the
difference on or before the expiration date of the lease year for which it was
paid.
(d) Waiver and Suspension of Rental and Royalties -- Rentals or royalties
may be waived, suspended, or reduced pursuant to the applicable regulations on
the entire leasehold or any portion thereof in the interest of conservation or
for the purpose of encouraging the greatest ultimate recovery of geothermal
resources if the Lessor determines that it is necessary to do so to promote such
development, or because the lease cannot be successfully operated under the
terms fixed herein.
(e) Undivided Fractional Interests -- Where the interest of the Lessor in
the geothermal resources underlying any tract or tracts described in Sec. 1 is
an undivided fractional interest, the rentals and royalties payable on account
of each such tract shall be in the same proportion to the rentals and royalties
provided in this lease as the individual fractional interest of the Lessor in
the geothermal resources underlying such tract is to the full fee interest.
(f) Readjustments -- Rentals and royalties hereunder may be readjusted in
accordance with the Act and regulations to rates not in excess of the rates
provided therein, and at not less than twenty (20) year intervals beginning
thirty-five (35) years after the date geothermal steam is produced from the
lease as determined by the Supervisor.
Sec. 4. PAYMENTS -- It is expressly understood that the Secretary may establish
the values and minimum values of geothermal resources to compute royalties in
accordance with the applicable regulations. Unless otherwise directed by the
Secretary, all payments to the Lessor will be made as required by the
regulations. If there is no well on the leased lands capable of producing
geothermal resources in commercial quantities, the failure to pay rental on or
before the anniversary date shall cause the lease to terminate by operation of
law except as provided by Sec. 3244.2 of the regulations. If the time for
payment falls on the day on which the proper office to receive payment is
closed, payment shall be deemed to be made on time if made on the next official
working day.
Sec. 5. BONDS -- The Lessee shall file with the Authorized Officer of the
Bureau (hereinafter called the "Authorized Officer") shall maintain at all times
the bonds required under the regulations to be furnished as a condition to the
issuance of this lease or prior to entry on the leased lands in the amounts
established by the Lessor and to furnish such additional bonds or security as
may be required by the Lessor upon entry on the lands or after operations or
production have begun.
Sec. 6. WELLS
(a) The Lessee shall drill and produce all wells necessary to protect the
leased land from drainage by operations on lands not the property of the Lessor,
or other lands of the Lessor leased at a lower royalty rate, or on lands as to
which royalties and rentals are paid into different funds from those into which
royalties under this lease are paid. However, in lieu of any part of such
drilling and production, with the consent of the supervisor, the Lessee may
compensate the Lessor in full each month for the estimated loss of royalty
through drainage in the amount determined by said supervisor.
(b) At the Lessee's election, and with the approval of the Supervisor, the
Lessee shall drill and produce other wells in conformity with any system of well
spacing or production allotments affecting the field or area in which the leased
lands are situated, which is authorized by applicable law.
(c) After due notice in writing, the Lessee shall diligently drill and
produce such wells as the supervisor shall require so that the leased lands may
be properly and timely developed and for the production of geothermal steam and
its by-products, including commercially demineralized water for beneficial uses
in accordance with applicable state laws. However, the supervisor may waive or
modify the requirements of this subparagraph (c) in the interest of conservation
of natural resources or for economic feasibility or other reasons satisfactory
to him. If the products or by-products of geothermal production from wells
drilled on this lease are susceptible of producing commercially demineralized
water for beneficial uses, and a program therefor is not initiated
R&M-3
<PAGE>
with due diligence, the Lessor may at its option elect to take such products or
by-products and the Lessee shall deliver all or any portion thereof to the
Lessor at any point in the Lessee's geothermal gathering or disposal system
without cost to the Lessee, if the Lessee's activities, under the lease, would
not be impaired and such delivery would otherwise be consistent with field and
operational requirements. The retention of this option by the Lessor shall in no
way relieve the Lessee from the duty of producing commercially demineralized
water where required to do so by the Lessor, except when the option is being
exercised and then only with respect to wells where it is being exercised, or
limit the Lessor's right to take any action under Sec. 25 to enforce that
requirement.
Sec. 7. INSPECTION -- The Lessee shall keep open at all reasonable times for
the inspection of any duly authorized representative of the Lessor the leased
lands and all wells, improvements, machinery, and fixtures thereon and all
production reports, maps, records, books, and accounts relative to operations
under the lease, and well logs, surveys, or investigations of the leased lands.
Sec. 8. CONDUCT OF OPERATIONS -- The Lessee shall conduct all operations under
this lease in a workmanlike manner and in accordance with all applicable
statutes, regulations, and GRO orders, and all other appropriate directives of
the Lessor to prevent bodily injury, danger to life or health, or property
damage, and to avoid the waste of resources, and shall comply with all
requirements which are set forth in 43 CFR Group 3200, including, but not
limited to, Subpart 3204, or which may be prescribed by the Lessor pursuant to
the regulations, and with the special stipulations which are attached to the
lease, all of which are specifically incorporated into this lease. A breach of
any term of this lease, including the stipulations attached hereto, will be
subject to all the provisions of this lease with respect to remedies in case of
default. Where any stipulation is inconsistent with a regular provision of this
lease, the stipulation shall govern.
Sec. 9. INDEMNIFICATION
(a) The Lessee shall be liable to the Lessor for any damage suffered by
the Lessor in any way arising from or connected with the Lessee's activities and
operations conducted pursuant to this lease, except where damage is caused by
employees of the Lessor acting within the scope of their authority.
(b) The Lessee shall indemnify and hold harmless the Lessor from all
claims arising from or connected with the Lessee's activities and operations
under this lease.
(c) In any case where liability without fault is imposed on the Lessee
pursuant to this section, and the damages involved were caused by the action of
a third party, the rules of subrogation shall apply in accordance with the law
of the jurisdiction where the damage occurred.
Sec. 10. CONTRACTS FOR SALE OR DISPOSAL OF PRODUCTS -- The Lessee shall file
with the supervisor not later than thirty (30) days after the effective date
thereof any contract, or evidence of other arrangement for the sale or disposal
of geothermal resources.
Sec. 11. ASSIGNMENT OF LEASE OR INTEREST THEREIN -- Within ninety (90) days
from the date of execution thereof, the Lessee shall file for approval by the
Authorized Officer any instruments of transfer made of this lease or of any
interest therein, including assignments of record title and working or other
interests.
Sec. 12. REPORTS AND OTHER INFORMATION -- At such times and in such form as the
Lessor may prescribe, the Lessee shall comply with all reporting requirements of
the geothermal resource leasing, operating, and unit regulations and shall
submit quarterly reports containing the data which it has collected through the
monitoring of air, land, and water quality and all other data pertaining to the
effect on the environment by operations under the lease. The Lessee shall also
comply with such other reporting requirements as may be imposed by the
Authorized Officer or the Supervisor. The Lessor may release to the general
public any reports, maps, or other information submitted by the Lessee except
geologic and geophysical interpretations, maps, or data subject to 30 CFR 270.79
or unless the Lessee shall designate that information as proprietary and the
Supervisor or the Authorized Officer shall approve that designation.
Sec. 13. DILIGENT EXPLORATION -- In the manner required by the regulations, the
Lessee shall diligently explore the leased lands for geothermal resources until
there is a well capable of commercial production on the leased lands. After the
fifth year of the primary term, the Lessee shall make at least
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<PAGE>
the minimum expenditures required to qualify the operations on the leased lands
as diligent exploration under the regulations.
Sec. 14. PROTECTION OF THE ENVIRONMENT (LAND, AIR AND WATER) AND IMPROVEMENTS
- -- The Lessee shall take all mitigating actions required by the Lessor to
prevent: (a) soil erosion or damage to crops or other vegetative cover on
Federal or non-Federal lands in the vicinity; (b) the pollution of land, air or
water; (c) land subsidence, seismic activity, or noise emissions; (d) damage to
aesthetic and recreational values; (e) damage to fish or wildlife or their
habitats; (f) damage to or removal of improvements owned by the United States or
other parties; or (g) damage to or destruction or loss of fossils, historic or
prehistoric ruins, or artifacts. Prior to the termination of bond liability or
at any other time when required and to the extent deemed necessary by the
Lessor, the Lessee shall reclaim all surface disturbances as required, remove or
cover all debris or solid waste, and, so far as possible, repair the offsite and
onsite damage caused by his activity or activities incidental thereto, and
return access roads or trails and the leased lands to an acceptable condition
including the removal of structures, if required. The Supervisor or the
Authorized Officer shall prescribe the steps to be taken by Lessee to protect
the surface and the environment and for the restoration of the leased lands and
other lands affected by operations on the leased lands and improvements thereon,
whether or not the improvements are owned by the United States. Timber or
mineral materials may be obtained only on terms and conditions imposed by the
Authorized Officer.
Sec. 15. WASTE -- The Lessee shall use all reasonable precautions to prevent
waste of natural resources and energy, including geothermal resources, or of any
minerals, and to prevent the communication of water or brine zones with any oil,
gas, fresh water, or other gas or water bearing formations or zones which would
threaten destruction or damage to such deposits. The Lessee shall monitor
noise, air, and water quality conditions in accordance with any orders of the
Supervisor.
Sec. 16. MEASUREMENT -- The Lessee shall gauge or otherwise measure all
production, sales, or utilization of geothermal resources and shall record the
same accurately in records as required by the Supervisor. Reports on
production, sales, or utilization of geothermal resources shall be submitted in
accordance with the terms of this lease and the regulations.
Sec. 17. RESERVATIONS TO LESSOR -- All rights in the leased area not granted to
the Lessee by this lease are hereby reserved to the Lessor. Without limiting the
generality of the foregoing such reserved rights include:
(a) Disposal -- The right to sell or otherwise dispose of the surface of
the leased lands or any resource in the leased lands under existing laws, or
laws hereafter enacted, subject to the rights of the Lessee under this lease;
(b) Rights-of-way -- The right to authorize geological and geophysical
explorations on the leased lands which do not interfere with or endanger actual
operations under this lease, and the right to grant such easements or rights-of-
way for joint or several use upon, through or in the leased area for steam lines
and other public or private purposes which do not interfere with or endanger
actual operations or facilities constructed under this lease;
(c) Mineral Rights -- The ownership of and the right to extract oil,
hydrocarbon gas, and helium from all geothermal steam and associated geothermal
resources produced from the leased lands;
(d) Casing -- The right to acquire the well and casing at the fair market
value of the casing where the Lessee finds only potable water, and such water is
not required in lease operations; and
(e) Measurements -- The right to measure geothermal resources and to
sample any production thereof.
Sec. 18. ANTIQUITIES AND OBJECTS OF HISTORIC VALUE -- The Lessee shall
immediately bring to the attention of the Authorized Officer any antiquities or
other objects of historic or scientific interest, including but not limited to
historic or prehistoric ruins, fossils, or artifacts discovered as a result of
operations under this lease, and shall leave such discoveries intact. Failure to
comply with any of the terms and conditions imposed by the Authorized Officer
with regards to the preservation of antiquities may constitute a violation of
the Antiquities Act (16 U.S.C. 431-433). Prior to operations, the Lessee shall
furnish to the Authorized Officer a certified statement that either no
archaeological values exist or that they may exist on the leased lands to the
best of the Lessee's knowledge and belief and that they might be impaired by
geothermal operations. If the Lessee furnishes a statement that archaeological
values may exist where the land is to be disturbed or occupied, the Lessee will
engage a qualified archaeologist, acceptable to the Authorized Officer, to
survey and salvage, in advance of any operations, such archaeological values on
the lands involved. The responsibility for the cost for the certificate,
survey, and salvage will be borne by the Lessee, and such salvaged property
shall remain the property of the Lessor or the surface owner.
Sec. 19. DIRECTIONAL DRILLING -- A directional well drilled under the leased
area from a surface location on nearby land not covered by the lease shall be
deemed to have the same effect for all purposes of this lease as a well drilled
from a surface location on the leased area. In such circumstances, drilling
shall be considered to have been commenced on the nearby land for the purposes
of this lease, and production of geothermal resources from the leased area
through any directional well located on nearby land, or drilling or reworking of
any such directional well shall be considered production or drilling or
reworking operations (as the case may be) on the leased area for all purposes of
this lease. Nothing contained in this section shall be construed as granting to
the Lessee any right in any land outside the leased area.
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<PAGE>
Sec. 20. OVERRIDING ROYALTIES -- The Lessee shall not create overriding
royalties of less than one-quarter (1/4) of one percent of the value of output
nor in excess of 50 percent of the rate of royalty due to the Lessor specified
in Sec. 3 of this lease except as otherwise authorized by the regulations. The
Lessee expressly agrees that the creation of any overriding royalty which does
not provide for the prorated reduction of all overriding royalties so that the
aggregate rate of royalties does not exceed the maximum rate permissible under
this section, or the failure to suspend an overriding royalty during any period
when the royalties due to the Lessor have been suspended pursuant to the terms
of this lease, shall constitute a violation of the lease terms.
Sec. 21. READJUSTMENT OF TERMS AND CONDITIONS -- The terms and conditions of
this lease other than those related to rentals and royalties may be readjusted
in accordance with the Act at not less than ten-year intervals beginning ten
(10) years after the date geothermal steam is produced from the leased premises
as determined by the Supervisor.
Sec. 22. COOPERATIVE OR UNIT PLAN -- The Lessee agrees that it will on its own,
or at the request of the Lessor where it is determined to be necessary for the
conservation of the resource or to prevent the waste of the resource, subscribe
to and operate under any reasonable cooperative or unit plan for the development
and operation of the area, field, or pool, or part thereof embracing the lands
subject to this lease as the Secretary may determine to be practicable and
necessary or advisable in the interest of conservation. In the event the leased
lands are included within a unit, the terms of this lease shall be deemed to be
modified to conform to such unit agreement. Where any provision of a
cooperative or unit plan of development which has been approved by the
Secretary, and which by its terms affects the leased area or any part thereof,
is inconsistent with a provision of this lease, the provisions of such
cooperative or unit plan shall govern.
Sec. 23. RELINQUISHMENT OF LEASE -- The Lessee may relinquish this entire lease
or any officially designated subdivision of the leased area in accordance with
the regulations by filing in the proper BLM office a written relinquishment, in
triplicate, which shall be effective as of the date of filing. No
relinquishment of this lease or any portion of the leased area shall relieve the
Lessee or its surety from any liability for breach of any obligation of this
lease, including the obligation to make payment of all accrued rentals and
royalties and to place all wells in the leased lands to be relinquished in
condition for suspension or abandonment, and to protect or restore substantially
the surface or subsurface resources in a manner satisfactory to the Lessor.
Sec. 24. REMOVAL OF PROPERTY ON TERMINATION OR EXPIRATION OF LEASE
(a) Upon the termination or expiration of this lease in whole or in part,
or the relinquishment of the lease in whole or in part, as herein provided, the
Lessee shall within a period of ninety (90) days (or such longer period as the
supervisor may authorize because of adverse climatic conditions) thereafter
remove from the leased lands, no longer subject to the lease all structures,
machinery, equipment, tools, and materials in accordance with applicable
regulations and orders of the Supervisor. However, the Lessee shall, for a
period of not more than six (6) months, continue to maintain any such property
needed in the relinquished area, as determined by the Supervisor, for producing
wells or for drilling or producing geothermal resources on other leases.
(b) Any structures, machinery, equipment, tools, appliances, and
materials, subject to removal by the Lessee, as provided above, which are
allowed to remain on the leased lands shall become the property of the Lessor on
expiration of the 90-day period or any extension of that period which may be
granted by the Supervisor. If the Supervisor directs the Lessee to remove such
property, the Lessee shall do so at its own expense, or if it fails to do so
within a reasonable period, the Lessor may do so at the Lessee's expense.
Sec. 25. REMEDIES IN CASE OF DEFAULT
(a) Whenever the Lessee fails to comply with any of the provisions of the
Act, or the terms and stipulations of this lease, or of the regulations issued
under the Act, or of any order issued pursuant to those regulations, and that
default shall continue for a period of thirty (30) days after service of notice
by the Lessor, the Lessor may (1) suspend operations until the requested action
is taken to correct the noncompliance, or (2) cancel the lease in accordance
with Sec. 12 of the Act (30 U.S.C. 1011). However, the 30-day notice provision
applicable to this lease under Sec. 12 of the Act shall also apply as a
prerequisite to the institute of any legal proceedings by the Lessor to cancel
this lease while it is in a producing status. Nothing in this subsection shall
be construed to apply to, or require any notice with respect to any legal action
instituted by the Lessor other than an action to cancel the lease pursuant to
Sec. 12 of the Act.
(b) Whenever the Lessee fails to comply with any of the provisions of the
Act, or of this lease, or the regulations, or of any GRO Orders, or other
orders, and immediate action is required, the Lessor without waiting for action
by the Lessee may enter on the leased lands and take such measures as it may
deem necessary to correct the failure, including a suspension of operations or
production, all at the expense of the Lessee.
(c) A waiver of any particular violation of the provisions of the Act, or
of this lease, or of any regulations promulgated by the Secretary under the Act,
shall not prevent the cancellation of this lease or the exercise of any other
remedy or remedies under paragraphs (a) and (b) of this section by reason of any
other such violation, or for the same violation occuring at any other time.
(d) Nothing herein shall limit or affect the Lessee's right to a hearing
and appeal as provided in Sec. 12 of the
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<PAGE>
Act and in the regulations promulgated thereunder.
(e) Upon cancellation, the Lessee shall remove all property in accordance
with Sec. 24 hereof, and shall restore the leased lands in a manner acceptable
to the Lessor or as may be otherwise required by the Lessor.
Sec. 26. HEIRS AND SUCCESSORS IN INTEREST -- Each obligation hereunder shall
extend to and be binding upon, and every benefit hereof shall inure to, the
heirs, executors, administrators, successors, or assigns, of the respective
parties hereto.
Sec. 27. UNLAWFUL INTEREST -- No Member of, or Delegate to Congress, or
Resident Commissioner, after his election or appointment, either before or after
he has qualified, and during his continuance in office, and no officer, agent,
or employee of the Department shall be admitted to any share or part in this
lease or derive any benefit that may arise therefrom; and the provisions of Sec.
3741 of the Revised Statutes (41 U.S.C. Sec. 22), as amended, and Sections 431,
432, and 433 of Title 18 of the United States Code, relating to contracts made
or entered into, or accepted by or on behalf of the United States, form a part
of this lease so far as the same may be applicable.
Sec. 28. MONOPOLY AND FAIR PRICES -- The Lessor reserves full power and
authority to protect the public interest by promulgating and enforcing all
orders necessary to insure the sale of the production from the leased lands at
reasonable prices, to prevent monopoly, and to safeguard the public interest.
Sec. 29. EQUAL OPPORTUNITY CLAUSE -- The Lessee agrees that, during the
performance of this contract:
(1) The Lessee will not discriminate against any employee or applicant for
employment because of race, color, religion, sex, or national origin. The
Lessee will take affirmative action to ensure that applicants are employed, and
that employees are treated during employment, without regard to their race,
color, religion, sex, or national origin. Such action shall include, but not be
limited to the following: employment, upgrading, demotion, or transfer;
recruitment or recruitment advertising, layoff or termination; rates of pay or
other forms of compensation; and selection for training, including
apprenticeship. The Lessee agrees to post in conspicuous places, available to
employees and applicants for employment, notices to be provided by the Lessor
setting forth the provisions of this Equal Opportunity clause.
(2) The Lessee will, in all solicitations or advertisements for the
employees placed by or on behalf of the Lessee, state that all qualified
applicants will receive consideration for employment without regard to race,
color, religion, sex, or national origin.
(3) The Lessee will send to each labor union or representative of workers
with which Lessee has a collective bargaining agreement or other contract or
understanding, a notice, to be provided by the Lessor, advising the labor union
or workers' representative of the Lessee's commitments under this Equal
Opportunity clause, and shall post copies of the notice in conspicuous places
available to employees and applicants for employment.
(4) The Lessee will comply with all provisions of Executive Order No.
11246 of September 24, 1965, as amended, and of the rules, regulations, and
relevant orders of the Secretary of Labor.
(5) The Lessee will furnish all information and reports required by
Executive Order No. 11246 of September 24, 1965, as amended, and by the rules,
regulations, and orders of the Secretary of Labor, or pursuant thereto, and will
permit access to its books, records, and accounts by the Secretary of the
Interior and the Secretary of Labor for purposes of investigation to ascertain
compliance with such rules, regulations, and orders.
(6) In the event of the Lessee's noncompliance with the Equal Opportunity
clause of this lease or with any of said rules, regulations, or orders, this
lease may be canceled, terminated or suspended in whole or in part and the
Lessee may be declared ineligible for further Federal Government contracts or
leases in accordance with procedures authorized in Executive Order No. 11246 of
September 24, 1965, as amended, and such other sanctions as may be imposed and
remedies invoked as provided in Executive Order No. 11246 of September 24, 1965,
as amended, or by rule, regulation, or order of the Secretary of Labor, or as
otherwise provided by law.
(7) The Lessee will include the provisions of Paragraphs (1) through (7)
of this Section (29) in every contract, subcontract or purchase order unless
exempted by rules, regulations, or orders of the Secretary of Labor issued
pursuant to Section 204 of Executive Order No. 11246 of September 24, 1965, as
amended, so that such provisions will be binding upon each contractor,
subcontractor, or subcontract, or purchase order as the Secretary may direct as
a means of enforcing such provisions including sanctions for noncompliance;
provided, however, that in the event the Lessee becomes involved in, or is
threatened with, litigation with a contractor, subcontractor, or vendor as a
result of such direction by the Secretary, the Lessee may request the Lessor to
enter into such litigation to protect the interests of the Lessor.
Sec. 30. CERTIFICATE OF NONSEGREGATED FACILITIES -- By entering into this
lease, the Lessee certifies that it does not and will not maintain or provide
for its employees any segregated facilities at any of its establishments, and
that it does not and will not permit its employees to perform their services at
any location, under its control, where segregated facilities are maintained. The
Lessee agrees that a breach of this certification is a violation of the Equal
Opportunity clause of this lease. As used in this certificate, the term
"segregated facilities" means, but is not limited to, any waiting rooms, work
areas, rest rooms and wash rooms, or restaurants or other eating areas, time
clocks, or locker rooms, and other storage or dressing rooms, parking lots,
drinking fountains, recreation or entertainment areas, transportation, and
housing facilities provided for employees which are
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<PAGE>
segregated by explicit directive, or are in fact segregated on the basis of
race, color, religion, or national origin because of habit, local custom, or
otherwise. Lessee further agrees that (except where it has obtained identical
certifications from proposed contractors and subcontractors for specific time
periods) it will obtain identical certifications from proposed contractors and
subcontractors prior to the award of contracts or subcontracts exceeding $10,000
which are not exempt from the provisions of the Equal Opportunity clause; that
it will retain such certifications in its files; and that it will forward the
following certification to such proposed contractors and subcontractors (except
where the proposed contractor or subcontractor has submitted identical
certifications for specific time periods); it will notify prospective
contractors and subcontractors of requirement for certification of nonsegregated
facilities. A Certification of Nonsegregated Facilities, as required by the May
9, 1967 Order (32 F.R. 7439, May 19, 1967) on Elimination of Segregated
Facilities, by the Secretary of Labor, must be submitted prior to the award of a
contract or subcontract exceeding $10,000 which is not exempt from the
provisions of the Equal Opportunity clause. The certification may be submitted
either for each contract and subcontract or for all contracts and subcontracts
during a period (i.e., quarterly, semiannually, or annually).
- --------------------------------------------------------------------------------
Sec. 31. SPECIAL STIPULATIONS -- (stipulations, if any, are attached hereto and
made a part hereof)
See Attachments "A"
In witness whereof the parties have executed this lease.
Lessee: THE UNITED STATES OF AMERICA, Lessor:
By: /s/ Paul H. Lane By /s/ Joan B. Russell
-------------------------------- ---------------------------------
(Signature of Lessee) (Authorized Officer)
For Department of Water and Power, Chief, Leasable Minerals Section
- ----------------------------------- -----------------------------------
City of Los Angeles
-------------------
(Signature of Lessee) (Title)
OCT 28, 1983
- ----------------------------------- -----------------------------------
[SEAL] (Date) (Date)
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<PAGE>
Form 3000.3 UNITED STATES FORM APPROVED
(March 1991) DEPARTMENT OF THE INTERIOR OMB NO. 1004-0034
BUREAU OF LAND MANAGEMENT Expires: July 31, 1992
ASSIGNMENT OF RECORD TITLE INTEREST IN A Lease Serial No.
LEASE FOR OIL AND GAS OR GEOTHERMAL RESOURCES CACA-11383
Mineral Leasing Act of 1920 (30 U.S.C. 181 et seq.) Lease Effective Date
Act for Acquired Lands of 1947 (30 U.S.C. 351-359) (Anniversary Date)
Geothermal Steam Act of 1970 (30 U.S.C. 1001-1025) November 1, 1983
Department of the Interior Appropriations Act, Fiscal Year 1981
(42 U.S.C. 6508)
New Serial No.
________________________________________________________________________________
Type or print plainly in ink and sign in ink.
________________________________________________________________________________
PART A: ASSIGNMENT
1. Assignee* Coso Land Company
Street 302 South 36th Street, Suite 400
City, State, ZIP Code Omaha, Nebraska 68131
*If more than one assignee, check here / / and list the name(s) and
address(es) of all additional assignees on the reverse of this form or on a
separate attached sheet of paper.
This record title assignment is for: (Check one) / / Oil and Gas Lease,
or /X/ Geothermal Lease
Interest conveyed: (Check one or both, as appropriate) /X/ Record Title,
/ / Overriding Royalty, payment out of production or other similar
interests or payments
<TABLE>
________________________________________________________________________________
2. This assignment conveys the following interest:
________________________________________________________________________________
Land Description Percent of Interest Percent of
<S> <C> <C> <C> <C>
__________________________________________________________________ Overriding Royalty
Additional space on reverse, if needed. Do not submit documents or Owned Conveyed Retained or Similar Interests
agreements other than this form; such documents or agreements ----------------------
shall only be referenced herein. Reserved Previously
reserved
or conveyed
_______________________a_________________________b_______________c________d_____________e___________f______
Township 21 South, Range 39 East, M.D.M. 100% 100% 0 0 0
- ----------------------------------------
</TABLE>
Section 32: All
Section 33: N/2, N/2S/2, S/2SW/4, SW/4SE/4
Township 22 South, Range 39 East, M.D.M.
- ----------------------------------------
Section 4: Lots 2, 3 and 4
Section 5: Lots 1-4, inclusive, S/2N/2, N/2S/2
Inyo County, California
Total Acres: 1839.32
- --------------------------------------------------------------------------------
FOR BLM USE ONLY -- DO NOT WRITE BELOW THIS LINE
UNITED STATES OF AMERICA
This assignment is approved solely for administrative purposes. Approval does
not warrant that either party to this assignment holds legal or equitable title
to this lease.
/X/ Assignment approved for above described lands; / / Assignment approved for
attached land description
Assignment approved effective JAN 1 1988 / / Assignment approved
------------- of this form for land
description indicated
on reverse
CHIEF BRANCH OF ENERGY JAN 8 1988
By /s/ signature illegible AND MINERAL SCIENCE & ADJUDICATION
----------------------- ----------------------------------
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<PAGE>
Exhibit 10.42
<TABLE>
<S> <C> <C>
Form 3200-21 UNITED STATES Serial Number CA 11384
(May 1974) DEPARTMENT OF THE INTERIOR USGS - KGRA Determination:
BUREAU OF LAND MANAGEMENT
GEOTHERMAL RESOURCES LEASE Parcel 15
/X/ Competitive / / Noncompetitive Coso KGRA
</TABLE>
________________________________________________________________________________
In consideration of the terms and conditions contained herein, and the grant
made hereby, this lease is entered into by the UNITED STATES OF AMERICA
(hereinafter called the "Lessor"), acting through the Bureau of Land Management
(hereinafter called the "Bureau") of the Department of the Interior (hereinafter
called the "Department"), and The City of Los Angeles, Department of Water and
------------------------------------------------
Power, Post Office Box 111, Los Angeles, California 90051 (hereinafter called
- ----------------------------------------------------------
the "Lessee").
This lease is made pursuant to the Geothermal Steam Act of 1970 (84 Stat. 1566;
30 U.S.C. 1001-1025) (hereinafter called "the Act") to be effective on February
--------
1, 1982 (hereinafter called the "effective date"). It is subject to all the
- -------
provisions of the Act and to all the terms, conditions, and requirements of (a)
all regulations promulgated by the Secretary of the Interior (hereinafter called
"the Secretary") in existence upon the effective date, specifically including,
but not limited to, 43 CFR Parts 3000 and 3200 and 30 CFR Parts 270 and 271, (b)
all geothermal resources operational orders (hereinafter called "GRO orders")
issued pursuant thereto, all of which are incorporated herein and by reference
made a part hereof, and (c) any regulations hereafter issued by the Secretary
(except those inconsistent with any specific provisions of this lease other than
regulations incorporated herein by reference) all of which shall be, upon their
effective date, incorporated herein and, by reference, made a part hereof.
Sec. 1. GRANT -- The Lessor hereby grants and leases to the Lessee the
exclusive right and privilege to drill for, extract, produce, remove, utilize,
sell, and dispose of geothermal steam and associated geothermal resources,
(hereinafter called "geothermal resources"), in or under the following described
lands situated within the County of Inyo, State of California:
---- ----------
________________________________________________________________________________
National Resource Lands Acquired Lands
T. 22 S.; R. 38 E.; Mt. Diablo Meridian T. ; R. ; Meridian
Sec. 11, E 1/2;
Secs. 12 and 13;
Sec. 14, E 1/2.
T. 22 S., R. 39 E.,
Sec. 7, lots 1 to 4, inclusive, E 1/2 W 1/2;
Sec. 18, lots 1 to 4, inclusive, E 1/2 W 1/2.
Total Area 2,555.00 Total Area
________________________________________________________________________________
Containing 2,555.00 acres (hereinafter called the "leased area" or "leased
--------
lands"), together with:
(a) The nonexclusive right to conduct within the leased area geological
and geophysical exploration in accordance with applicable regulations; and
(b) The right to construct or erect and to use, operate, and maintain
within the leased area, together with ingress and egress thereupon all wells,
pumps, pipes, pipelines, buildings, plants, sumps, brine pits, reservoirs,
tanks, waterworks, pumping stations, roads, electric power generating plants,
transmission lines, industrial facilities, electric, telegraph or telephone
lines, and such other works and structures and to use so much of the surface of
the land as may be necessary or reasonably convenient for the production,
utilization, and processing of geothermal resources or to the full enjoyment of
the rights granted by this lease, subject to compliance with applicable laws and
regulations; Provided that, although the use of the leased area for an electric
power generating plant or transmission facilities or a commercial or industrial
facility is authorized hereunder, the location of such facilities and the terms
of occupancy therefor shall be under separate instruments issued under any
applicable laws and regulations; and
(c) The nonexclusive right to drill potable water wells in accordance with
state water laws within the leased area and to use the water produced therefrom
for operations on the leased lands free of cost, provided that such drilling and
development are conducted in accordance with procedures approved by the
Supervisor of the Geological Survey (hereinafter called "Supervisor"); and
(d) The right to convert this lease to a mineral lease under the Mineral
Leasing Act of February 25, 1920, as amended, and supplemented (30 U.S.C. 181-
287) or under the Mineral Leasing Act for Acquired Lands (30 U.S.C. 351-359),
whichever is
<PAGE>
appropriate, if the leasehold is primarily valuable for the production of one or
more valuable by-products which are leasable under those statutes, and the lease
is incapable of commercial production or utilization of geothermal steam;
Provided that, an application is made therefor prior to the expiration of the
lease extension by reason of by-product production as hereinafter provided and
subject to all the terms and conditions of said appropriate Acts. The Lessee is
also granted the right to locate mineral deposits under the mining laws (30
U.S.C. 21-54), which would constitute by-products if commercial production or
utilization of geothermal steam continued, but such a location to be valid must
be completed within ninety (90) days after the termination of this lease. Any
conversion of this lease to a mineral lease or a mining claim is contingent on
the availability of such lands for this purpose at the time of the conversion.
If the lands are withdrawn or acquired in aid of a function of any Federal
Department or agency, the mineral lease or mining claim shall be subject to such
additional terms and conditions as may be prescribed by such Department or
agency for the purpose of making operations thereon consistent with the purposes
for which these lands are administered; and
(e) The right, without the payment of royalties hereunder, to reinject
into the leased lands geothermal resources and condensates to the extent that
such resources and condensates are not utilized, but their reinjection is
necessary for operations under this lease in the recovering or processing of
geothermal resources. If the Lessee, pursuant to any approved plan, disposes of
the unusable brine and produced waste products into underlying formations, he
may do so without the payment of royalties.
Sec. 2. TERM
(a) This lease shall be for a primary term of ten (10) years from the
effective date and so long thereafter as geothermal steam is produced or
utilized in commercial quantities but shall in no event continue for more than
forty (40) years after the end of the primary term. However, if at the end of
that forty-year period geothermal steam is being produced or utilized in
commercial quantities, and the leased lands are not needed for other purposes,
the Lessee shall have a preferential right to a renewal of this lease for a
second forty-year term in accordance with such terms and conditions as the
Lessor deems appropriate.
(b) If actual drilling operations are commenced on the leased lands or
under an approved plan or agreement on behalf of the leased lands prior to the
end of the primary term, and are being diligently prosecuted at the end of the
primary term, this lease shall be extended for five (5) years and so long
thereafter, but not more than thirty-five (35) years, as geothermal steam is
produced or utilized in commercial quantities. If at the end of such extended
term geothermal steam is being produced or utilized in commercial quantities,
the Lessee shall have a preferential right to a renewal for a second term as in
(a) above.
(c) If the Lessor determines at any time after the primary term that this
lease is incapable of commercial production and utilization of geothermal steam,
but one or more valuable by-products are or can be produced in commercial
quantities, this lease shall be extended for so long as such by-products are
produced in commercial quantities but not for more than five (5) years from the
date of such determination.
Sec. 3. RENTALS AND ROYALTIES
(a) Annual Rental -- For each lease year prior to the commencement of
production of geothermal resources in commercial quantities on the leased lands,
the Lessee shall pay the Lessor on or before the anniversary date of the lease a
rental of $2.00 for each acre or fraction thereof.
----
(b) Escalating Rental -- Beginning with the sixth lease year and for each
year thereafter until the lease year beginning on or after the commencement of
production of geothermal resources in commercial quantities, the Lessee shall
pay on or before the anniversary date of the lease an escalated rental in an
amount per acre or fraction thereof equal to the rental per acre for the
preceding year and an additional sum of one (1) dollar per acre or fraction
thereof. If the lease is extended beyond ten (10) years for reasons other than
the commencement of production of geothermal resources in commercial quantities,
the rental for the eleventh year and for such lease year thereafter until the
lease year beginning on or after the commencement of such production will be the
amount of rental for the tenth lease year. If any expenditures are made in any
lease year for diligent exploration on the leased lands in excess of the minimum
required expenditures for that year, the excess may be credited against any
rentals in excess of $2.00 per acre or fraction thereof due the Lessor for that
----
or any future year.
(c) Royalty -- On or before the last day of the calendar month after the
month of commencement of production in commercial quantities of geothermal
resources and thereafter on a monthly basis, the Lessee shall pay to the Lessor:
(1) A royalty of 10 percent on the amount or value of steam, or any
--
other form of heat or other associated energy produced, processed, removed,
sold, or utilized from this lease or reasonably susceptible to sale or
utilization by the Lessee.
(2) A royalty of 5 percent of the value of any by-product derived
-
from production under this lease, produced, processed, removed, sold, or
utilized from this lease or reasonably susceptible of sale or utilization by the
Lessee, except that as to any by-product which is a mineral named in Sec. 1 of
the Mineral Leasing Act of February 25, 1920, as amended, (30 U.S.C. 181), the
rate of royalty for such mineral shall be the same as that provided in that
statute and the maximum rate of royalty for such mineral shall not exceed the
maximum royalty applicable under that statute.
(3) A royalty of 5 percent of the value of commercially demineralized
-
water which has been produced from the leased lands, and has been sold or
utilized by the Lessee or is reasonably susceptible of sale or utilization by
the Lessee. In no event shall the Lessee pay to the Lessor, for the lease year
beginning on or after the commencement of production in commercial quantities on
the leased lands or any subsequent lease year, a royalty of less than two (2)
dollars per acre or fraction thereof. If royalty paid in production during the
lease year has not satisfied this requirement, the Lessee shall pay the
difference on or before the expiration date of the lease year for which it was
paid.
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(d) Waiver and Suspension of Rental and Royalties -- Rentals or royalties
may be waived, suspended, or reduced pursuant to the applicable regulations on
the entire leasehold or any portion thereof in the interest of conservation or
for the purpose of encouraging the greatest ultimate recovery of geothermal
resources if the Lessor determines that it is necessary to do so to promote such
development, or because the lease cannot be successfully operated under the
terms fixed herein.
(e) Undivided Fractional Interests -- Where the interest of the Lessor in
the geothermal resources underlying any tract or tracts described in Sec. 1 is
an undivided fractional interest, the rentals and royalties payable on account
of each such tract shall be in the same proportion to the rentals and royalties
provided in this lease as the individual fractional interest of the Lessor in
the geothermal resources underlying such tract is to the full fee interest.
(f) Readjustments -- Rentals and royalties hereunder may be readjusted in
accordance with the Act and regulations to rates not in excess of the rates
provided therein, and at not less than twenty (20) year intervals beginning
thirty-five (35) years after the date geothermal steam is produced from the
lease as determined by the Supervisor.
Sec. 4. PAYMENTS -- It is expressly understood that the Secretary may establish
the values and minimum values of geothermal resources to compute royalties in
accordance with the applicable regulations. Unless otherwise directed by the
Secretary, all payments to the Lessor will be made as required by the
regulations. If there is no well on the leased lands capable of producing
geothermal resources in commercial quantities, the failure to pay rental on or
before the anniversary date shall cause the lease to terminate by operation of
law except as provided by Sec. 3244.2 of the regulations. If the time for
payment falls on the day on which the proper office to receive payment is
closed, payment shall be deemed to be made on time if made on the next official
working day.
Sec. 5. BONDS -- The Lessee shall file with the Authorized Officer of the
Bureau (hereinafter called the "Authorized Officer") shall maintain at all times
the bonds required under the regulations to be furnished as a condition to the
issuance of this lease or prior to entry on the leased lands in the amounts
established by the Lessor and to furnish such additional bonds or security as
may be required by the Lessor upon entry on the lands or after operations or
production have begun.
Sec. 6. WELLS
(a) The Lessee shall drill and produce all wells necessary to protect the
leased land from drainage by operations on lands not the property of the Lessor,
or other lands of the Lessor leased at a lower royalty rate, or on lands as to
which royalties and rentals are paid into different funds from those into which
royalties under this lease are paid. However, in lieu of any part of such
drilling and production, with the consent of the supervisor, the Lessee may
compensate the Lessor in full each month for the estimated loss of royalty
through drainage in the amount determined by said supervisor.
(b) At the Lessee's election, and with the approval of the Supervisor, the
Lessee shall drill and produce other wells in conformity with any system of well
spacing or production allotments affecting the field or area in which the leased
lands are situated, which is authorized by applicable law.
(c) After due notice in writing, the Lessee shall diligently drill and
produce such wells as the supervisor shall require so that the leased lands may
be properly and timely developed and for the production of geothermal steam and
its by-products, including commercially demineralized water for beneficial uses
in accordance with applicable state laws. However, the supervisor may waive or
modify the requirements of this subparagraph (c) in the interest of conservation
of natural resources or for economic feasibility or other reasons satisfactory
to him. If the products or by-products of geothermal production from wells
drilled on this lease are susceptible of producing commercially demineralized
water for beneficial uses, and a program therefor is not initiated with due
diligence, the Lessor may at its option elect to take such products or by-
products and the Lessee shall deliver all or any portion thereof to the Lessor
at any point in the Lessee's geothermal gathering or disposal system without
cost to the Lessee, if the Lessee's activities, under the lease, would not be
impaired and such delivery would otherwise be consistent with field and
operational requirements. The retention of this option by the Lessor shall in
no way relieve the Lessee from the duty of producing commercially demineralized
water where required to do so by the Lessor, except when the option is being
exercised and then only with respect to wells where it is being exercised, or
limit the Lessor's right to take any action under Sec. 25 to enforce that
requirement.
Sec. 7. INSPECTION -- The Lessee shall keep open at all reasonable times for
the inspection of any duly authorized representative of the Lessor the leased
lands and all wells, improvements, machinery, and fixtures thereon and all
production reports, maps, records, books, and accounts relative to operations
under the lease, and well logs, surveys, or investigations of the leased lands.
Sec. 8. CONDUCT OF OPERATIONS -- The Lessee shall conduct all operations under
this lease in a workmanlike manner and in accordance with all applicable
statutes, regulations, and GRO orders, and all other appropriate directives of
the Lessor to prevent bodily injury, danger to life or health, or property
damage, and to avoid the waste of resources, and shall comply with all
requirements which are set forth in 43 CFR Group 3200, including, but not
limited to, Subpart 3204, or which may be prescribed by the Lessor pursuant to
the regulations, and with the special stipulations which are attached to the
lease, all of which are specifically incorporated into this lease. A breach of
any term of this lease, including the stipulations attached hereto, will be
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subject to all the provisions of this lease with respect to remedies in case of
default. Where any stipulation is inconsistent with a regular provision of this
lease, the stipulation shall govern.
Sec. 9. INDEMNIFICATION
(a) The Lessee shall be liable to the Lessor for any damage suffered by
the Lessor in any way arising from or connected with the Lessee's activities and
operations conducted pursuant to this lease, except where damage is caused by
employees of the Lessor acting within the scope of their authority.
(b) The Lessee shall indemnify and hold harmless the Lessor from all
claims arising from or connected with the Lessee's activities and operations
under this lease.
(c) In any case where liability without fault is imposed on the Lessee
pursuant to this section, and the damages involved were caused by the action of
a third party, the rules of subrogation shall apply in accordance with the law
of the jurisdiction where the damage occurred.
Sec. 10. CONTRACTS FOR SALE OR DISPOSAL OF PRODUCTS -- The Lessee shall file
with the supervisor not later than thirty (30) days after the effective date
thereof any contract, or evidence of other arrangement for the sale or disposal
of geothermal resources.
Sec. 11. ASSIGNMENT OF LEASE OR INTEREST THEREIN -- Within ninety (90) days
from the date of execution thereof, the Lessee shall file for approval by the
Authorized Officer any instruments of transfer made of this lease or of any
interest therein, including assignments of record title and working or other
interests.
Sec. 12. REPORTS AND OTHER INFORMATION -- At such times and in such form as the
Lessor may prescribe, the Lessee shall comply with all reporting requirements of
the geothermal resource leasing, operating, and unit regulations and shall
submit quarterly reports containing the data which it has collected through the
monitoring of air, land, and water quality and all other data pertaining to the
effect on the environment by operations under the lease. The Lessee shall also
comply with such other reporting requirements as may be imposed by the
Authorized Officer or the Supervisor. The Lessor may release to the general
public any reports, maps, or other information submitted by the Lessee except
geologic and geophysical interpretations, maps, or data subject to 30 CFR 270.79
or unless the Lessee shall designate that information as proprietary and the
Supervisor or the Authorized Officer shall approve that designation.
Sec. 13. DILIGENT EXPLORATION -- In the manner required by the regulations, the
Lessee shall diligently explore the leased lands for geothermal resources until
there is production in commercial quantities applicable to this lease. After
the fifth year of the primary term, the Lessee shall make at least the minimum
expenditures required to qualify the operations on the leased lands as diligent
exploration under the regulations.
Sec. 14. PROTECTION OF THE ENVIRONMENT (LAND, AIR AND WATER) AND IMPROVEMENTS -
- - The Lessee shall take all mitigating actions required by the Lessor to
prevent: (a) soil erosion or damage to crops or other vegetative cover on
Federal or non-Federal lands in the vicinity; (b) the pollution of land, air or
water; (c) land subsidence, seismic activity, or noise emissions; (d) damage to
aesthetic and recreational values; (e) damage to fish or wildlife or their
habitats; (f) damage to or removal of improvements owned by the United States or
other parties; or (g) damage to or destruction or loss of fossils, historic or
prehistoric ruins, or artifacts. Prior to the termination of bond liability or
at any other time when required and to the extent deemed necessary by the
Lessor, the Lessee shall reclaim all surface disturbances as required, remove or
cover all debris or solid waste, and, so far as possible, repair the offsite and
onsite damage caused by his activity or activities incidental thereto, and
return access roads or trails and the leased lands to an acceptable condition
including the removal of structures, if required. The Supervisor or the
Authorized Officer shall prescribe the steps to be taken by Lessee to protect
the surface and the environment and for the restoration of the leased lands and
other lands affected by operations on the leased lands and improvements thereon,
whether or not the improvements are owned by the United States. Timber or
mineral materials may be obtained only on terms and conditions imposed by the
Authorized Officer.
Sec. 15. WASTE -- The Lessee shall use all reasonable precautions to prevent
waste of natural resources and energy, including geothermal resources, or of any
minerals, and to prevent the communication of water or brine zones with any oil,
gas, fresh water, or other gas or water bearing formations or zones which would
threaten destruction or damage to such deposits. The Lessee shall monitor
noise, air, and water quality conditions in accordance with any orders of the
Supervisor.
Sec. 16. MEASUREMENT -- The Lessee shall gauge or otherwise measure all
production, sales, or utilization of geothermal resources and shall record the
same accurately in records as required by the Supervisor. Reports on
production, sales, or utilization of geothermal resources shall be submitted in
accordance with the terms of this lease and the regulations.
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Sec. 17. RESERVATIONS TO LESSOR -- All rights in the leased area not granted to
the Lessee by this lease are hereby reserved to the Lessor. Without limiting the
generality of the foregoing such reserved rights include:
(a) Disposal -- The right to sell or otherwise dispose of the surface of
the leased lands or any resource in the leased lands under existing laws, or
laws hereafter enacted, subject to the rights of the Lessee under this lease;
(b) Rights-of-way -- The right to authorize geological and geophysical
explorations on the leased lands which do not interfere with or endanger actual
operations under this lease, and the right to grant such easements or rights-of-
way for joint or several use upon, through or in the leased area for steam lines
and other public or private purposes which do not interfere with or endanger
actual operations or facilities constructed under this lease;
(c) Mineral Rights -- The ownership of and the right to extract oil,
hydrocarbon gas, and helium from all geothermal steam and associated geothermal
resources produced from the leased lands;
(d) Casing -- The right to acquire the well and casing at the fair market
value of the casing where the Lessee finds only potable water, and such water is
not required in lease operations; and
(e) Measurements -- The right to measure geothermal resources and to
sample any production thereof.
Sec. 18. ANTIQUITIES AND OBJECTS OF HISTORIC VALUE -- The Lessee shall
immediately bring to the attention of the Authorized Officer any antiquities or
other objects of historic or scientific interest, including but not limited to
historic or prehistoric ruins, fossils, or artifacts discovered as a result of
operations under this lease, and shall leave such discoveries intact. Failure to
comply with any of the terms and conditions imposed by the Authorized Officer
with regards to the preservation of antiquities may constitute a violation of
the Antiquities Act (16 U.S.C. 431-433). Prior to operations, the Lessee shall
furnish to the Authorized Officer a certified statement that either no
archaeological values exist or that they may exist on the leased lands to the
best of the Lessee's knowledge and belief and that they might be impaired by
geothermal operations. If the Lessee furnishes a statement that archaeological
values may exist where the land is to be disturbed or occupied, the Lessee will
engage a qualified archaeologist, acceptable to the Authorized Officer, to
survey and salvage, in advance of any operations, such archaeological values on
the lands involved. The responsibility for the cost for the certificate,
survey, and salvage will be borne by the Lessee, and such salvaged property
shall remain the property of the Lessor or the surface owner.
Sec. 19. DIRECTIONAL DRILLING -- A directional well drilled under the leased
area from a surface location on nearby land not covered by the lease shall be
deemed to have the same effect for all purposes of this lease as a well drilled
from a surface location on the leased area. In such circumstances, drilling
shall be considered to have been commenced on the nearby land for the purposes
of this lease, and production of geothermal resources from the leased area
through any directional well located on nearby land, or drilling or reworking of
any such directional well shall be considered production or drilling or
reworking operations (as the case may be) on the leased area for all purposes of
this lease. Nothing contained in this section shall be construed as granting to
the Lessee any right in any land outside the leased area.
Sec. 20. OVERRIDING ROYALTIES -- The Lessee shall not create overriding
royalties of less than one-quarter (1/4) of one percent of the value of output
nor in excess of 50 percent of the rate of royalty due to the Lessor specified
in Sec. 3 of this lease except as otherwise authorized by the regulations. The
Lessee expressly agrees that the creation of any overriding royalty which does
not provide for the prorated reduction of all overriding royalties so that the
aggregate rate of royalties does not exceed the maximum rate permissible under
this section, or the failure to suspend an overriding royalty during any period
when the royalties due to the Lessor have been suspended pursuant to the terms
of this lease, shall constitute a violation of the lease terms.
Sec. 21. READJUSTMENT OF TERMS AND CONDITIONS -- The terms and conditions of
this lease other than those related to rentals and royalties may be readjusted
in accordance with the Act at not less than ten-year intervals beginning ten
(10) years after the date geothermal steam is produced from the leased premises
as determined by the Supervisor.
Sec. 22. COOPERATIVE OR UNIT PLAN -- The Lessee agrees that it will on its own,
or at the request of the Lessor where it is determined to be necessary for the
conservation of the resource or to prevent the waste of the resource, subscribe
to and operate under any reasonable cooperative or unit plan for the development
and operation of the area, field, or pool, or part thereof embracing the lands
subject to this lease as the Secretary may determine to be practicable and
necessary or advisable in the interest of conservation. In the event the leased
lands are included within a unit, the terms of this lease shall be deemed to be
modified to conform to such unit agreement. Where any provision of a
cooperative or unit plan of development which has been approved by the
Secretary, and which by its terms affects the leased area or any part thereof,
is inconsistent with a provision of this lease, the provisions of such
cooperative or unit plan shall govern.
Sec. 23. RELINQUISHMENT OF LEASE -- The Lessee may relinquish this entire lease
or any officially designated subdivision of the leased area in accordance with
the regulations by filing in the proper BLM office a written relinquishment, in
triplicate, which shall be effective as of the date of filing. No
relinquishment of this lease or any portion of the leased area shall relieve the
Lessee or its surety from any liability for breach of any obligation of this
lease, including the obligation to make payment of all
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accrued rentals and royalties and to place all wells in the leased lands to be
relinquished in condition for suspension or abandonment, and to protect or
restore substantially the surface or subsurface resources in a manner
satisfactory to the Lessor.
Sec. 24. REMOVAL OF PROPERTY ON TERMINATION OR EXPIRATION OF LEASE
(a) Upon the termination or expiration of this lease in whole or in part,
or the relinquishment of the lease in whole or in part, as herein provided, the
Lessee shall within a period of ninety (90) days (or such longer period as the
supervisor may authorize because of adverse climatic conditions) thereafter
remove from the leased lands, no longer subject to the lease all structures,
machinery, equipment, tools, and materials in accordance with applicable
regulations and orders of the Supervisor. However, the Lessee shall, for a
period of not more than six (6) months, continue to maintain any such property
needed in the relinquished area, as determined by the Supervisor, for producing
wells or for drilling or producing geothermal resources on other leases.
(b) Any structures, machinery, equipment, tools, appliances, and
materials, subject to removal by the Lessee, as provided above, which are
allowed to remain on the leased lands shall become the property of the Lessor on
expiration of the 90-day period or any extension of that period which may be
granted by the Supervisor. If the Supervisor directs the Lessee to remove such
property, the Lessee shall do so at its own expense, or if it fails to do so
within a reasonable period, the Lessor may do so at the Lessee's expense.
Sec. 25. REMEDIES IN CASE OF DEFAULT
(a) Whenever the Lessee fails to comply with any of the provisions of the
Act, or the terms and stipulations of this lease, or of the regulations issued
under the Act, or of any order issued pursuant to those regulations, and that
default shall continue for a period of thirty (30) days after service of notice
by the Lessor, the Lessor may (1) suspend operations until the requested action
is taken to correct the noncompliance, or (2) cancel the lease in accordance
with Sec. 12 of the Act (30 U.S.C. 1011). However, the 30-day notice provision
applicable to this lease under Sec. 12 of the Act shall also apply as a
prerequisite to the institute of any legal proceedings by the Lessor to cancel
this lease while it is in a producing status. Nothing in this subsection shall
be construed to apply to, or require any notice with respect to any legal action
instituted by the Lessor other than an action to cancel the lease pursuant to
Sec. 12 of the Act.
(b) Whenever the Lessee fails to comply with any of the provisions of the
Act, or of this lease, or the regulations, or of any GRO Orders, or other
orders, and immediate action is required, the Lessor without waiting for action
by the Lessee may enter on the leased lands and take such measures as it may
deem necessary to correct the failure, including a suspension of operations or
production, all at the expense of the Lessee.
(c) A waiver of any particular violation of the provisions of the Act, or
of this lease, or of any regulations promulgated by the Secretary under the Act,
shall not prevent the cancellation of this lease or the exercise of any other
remedy or remedies under paragraphs (a) and (b) of this section by reason of any
other such violation, or for the same violation occuring at any other time.
(d) Nothing herein shall limit or affect the Lessee's right to a hearing
and appeal as provided in Sec. 12 of the Act and in the regulations promulgated
thereunder.
(e) Upon cancellation, the Lessee shall remove all property in accordance
with Sec. 24 hereof, and shall restore the leased lands in a manner acceptable
to the Lessor or as may be otherwise required by the Lessor.
Sec. 26. HEIRS AND SUCCESSORS IN INTEREST -- Each obligation hereunder shall
extend to and be binding upon, and every benefit hereof shall inure to, the
heirs, executors, administrators, successors, or assigns, of the respective
parties hereto.
Sec. 27. UNLAWFUL INTEREST -- No Member of, or Delegate to Congress, or
Resident Commissioner, after his election or appointment, either before or after
he has qualified, and during his continuance in office, and no officer, agent,
or employee of the Department shall be admitted to any share or part in this
lease or derive any benefit that may arise therefrom; and the provisions of Sec.
3741 of the Revised Statutes (41 U.S.C. Sec. 22), as amended, and Sections 431,
432, and 433 of Title 18 of the United States Code, relating to contracts made
or entered into, or accepted by or on behalf of the United States, form a part
of this lease so far as the same may be applicable.
Sec. 28. MONOPOLY AND FAIR PRICES -- The Lessor reserves full power and
authority to protect the public interest by promulgating and enforcing all
orders necessary to insure the sale of the production from the leased lands at
reasonable prices, to prevent monopoly, and to safeguard the public interest.
Sec. 29. EQUAL OPPORTUNITY CLAUSE -- The Lessee agrees that, during the
performance of this contract:
(1) The Lessee will not discriminate against any employee or applicant for
employment because of race, color, religion, sex, or national origin. The
Lessee will take affirmative action to ensure that applicants are employed, and
that employees are treated during employment, without regard to their race,
color, religion, sex, or national origin. Such action shall include, but not be
limited to the following: employment, upgrading, demotion, or transfer;
recruitment or recruitment advertising, layoff or termination; rates of pay or
other forms of compensation; and selection for training, including
apprenticeship. The Lessee agrees to post in conspicuous places, available to
employees and applicants for employment, notices to be provided by the Lessor
setting forth the provisions of this Equal Opportunity clause.
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(2) The Lessee will, in all solicitations or advertisements for the
employees placed by or on behalf of the Lessee, state that all qualified
applicants will receive consideration for employment without regard to race,
color, religion, sex, or national origin.
(3) The Lessee will send to each labor union or representative of workers
with which Lessee has a collective bargaining agreement or other contract or
understanding, a notice, to be provided by the Lessor, advising the labor union
or workers' representative of the Lessee's commitments under this Equal
Opportunity clause, and shall post copies of the notice in conspicuous places
available to employees and applicants for employment.
(4) The Lessee will comply with all provisions of Executive Order No.
11246 of September 24, 1965, as amended, and of the rules, regulations, and
relevant orders of the Secretary of Labor.
(5) The Lessee will furnish all information and reports required by
Executive Order No. 11246 of September 24, 1965, as amended, and by the rules,
regulations, and orders of the Secretary of Labor, or pursuant thereto, and will
permit access to its books, records, and accounts by the Secretary of the
Interior and the Secretary of Labor for purposes of investigation to ascertain
compliance with such rules, regulations, and orders.
(6) In the event of the Lessee's noncompliance with the Equal Opportunity
clause of this lease or with any of said rules, regulations, or orders, this
lease may be canceled, terminated or suspended in whole or in part and the
Lessee may be declared ineligible for further Federal Government contracts or
leases in accordance with procedures authorized in Executive Order No. 11246 of
September 24, 1965, as amended, and such other sanctions as may be imposed and
remedies invoked as provided in Executive Order No. 11246 of September 24, 1965,
as amended, or by rule, regulation, or order of the Secretary of Labor, or as
otherwise provided by law.
(7) The Lessee will include the provisions of Paragraphs (1) through (7)
of this Section (29) in every contract, subcontract or purchase order unless
exempted by rules, regulations, or orders of the Secretary of Labor issued
pursuant to Section 204 of Executive Order No. 11246 of September 24, 1965, as
amended, so that such provisions will be binding upon each contractor,
subcontractor, or subcontract, or purchase order as the Secretary may direct as
a means of enforcing such provisions including sanctions for noncompliance;
provided, however, that in the event the Lessee becomes involved in, or is
threatened with, litigation with a contractor, subcontractor, or vendor as a
result of such direction by the Secretary, the Lessee may request the Lessor to
enter into such litigation to protect the interests of the Lessor.
Sec. 30. CERTIFICATE OF NONSEGREGATED FACILITIES -- By entering into this
lease, the Lessee certifies that it does not and will not maintain or provide
for its employees any segregated facilities at any of its establishments, and
that it does not and will not permit its employees to perform their services at
any location, under its control, where segregated facilities are maintained. The
Lessee agrees that a breach of this certification is a violation of the Equal
Opportunity clause of this lease. As used in this certificate, the term
"segregated facilities" means, but is not limited to, any waiting rooms, work
areas, rest rooms and wash rooms, or restaurants or other eating areas, time
clocks, or locker rooms, and other storage or dressing rooms, parking lots,
drinking fountains, recreation or entertainment areas, transportation, and
housing facilities provided for employees which are segregated by explicit
directive, or are in fact segregated on the basis of race, color, religion, or
national origin because of habit, local custom, or otherwise. Lessee further
agrees that (except where it has obtained identical certifications from proposed
contractors and subcontractors for specific time periods) it will obtain
identical certifications from proposed contractors and subcontractors prior to
the award of contracts or subcontracts exceeding $10,000 which are not exempt
from the provisions of the Equal Opportunity clause; that it will retain such
certifications in its files; and that it will forward the following
certification to such proposed contractors and subcontractors (except where the
proposed contractor or subcontractor has submitted identical certifications for
specific time periods); it will notify prospective contractors and
subcontractors of requirement for certification of nonsegregated facilities. A
Certification of Nonsegregated Facilities, as required by the May 9, 1967 Order
(32 F.R. 7439, May 19, 1967) on Elimination of Segregated Facilities, by the
Secretary of Labor, must be submitted prior to the award of a contract or
subcontract exceeding $10,000 which is not exempt from the provisions of the
Equal Opportunity clause. The certification may be submitted either for each
contract and subcontract or for all contracts and subcontracts during a period
(i.e., quarterly, semiannually, or annually).
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________________________________________________________________________________
Sec. 31. SPECIAL STIPULATIONS -- (stipulations, if any, are attached hereto and
made a part hereof)
See Attachments "A" and "B".
________________________________________________________________________________
In witness whereof the parties have executed this lease.
Lessee: THE UNITED STATES OF AMERICA, Lessor:
/s/ James A. Mulloy By /s/ Harryette R. Sasbee
- -------------------------------------- -----------------------------
(Signature of Lessee) (Authorized Officer)
Chief, Minerals Section
- -------------------------------------- --------------------------------
(Signature of Lessee) (Title)
12-31-81 JAN 12, 1982
- -------------------------------------- --------------------------------
[SEAL] (Date) (Date)
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<TABLE>
<S> <C> <C>
Form 3000.3 UNITED STATES FORM APPROVED
(March 1991) DEPARTMENT OF THE INTERIOR OMB NO. 1004-0034
BUREAU OF LAND MANAGEMENT Expires: July 31, 1992
ASSIGNMENT OF RECORD TITLE INTEREST IN A Lease Serial No.
LEASE FOR OIL AND GAS OR GEOTHERMAL RESOURCES CACA-11385
Mineral Leasing Act of 1920 (30 U.S.C. 181 et seq.) Lease Effective Date
Act for Acquired Lands of 1947 (30 U.S.C. 351-359) (Anniversary Date)
Geothermal Steam Act of 1970 (30 U.S.C. 1001-1025) February 1, 1982
Department of the Interior Appropriations Act, Fiscal Year 1981 (42 U.S.C. 6508)
New Serial No.
- --------------------------------------------------------------------------------------------------------------
Type or print plainly in ink and sign in ink.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
PART A: ASSIGNMENT
1. Assignee* Coso Land Company
Street 302 South 36th Street, Suite 400
City, State, ZIP Code Omaha, Nebraska 68131
*If more than one assignee, check here / / and list the name(s) and
address(es) of all additional assignees on the reverse of this form or on a
separate attached sheet of paper.
This record title assignment is for: (Check one) / / Oil and Gas Lease, or
/X/ Geothermal Lease
<TABLE>
<S> <C> <C>
Interest conveyed: (Check one or both, as appropriate) /X/ Record Title, / / Overriding Royalty, payment out of
production or other similar interests or
payments
- ------------------------------------------------------------------------------------------------------------------------------------
2. This assignment conveys the following interest:
- ------------------------------------------------------------------------------------------------------------------------------------
Land Description Percent of Interest
- ---------------------------------------------------------------------------------------------------- Percent of
Additional space on reverse, if needed. Do not submit documents or Owned Conveyed Retained Overriding Royalty
agreements other than this form; such documents or agreements or Similar Interests
shall only be referenced herein. -------------------------
Reserved Previously
reserved
or conveyed
__________________________________a________________________________b________________c____________d____________e______________f______
Township 21 South, Range 38 East, M.D.M. 100% 100% 0 0 0
- ----------------------------------------
Section 36: All
Township 22 South, Range 38 East, M.D.M.
- ----------------------------------------
Section 1: Lots 1-4, inclusive, S/2N/2, S/2
Township 21 South, Range 39 East, M.D.M.
- ----------------------------------------
Section 31: Lots 1-4, inclusive, E/2, E/2W/2
Township 22 South, Range 39 East, M.D.M.
- ----------------------------------------
Section 6: Lots 1-7, inclusive, S/2NE/4,
SE/4NW/4, NE/4SW/4, N/2SE/4
Inyo County, California
Total Acres: 2430.95
____________________________________________________________________________________________________________________________________
FOR BLM USE ONLY -- DO NOT WRITE BELOW THIS LINE
UNITED STATES OF AMERICA
</TABLE>
This assignment is approved solely for administrative purposes. Approval does
not warrant that either party to this assignment holds legal or equitable title
to this lease.
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<PAGE>
<TABLE>
<S> <C>
/X/ Assignment approved for above described lands; / / Assignment approved for attached land description
Assignment approved effective JAN 1 1988 / / Assignment approved for land description indicated on reverse of
-------------------- this form
CHIEF BRANCH OF ENERGY JAN 8 1988
By /s/ signature illegible AND MINERAL SCIENCE & ADJUDICATION
--------------------------------------------- -------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit 10.43
-------------
<S> <C> <C>
Form 3200-21 UNITED STATES Serial Number CA 11385
--------
(May 1974) DEPARTMENT OF THE INTERIOR USGS - KGRA Determination:
BUREAU OF LAND MANAGEMENT
GEOTHERMAL RESOURCES LEASE Parcel 12
/X/ Competitive / / Noncompetitive Coso KGRA
</TABLE>
In consideration of the terms and conditions contained herein, and the grant
made hereby, this lease is entered into by the UNITED STATES OF AMERICA
(hereinafter called the "Lessor"), acting through the Bureau of Land Management
(hereinafter called the "Bureau") of the Department of the Interior (hereinafter
called the "Department"), and The City of Los Angeles, Department of Water and
Power, Post Office Box 111, Los Angeles, California (hereinafter called the
"Lessee").
This lease is made pursuant to the Geothermal Steam Act of 1970 (84 Stat. 1566;
30 U.S.C. 1001-1025) (hereinafter called "the Act") to be effective on February
1, 1982 (hereinafter called the "effective date"). It is subject to all the
provisions of the Act and to all the terms, conditions, and requirements of (a)
all regulations promulgated by the Secretary of the Interior (hereinafter called
"the Secretary") in existence upon the effective date, specifically including,
but not limited to, 43 CFR Parts 3000 and 3200 and 30 CFR Parts 270 and 271, (b)
all geothermal resources operational orders (hereinafter called "GRO orders")
issued pursuant thereto, all of which are incorporated herein and by reference
made a part hereof, and (c) any regulations hereafter issued by the Secretary
(except those inconsistent with any specific provisions of this lease other than
regulations incorporated herein by reference) all of which shall be, upon their
effective date, incorporated herein and, by reference, made a part hereof.
Sec. 1. GRANT -- The Lessor hereby grants and leases to the Lessee the
exclusive right and privilege to drill for, extract, produce, remove, utilize,
sell, and dispose of geothermal steam and associated geothermal resources,
(hereinafter called "geothermal resources"), in or under the following described
lands situated within the County of Inyo, State of California:
---- ----------
<TABLE>
<CAPTION>
National Resource Lands Acquired Lands
<S> <C>
T. 21 S.; R. 38 E.; Mount Diablo Meridian T. ; R.; Meridian
Sec. 36.
T. 22 S., R. 38 E.,
Sec. 1, lots 1 to 4, inclusive, S1/2N1/2, S1/2
T. 21 S., R. 39 E.,
Sec. 31, lots 1 to 4, inclusive, E1/2,
E1/2W1/2
T. 22 S., R. 39 E.,
Sec. 6, lots 1 to 7, inclusive, S1/2 NE1/4,
SE1/4NW1/4, NE1/4SW1/4, N1/2SE1/4.
Total Area 2,430.95 Total Area
</TABLE>
Containing 2,430.95 acres (hereinafter called the "leased area" or "leased
lands"), together with:
(a) The nonexclusive right to conduct within the leased area geological
and geophysical exploration in accordance with applicable regulations; and
(b) The right to construct or erect and to use, operate, and maintain
within the leased area, together with ingress and egress thereupon all wells,
pumps, pipes, pipelines, buildings, plants, sumps, brine pits, reservoirs,
tanks, waterworks, pumping stations, roads, electric power generating plants,
transmission lines, industrial facilities, electric, telegraph or telephone
lines, and such other works and structures and to use so much of the surface of
the land as may be necessary or reasonably convenient for the production,
utilization, and processing of geothermal resources or to the full enjoyment of
the rights granted by this lease, subject to compliance with applicable laws and
regulations; Provided that, although the use of the leased area for an electric
power generating plant or transmission facilities or a commercial or industrial
facility is authorized hereunder, the location of such facilities and the terms
of occupancy therefor shall be under separate instruments issued under any
applicable laws and regulations; and
(c) The nonexclusive right to drill potable water wells in accordance with
state water laws within the leased area and to use the water produced therefrom
for operations on the leased lands free of cost, provided that such drilling and
development are
<PAGE>
conducted in accordance with procedures approved by the Supervisor of the
Geological Survey (hereinafter called "Supervisor"); and
(d) The right to convert this lease to a mineral lease under the Mineral
Leasing Act of February 25, 1920, as amended, and supplemented (30 U.S.C. 181-
287) or under the Mineral Leasing Act for Acquired Lands (30 U.S.C. 351-359),
whichever is appropriate, if the leasehold is primarily valuable for the
production of one or more valuable by-products which are leasable under those
statutes, and the lease is incapable of commercial production or utilization of
geothermal steam; Provided that, an application is made therefor prior to the
expiration of the lease extension by reason of by-product production as
hereinafter provided and subject to all the terms and conditions of said
appropriate Acts. The Lessee is also granted the right to locate mineral
deposits under the mining laws (30 U.S.C. 21-54), which would constitute by-
products if commercial production or utilization of geothermal steam continued,
but such a location to be valid must be completed within ninety (90) days after
the termination of this lease. Any conversion of this lease to a mineral lease
or a mining claim is contingent on the availability of such lands for this
purpose at the time of the conversion. If the lands are withdrawn or acquired
in aid of a function of any Federal Department or agency, the mineral lease or
mining claim shall be subject to such additional terms and conditions as may be
prescribed by such Department or agency for the purpose of making operations
thereon consistent with the purposes for which these lands are administered; and
(e) The right, without the payment of royalties hereunder, to reinject
into the leased lands geothermal resources and condensates to the extent that
such resources and condensates are not utilized, but their reinjection is
necessary for operations under this lease in the recovering or processing of
geothermal resources. If the Lessee, pursuant to any approved plan, disposes of
the unusable brine and produced waste products into underlying formations, he
may do so without the payment of royalties.
Sec. 2. TERM
(a) This lease shall be for a primary term of ten (10) years from the
effective date and so long thereafter as geothermal steam is produced or
utilized in commercial quantities but shall in no event continue for more than
forty (40) years after the end of the primary term. However, if at the end of
that forty-year period geothermal steam is being produced or utilized in
commercial quantities, and the leased lands are not needed for other purposes,
the Lessee shall have a preferential right to a renewal of this lease for a
second forty-year term in accordance with such terms and conditions as the
Lessor deems appropriate.
(b) If actual drilling operations are commenced on the leased lands or
under an approved plan or agreement on behalf of the leased lands prior to the
end of the primary term, and are being diligently prosecuted at the end of the
primary term, this lease shall be extended for five (5) years and so long
thereafter, but not more than thirty-five (35) years, as geothermal steam is
produced or utilized in commercial quantities. If at the end of such extended
term geothermal steam is being produced or utilized in commercial quantities,
the Lessee shall have a preferential right to a renewal for a second term as in
(a) above.
(c) If the Lessor determines at any time after the primary term that this
lease is incapable of commercial production and utilization of geothermal steam,
but one or more valuable by-products are or can be produced in commercial
quantities, this lease shall be extended for so long as such by-products are
produced in commercial quantities but not for more than five (5) years from the
date of such determination.
Sec. 3. RENTALS AND ROYALTIES
(a) Annual Rental -- For each lease year prior to the commencement of
production of geothermal resources in commercial quantities on the leased lands,
the Lessee shall pay the Lessor on or before the anniversary date of the lease a
rental of $2.00 for each acre or fraction thereof.
----
(b) Escalating Rental -- Beginning with the sixth lease year and for each
year thereafter until the lease year beginning on or after the commencement of
production of geothermal resources in commercial quantities, the Lessee shall
pay on or before the anniversary date of the lease an escalated rental in an
amount per acre or fraction thereof equal to the rental per acre for the
preceding year and an additional sum of one (1) dollar per acre or fraction
thereof. If the lease is extended beyond ten (10) years for reasons other than
the commencement of production of geothermal resources in commercial quantities,
the rental for the eleventh year and for such lease year thereafter until the
lease year beginning on or after the commencement of such production will be the
amount of rental for the tenth lease year. If any expenditures are made in any
lease year for diligent exploration on the leased lands in excess of the minimum
required expenditures for that year, the excess may be credited against any
rentals in excess of $2.00 per acre or fraction thereof due the Lessor for that
----
or any future year.
(c) Royalty -- On or before the last day of the calendar month after the
month of commencement of production in commercial quantities of geothermal
resources and thereafter on a monthly basis, the Lessee shall pay to the Lessor:
(1) A royalty of 10 percent on the amount or value of steam, or any
--
other form of heat or other associated energy produced, processed, removed,
sold, or utilized from this lease or reasonably susceptible to sale or
utilization by the Lessee.
(2) A royalty of 5 percent of the value of any by-product derived
-
from production under this lease, produced, processed, removed, sold, or
utilized from this lease or reasonably susceptible of sale or utilization by the
Lessee, except that as to any by-product which is a mineral named in Sec. 1 of
the Mineral Leasing Act of February 25, 1920, as amended, (30 U.S.C. 181), the
rate of royalty for such mineral shall be the same as that provided in that
statute and the maximum rate of royalty for such mineral shall not exceed the
maximum royalty applicable under that statute.
(3) A royalty of 5 percent of the value of commercially demineralized
-
water which has been produced from the leased lands, and has been sold or
utilized by the Lessee or is reasonably susceptible of sale or utilization by
the Lessee. In no
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<PAGE>
event shall the Lessee pay to the Lessor, for the lease year
beginning on or after the commencement of production in commercial quantities on
the leased lands or any subsequent lease year, a royalty of less than two (2)
dollars per acre or fraction thereof. If royalty paid in production during the
lease year has not satisfied this requirement, the Lessee shall pay the
difference on or before the expiration date of the lease year for which it was
paid.
(d) Waiver and Suspension of Rental and Royalties -- Rentals or royalties
may be waived, suspended, or reduced pursuant to the applicable regulations on
the entire leasehold or any portion thereof in the interest of conservation or
for the purpose of encouraging the greatest ultimate recovery of geothermal
resources if the Lessor determines that it is necessary to do so to promote such
development, or because the lease cannot be successfully operated under the
terms fixed herein.
(e) Undivided Fractional Interests -- Where the interest of the Lessor in
the geothermal resources underlying any tract or tracts described in Sec. 1 is
an undivided fractional interest, the rentals and royalties payable on account
of each such tract shall be in the same proportion to the rentals and royalties
provided in this lease as the individual fractional interest of the Lessor in
the geothermal resources underlying such tract is to the full fee interest.
(f) Readjustments -- Rentals and royalties hereunder may be readjusted in
accordance with the Act and regulations to rates not in excess of the rates
provided therein, and at not less than twenty (20) year intervals beginning
thirty-five (35) years after the date geothermal steam is produced from the
lease as determined by the Supervisor.
Sec. 4. PAYMENTS -- It is expressly understood that the Secretary may establish
the values and minimum values of geothermal resources to compute royalties in
accordance with the applicable regulations. Unless otherwise directed by the
Secretary, all payments to the Lessor will be made as required by the
regulations. If there is no well on the leased lands capable of producing
geothermal resources in commercial quantities, the failure to pay rental on or
before the anniversary date shall cause the lease to terminate by operation of
law except as provided by Sec. 3244.2 of the regulations. If the time for
payment falls on the day on which the proper office to receive payment is
closed, payment shall be deemed to be made on time if made on the next official
working day.
Sec. 5. BONDS -- The Lessee shall file with the Authorized Officer of the
Bureau (hereinafter called the "Authorized Officer") shall maintain at all times
the bonds required under the regulations to be furnished as a condition to the
issuance of this lease or prior to entry on the leased lands in the amounts
established by the Lessor and to furnish such additional bonds or security as
may be required by the Lessor upon entry on the lands or after operations or
production have begun.
Sec. 6. WELLS
(a) The Lessee shall drill and produce all wells necessary to protect the
leased land from drainage by operations on lands not the property of the Lessor,
or other lands of the Lessor leased at a lower royalty rate, or on lands as to
which royalties and rentals are paid into different funds from those into which
royalties under this lease are paid. However, in lieu of any part of such
drilling and production, with the consent of the supervisor, the Lessee may
compensate the Lessor in full each month for the estimated loss of royalty
through drainage in the amount determined by said supervisor.
(b) At the Lessee's election, and with the approval of the Supervisor, the
Lessee shall drill and produce other wells in conformity with any system of well
spacing or production allotments affecting the field or area in which the leased
lands are situated, which is authorized by applicable law.
(c) After due notice in writing, the Lessee shall diligently drill and
produce such wells as the supervisor shall require so that the leased lands may
be properly and timely developed and for the production of geothermal steam and
its by-products, including commercially demineralized water for beneficial uses
in accordance with applicable state laws. However, the supervisor may waive or
modify the requirements of this subparagraph (c) in the interest of conservation
of natural resources or for economic feasibility or other reasons satisfactory
to him. If the products or by-products of geothermal production from wells
drilled on this lease are susceptible of producing commercially demineralized
water for beneficial uses, and a program therefor is not initiated with due
diligence, the Lessor may at its option elect to take such products or by-
products and the Lessee shall deliver all or any portion thereof to the Lessor
at any point in the Lessee's geothermal gathering or disposal system without
cost to the Lessee, if the Lessee's activities, under the lease, would not be
impaired and such delivery would otherwise be consistent with field and
operational requirements. The retention of this option by the Lessor shall in
no way relieve the Lessee from the duty of producing commercially demineralized
water where required to do so by the Lessor, except when the option is being
exercised and then only with respect to wells where it is being exercised, or
limit the Lessor's right to take any action under Sec. 25 to enforce that
requirement.
Sec. 7. INSPECTION -- The Lessee shall keep open at all reasonable times for
the inspection of any duly authorized representative of the Lessor the leased
lands and all wells, improvements, machinery, and fixtures thereon and all
production reports, maps, records, books, and accounts relative to operations
under the lease, and well logs, surveys, or investigations of the leased lands.
Sec. 8. CONDUCT OF OPERATIONS -- The Lessee shall conduct all operations under
this lease in a workmanlike manner and in accordance with all applicable
statutes, regulations, and GRO orders, and all other appropriate directives of
the Lessor to prevent
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<PAGE>
bodily injury, danger to life or health, or property
damage, and to avoid the waste of resources, and shall comply with all
requirements which are set forth in 43 CFR Group 3200, including, but not
limited to, Subpart 3204, or which may be prescribed by the Lessor pursuant to
the regulations, and with the special stipulations which are attached to the
lease, all of which are specifically incorporated into this lease. A breach of
any term of this lease, including the stipulations attached hereto, will be
subject to all the provisions of this lease with respect to remedies in case of
default. Where any stipulation is inconsistent with a regular provision of this
lease, the stipulation shall govern.
Sec. 9. INDEMNIFICATION
(a) The Lessee shall be liable to the Lessor for any damage suffered by
the Lessor in any way arising from or connected with the Lessee's activities and
operations conducted pursuant to this lease, except where damage is caused by
employees of the Lessor acting within the scope of their authority.
(b) The Lessee shall indemnify and hold harmless the Lessor from all
claims arising from or connected with the Lessee's activities and operations
under this lease.
(c) In any case where liability without fault is imposed on the Lessee
pursuant to this section, and the damages involved were caused by the action of
a third party, the rules of subrogation shall apply in accordance with the law
of the jurisdiction where the damage occurred.
Sec. 10. CONTRACTS FOR SALE OR DISPOSAL OF PRODUCTS -- The Lessee shall file
with the supervisor not later than thirty (30) days after the effective date
thereof any contract, or evidence of other arrangement for the sale or disposal
of geothermal resources.
Sec. 11. ASSIGNMENT OF LEASE OR INTEREST THEREIN -- Within ninety (90) days
from the date of execution thereof, the Lessee shall file for approval by the
Authorized Officer any instruments of transfer made of this lease or of any
interest therein, including assignments of record title and working or other
interests.
Sec. 12. REPORTS AND OTHER INFORMATION -- At such times and in such form as the
Lessor may prescribe, the Lessee shall comply with all reporting requirements of
the geothermal resource leasing, operating, and unit regulations and shall
submit quarterly reports containing the data which it has collected through the
monitoring of air, land, and water quality and all other data pertaining to the
effect on the environment by operations under the lease. The Lessee shall also
comply with such other reporting requirements as may be imposed by the
Authorized Officer or the Supervisor. The Lessor may release to the general
public any reports, maps, or other information submitted by the Lessee except
geologic and geophysical interpretations, maps, or data subject to 30 CFR 270.79
or unless the Lessee shall designate that information as proprietary and the
Supervisor or the Authorized Officer shall approve that designation.
Sec. 13. DILIGENT EXPLORATION -- In the manner required by the regulations, the
Lessee shall diligently explore the leased lands for geothermal resources until
there is production in commercial quantities applicable to this lease. After
the fifth year of the primary term, the Lessee shall make at least the minimum
expenditures required to qualify the operations on the leased lands as diligent
exploration under the regulations.
Sec. 14. PROTECTION OF THE ENVIRONMENT (LAND, AIR AND WATER) AND IMPROVEMENTS -
- - The Lessee shall take all mitigating actions required by the Lessor to
prevent: (a) soil erosion or damage to crops or other vegetative cover on
Federal or non-Federal lands in the vicinity; (b) the pollution of land, air or
water; (c) land subsidence, seismic activity, or noise emissions; (d) damage to
aesthetic and recreational values; (e) damage to fish or wildlife or their
habitats; (f) damage to or removal of improvements owned by the United States or
other parties; or (g) damage to or destruction or loss of fossils, historic or
prehistoric ruins, or artifacts. Prior to the termination of bond liability or
at any other time when required and to the extent deemed necessary by the
Lessor, the Lessee shall reclaim all surface disturbances as required, remove or
cover all debris or solid waste, and, so far as possible, repair the offsite and
onsite damage caused by his activity or activities incidental thereto, and
return access roads or trails and the leased lands to an acceptable condition
including the removal of structures, if required. The Supervisor or the
Authorized Officer shall prescribe the steps to be taken by Lessee to protect
the surface and the environment and for the restoration of the leased lands and
other lands affected by operations on the leased lands and improvements thereon,
whether or not the improvements are owned by the United States. Timber or
mineral materials may be obtained only on terms and conditions imposed by the
Authorized Officer.
Sec. 15. WASTE -- The Lessee shall use all reasonable precautions to prevent
waste of natural resources and energy, including geothermal resources, or of any
minerals, and to prevent the communication of water or brine zones with any oil,
gas, fresh water, or other gas or water bearing formations or zones which would
threaten destruction or damage to such deposits. The Lessee shall monitor
noise, air, and water quality conditions in accordance with any orders of the
Supervisor.
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<PAGE>
Sec. 16. MEASUREMENT -- The Lessee shall gauge or otherwise measure all
production, sales, or utilization of geothermal resources and shall record the
same accurately in records as required by the Supervisor. Reports on
production, sales, or utilization of geothermal resources shall be submitted in
accordance with the terms of this lease and the regulations.
Sec. 17. RESERVATIONS TO LESSOR -- All rights in the leased area not granted to
the Lessee by this lease are hereby reserved to the Lessor. Without limiting the
generality of the foregoing such reserved rights include:
(a) Disposal -- The right to sell or otherwise dispose of the surface of
the leased lands or any resource in the leased lands under existing laws, or
laws hereafter enacted, subject to the rights of the Lessee under this lease;
(b) Rights-of-way -- The right to authorize geological and geophysical
explorations on the leased lands which do not interfere with or endanger actual
operations under this lease, and the right to grant such easements or rights-of-
way for joint or several use upon, through or in the leased area for steam lines
and other public or private purposes which do not interfere with or endanger
actual operations or facilities constructed under this lease;
(c) Mineral Rights -- The ownership of and the right to extract oil,
hydrocarbon gas, and helium from all geothermal steam and associated geothermal
resources produced from the leased lands;
(d) Casing -- The right to acquire the well and casing at the fair market
value of the casing where the Lessee finds only potable water, and such water is
not required in lease operations; and
(e) Measurements -- The right to measure geothermal resources and to
sample any production thereof.
Sec. 18. ANTIQUITIES AND OBJECTS OF HISTORIC VALUE -- The Lessee shall
immediately bring to the attention of the Authorized Officer any antiquities or
other objects of historic or scientific interest, including but not limited to
historic or prehistoric ruins, fossils, or artifacts discovered as a result of
operations under this lease, and shall leave such discoveries intact. Failure to
comply with any of the terms and conditions imposed by the Authorized Officer
with regards to the preservation of antiquities may constitute a violation of
the Antiquities Act (16 U.S.C. 431-433). Prior to operations, the Lessee shall
furnish to the Authorized Officer a certified statement that either no
archaeological values exist or that they may exist on the leased lands to the
best of the Lessee's knowledge and belief and that they might be impaired by
geothermal operations. If the Lessee furnishes a statement that archaeological
values may exist where the land is to be disturbed or occupied, the Lessee will
engage a qualified archaeologist, acceptable to the Authorized Officer, to
survey and salvage, in advance of any operations, such archaeological values on
the lands involved. The responsibility for the cost for the certificate,
survey, and salvage will be borne by the Lessee, and such salvaged property
shall remain the property of the Lessor or the surface owner.
Sec. 19. DIRECTIONAL DRILLING -- A directional well drilled under the leased
area from a surface location on nearby land not covered by the lease shall be
deemed to have the same effect for all purposes of this lease as a well drilled
from a surface location on the leased area. In such circumstances, drilling
shall be considered to have been commenced on the nearby land for the purposes
of this lease, and production of geothermal resources from the leased area
through any directional well located on nearby land, or drilling or reworking of
any such directional well shall be considered production or drilling or
reworking operations (as the case may be) on the leased area for all purposes of
this lease. Nothing contained in this section shall be construed as granting to
the Lessee any right in any land outside the leased area.
Sec. 20. OVERRIDING ROYALTIES -- The Lessee shall not create overriding
royalties of less than one-quarter (1/4) of one percent of the value of output
nor in excess of 50 percent of the rate of royalty due to the Lessor specified
in Sec. 3 of this lease except as otherwise authorized by the regulations. The
Lessee expressly agrees that the creation of any overriding royalty which does
not provide for the prorated reduction of all overriding royalties so that the
aggregate rate of royalties does not exceed the maximum rate permissible under
this section, or the failure to suspend an overriding royalty during any period
when the royalties due to the Lessor have been suspended pursuant to the terms
of this lease, shall constitute a violation of the lease terms.
Sec. 21. READJUSTMENT OF TERMS AND CONDITIONS -- The terms and conditions of
this lease other than those related to rentals and royalties may be readjusted
in accordance with the Act at not less than ten-year intervals beginning ten
(10) years after the date geothermal steam is produced from the leased premises
as determined by the Supervisor.
Sec. 22. COOPERATIVE OR UNIT PLAN -- The Lessee agrees that it will on its own,
or at the request of the Lessor where it is determined to be necessary for the
conservation of the resource or to prevent the waste of the resource, subscribe
to and operate under any reasonable cooperative or unit plan for the development
and operation of the area, field, or pool, or part thereof embracing the lands
subject to this lease as the Secretary may determine to be practicable and
necessary or advisable in the interest of conservation. In the event the leased
lands are included within a unit, the terms of this lease shall be deemed to be
modified to conform to such unit agreement. Where any provision of a
cooperative or unit plan of development which has been approved by the
Secretary, and which by its terms affects the leased area or any part thereof,
is inconsistent with a provision of this lease, the provisions of such
cooperative or unit plan shall govern.
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<PAGE>
Sec. 23. RELINQUISHMENT OF LEASE -- The Lessee may relinquish this entire lease
or any officially designated subdivision of the leased area in accordance with
the regulations by filing in the proper BLM office a written relinquishment, in
triplicate, which shall be effective as of the date of filing. No
relinquishment of this lease or any portion of the leased area shall relieve the
Lessee or its surety from any liability for breach of any obligation of this
lease, including the obligation to make payment of all accrued rentals and
royalties and to place all wells in the leased lands to be relinquished in
condition for suspension or abandonment, and to protect or restore substantially
the surface or subsurface resources in a manner satisfactory to the Lessor.
Sec. 24. REMOVAL OF PROPERTY ON TERMINATION OR EXPIRATION OF LEASE
(a) Upon the termination or expiration of this lease in whole or in part,
or the relinquishment of the lease in whole or in part, as herein provided, the
Lessee shall within a period of ninety (90) days (or such longer period as the
supervisor may authorize because of adverse climatic conditions) thereafter
remove from the leased lands, no longer subject to the lease all structures,
machinery, equipment, tools, and materials in accordance with applicable
regulations and orders of the Supervisor. However, the Lessee shall, for a
period of not more than six (6) months, continue to maintain any such property
needed in the relinquished area, as determined by the Supervisor, for producing
wells or for drilling or producing geothermal resources on other leases.
(b) Any structures, machinery, equipment, tools, appliances, and
materials, subject to removal by the Lessee, as provided above, which are
allowed to remain on the leased lands shall become the property of the Lessor on
expiration of the 90-day period or any extension of that period which may be
granted by the Supervisor. If the Supervisor directs the Lessee to remove such
property, the Lessee shall do so at its own expense, or if it fails to do so
within a reasonable period, the Lessor may do so at the Lessee's expense.
Sec. 25. REMEDIES IN CASE OF DEFAULT
(a) Whenever the Lessee fails to comply with any of the provisions of the
Act, or the terms and stipulations of this lease, or of the regulations issued
under the Act, or of any order issued pursuant to those regulations, and that
default shall continue for a period of thirty (30) days after service of notice
by the Lessor, the Lessor may (1) suspend operations until the requested action
is taken to correct the noncompliance, or (2) cancel the lease in accordance
with Sec. 12 of the Act (30 U.S.C. 1011). However, the 30-day notice provision
applicable to this lease under Sec. 12 of the Act shall also apply as a
prerequisite to the institute of any legal proceedings by the Lessor to cancel
this lease while it is in a producing status. Nothing in this subsection shall
be construed to apply to, or require any notice with respect to any legal action
instituted by the Lessor other than an action to cancel the lease pursuant to
Sec. 12 of the Act.
(b) Whenever the Lessee fails to comply with any of the provisions of the
Act, or of this lease, or the regulations, or of any GRO Orders, or other
orders, and immediate action is required, the Lessor without waiting for action
by the Lessee may enter on the leased lands and take such measures as it may
deem necessary to correct the failure, including a suspension of operations or
production, all at the expense of the Lessee.
(c) A waiver of any particular violation of the provisions of the Act, or
of this lease, or of any regulations promulgated by the Secretary under the Act,
shall not prevent the cancellation of this lease or the exercise of any other
remedy or remedies under paragraphs (a) and (b) of this section by reason of any
other such violation, or for the same violation occuring at any other time.
(d) Nothing herein shall limit or affect the Lessee's right to a hearing
and appeal as provided in Sec. 12 of the Act and in the regulations promulgated
thereunder.
(e) Upon cancellation, the Lessee shall remove all property in accordance
with Sec. 24 hereof, and shall restore the leased lands in a manner acceptable
to the Lessor or as may be otherwise required by the Lessor.
Sec. 26. HEIRS AND SUCCESSORS IN INTEREST -- Each obligation hereunder shall
extend to and be binding upon, and every benefit hereof shall inure to, the
heirs, executors, administrators, successors, or assigns, of the respective
parties hereto.
Sec. 27. UNLAWFUL INTEREST -- No Member of, or Delegate to Congress, or
Resident Commissioner, after his election or appointment, either before or after
he has qualified, and during his continuance in office, and no officer, agent,
or employee of the Department shall be admitted to any share or part in this
lease or derive any benefit that may arise therefrom; and the provisions of Sec.
3741 of the Revised Statutes (41 U.S.C. Sec. 22), as amended, and Sections 431,
432, and 433 of Title 18 of the United States Code, relating to contracts made
or entered into, or accepted by or on behalf of the United States, form a part
of this lease so far as the same may be applicable.
Sec. 28. MONOPOLY AND FAIR PRICES -- The Lessor reserves full power and
authority to protect the public interest by promulgating and enforcing all
orders necessary to insure the sale of the production from the leased lands at
reasonable prices, to prevent monopoly, and to safeguard the public interest.
Sec. 29. EQUAL OPPORTUNITY CLAUSE -- The Lessee agrees that, during the
performance of this contract:
(1) The Lessee will not discriminate against any employee or applicant for
employment because of race, color, religion, sex, or national origin. The
Lessee will take affirmative action to ensure that applicants are employed, and
that employees are treated during employment, without regard to their race,
color, religion, sex, or national origin. Such action shall include, but not
R&M-6
<PAGE>
be limited to the following: employment, upgrading, demotion, or transfer;
recruitment or recruitment advertising, layoff or termination; rates of pay or
other forms of compensation; and selection for training, including
apprenticeship. The Lessee agrees to post in conspicuous places, available to
employees and applicants for employment, notices to be provided by the Lessor
setting forth the provisions of this Equal Opportunity clause.
(2) The Lessee will, in all solicitations or advertisements for the
employees placed by or on behalf of the Lessee, state that all qualified
applicants will receive consideration for employment without regard to race,
color, religion, sex, or national origin.
(3) The Lessee will send to each labor union or representative of workers
with which Lessee has a collective bargaining agreement or other contract or
understanding, a notice, to be provided by the Lessor, advising the labor union
or workers' representative of the Lessee's commitments under this Equal
Opportunity clause, and shall post copies of the notice in conspicuous places
available to employees and applicants for employment.
(4) The Lessee will comply with all provisions of Executive Order No.
11246 of September 24, 1965, as amended, and of the rules, regulations, and
relevant orders of the Secretary of Labor.
(5) The Lessee will furnish all information and reports required by
Executive Order No. 11246 of September 24, 1965, as amended, and by the rules,
regulations, and orders of the Secretary of Labor, or pursuant thereto, and will
permit access to its books, records, and accounts by the Secretary of the
Interior and the Secretary of Labor for purposes of investigation to ascertain
compliance with such rules, regulations, and orders.
(6) In the event of the Lessee's noncompliance with the Equal Opportunity
clause of this lease or with any of said rules, regulations, or orders, this
lease may be canceled, terminated or suspended in whole or in part and the
Lessee may be declared ineligible for further Federal Government contracts or
leases in accordance with procedures authorized in Executive Order No. 11246 of
September 24, 1965, as amended, and such other sanctions as may be imposed and
remedies invoked as provided in Executive Order No. 11246 of September 24, 1965,
as amended, or by rule, regulation, or order of the Secretary of Labor, or as
otherwise provided by law.
(7) The Lessee will include the provisions of Paragraphs (1) through (7)
of this Section (29) in every contract, subcontract or purchase order unless
exempted by rules, regulations, or orders of the Secretary of Labor issued
pursuant to Section 204 of Executive Order No. 11246 of September 24, 1965, as
amended, so that such provisions will be binding upon each contractor,
subcontractor, or subcontract, or purchase order as the Secretary may direct as
a means of enforcing such provisions including sanctions for noncompliance;
provided, however, that in the event the Lessee becomes involved in, or is
threatened with, litigation with a contractor, subcontractor, or vendor as a
result of such direction by the Secretary, the Lessee may request the Lessor to
enter into such litigation to protect the interests of the Lessor.
Sec. 30. CERTIFICATE OF NONSEGREGATED FACILITIES -- By entering into this
lease, the Lessee certifies that it does not and will not maintain or provide
for its employees any segregated facilities at any of its establishments, and
that it does not and will not permit its employees to perform their services at
any location, under its control, where segregated facilities are maintained.
The Lessee agrees that a breach of this certification is a violation of the
Equal Opportunity clause of this lease. As used in this certificate, the term
"segregated facilities" means, but is not limited to, any waiting rooms, work
areas, rest rooms and wash rooms, or restaurants or other eating areas, time
clocks, or locker rooms, and other storage or dressing rooms, parking lots,
drinking fountains, recreation or entertainment areas, transportation, and
housing facilities provided for employees which are segregated by explicit
directive, or are in fact segregated on the basis of race, color, religion, or
national origin because of habit, local custom, or otherwise. Lessee further
agrees that (except where it has obtained identical certifications from proposed
contractors and subcontractors for specific time periods) it will obtain
identical certifications from proposed contractors and subcontractors prior to
the award of contracts or subcontracts exceeding $10,000 which are not exempt
from the provisions of the Equal Opportunity clause; that it will retain such
certifications in its files; and that it will forward the following
certification to such proposed contractors and subcontractors (except where the
proposed contractor or subcontractor has submitted identical certifications for
specific time periods); it will notify prospective contractors and
subcontractors of requirement for certification of nonsegregated facilities. A
Certification of Nonsegregated Facilities, as required by the May 9, 1967 Order
(32 F.R. 7439, May 19, 1967) on Elimination of Segregated Facilities, by the
Secretary of Labor, must be submitted prior to the award of a contract or
subcontract exceeding $10,000 which is not exempt from the provisions of the
Equal Opportunity clause. The certification may be submitted either for each
contract and subcontract or for all contracts and subcontracts during a period
(i.e., quarterly, semiannually, or annually).
Sec. 31. SPECIAL STIPULATIONS -- (stipulations, if any, are attached hereto and
made a part hereof)
See Attachments "A" and "B".
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<PAGE>
In witness whereof the parties have executed this lease.
Lessee: THE UNITED STATES OF AMERICA, Lessor:
By
- ------------------------------------ -----------------------------------
(Signature of Lessee) (Authorized Officer)
Chief, Minerals Section
- ------------------------------------ ------------------------------------
(Signature of Lessee) (Title)
12-31-81 JAN 13, 1982
- ------------------------------------ ------------------------------------
(Date) (Date)
[SEAL]
R&M-8
<PAGE>
<TABLE>
<S> <C> <C>
Form 3000.3 UNITED STATES FORM APPROVED
(March 1991) DEPARTMENT OF THE INTERIOR OMB NO. 1004-0034
BUREAU OF LAND MANAGEMENT Expires: July 31, 1992
ASSIGNMENT OF RECORD TITLE INTEREST IN A Lease Serial No.
LEASE FOR OIL AND GAS OR GEOTHERMAL RESOURCES CACA-11384
Mineral Leasing Act of 1920 (30 U.S.C. 181 et seq.) Lease Effective Date
Act for Acquired Lands of 1947 (30 U.S.C. 351-359) (Anniversary Date)
Geothermal Steam Act of 1970 (30 U.S.C. 1001-1025) February 1, 1982
Department of the Interior Appropriations Act, Fiscal Year 1981 (42 U.S.C. 6508)
New Serial No.
- --------------------------------------------------------------------------------------------------------------
Type or print plainly in ink and sign in ink.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
PART A: ASSIGNMENT
<TABLE>
<S> <C>
1. Assignee* Coso Land Company
Street 302 South 36th Street, Suite 400
City, State, ZIP Code Omaha, Nebraska 68131
</TABLE>
* If more than one assignee, check here / / and list the name(s) and
address(es) of all additional assignees on the reverse of this form or on
a separate attached sheet of paper.
This record title assignment is for: (Check one) / / Oil and Gas Lease, or
/X/ Geothermal Lease
Interest conveyed: (Check one or both, as appropriate) /X/ Record Title,
/ / Overriding Royalty, payment out of
production or other similar interests or
payments
- -------------------------------------------------------------------------------
2. This assignment conveys the following interest:
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
Overriding Royalty
Land Description Percent of Interest or Similar Interests
- ------------------------------------------------------------------------ ----------------------
<S> <C> <C>
Additional space on reverse, if needed. Do not Owned Conveyed Retained Reserved Previously
submit documents or agreements other than reserved
this form; such documents or agreements or conveyed
shall only be referenced herein.
</TABLE>
<TABLE>
<CAPTION>
a b c d e f
- ---------------------- -------------------------- -------------- ----------- ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Township 22 South, Range 38 East, M.D.M. 100% 100% 0 0 0
- ----------------------------------------
Section 11: E/2
Section 12: All
Section 13: All
Section 14: E/2
Township 22 South, Range 39 East, M.D.M.
- ----------------------------------------
Section 7: Lots 1-4, inclusive, E/2W/2
Section 18: Lots 1-4, inclusive, E/2W/2
Inyo County, California
Total Acres: 2555.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR BLM USE ONLY -- DO NOT WRITE BELOW THIS LINE
UNITED STATES OF AMERICA
This assignment is approved solely for administrative purposes. Approval does not warrant that either party to this assignment holds
legal or equitable title to this lease.
<S> <C>
/X/ Assignment approved for above described lands; / / Assignment approved for attached land description
Assignment approved effective JAN 1 1988 / / Assignment approved for land description indicated on
--------------------
reverse of this form
CHIEF BRANCH OF ENERGY JAN 8 1988
By AND MINERAL SCIENCE & ADJUDICATION
------------------------------------------------ --------------------------------------------------------
</TABLE>
R&M-9
<PAGE>
Exhibit 10.44
UNITED STATES
DEPARTMENT OF THE INTERIOR
BUREAU OF LAND MANAGEMENT
STATE OFFICE
E-2841 Federal Office Building
2800 Cottage Way
Sacramento, California 95825
Serial No. CACA 22512
LICENSE FOR ELECTRIC POWER PLANT SITE
UTILIZING GEOTHERMAL RESOURCES
This license, entered into on Mar 8 1989, by the United States of America, the
Licensor, through the Bureau of Land Management (BLM), and Coso Energy
Developers, the Licensee, is hereby issued under the Geothermal Steam Act of
1970 (30 U.S.C. 1001-1025) and is subject to all applicable Federal, State, and
local laws and regulations including Title 43 CFR Parts 3200, 3250, and 3260.
Section 1. Rights Under License
This license confers the right to construct, operate, and maintain a 48 MW
electric generating plant and related facilities or appurtenant structures in
accordance with the terms and conditions of this license, the approved plan of
utilization, and the applicable regulations, on those certain lands situated in
the County of Inyo, State of California, described as:
(a) Geothermal Power Plant Site Property
A parcel of land within geothermal resources lease CACA 11402, known
as NWC-2, situated within Section 20, Township 22 South, Range 39
East, Mount Diablo Meridian, Inyo County, particularly described as:
BEGINNING at the Northwest corner of said parcel from which the
Northwest corner of said Section 20 bears N. 36 20' 17" W. a distance
of 4,318.64 feet, thence East 800.00 feet; thence South 800.00 feet;
thence West 800.00 feet; thence North 800.00 feet to the POINT OF
BEGINNING, containing 14.69 acres, more or less.
This license is for a primary term of 30 years, with a preferential right of
renewal of such license under such terms and conditions as the Licensor may
-1-
<PAGE>
deem appropriate, provided that the license may be terminated as provided in
Section 7 hereof.
Section 2. Operations
A. Licensee shall comply with the regulations of the Secretary of the
Interior as set forth in 43 CFR Part 3250.
B. Licensee shall comply with the provisions of the operating regulations
in 43 CFR Part 3260 and all orders issued pursuant thereto. Copies of
the operating regulations may be obtained from the District Manager,
California Desert District.
C. Prior to commencement of any activities relating to plant operations,
the Licensee shall file with the Authorized Officer a copy of any
utility commission license or other Federal, State, or local license
or permit incident to the operation of the facilities authorized
herein.
D. Licensee shall allow inspection of the premises and operations by duly
authorized representatives of the Department of the Interior or other
Federal agency administering the lands and shall provide for the
ingress or egress of government officers, and for users of the lands
under authority of the United States.
E. Licensee hereby agrees to hold harmless and indemnify the United
States, its officers, agents, employees, successors, or assigns from
and against all claims, demands, costs, losses, causes of action,
damages, or liability of whatsoever kind or nature arising out of or
resulting from the utilization of the property by the Licensee
hereunder. The United States shall not be liable for any damages or
injuries to persons or property in, or about, said premises from any
cause other than the negligent acts or omissions of its officers,
agents, or employees.
-2-
<PAGE>
Section 3. Rentals
The Licensee shall pay to the Licensor a rental of $1,500.00 on or before the
date of issuance of the license and on each anniversary thereafter. Said rental
shall be reassessed at the discretion of the Authorized Officer at not less than
ten-year intervals beginning with the tenth year of the term of this license.
Section 4. Bonds
The Licensee shall file with the Authorized Officer and shall maintain at all
times the bonds required under the regulations to be furnished as a condition to
the issuance of this license in the amounts established by the Licensor and to
furnish such additional bond or security as may be required by the Licensor upon
entry on the lands or after operations have begun.
Section 5. Equal Opportunity Clause
This license is subject to the provisions of Executive Order No. 11246 of
September 24, 1965, as amended, which sets forth the nondiscrimination clauses.
A copy of this Order may be obtained from the Authorized Officer.
Section 6. Assignments and Transfers
A. This license shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto. Any proposed transfer in
whole or in part of any right, title, or interest in the licensed
plant or facility or this license must be filed with the Authorized
Officer. The application for transfer must be accompanied by the same
showing of qualifications of the transferee as is required of the
applicant, and must be supported by a stipulation that the assignee
will comply with and be bound by all the terms and conditions of this
license. No transfer will be valid unless and until it is approved in
writing by the Authorized Officer.
B. An application for approval of an assignment or transfer shall be
accompanied by a nonrefundable fee as specified by the regulations at
43 CFR 3250.8(b).
-3-
<PAGE>
Section 7. Termination and Relinquishment
A. The Licensee may surrender this license by filing a written
relinquishment, in triplicate, with the Authorized Officer. The
relinquishment shall include a statement as to whether the land
covered by the license has been disturbed and, if so, whether it has
been restored as prescribed by the terms and conditions of the
license. The relinquishment will not be accepted until the
requirements for reclamation of the land have been met.
B. The license may be cancelled upon written order of the Authorized
Officer for violation of the terms and conditions hereof, or of any of
the regulations or orders applicable hereto, subject to notice and a
right of appeal as provided in the regulations.
C. Following relinquishment, expiration, or cancellation, the Licensee
shall within one year following the termination of the license remove
all structures, machinery, and other equipment from the above
described lands, and restore the land in accordance with Section 7(D)
of this license. Additional time may be granted by the Authorized
Officer upon a showing of good cause by the Licensee. The bond
required by this license shall not be released until the reclamation
process has been completed to the satisfaction of the Authorized
Officer.
D. Prior to the termination of bond liability and to the extent deemed
necessary by the Licensor, the Licensee shall reclaim all surface
disturbances as required, remove or cover all debris or solid waste,
and, so far as possible, repair the offsite and onsite damage caused
by its activity or activities incidental thereto, and return access
roads or trails and the licensed lands to an acceptable condition,
including the removal of structures, if required. The District
Manager, California Desert District, or the Authorized Officer shall
prescribe the steps to be taken by the Licensee to protect the surface
and the environment and for the restoration of the licensed lands and
other lands affected
-4-
<PAGE>
by operations on the licensed lands and improvements thereon, whether
or not the improvements are owned by the United States.
Section 8. Unlawful Interest
No Member of, or Delegate to, Congress or Resident Commissioner, after his
election or appointment, or either before or after he has qualified and during
his continuance in office, and no officer, agent, or employee of the Department
of the Interior, except as provided in 43 CFR 7.3(a)(1), shall be admitted to
any share or part in this license or derive any benefit that may arise
therefrom; and the provisions of Section 3741 of the Revised Statutes of the
United States, as amended (41 U.S.C. Sec. 22) and Sections 431, 432, and 433,
Title 18 U.S.C., relating to contracts, enter into and form a part of this
license so far as the same may be applicable.
Section 9. Certification of Nonsegregated Facilities
By entering into this license, the Licensee certifies that Licensee does not and
will not maintain or provide for Licensee's employees any segregated facilities
at any of Licensee's establishments, and that Licensee does not and will not
permit Licensee's employees to perform their services at any location, under
Licensee's control, where segregated facilities are maintained. The Licensee
agrees that a breach of this certification is a violation of the Equal
Opportunity Clause of this license. As used in this certification, the term
"segregated facilities" means, but is not limited to, any waiting rooms, work
rooms, work areas, rest rooms and wash rooms, restaurants and other eating
areas, time clocks, locker rooms and other storage or dressing areas, parking
lots, drinking fountains, recreation or entertainment areas, transportation, and
housing facilities provided for employees which are segregated by explicit
directive or are in fact segregated on the basis of race, color, religion, or
national origin, because of habit, local custom, or otherwise. Licensee further
agrees that (except where Licensee has obtained identical certification from
proposed contractors and subcontractors for specific time periods) Licensee will
obtain identical certifications from proposed contractors and subcontractors
prior to the award of contracts or subcontracts exceeding $10,000 which are not
exempt from the provisions of the Equal Opportunity Clause; that
-5-
<PAGE>
Licensee will retain such certifications in Licensee's files; and that Licensee
will forward the following notice such proposed contractors and subcontractors
(except where the proposed contractor or subcontractor has submitted identical
certifications for specific time periods): Licensee will notify prospective
contractors and subcontractors of the requirement for certification of
nonsegregated facilities. A Certification of Nonsegregated Facilities, as
required by the May 9, 1967, Order (32 F.R. 7439, May 19, 1967) on Elimination
of Segregated Facilities, of the Secretary of Labor, must be submitted prior to
the award of a contract or subcontract exceeding $10,000 which is not exempt
from the provisions of the Equal Opportunity Clause. The certification may be
submitted either for each contract and subcontract or for all contracts and
subcontracts during a period (i.e. quarterly, semi-annually, or annually).
Section 10. Stipulation
Affixed hereto as Exhibit "A".
--------------------------------------
THE UNITED STATES OF AMERICA
By /s/ Fred O'Ferrall
---------------------------
Chief, Leasable Minerals Section
Branch of Adjudication and Records
Date Mar 8 1989
------------------------
WITNESS TO SIGNATURE OF LICENSEE Coso Energy Developers,
a California General Partnership
/s/ Jeannette M. Dutil By Coso Hotsprings Intermountain
---------------------- Power, Inc.
a Delaware Corporation
Managing Partner
_____________________________________ By /s/ Richard A. Nishkian
-----------------------------
Signature of Licensee
Richard A. Nishkian
Chief Financial Officer
________________________________________________________________________________
________________________________________________________________________________
If this license is executed by a corporation, it must bear the corporate seal.
-6-
<PAGE>
Exhibit 10.45
UNITED STATES
DEPARTMENT OF THE INTERIOR
BUREAU OF LAND MANAGEMENT
CALIFORNIA STATE OFFICE
E-2845 Federal Office Building
2800 Cottage Way
Sacramento, California 95825
Serial No. CACA 25690
LICENSE FOR ELECTRIC POWER PLANT SITE
UTILIZING GEOTHERMAL RESOURCES
This license, entered into on _______________, by the United States of America,
the Licensor, through the Bureau of Land Management (BLM), and Coso Energy
Developers, the Licensee, is hereby issued under the Geothermal Steam Act of
1970 (30 U.S.C. 1001-1025) and is subject to all applicable Federal, State, and
local laws and regulations including Title 43 CFR Group 3200.
Section 1. Rights Under License
This license confers the right to construct, operate, and maintain a 48MW
electric generating plant and related facilities or appurtenant structures in
accordance with the terms and conditions of this license, the approved plan of
utilization, and the applicable regulations, on those certain lands situated in
the County of Inyo, State of California, described below excepting that prior to
commencing any surface disturbance activities allowed under this license, a
permit to construct a utilization facility shall be obtained from the authorized
officer as required by 43 CFR 3250.6-1(b):
Geothermal Power Plant Site Land Description
A parcel of land, known as NWC-1 ("BLM Unit 9 Power Plant site"),
situate within Section 19, Township 22 South, Range 39 East, Mount
Diablo Meridian, Inyo County, California, located within the China
Lake Naval Weapons Center on Federal geothermal lease No. CACA 11402,
and being more particularly described as follows:
BEGINNING at the northeast corner of said parcel from which the
northeast corner of said Section 19 bears N57'39'08"E a distance of
3772.56 feet, thence south 800.00 feet; thence west 800.00 feet;
thence north 800.00 feet; thence east 800.00 feet to the POINT OF
BEGINNING, containing 14.69 acres, more or less.
-1-
<PAGE>
This license is for a primary term of 30 years, with a preferential right of
renewal of such license under such terms and conditions as the Licensor may deem
appropriate, provided that the license may be terminated as provided in Section
7 hereof.
Section 2. Operations
A. Licensee shall comply with the regulations of the Secretary of the
Interior as set forth in 43 CFR Part 3250.
B. Licensee shall comply with the provisions of the operating regulations
in 43 CFR Part 3260 and all orders issued pursuant thereto. Copies of
the operating regulations may be obtained from the Authorized Officer.
C. Prior to commencement of any activities relating to plant operations,
the Licensee shall file with the Authorized Officer a copy of any
utility commission license or other Federal, State, or local license
or permit incident to the operation of the facilities authorized
herein.
D. Licensee shall allow inspection of the premises and operations by duly
authorized representatives of the Department of the Interior or other
Federal agency administering the lands and shall provide for the
ingress or egress of government officers, and for users of the lands
under authority of the United States.
E. Licensee hereby agrees to hold harmless and indemnify the United
States, its officers, agents, employees, successors, or assigns from
and against all claims, demands, costs, losses, causes of action,
damages, or liability of whatsoever kind or nature arising out of or
resulting from the utilization of the property by the Licensee
hereunder. The United States shall not be liable for any damages or
-2-
<PAGE>
injuries to persons or property in, or about, said premises from any
cause other than the negligent acts or omissions of its officers,
agents, or employees.
Section 3. Rentals
The Licensee shall pay to the Licensor a rental of $1,500.00 on or before the
date of issuance of the license and on each anniversary thereafter. Said rental
shall be reassessed at the discretion of the Authorized Officer at not less than
10 year intervals beginning with the tenth year of the term of this license.
Section 4. Bond
The Licensee shall file with the Authorized Officer and shall maintain at all
times the bond required under the regulations to be furnished as a condition to
the issuance of this license in the amount established by the Licensor and to
furnish such additional bond or security as may be required by the Licensor upon
entry on the lands or after operations have begun.
Section 5. Equal Opportunity Clause
This license is subject to the provisions of Executive Order No. 11246 of
September 24, 1965, as amended, which sets forth the nondiscrimination clauses.
A copy of this Order may be obtained from the Authorized Officer.
Section 6. Assignments and Transfers
A. This license shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto. Any proposed transfer in
whole or in part of any right, title, or interest in the licensed
plant or facility or this license must be filed with the Authorized
Officer. The application for transfer must be accompanied by the same
showing of qualifications of the transferee as is required of the
applicant, and must be supported by a stipulation that the assignee
-3-
<PAGE>
will comply with and be bound by all the terms and conditions of this
license. No transfer will be valid unless and until it is approved in
writing by the Authorized Officer.
B. An application for approval of an assignment or transfer shall be
accompanied by a nonrefundable fee as specified by the regulations at
43 CFR 3250.8(b).
Section 7. Termination and Relinquishment
A. The Licensee may surrender this license by filing a written
relinquishment, in triplicate, with the Authorized Officer. The
relinquishment shall include a statement as to whether the land
covered by the license has been disturbed and, if so, whether it has
been restored as prescribed by the terms and conditions of the
license. The relinquishment will not be accepted until the
requirements for reclamation of the land have been met.
B. The license may be cancelled upon written order of the Authorized
Officer for violation of the terms and conditions hereof, or of any of
the regulations or orders applicable hereto, subject to notice and a
right of appeal as provided in the regulations.
C. Following relinquishment, expiration, or cancellation, the Licensee
shall within one year following the termination of the license remove
all structures, machinery, and other equipment from the above
described lands, and restore the land in accordance with Section 7(D)
of this license. Additional time may be granted by the Authorized
Officer upon a showing of good cause by the Licensee. The bond
required by this license shall not be released until the reclamation
process has been completed to the satisfaction of the Authorized
Officer.
-4-
<PAGE>
D. Prior to the termination of bond liability and to the extent deemed
necessary by the Licensor, the Licensee shall reclaim all surface
disturbances as required, remove or cover all debris or solid waste,
and, so far as possible, repair the offsite and onsite damage caused
by its activity or activities incidental thereto, and return access
roads or trails and the licensed lands to an acceptable condition,
including the removal of structures, if required. The Authorized
Officer shall prescribe the steps to be taken by the Licensee to
protect the surface and the environment and for the restoration of the
licensed lands and other lands affected by operations on the licensed
lands and improvements thereon, whether or not the improvements are
owned by the United States.
Section 8. Unlawful Interest
No Member of, or Delegate to, Congress or Resident Commissioner, after his
election or appointment, or either before or after he has qualified and during
his continuance in office, and no officer, agent, or employee of the Department
of the Interior, except as provided in 43 CFR 20.735-24 (b)(4)(d), shall be
admitted to any share or part in this license or derive any benefit that may
arise therefrom; and the provisions of Section 3741 of the Revised Statutes of
the United States, as amended (41 U.S.C. Sec. 22) and Sections 431, 432, and
433, Title 18 U.S.C., relating to contracts, enter into and form a part of this
license so far as the same may be applicable.
Section 9. Certification of Nonsegregated Facilities
By entering into this license, the Licensee certifies that Licensee does not and
will not maintain or provide for Licensee's employees any segregated facilities
at any of Licensee's establishments, and that Licensee does not and will not
permit Licensee's employees to perform their services at any location,
-5-
<PAGE>
under Licensee's control, where segregated facilities are maintained. The
Licensee agrees that a breach of this certification is a violation of the Equal
Opportunity Clause of this license. As used in this certification, the term
"segregated facilities" means, but is not limited to, any waiting rooms, work
rooms, work areas, rest rooms and wash rooms, restaurants and other eating
areas, time clocks, locker rooms and other storage or dressing areas, parking
lots, drinking fountains, recreation or entertainment areas, transportation, and
housing facilities provided for employees which are segregated by explicit
directive or are in fact segregated on the basis of race, color, religion, or
national origin, because of habit, local custom, or otherwise. Licensee further
agrees that (except where Licensee has obtained identical certification from
proposed contractors and subcontractors for specific time periods) Licensee will
obtain identical certifications from proposed contractors and subcontractors
prior to the award of contracts or subcontracts exceeding $10,000 which are not
exempt from the provisions of the Equal Opportunity Clause, that Licensee will
retain such certifications in Licensee's files; and that Licensee will forward
the following notice to such proposed contractors and subcontractors (except
where the proposed contractor or subcontractor has submitted identical
certifications for specific time periods); Licensee will notify prospective
contractors and subcontractors of the requirement for certification of
nonsegregated facilities. A Certification of Nonsegregated Facilities, as
required by the May 9, 1967 Order (32 F.R. 7439, May 19, 1967) on Elimination of
Segregated Facilities, of the Secretary of Labor, must be submitted prior to the
award of a contract or subcontract exceeding $10,000 which is not exempt from
the provisions of the Equal Opportunity Clause. The certification may be
submitted either for each contract and subcontract or for all contracts and
subcontracts during a period (i.e. quarterly, semi-annually, or annually).
-6-
<PAGE>
Section 10. Stipulation
Affixed hereto as Exhibit "A".
THE UNITED STATES OF AMERICA
By__________________________________
Chief, Leasable Minerals Section
Date________________________________
WITNESS TO SIGNATURE OF LICENSEE Coso Energy Developers
/s/ Irene K. Lee By /s/ Richard A. Nishkian
- -------------------------------- ----------------------------------
Richard A. Nishkian
- -------------------------------- Title Chief Financial Officer
Date December 14, 1989
-----------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If this license is executed by a corporation, it must bear the corporate seal.
Coso Energy Developers,
a California General Partnership
By Coso Hotsprings Intermountain Power, Inc.
a Delaware Corporation
-7-
<PAGE>
Exhibit 10.46
UNITED STATES
DEPARTMENT OF THE INTERIOR
BUREAU OF LAND MANAGEMENT
Ridgecrest Resource Area
112 East Dolphin Street
Ridgecrest, California 93555
Right-of-Way MAY 7, 1986
CA- 18885
Section A
1. There is hereby granted, pursuant to Title V of the Federal Land Policy
and Management Act of 1976 (43 U.S.C. 1761), a nonexclusive, nonpossesory
right-of-way to:
CALIFORNIA ENERGY COMPANY
3333 Mendocino Avenue
Santa Rosa, California 95401
In case of change of address the holder shall immediately notify the
authorized officer.
2. To use, subject to terms and conditions set out below, the following
described Public land:
T.22S., R.37E., MDM
Section 1, Lots 1 & 2 in NE 1/4, Lot 1 in NW 1/4, NW 1/4SW 1/4
T.21S., R.37E., MDM
Section 36, SE 1/4SE 1/4
T.21S., R.38E., MDM
Section 31, Lots 13-16
(Continued below)
3. Description of the right-of-way facility and purpose:
Right-of-Way Dimensions:
Length - 5.6 miles
Width - 10 feet
Acres - 6.78, more or less
A telephone cable to be buried in the ditch of the COSO - GILL's Station
Road to provide service to California Energy Company's geothermal power
plant within the China Lake Naval Weapons Center.
A map showing the location of the right-of-way over the above described public
land is attached hereto as Exhibit "A" and made a part hereof.
2. (Continued)
Section 32, Lots 1-5, 8
Section 33, S 1/2NE 1/4, NE 1/4SW 1/4, S 1/2SW 1/4, N 1/2SE 1/4
Section 34, N 1/2SW 1/4, SE 1/4SW 1/4, SW 1/4SE 1/4
<PAGE>
TERMS AND CONDITIONS
Section B
1. The right-of way holder agrees to comply with all the applicable
regulations contained in 43 CFR 2800.
2. If the right-of-way holder violates any of the terms and conditions of this
grant, the authorized officer, after giving written notice may declare the
grant terminated.
3. This grant is subject to all valid rights existing on the effective date of
this grant.
4. There is reserved to the authorized officer the right to grant additional
rights-of-way or permits for compatible uses on, over, under, or adjacent
to the land involved in this grant.
5. The right-of-way shall be relinquished to the United States if the
authorized uses are no longer needed.
6. All other terms and conditions. Compliance will be in accordance with the
terms and conditions as specified herein and in Exhibit "B", attached
hereto and made a part hereof.
7. In consideration for this grant, the holder shall pay the Bureau of Land
Management, in advance, a rental of $25.00 for the first five year period,
subject to a rental determination at a later date. Any additional rental
that is determined to be due as a result of the rental determination shall
be paid upon request.
8. This right-of-way shall terminate 30 years from the effective date of
this grant unless prior thereto it is relinquished, abandoned, terminated,
or otherwise modified pursuant to the terms and conditions of this grant or
of any applicable Federal laws or regulation.
9. This right-of-way grant may be renewed. If renewed the right-of-way
will be subject to regulations existing at the time of renewal and such
other terms and conditions deemed necessary to protect the public interest.
Section C
The effective date of this right-of-way grant is the date of execution by
the Authorized Officer.
The undersigned agrees to the The right-of-way grant
terms and conditions of this is executed this 7th day
right-of-way grant: of May, 1986.
/s/ signature illegible /s/ Gregory S. Thomsen
- ----------------------- ----------------------
(Authorized Officer)
May 86
- ------
Date
<PAGE>
Exhibit "B"
1. The Holder shall comply with the applicable Federal and State laws and
regulations concerning the use of pesticides (i.e., insecticides,
herbicides, fungicides, rodenticides, and other similar substances) in all
activities/ operations under this grant. The Holder shall obtain from the
Authorized Officer approval of a written plan prior to the use of such
substances. The plan must provide the type and quantity of material to be
used; the pest, insect, fungus, etc., to be controlled; the method of
application; the location of or storage and disposal of containers; and
other information that the Authorized Officer may require. The plan should
be submitted no later than December 1 of any calendar year that covers the
proposed activities for the next fiscal year (i.e., December 1, 1983,
deadline for fiscal year 1985 action). If need for emergency use of
pesticides is identified, the use must be approved by the Authorized
Officer. The use of substances on or near the right-of-way shall be in
accordance with the approved plan. A pesticide shall not be used if the
Secretary of the Interior has prohibited its use. A pesticide shall be
used only in accordance with its registered uses and within other
limitations if the Secretary has imposed limitations. Pesticides shall not
be permanently stored on public lands authorized for use under the grant.
2. The Holder shall indemnify the United States against any liability for
damage to life or property arising from the occupancy or use of public
lands under this grant.
3. The Holder agrees not to exclude any person from participating in
employment or procurement activity connected with this grant on the grounds
of race, creed, color, national origin, and sex, and to ensure against such
exclusions, the Holder further agrees to develop and submit to the proper
reviewing official specific goals and timetables with respect to minority
and female participation in employment and procurement activity connected
with this grant. The Holder will take affirmative action to utilize
business enterprises owned and controlled by minorities or women in its
procurement practices connected with this grant. Affirmative action will
be taken by the Holder to assure all minorities or women applicants full
consideration of all employment opportunities connected with this grant.
The Holder also agrees to post in conspicuous places on its premises which
are available to contractors, subcontractors, employees, and other
interested individuals, notices which set forth equal opportunity terms;
and to notify interested individuals, such as bidders, contractors,
purchasers, and labor unions or representatives of workers with whom it has
collective bargaining agreements, of the Holder's equal opportunity
obligations.
4. The Holder shall limit surface disturbance to the minimum needed. All
disturbed areas shall be rehabilitated to the satisfaction of the
Authorized Officer.
5. The telephone cable will be buried within the existing disturbed area of
the Coso - Gill's Station Road.
<PAGE>
Exhibit 10.47
IN REPLY REFER TO
2800 (063)
[SEAL] CA-13510
(C-065.21)
United States Department of the Interior
BUREAU OF LAND MANAGEMENT
California Desert District
1695 Spruce Street
Riverside, California 92507
DECISION APR12, 1984
RIGHT-OF-WAY GRANTED
--------------------
Details of Grant
----------------
<TABLE>
<S> <C> <C> <C>
Serial Number : CA-13510 Date Granted: Date of this
Decision
Holder : California Energy Company, Inc. Date Filed: 1/18/83
3333 Mendocino Avenue, Suite 100
Santa Rosa, CA 95401
Project Description : Map, entitled Exhibit A, showing the Date of
location and descriptions of the grant Termination: 30 years from
is attached hereto and made a part hereof. the date of this
Decision
Land Description : T. 21 S., R. 38 E., MDM., Section 32 & 31 Portions of
T. 22 S., R. 37 E., MDM., Section 1 Portions of
Permitted Use by Holder : Construction, operation and maintenance of an above
ground distribution line and a 20-acre field office
site.
Authority for Grant : Title V of the Act of October 21, 1976 (90 Stat.
2776; 43 U.S.C. 1761).
Regulations Applicable : Section 2801 through 2806.2, Title 43, Code of
Federal Regulations.
Rental : $25.00 estimated rental for first five years,
subject to adjustment by formal appraisal.
</TABLE>
TERMS AND CONDITIONS OF GRANT
Pursuant to the authority vested in the undersigned by Bureau Order Number 701
of the Director, Bureau of Land Management, as amended February 19, 1982, (47
F.R. 7505), a right-of-way, the details of which are shown above, is hereby
granted, subject to the following numbered terms and conditions:
1, 2, 3, 4, 5, 6, 8 & 12
------------------------
R&M-1
<PAGE>
TERMS AND CONDITIONS OF GRANT
1. All valid rights existing on the date of this grant.
2. There is hereby reserved to the Secretary of the Interior, or his lawful
delegate, the right to grant additional rights-of-way or permits for compatible
uses on, over, under or adjacent to the land involved in this grant.
3. The holder shall comply with the applicable Federal and State laws and
regulations concerning the use of pesticides (i.e., insecticides, herbicides,
fungicides, rodenticides, and other similar substances) in all activities and
operations under this grant. The holder shall obtain from the Authorized Officer
approval of a written plan prior to the use of such substances. The plan must
provide the type and quantity of material to be used; the pest, insect, fungus,
etc. to be controlled; the method of application; the location for storage and
disposal of containers; and other information that the Authorized Officer may
require. The plan should be submitted no later than December 1 of any calendar
year that covers the proposed activities for the next fiscal year (i.e.,
December 1, 1982 deadline for a fiscal year 1983 action). Emergency use of
pesticides may occur. The use of substances on or near the right-of-way shall
be in accordance with the approved plan. A pesticide shall not be used if the
Secretary of the Interior has prohibited its use. A pesticide shall be used
only in accordance with its registered uses and within other limitations if the
Secretary has imposed limitations. Pesticides shall not be permanently stored
on public lands authorized for use under this grant.
4. The holder agrees not to exclude any person from participating in
employment or procurement activity connected with this grant on the grounds of
race, creed, color, national origin, or sex. To ensure against such exclusions,
the holder further agrees to develop and submit to the proper reviewing official
specific goals and timetables with respect to minority and female participation
in employment and procurement activity connected with this grant. The holder
will take affirmative action to utilize business enterprises owned and
controlled by minorities and women in its procurement practices connected with
this grant. Affirmative action will be taken by the holder to assure all
minorities or women applicants full consideration of all employment
opportunities connected with this grant. The holder also agrees to post in
conspicuous places on its premises which are available to contractors,
subcontractors, purchasers, and labor unions or representatives of workers with
whom it has collective bargaining agreements, of the holder's equal opportunity
obligations.
5. The holder agrees not to exclude any person from participating in
employment or procurement activity connected with this grant on the grounds of
race, creed, color, national origin, or sex. To ensure against such exclusions,
the holder further agrees to develop and submit to the proper reviewing official
specific goals and timetables with respect to minority and female participation
in employment and procurement activity connected with this grant. The holder
also agrees to post in conspicuous places on its premises which are available to
contractors, purchasers, and labor unions or representatives of workers with
whom it has collective bargaining agreements, of the holder's equal opportunity
obligations.
6. This grant is subject to review at the end of 20 years from the date of
this decision and at regular intervals thereafter, not to exceed 10 years.
7. This grant may be renewed so long as it is still being used for the
purposes of this grant and is operated and maintained in accordance with all
provisions of this grant and pursuant to the regulations under which it is
granted.
8. All facilities must be non-reflective and colored to blend with the
surrounding environment.
9. The holder agrees that the right-of-way will be subject to the regulations
contained in 43 CFR 2805.1(c) (wneeling stipulations).
10. The right-of-way herein granted is subject to the express covenant that it
will be modified, adapted, or discontinued if found by the Secretary of the
Interior to be necessary, without liability or expense to the United States, so
as not to conflict with the use and occupancy of the land for any authorized
works which may be hereafter constructed thereon under the authority of the
United States.
11. The holder agrees to the stipulations contained in Appendix , attached
-----
hereto and made a part hereof.
12. A qualified archaeologist will be present at the time the transmission line
is staked.
By acceptance hereof, the holder agrees that the right-of-way is subject to the
applicable regulations contained in 43 CFR 2800 and to the terms and conditions
of this grant.
/s/ William R. Tipton /s/ HW Rierben
- --------------------- ------------------------
Holder Acting District Manager
Vice President and General Manager
California Energy, Co., Inc. APR 12 1984
- ----------------------------------
Holder
- ----------------------------------
Holder
R&M-2
<PAGE>
United States Department of the Interior IN REPLY REFER TO:
2800(C-065.21)
BUREAU OF LAND MANAGEMENT CA 13510
Ridgecrest Resource Area
112 East Dolphin Street
Ridgecrest, California 93555
CERTIFIED MAIL # MAY 23 1986
RETURN RECEIPT REQUESTED
DECISION
California Energy Company : Right-of-Way
333 Mendocino Avenue :
Santa Rosa, California 95401 : CA 13510
Amendment to Right-of-Way Offered
--------- -- ------------ -------
On April 12, 1984, right-of-way CA 13510 was issued to California Energy Company
(Cal Energy) for a 115KV electric transmission line and a 20 acre site for a
combined field office and a Southern California Edison (SCE) substation. These
facilities, which are to transmit electric power from the Coso geothermal field,
have not been installed yet.
On March 27, 1986, and April 14, 1986, Cal Energy filed and modified an
application to amend right-of-way CA 13510. The right-of-way, as amended, will
include:
(1) a Los Angeles Department of Water and Power (LADWP) substation and tie-in
to an existing LADWP 230KV line;
(2) an upgrade to 230KV of the segment of the 115KV line authorized in CA 13510
between the Navy boundary and the new LADWP substation: the portion of this line
in section 31, T.213., __.38__., MDM. will be moved farther north;
(3) a temporary 115KV line from the area of the LADWP substation to a temporary
SCE substation: this temporary portion of the right-of-way will expire on
December 31, 1987; and
(4) a Cal Energy field office site containing an office building, pipe yard,
warehouse/shop, water well and parking areas. The amended right-of-way will also
include a 4,875 foot segment of the proposed electric line in section 33,
T.21_., R.38E., MDM, which was erroneously omitted when the right-of-way was
issued.
The overall dimensions of the right-of-way once amended, will be:
Temporary SCE facilities = 14.42 acres
Substation = 4.0 acres
Transmission line - 1.72 miles x 50' wide = 10.42 acres
R&M-3
<PAGE>
Permanent Cal Energy/LADWP facilities = 58.51 acres
Substation = 9.64 acres
Field office site = 10.0 acres
Transmission lines - 2.92 miles x 110' wide = 38.87 acres
This office is prepared to issue the amendment to right-of-way CA 13510, as
shown on Exhibit "A", attached, and subject to the terms and conditions of the
original grant and the additional terms and conditions in Exhibit "B", also
attached. Please show your concurrence to this amendment by signing both the
original and the duplicate of this Decision and returning both to this office.
A reappraisal of the amended right-of-way will determine a new rental. Any
additional rental that is due as the result of the reappraisal shall be paid
upon request.
Upon receipt of the signed documents, the amendment will be executed by the
authorized officer and the original returned to the grantee.
The applicant is hereby allowed 30 days from receipt of this decision to accept,
sign and return the amendment or appeal. If the offer is neither properly
accepted and returned nor appealed within the time allowed, the application will
be rejected.
If the applicant is adversely affected by this action, there is a right of
appeal to the Board of Land Appeals, Office of the Secretary, in accordance with
the regulations in 43 CFR, Part 4, Subpart E. If an appeal of this decision is
taken the notice of appeal must be filed in this office (not with the board)
within 30 days of receipt of the decision so that the casefile can be sent to
the Board. A copy of the notice of appeal and of any statement of reasons,
written arguments, or briefs must be served upon any adverse parties, and in
addition, to the Regional Solicitor, Pacific Southwest Region, U.S. Department
of the Interior, 2800 Cottage Way, Room _-2753, Sacramento, California 95825,
within 15 days of the filing of any specified document. If the procedures set
forth in the regulations are not followed, an appeal is subject to dismissal.
Form 1842-1 is enclosed for additional information.
/s/ signature illegible /s/ Patricia E. McLean
- ------------------------- ----------------------
California Energy Company Patricia E. McLean
Area Manager
5/23/86 Ridgecrest Resource Area
- -------------------------
Date
Enclosures (4)
Duplicate of Decision
Exhibit A
Exhibit B
Form 1842-1
R&M-4
<PAGE>
EXHIBIT "B"
1. No surface disturbance, except as described in number 2 below, may begin
within archaeological sites Iny-2765, Iny-2766, AE-1 or AE-2 until the review
process required by Section 106 of the National Historic Preservation Act has
been completed. The authorizing Officer will issue a Notice to Proceed when the
106 review has been completed. The Bureau is recommending that a sample of
artifacts from sites temporarily designated as AE-1 or AE-2 be collected and
analyzed to evaluate the sites' eligibility to the National Register of Historic
Places. The disposition of sites Iny-2765 and Iny-2766 will be affected by
future recommendations from Cal Energy's archaeological consultants. The Bureau
has been advised that the consultants are in the process of developing a
mitigative plan for these sites.
2. Cal Energy will be allowed to drill five holes within the boundaries of
archaeological site AE-1 for purposes of geotechnical analysis, and will be
allowed to drive a vehicle to the drill sites. The State Office of Historic
Preservation has given the Bureau verbal approval to authorize this activity
under the following conditions: (1) that a permitted archaeologist who is
familiar with the distribution of artifacts within the site, i.e., Cal Energy's
archaeological consultant who documented the site, accompany the vehicle, guide
the driver to the drill sites and judiciously locate drill sites away from
artifacts; (2) that the same archaeologist examine the soil from the drill holes
for presence or absence of artifacts.
3. In the Cal Energy field office site, the buildings will be located to
screen the pipe yard, parking and other ancillary areas from the view of
motorists on Highway 395.
4. Holder will limit clearing of the field office site to those areas needed
for buildings, parking areas, the pipe yard and access ways. All cleared areas
not built upon will be sealed to prevent dust generation. The field office site
shall be maintained in a relatively neat condition.
5. The design of the SCE substation will be coordinated with BLM to minimize
surface disturbance.
6. All facilities included in the temporary phase of this grant shall be
removed and the areas rehabilitated to the satisfaction of BLM by December 31,
1987.
7. All electrical lines will be designed to prevent raptor electrocution.
8. Holder or his contractors will install transmission towers through the use
of short spur rods off established roads rather than building a road along the
center line of
R&M-5
<PAGE>
the transmission line. Any new spur roads will be rehabilitated after tower
installation.
9. The additional 60 foot high width of the 230KV line is for safety purposes
only and shall not be used for construction or facilities.
10. If facilities authorized for construction under this right-of-way grant use
Polychorinated biphenyls (PCB's) such use shall be in a totally enclosed manner
in accordance with provisions of the Toxic Substances Control Act of 1976 as
amended (see 40 CFR Part 761). Additionally, any release of PCBs (leaks,
spills, etc.) in excess of the reportable quantity established by 40 CFR Part
117 shall be reported as required by the Comprehensive Environmental Response,
Compensation, and Liability Act, section 102_. A copy of any report required or
requested by any Federal agency or State government as a result of a reportable
release or spill of any hazardous material shall be furnished to the authorized
officer within 5 working days of the occurrence of the spill or release.
R&M-6
<PAGE>
Exhibit 10.48
Recording requested by
and when recorded mail to
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California
Attention: Ronald G. Hartwell, Esq.
________________________________________________________________________________
(Space above this line for recorder's use)
AGREEMENT
---------
OF
--
TRANSFER AND ASSIGNMENT
-----------------------
THIS AGREEMENT is made and entered into this 14th day of July, 1987,
by and among (1) CHINA LAKE JOINT VENTURE, a joint venture and general
partnership organized and existing pursuant to the laws of State of California
("CLJV" or the "Assignor"), between California Energy Company, Inc., a
corporation organized and existing under the laws of the State of Delaware
("CECI") and Caithness Geothermal 1980 Limited, a limited partnership organized
and existing under the laws of the State of New Jersey ("CG80"; the sole general
partner of CG80 is Caithness Corporation, a corporation organized and existing
under the laws of the State of Delaware), (2) COSO FINANCE PARTNERS, a general
partnership organized and existing under the laws of the State of California
("Assignee"), consisting of two general partners, China Lake Operating Company,
a corporation organized and existing under the laws of the State of Delaware
<PAGE>
("CLOC") and ESCA Limited Partnership, a California Limited Partnership ("ESCA";
the two general partners of ESCA are ESI Geothermal Inc., a corporation
organized and existing under the laws of the State of Florida ("ESI") and Mojave
Power, Inc., a corporation organized and existing under the laws of the State of
Delaware ("Mojave"); the sole limited partner of ESCA is CG80; CLOC, ESI and
Mojave are each referred to herein as a "GP Company"; The GP Companies and ESCA
are each referred to herein as a "GP Entity"), (3) ATKINSON-MHIA JOINT VENTURE,
a joint venture and general partnership organized and existing pursuant to the
laws of the State of California (the "Contractor" or "Assignor") between Guy F.
Atkinson Company, a corporation organized and existing under the laws of the
State of Nevada ("Atkinson") and Mitsubishi Heavy Industries America, Inc., a
corporation organized and existing under the laws of the State of Delaware
("MHIA") and (4) CREDIT SUISSE, a bank organized and existing under the laws of
Switzerland, acting through its New York branch ("CS"), in its capacity as Agent
and Collateral Agent for the account of CS and such other lenders (CS, in its
capacity as such a lender, and such other lenders are referred to herein as a
"Lender" or collectively the "Lenders") as may participate in the funding and
other risks associated with the Term Loan, as described below, pursuant to that
certain Unit I Loan Agreement of even date herewith between CS and Borrower (the
"Unit I Loan Agreement"), and in its capacity as receiving, paying and
Collateral Agent for Contractor pursuant to that
2
<PAGE>
certain Paying Agency Agreement (the "Agency Agreement") of even date herewith
among CS, Contractor, CLJV and Borrower (CS, in such agency capacities for
Contractor and the Lenders, is referred to herein as "Agent"), with reference to
the following:
RECITALS
--------
WHEREAS, Assignor is a party, by substitution for CECI, to the Navy
Contract, as hereinafter defined;
WHEREAS, Assignor and Southern California Edison Company, a
corporation organized and existing under the laws of the State of California
("SCE") have entered into the SCE Agreement, as hereinafter defined;
WHEREAS, Assignor and AMJV, as defined by reference below, have
entered into that certain Coso Geothermal Project Agreement dated as of February
12, 1986, as amended by the First and Second Supplemental Agreements thereto
dated as of April 16, 1986 and December 4, 1986, respectively, and as amended by
the Third Supplemental Agreement thereto of even date herewith (such agreement,
as so amended by the First and Second Supplemental Agreements thereto, the
"Original Project Agreement", and as further amended by the Third Supplemental
Agreement thereto, the "Project Agreement"), pursuant to the terms of which AMJV
has undertaken (subject to Assignor's option to acquire AMJV's
3
<PAGE>
interest, as therein provided) to design, engineer, construct, erect, own,
finance, lease, operate and maintain Unit I (as hereinafter defined) on certain
lands (the "Navy Lands") described in the Navy Contract;
WHEREAS, Assignor and AMJV have entered into certain other contracts
and agreements in connection with the Original Project Agreement and Unit I,
including, among others, (1) that certain Assignment and Consent dated as of
February 12, 1986, between CLJV and AMJV and consented to by the Navy (the
"Assignment and Consent"), (2) that certain Power Agreements Assignment dated as
of February 12, 1986, between Assignor and AMJV (the "SCE Agreement
Assignment"), (3) that certain Resource Agreement dated as of February 12, 1986,
between Assignor and AMJV (the "Resource Agreement"), (4) that certain Drilling
and Resource Supply Agreement dated as of February 12, 1986, between Assignor
and AMJV (the "Resource Supply Agreement") and (5) that certain Project
Authorization and Data Agreement dated as of February 12, 1986, between Assignor
and AMJV (the "Project Authorization Agreement") (such other contracts and
agreements are referred to collectively herein as the "Additional Project
Contracts");
WHEREAS, AMJV and the Assignee are parties to that certain Royalty
Agreement, as hereinafter defined;
4
<PAGE>
WHEREAS, AMJV has designed, engineered, constructed and erected Unit I
(exclusive of the construction of certain elements of the surface steam
gathering system and certain testing of Unit I), and has financed such work;
WHEREAS, CS has entered into the Unit I Loan Agreement with Assignee,
as Borrower, and Credit Suisse, as Agent pursuant to which the Term Lenders have
agreed to loan Assignee an aggregate amount (not to exceed the Term Loan
Commitment, as defined in the Unit I Loan Agreement) to be used by Assignee for
the purpose, among other things, of purchasing Unit I and certain of AMJV's and
Assignor's rights, titles, interests and estates powers and privileges,
including those pursuant to the Navy Contract, SCE Agreement, Project Agreement
and Additional Project Contracts; and
WHEREAS, Assignee wishes Assignor to assign certain rights, titles,
interests, estates, powers and privileges under and in connection with Unit I
and the aforementioned contracts, and Assignor is prepared to assign, set over
and transfer the same to Assignee, as hereinafter provided;
NOW, THEREFORE, in consideration of the foregoing and for good and
valuable consideration, the parties hereto hereby agree as follows:
5
<PAGE>
Section 1. Definitions. Terms defined in the Unit I Loan Agreement,
--------- -----------
unless otherwise defined herein, shall when used herein with initial capitals,
have the meaning set forth therefore in the Unit I Loan Agreement. Unless
otherwise defined herein, or unless the context otherwise clearly requires, each
of the following terms, when used herein with initial capitals, shall have the
meaning set forth for such term below or in the document or agreement referred
to below:
"Assignor's Rights and Powers" means all of Assignor's rights, titles,
interests and estates, powers and privileges pursuant to all of the Project
Documents; provided, however, that with respect to the Navy Contract, it means
--------
all of Assignor's rights, titles, interests, estate, powers and privileges
thereunder with respect to the Initial Project, Initial Project Lands and Unit
I.
"Initial Project" means all elements of designing, constructing,
erecting, owning, financing, leasing, operating and maintaining Unit I and of
generating, selling and delivering the power therefrom and receiving, utilizing
and disbursing the revenues generated thereby.
"Initial Project Lands" means the area described in Exhibit A hereto.
6
<PAGE>
"Liens" shall have the meaning set forth in the Royalty Agreement.
Section 2. Assignment; Reservation. Concurrently with the execution
--------- -----------------------
of this Agreement, and in consideration of the issuance to Affiliates of
Assignor of the partnership interests in Assignee, the agreement of Assignee to
perform certain obligations of Assignor, and other good and valuable
consideration receipt of which is hereby acknowledged, Assignor hereby
transfers, sets over and assigns to Assignee all of Assignor's right, title and
interest in and all of Assignor's Rights and Powers.
Section 3. Acceptance of Assignment and Assumption of Obligations.
--------- ------------------------------------------------------
Assignee hereby accepts the assignment hereunder and assumes and agrees to
perform and be bound by all obligations of Assignor (i) pursuant to each of the
Navy Contract and SCE Agreement (with respect to the Initial Project and Unit
I), and (ii) pursuant to each of the other Project Documents.
Section 4. Sale and Assignment Without Prejudice to Other Rights.
--------- -----------------------------------------------------
The assignments hereunder are without prejudice to Assignor's other rights,
powers, authorities and interests, including, without limitation, its
responsibilities or obligations, pursuant to the Project Documents and its
rights
7
<PAGE>
under the SCE Agreement (with respect to Units other than Unit I which may
deliver power pursuant to the SCE Agreement) and under the Navy Contract (with
respect to lands other than those set forth on Exhibit A). CLJV hereby
expressly agrees, for the benefit of AMJV, that CLJV is and shall remain bound,
notwithstanding the delegations to and assumption by Assignee of CLJV's
obligations pursuant to the Project Documents, that CLJV is and shall remain
bound to perform all of its obligations pursuant to the Royalty Agreement, the
Project Agreement and the Well Notes.
Section 5. Assignor's Representations, Warranties and Covenants.
--------- ----------------------------------------------------
Assignor hereby represents and warrants to and covenants with Assignee: (a)
that Assignor's Rights and Powers, as and when assigned and transferred to
Assignee hereunder, are free of any Liens, other than the Liens granted by the
Project Documents to Tudesco and AMJV; (b) that each of the Project Documents
assigned hereunder, in whole or in part, is in full force and effect with
respect to Assignor; there are no breaches by Assignor or events of default
thereunder; there are no amendments, modifications or supplements thereto; and,
assuming the due authorization, execution and delivery thereof by each other
party thereto, each is the legal, valid and binding obligation of assignor
enforceable in accordance with its terms; (c) that Assignor has not sold,
assigned, pledged or otherwise hypothecated (subject to the exception contained
in paragraph
8
<PAGE>
(a) above), and will not sell, assign, pledge or otherwise hypothecate, the
whole or any part of Assignor's Rights and Powers, other than pursuant to this
Agreement with Assignee and pursuant to the assignments to Agent contained in
the Loan Instruments (it being understood and agreed that all of the same are
being pledged or hypothecated concurrently herewith pursuant to the Loan
Instruments and that the Tudesco and AMJV Liens are being transferred to Agent
concurrently herewith).
Section 6. No Other Representations or Warranties. Except for the
--------- --------------------------------------
representations and warranties specifically set forth in Section 5 hereof, and
except for the representations and warranties of Assignor pursuant to the
Project Documents that are assigned to Assignee, Assignor makes no
representations or warranties of any kind or character whatsoever pursuant to
this Agreement or with respect to Assignor's Rights and Powers.
Section 7. Further Assurances. Assignor and Assignee agree that, at
--------- ------------------
any time and from time to time, upon the written request of the other, such
party will promptly and duly execute and deliver any and all such further
instruments and documents and take such further action as the other party may
reasonably request in order to obtain the full benefits of this Assignment and
of the Rights and Powers herein granted.
9
<PAGE>
Section 8. Agreement for Benefit of Parties Hereto. This Agreement
--------- ---------------------------------------
is for the sole and exclusive benefit of the parties hereto, the Agent and Term
Lenders and their respective successors and assigns, and nothing in this
Agreement, expressed or implied, is intended to, or shall be construed to,
confer upon, or to give to, any person other than the parties hereto, the Agent
and Term Lenders and their respective successors and assigns any right, remedy
or claim.
Section 9. Severability. Any provision of this Agreement which is
--------- ------------
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 10. Notices. All notices, certificates, requests and other
---------- -------
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile or similar writing) and shall be given to such party, addressed
to it, at its address or telex number or facsimile number set forth below, or
such other address or number as such party may hereafter specify for such
purpose by notice to the other parties in accordance herewith. Each such
notice, certificate, request or communication shall be effective (i) when
presented personally,
10
<PAGE>
(ii) if given by telex, when such telex is transmitted to the telex number
specified below and the appropriate answerback is received, (iii) if given by
mail, five (5) says after such communication is deposited in the U.S. mails,
registered, return receipt requested, with first class postage prepaid,
addressed as aforesaid or (iv) if given by any other means, when delivered at
the address specified below. The telecopy (facsimile) numbers provided below
are for convenience of the parties only. Transmission by telecopy shall
constitute provision of notice under this Agreement only if receipt thereof is
acknowledged by the recipient.
If to Assignee: Coso Finance Partners
c/o China Lake Operating Company
3333 Mendocino Ave.
Santa Rosa, CA 95401
Attention: Chief Financial Officer
Telex: 5107442088
Telecopy: (707) 526-0504
with a copy to: Macdonald Halsted & Laybourne
Citicorp Plaza, 36th Floor
725 South Figueroa Street
Los Angeles, California 90017
Attention: Everett B. Laybourne, Esq.
Telex: 752718
Telecopy: (213) 629-7206
If to Assignor: China Lake Joint Venture
c/o California Energy Company, Inc.
3333 Mendocino Ave.
Santa Rosa, CA 95401
Attention: Chief Financial Officer
Telex: 5107442088
Telecopy: (707) 526-0504
11
<PAGE>
with a copy to: Macdonald Halsted & Laybourne
Citicorp Plaza, 36th Floor
725 South Figueroa Street
Los Angeles, California 90017
Attention: Everett B. Laybourne, Esq.
Telex: 752718
Telecopy: (213) 629-7206
If to AMJV: Atkinson-MHIA Joint Venture
c/o Guy F. Atkinson Company
10 West Orange Avenue
South San Francisco,
California 94080
Attention: President and General Manager
Guy F. Atkinson Construction
Company
Telex:
Telecopy: (415) 876-1143
with a copy to: Mitsubishi Heavy Industries America, Inc.
50 California Street
San Francisco, California 94111
Attention: Manager, Power Systems
Telex:
Telecopy: (415) 986-1771
If to Credit Suisse: Credit Suisse
100 Wall St.; 14th Floor
New York, NY 10008
Attention: Specialty Finance
Telex: 232491
Telecopy: (212) 943-1598
Section 11. Successors and Assigns. Whenever in this Agreement any
---------- ----------------------
of the parties hereto is named or referred to, successors and assigns of such
party shall be deemed to be included, and all covenants, promises and agreements
in this Agreement by and on behalf of the respective parties hereto
12
<PAGE>
shall bind and inure to the benefit of the respective successors and permitted
assigns of such parties, whether so expressed or not.
Section 12. Governing Law. (a) The parties hereto expressly
---------- -------------
acknowledge and agree that, in accordance with the provisions of New York
General Obligations Law Section 5-1401 governing agreements relating to any
obligation arising out of a transaction covering in the aggregate not less than
$250,000, this Agreement shall be governed by and construed in accordance with
the laws of the State of New York. Each of the parties hereto hereby expressly
and irrevocably agrees and consents that any legal suit, action or proceeding
arising out of or relating to this Agreement and the transactions contemplated
herein may be instituted in any State or Federal court sitting in the County of
New York, State of New York, United States of America and, by the execution and
delivery of this Agreement, each of the parties hereto expressly waives any
objection which it may have now or hereafter to the laying of the venue or to
the jurisdiction of any such suit, action or proceeding, and irrevocably submits
generally and unconditionally to the jurisdiction of any such court in any such
suit, action or proceeding.
(b) Nothing contained herein shall preclude either party from
bringing any legal suit, action or proceeding arising
13
<PAGE>
out of or relating to this Agreement in the courts of any place where the other
party or any of its property or assets, or the property or assets of any of its
general partners, may be found or located. To the extent permitted by
applicable Law, such party hereby irrevocably submits to the jurisdiction of any
such court and expressly waives, in respect of any such suit, action or
proceeding, the jurisdiction of any other court or courts which now or
hereafter, by reason of its present or future domicile, or otherwise, may be
available to it.
Section 13. Amendments and Waivers. This Agreement may be amended
---------- ----------------------
only by a writing signed by the parties hereto. No amendment or waiver of any
provision of this Agreement nor consent by either party to any departure by the
other party herefrom shall in any event be effective unless the same shall be in
writing and signed by the party to be charged thereby. Any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of any party hereto to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof (except as provided above) nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law. This Agreement supersedes
any
14
<PAGE>
prior agreements among the parties hereto with respect to the matters addressed
herein.
Section 14. Headings. The section headings in this Agreement are
---------- --------
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 15. Counterparts. This Agreement may be executed in any
---------- ------------
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Agreement of
Transfer and Assignment to be executed all as of the date first above written.
CHINA LAKE JOINT VENTURE
------------------------
By: California Energy Company, Inc.,
a general partner
By: /s/Harold H. Robinson III
--------------------------------------------
Name: Harold H. Robinson III
Title: President
15
<PAGE>
By: Caithness Geothermal 1980 Limited,
a general partner
By: Caithness Corporation,
a general partner
By: /s/ Hiram A. Bingham
---------------------------------------
Name: Hiram A. Bingham
Title: President
COSO FINANCE PARTNERS
---------------------
By: China Lake Operating Company,
a general partner
By: /s/ Harold H. Robinson III
--------------------------------------------
Name: Harold H. Robinson III
Title: President
By: /s/ Richard A. Nishkian
--------------------------------------------
Name: Richard A. Nishkian
Title: Chief Financial Officer
By: ESCA Limited Partnership, a
California Limited Partnership,
a general partner
By: ESI Geothermal Inc.,
a general partner
By: /s/ Larry Carpenter
---------------------------------------
Name: Larry Carpenter
Title: Vice President
By: Mojave Power, Inc.,
a general partner
By: /s/ Hiram A. Bingham
---------------------------------------
Name: Hiram A. Bingham
Title: President
16
<PAGE>
ATKINSON-MHIA JOINT VENTURE
---------------------------
By: Guy F. Atkinson Company,
a general partner
By: /s/ Larry L. Mogilitz
--------------------------------------------
Name: Larry L. Mogilitz
Title: Attorney-in-Fact
By: Mitsubishi Heavy Industries America, Inc.,
a general partner
By: /s/ signature illegible
--------------------------------------------
Name: [illegible]
Title: Attorney-in-Fact
CREDIT SUISSE
-------------
By: /s/ Richard Garcia
--------------------------------------------------
Name: Richard Garcia
Title: Vice President
By: /s/ Markus K. Christen
--------------------------------------------------
Name: Markus K. Christen
Title: Assistant Vice President
17
<PAGE>
Exhibit 10.49
Recording requested by:
And when recorded mail to:
Baker & McKenzie
725 South Figueroa Street - 36th Floor
Los Angeles, California 90017
Attention: William A. Goddard IV, Esq.
________________________________________________________________________________
(Space above this line for recorder's use)
AGREEMENT OF TRANSFER AND ASSIGNMENT
(Navy II Transmission Line)
THIS AGREEMENT OF TRANSFER AND ASSIGNMENT (this "Agreement") is made and
entered into this 31 day of July, 1989, by and among (1) COSO POWER DEVELOPERS,
a general partnership organized and existing under the laws of the State of
California ("CPD" or the "Assignor"), consisting of two general partners, Coso
Technology Corporation, a corporation organized and existing under the laws of
the State of Delaware, and Caithness Navy II Group, L.P., a limited partnership
organized and existing under the laws of the State of New Jersey; and (2) COSO
TRANSMISSION LINE PARTNERS, a general partnership organized and existing under
the laws of the State of California ("CTLP" or the "Assignee"), consisting of
two general partners, CPD and Coso Energy Developers, a general partnership
organized and existing under the laws of the State of California ("CED"); with
reference to the following facts:
RECITALS
WHEREAS, CPD (through a series of assignments) and the United States
Department of the Navy (the "Navy") are parties to the Navy Contract, pursuant
to which the Navy granted to CPD, among other things, the right to develop
electric power from the geothermal resources on and under the Navy II Lands;
WHEREAS, CPD (through an assignment) is a party to that certain Credit
Agreement -- Construction Loan and Term Loan Facility dated as of December 30,
1988, as amended from time to time, among CPD (through an assignment), the Agent
(as defined therein) and Lenders (as defined therein) (the "Credit Agreement")
and that certain Resource Development Loan Agreement dated as of December 30,
1988, as amended from time to time, among CPD (through an assignment), the Agent
(as defined therein) and Lenders (as defined therein) (the "Resource Loan
Agreement"),
<PAGE>
pursuant to which CED executed that certain Construction and Long-Term Deed of
Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as of
March 17, 1989 and recorded in the Official Records of Inyo County on March 17,
1989 as Instrument No. 89-1258, as amended from time to time (the "Mortgage");
WHEREAS, the parties hereto desire CPD to construct and operate Navy II -
Units 4, 5 and 6 on the Navy II Lands, and CED has assigned to CPD its interest
in such assets pursuant to that certain Agreement of Transfer and Assignment
(Navy II Lands and BLM Easement) of even date herewith, by and between CED and
CPD (the "Navy II Assignment");
WHEREAS, the parties hereto desire CTLP to own, utilize and operate the
Transmission Line, excluding the Interconnection Facilities, for the benefit of
the owners of Navy II - Units 4, 5 and 6 and the BLM Facilities;
WHEREAS, CED contemporaneously herewith is assigning and transferring to
CTLP all of its interest in the Transmission Line pursuant to that certain
Agreement of Transfer and Assignment (BLM Transmission Line) of even date
herewith (the "Transmission Line Assignment") by and between CED and CTLP, and
CED (i) reserves in the Transmission Line Assignment nonexclusive rights to
construct, repair, maintain, utilize and operate the Transmission Line for the
benefit of the BLM Project Area and the BLM Facilities and (ii) grants to CTLP
nonexclusive rights of ingress and egress across the BLM Project Area for the
purpose of construction, repair, maintenance, utilization and operation of the
Transmission Line; and
WHEREAS, Assignor is prepared to assign, set over and transfer all of its
interests in the Transmission Line, subject to Assignor's Easement (as defined
below) and, further, to assign, set over, and transfer the Navy II Transmission
Line Easement (as defined below) to Assignee, as hereinafter provided;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. Definitions. Each of the following terms, when used herein
with initial capitals, shall have the meaning set forth for such term below:
(a) "Assignor's Easement" means the nonexclusive rights: (i) to use the
lands over, across and under the Transmission Line for purposes reasonably
necessary or desirable to construct, repair, maintain, utilize and operate the
Navy II - Units 4, 5 and 6; (ii) of ingress and egress over, across and under
the lands on which the Transmission Line is located to
2
<PAGE>
construct, repair, maintain, utilize and operate the Navy II - Units 4, 5 and
6; and (iii) to construct, repair, maintain, utilize and operate the
Transmission Line for the benefit of Navy II - Units 4, 5 and 6; provided,
however, that the exercise by Assignor and its successors and assigns of such
rights shall not unreasonably interfere with Assignee's further construction,
maintenance and operation of the Project, and consequently, the exercise by
Assignor and its successors and assigns of such rights is subject to such
reasonable restrictions upon the time, place and manner of exercise as may be
imposed by Assignee and its successors and assigns;
(b) "Assignor's Rights and Powers" means all of Assignor's rights, titles,
interests, estates, powers and privileges in, to and under the Project Area
Rights, Project Authorizations and the Project Documents in and with respect to
the Project, and the Transmission Line as it relates to Navy II - Units 4, 5 and
6 (i.e., a 53.3% undivided interest in the portion of the Transmission Line
running from Inyokern to the east site of the BLM Facilities and a 100% interest
in portion of the Transmission Line running from the east site of the BLM
Facilities to Navy II - Units 4, 5 and 6 and related rights), including, without
limitation, its rights and powers under the Navy Contract in and with respect to
the Project subject, in each case, to the security interests and encumbrances on
such Assignor's Rights and Powers granted in connection with the financing of
the Project, including, without limitation, the "Liens" granted pursuant to the
"Security Documents" (as such terms are defined in the Credit Agreement) and the
Mortgage; specifically excluding, however, the "BLM Easement," as such term is
defined in Section l(a) of that certain Agreement of Transfer and Assignment
(Navy II Lands and BLM Easement) of even date herewith, by and between CED and
CPD, and recorded concurrently herewith;
(c) "BLM Facilities" means the geothermal power plants together with
related wells, geothermal resource gathering system, geothermal resource
disposal system, the interconnection facilities related thereto, and all
equipment, improvements, fixtures and other items appurtenant thereto up to (but
not including) the Transmission Line, all of which are now or hereafter located
on, or used in connection with, the lands covered by the BLM Lease;
(d) "BLM Lease" means that certain offer to Lease and Lease for Geothermal
Resources dated April 19, 1985, effective May 1, 1985, between the BLM, as
lessor, and California Energy Company, Inc., a Delaware corporation ("CECI"), as
lessee, as assigned to Coso Land Company, a California joint venture, pursuant
to that certain Assignment Affecting Record Title to Geothermal Resources Lease,
dated as of May 17, 1985 and effective July 1, 1985, as further assigned to Coso
Geothermal
3
<PAGE>
Company, a California joint venture, pursuant to that certain Assignment of
Record Title interest in a Lease for Oil and Gas or Geothermal Resources, dated
as of April 15, 1988, and effective as of May 1, 1988, and as further assigned
to CED pursuant to that certain Assignment of Record Title Interest in a Lease
for Oil and Gas or Geothermal Resources, dated as of April 15, 1988 and
effective as of May 1, 1988;
(e) "BLM Project Area" means the lands located in Inyo County, California,
as more particularly described in Exhibit A attached hereto and made a part
hereof;
(f) "Interconnection Facilities" means the interconnection facilities and
all equipment, improvements, fixtures and other items appurtenant thereto, to be
constructed and installed at or near SCE's Inyokern substation pursuant to the
Interconnection Agreement;
(g) "Interconnection Agreement" means that certain Interconnection and
Integration Facilities Agreement dated December 15, 1988, between CLJV and SCE,
as assigned to CED as of December 30, 1988;
(h) "Loan Instruments" means the Credit Agreement, the Resource Loan
Agreement, the "Security Documents", the "Notes", the "Financing Statements" (as
such terms are defined in the Credit Agreement and the Resource Loan Agreement)
and such other instruments defined as "Loan Instruments" pursuant to the Credit
Agreement or the Resource Loan Agreement;
(i) "Navy Contract" means that certain Contract No. K-N62474-79-C-5382,
dated December 6, 1979, by and between the United States of America acting
through the Navy, and CECI, as modified, amended, assigned to China Lake Joint
Venture, a California joint venture ("CLJV"), and restated by Contract
Modification P00004, dated as of October 19, 1983, and as modified by
Modifications Nos. P00005, P00006, P00007, P00008, P00009, P00010, P00011,
P00012, P00013 and P00014 thereto of June 21, 1984, June 28, 1984, November 14,
1984, February 13, 1986, April 10, 1987, July 2, 1987, August 17, 1987,
September 18, 1987, October 13, 1987 and February 16, 1988, respectively, a
portion of which contract was assigned to CED as of December 30, 1988, and as
the same is hereafter modified or amended;
(j) "Navy II - Units 4, 5 and 6" means the geothermal power plant,
consisting of three nominal 27 megawatt (net) electric generating units to be
designed, constructed and tested by Mission Power Engineering Company, a
California corporation ("MPE"), together with related wells, geothermal resource
gathering system, geothermal resource disposal system, the Interconnection
Facilities, and all equipment, improvements,
4
<PAGE>
fixtures and other items appurtenant thereto up to (but not including) the
Transmission Line, for the purpose of supplying electric energy and capacity to
SCE, pursuant to, and as more fully described in, the Project Documents;
(k) "Navy II Transmission Line Easement" means the nonexclusive rights of
ingress and egress across the Navy II Lands for the purpose of construction,
maintenance, repair, utilization and operation of the Project, provided,
however, that Assignee's exercise of such rights shall not unreasonably
interfere with Assignor's further construction, maintenance and operation of
Navy II - Units 4, 5 and 6 an the Navy II Lands and, consequently, Assignee's
exercise of such rights are subject to such reasonable restrictions upon the
time, place and manner of exercise as may be imposed by Assignor and its
successors and assigns;
(1) "Navy II Lands" means the public lands located in Inyo County,
California as more particularly described in Exhibit D attached hereto;
(m) "Project" means all elements of designing, testing, owning, financing,
leasing, operating and maintaining the Transmission Line;
(n) "Project Area Rights" means the entire rights, titles, interests,
estates, powers and privileges of Assignor under the Navy Contract in and with
respect to the Project, including rights of access, ingress and egress to and
from the Navy II Lands and BLM Project Area, subject to the terms and conditions
of the Navy Contract;
(o) "Project Authorizations" means all permits, authorizations, rights of
way and licenses relating to the Project in favor of or held by Assignor which
are necessary or appropriate to operate, utilize and maintain the Project, as
each relates to the Project;
(p) "Project Documents" means all agreements relating to the Project to
which Assignor is a party or a beneficiary, which are necessary or appropriate
to operate and maintain the Project including, without limitation, the Navy
Contract, the warranties, guarantees and rights with respect to the Transmission
Line under the Turnkey Contract, and those documents set forth in Exhibit B
attached hereto and made a part hereof, as each relates to the Project;
(q) "SCE Contract" means that certain Agreement effective June 28, 1985,
between CLJV and Southern California Edison Company, Inc., a California
corporation ("SCE"), and assigned to CED as of December 30, 1988, pursuant to
which CED has agreed to construct, own and operate a Small Power Production
5
<PAGE>
Facility (as defined in the SCE Contract) and sell electric power derived from
the Small Power Production Facility to SCE and SCE has agreed to purchase from
CED at fixed rates such electrical power;
(r) "Transmission Line" means that certain transmission line, and all
equipment, improvements, fixtures and other items appurtenant thereto which is
or will be located in the Counties of Inyo and Kern, State of California, on
that certain real property more particularly described in Exhibit C hereto; and
(s) "Turnkey Contract" means that certain Contract for the Engineering and
Construction of Coso Geothermal Project Navy II - Units 1, 2 and 3 between CED
and MPE dated January 25, 1989 and assigned to CPD pursuant to the Navy II
Assignment.
Section 2. Assignment. Concurrently with the execution of this Agreement,
and in consideration of the agreement of Assignee to perform certain obligations
of Assignor (as set forth below), and other good and valuable consideration, the
receipt of which is hereby acknowledged, Assignor hereby grants, transfers, sets
over and assigns to Assignee the Assignor's Rights and Powers, specifically
reserving, however, Assignor's Easement and hereby further grants, transfers,
sets over and assigns to Assignee the Navy II Transmission Line Easement.
Section 3. Acceptance of Assignment and Assumption of Obligations.
Subject to the terms and conditions of this Agreement, Assignee hereby accepts
the assignment hereunder, expressly agrees to be bound fully by all provisions
of, and expressly assumes and agrees to perform and discharge all duties, debts,
liabilities and all obligations of Assignor with respect to Assignor's Rights
and Powers.
Section 4. Consent of Credit Suisse. Credit Suisse hereby consents to the
foregoing assignment from Assignor to Assignee.
Section 5. Assignor's Representations, Warranties and Covenants. Assignor
hereby represents and warrants to, and covenants with, Assignee that: (a)
Assignor's Rights and Powers, as and when assigned and transferred to Assignee
hereunder, are free of any liens, other than those arising under the Loan
Instruments; (b) the Project Authorizations and the Project Documents, to the
extent relating to the Project, as and when assigned and transferred to Assignee
hereunder, will be in full force and effect with respect to Assignee and
Assignor is not in breach or default of such Project Authorizations and Project
Documents; (c) except for the modification of the Navy Contract providing for
the construction, ownership, operation, utilization and maintenance of the
Transmission Line, there are no amendments, modifications or supplements to the
Project Documents, the
6
<PAGE>
Project Area Rights or the Project Authorizations other than those set forth
herein; (d) the Project Documents are the legal, valid and binding obligation of
Assignor; (e) Assignor will take no action which would result in the termination
of the Project Authorizations or the Project Documents; (f) Assignor has not
sold, assigned, pledged or otherwise hypothecated and will not sell, assign,
pledge or otherwise hypothecate, the whole or any part of Assignor's Rights and
Powers, other than pursuant to this Agreement or pursuant to the Loan
Instruments; (g) this Agreement has been duly authorized and executed by
Assignor and, assuming the due authorization and consent by the Navy,
constitutes the legal, valid, binding and enforceable obligation of Assignor in
accordance with its terms; and (h) the execution and delivery of this Agreement
by Assignor does not violate any law or any contract with any other party and no
other governmental authorization other than the consent of the Navy is required
for the effectiveness of this Agreement.
Section 6. No Other Representations or Warranties. Except for the
representations and warranties specifically set forth in Section 5 hereof,
Assignor makes no representations or warranties of any kind or character
whatsoever pursuant to this Agreement or with respect to Assignor's Rights and
Powers.
Section 7. Indemnification. The parties hereto shall each defend and
indemnify the other against and hold it harmless from all claims, damages,
liabilities, costs and expenses (including attorneys' fees and expenses)
incurred in connection with all claims, including any actions or proceedings
brought thereon, relating to the death of or injury to any person or to the
destruction of or damage to the property of any person arising from the use or
enjoyment by such indemnitor of any easement or other right granted or created
by this Agreement, except claims resulting from the gross negligence or willful
act or omissions of the indemnified owner or the agents, servants, employees or
contractors of such owner wherever the same may occur.
Section 8. Further Assurances. Assignor and Assignee agree that, at any
time and from time to time, upon the written request of the other, such party
will promptly and duly execute and deliver any and all such further instruments
and documents and take such further action as the other party may reasonably
request in order to obtain the full benefits of this Agreement and of Assignor's
Rights and Powers herein granted.
Section 9. Agreement for Benefit of Parties Hereto. This Agreement is for
the sole and exclusive benefit of the parties hereto and their respective legal
and beneficial successors and assigns, and nothing in this Agreement, expressed
or implied, is intended to, or shall be construed to, confer upon or to give to,
any person other than the parties hereto and their
7
<PAGE>
respective successors and assigns, and other than the agent and lenders
providing financing pursuant to the Loan Instruments for the construction and
operation of the Project, any right, remedy or claim.
Section 10. Severability. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 11. Notices. All notices, certificates, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile or similar writing) and shall be given to such party, addressed
to it, at its address or telex number or facsimile number set forth below, or
such other address or number as such party may be hereafter specify for such
purpose by notice to the other parties in accordance herewith. Each notice,
certificate, request or communication shall be effective (a) when presented
personally, (b) if given by telex, when such telex is transmitted to the telex
number specified below and the appropriate answerback is received, (c) if given
by mail, five (5) days after such communication is deposited in the U.S. mail,
registered, return receipt requested, with first class postage prepaid,
addressed as aforesaid or (d) if given by any other means, when delivered at the
address specified below. The telecopy (facsimile) numbers provided below are
for convenience of the parties only. Transmission by telecopy shall constitute
provision of notice under this Agreement only if receipt thereof is acknowledged
by the recipient.
If to Assignor: Coso Power Developers
c/o Coso Technology Corporation
601 California Street
San Francisco, California 94108
Attention: Chief Financial Officer
Telecopy: (415) 433-3839
with one copy to: Baker & McKenzie
Citicorp Plaza, 36th Floor
725 South Figueroa Street
Los Angeles, California 90017
Attention: Everett B. Laybourne, Esq.
Telex: 752718
Telecopy: (213) 629-7206
8
<PAGE>
another to: Caithness Navy II Group, L.P.
c/o Mojave Power IV, Inc.
c/o Caithness Corporation
1114 Avenue of the Americas
New York, New York 10036
Attention: Chairman
Telex: 640807
Telecopy: (212) 921-9239
If to Assignee: Coso Transmission Line Partners
c/o Coso Technology Corporation
601 California Street
San Francisco, California 94108
Attention: Chief Financial Officer
Telecopy: (415) 433-3839
with one copy to: Baker & McKenzie
Citicorp Plaza, 36th Floor
725 South Figueroa Street
Los Angeles, California 90017
Attention: Everett B. Laybourne, Esq.
Telex: 752718
Telecopy: (213) 629-7206
another to: Caithness Navy II Group, L.P.
c/o Mojave Power IV, Inc.
c/o Caithness Corporation
1114 Avenue of the Americas
New York, New York 10036
Attention: Chairman
Telex: 640807
Telecopy: (212) 921-9239
Section 12. Successors and Assigns. Whenever in this Agreement any of the
parties hereto is named or referred to, successor and assigns of such party
shall be deemed to be included, and all covenants, promises and agreements in
this Agreement by and on behalf of the respective parties hereto shall bind and
inure to the benefit of the respective successors and assigns of such parties,
whether so expressed or not.
Section 13. Governing Law. The parties hereby expressly acknowledge and
agree that this Agreement shall be governed by and construed in accordance with
the laws of the State of California. Nothing contained herein shall preclude
either party from bringing any legal suit, action or proceeding arising out of
or relating to this Agreement in the courts of any place where the other party
or any of its property or assets, or
9
<PAGE>
the property or assets of any of its general partners, may be found or located.
To the extent permitted by applicable law, such party hereby irrevocably submits
to the jurisdiction of any such court and expressly waives, in respect of any
such suit, action or proceeding, the jurisdiction of any other court or courts
which now or hereafter, by reason of its present or future domicile, or
otherwise, may be available to it.
Section 14. Amendments and Waivers. This Agreement may be amended only by
a writing signed by the parties hereto. No amendment or waiver of any provision
of this Agreement nor consent by either party to any departure by the other
party herefrom shall in any event be effective unless the same shall be in
writing and signed by the party to be charged thereby. Any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of any party hereto to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof (except as provided above) nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law. This Agreement supersedes
any prior agreements among the parties hereto with respect to the matters
addressed herein.
Section 15. Headings. The section headings in this Agreement are included
herein for convenience or reference only and shall not constitute a part of this
Agreement for any other purpose.
Section 16. Counterparts. This Agreement may be executed in any number
counterparts, each of which shall be deemed an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Agreement of Transfer
and Assignment to be executed all as of the date first above written.
"ASSIGNOR" COSO POWER DEVELOPERS
Coso Power Developers, a California general partnership
10
<PAGE>
By: Coso Technology Corporation,
a Delaware corporation,
General Partner
By: /s/ Richard A. Nishkian
-----------------------
Richard A. Nishkian
Chief Financial Officer
By: Caithness Navy II Group, L.P.,
a New Jersey limited partnership,
General Partner
By: Mojave Power IV, Inc.,
a Delaware corporation,
General Partner
By: /s/ Hiram A. Bingham
--------------------
Hiram A. Bingham
President
"ASSIGNEE" COSO TRANSMISSION LINE PARTNERS
Coso Transmission Line Partners,
a California general partnership
By: Coso Power Developers,
a California general partnership,
General Partner
By: Coso Technology Corporation,
a Delaware corporation,
General Partner
By: /s/ Richard A. Nishkian
-----------------------
Richard A. Nishkian
Chief Financial Officer
By: Caithness Navy II Group, L.P.,
a New Jersey limited partnership
General Partner
11
<PAGE>
By: Mojave Power IV, Inc.,
a Delaware corporation,
General Partner
By: /s/ Hiram A. Bingham
--------------------
Hiram A. Bingham
President
By: Coso Energy Developers,
a California general partnership,
General Partner
By: Coso Hotsprings Intermountain
Power, Inc.,
a Delaware corporation,
General Partner
By: /s/ Richard A. Nishkian
-----------------------
Richard A. Nishkian
Chief Financial Officer
By: Caithness Coso Holdings,
a California general partnership,
General Partner
By: Caithness Navy II Group, L.P.,
a New Jersey limited
partnership,
General Partner
By: Mojave Power IV, Inc.,
a Delaware corporation,
General Partner
By: /s/ Hiram A. Bingham
--------------------
Hiram A. Bingham
President
By: Caithness BLM Group L.P.,
a New Jersey limited
partnership,
General Partner
12
<PAGE>
By: Mojave Power III, Inc.,
a Delaware corporation,
General Partner
By: /s/ Hiram A. Bingham
--------------------
Hiram A. Bingham
President
By: Caithness CEA Geothermal,
a Delaware limited partnership,
General Partner
By: Mojave Power III, Inc.,
a Delaware corporation,
General Partner
By: /s/ Hiram A. Bingham
--------------------
Hiram A. Bingham
President
CREDIT SUISSE
Credit Suisse,
a Swiss banking corporation
By: /s/ Markus K. Christen
----------------------
Printed Name: Markus K. Christen
------------------
Its: Deputy Vice President
---------------------------
13
<PAGE>
Exhibit 10.50
Recording requested by:
And when recorded mail to:
Baker & McKenzie
725 South Figueroa Street - 36th Floor
Los Angeles, California 90017
Attention: William A. Goddard IV, Esq.
______________________________________________________________________________
(Space above this line for recorder's use)
AGREEMENT OF TRANSFER AND ASSIGNMENT
------------------------------------
(BLM Transmission Line)
THIS AGREEMENT OF TRANSFER AND ASSIGNMENT (this "Agreement") is made
and entered into this 31 day of July, 1989, by and among (1) COSO ENERGY
---
DEVELOPERS, a general partnership organized and existing under the laws of the
State of California ("CED" or the "Assignor"), consisting of two general
partners, Coso Hotsprings Intermountain Power, Inc., a corporation organized and
existing under the laws of the State of Delaware, and Caithness Coso Holdings, a
general partnership organized and existing under the laws of the State of
California; and (2) COSO TRANSMISSION LINE PARTNERS, a general partnership
organized and existing under the laws of the State of California ("CTLP" or the
"Assignee"), consisting of two general partners, CED and Coso Power Developers,
a general partnership organized and existing under the laws of the State of
California ("CPD"); with reference to the following facts:
RECITALS
--------
WHEREAS, CED (through a series of assignments) and the Bureau of Land
Management ("BLM") are parties to the BLM Lease, pursuant to which the BLM
granted to CED, among other things, the right to develop electric power from the
geothermal resources on and under the BLM Project Area;
WHEREAS, CED entered into that certain Credit Agreement --
Construction Loan and Term Loan Facility dated as of August 3, 1988, as amended
from time to time, among CED, the Agent (as defined therein) and Lenders (as
defined therein) (the "Credit Agreement") and that certain Resource Development
Loan Agreement dated as of March 31, 1988, as amended from time to time, among
CED, the Agent (as defined therein) and the Lenders (as defined therein) (the
"Resource Loan Agreement"), pursuant to which CED executed that certain Second
Amended and Restated Construction
<PAGE>
and Long-Tem Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing dated as of March 17, 1989 and recorded in the Official Records of Inyo
County on March 17, 1989 as Instrument No. 89-1259, as amended from time to time
(the "Mortgage");
WHEREAS, the parties hereto desire CTLP to own, utilize and operate
the Transmission Line, excluding the Interconnection Facilities, for the benefit
of the owners of Navy II - Units 4, 5 and 6 and the BLM Facilities;
WHEREAS, CPD contemporaneously herewith is assigning and transferring
to CTLP all of its interests in the Transmission Line pursuant to that certain
Agreement of Transfer and Assignment (Navy II Transmission Line) of even date
herewith (the "Transmission Line Assignment") by and between CPD and CTLP, and
CPD (i) reserves in the Transmission Line Assignment nonexclusive rights to
construct, repair, maintain, utilize and operate the Transmission Line for the
benefit of the Navy II Lands and Navy II - Units 4, 5 and 6 and (ii) grants to
CTLP nonexclusive rights of ingress and egress across the Navy II Lands for the
purpose of construction, repair, maintenance, utilization and operation of the
Transmission Line; and
WHEREAS, Assignor is prepared to assign, set over and transfer all of
its interests in the Transmission Line, subject to Assignor's Easement (as
defined below) and, further, to assign, set over, and transfer the BLM
Transmission Line Easement (as defined below) to Assignee, as hereinafter
provided;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. Definitions. Each of the following terms, when used
--------- -----------
herein with initial capitals, shall have the meaning set forth for such term
below:
(a) "Assignor's Easement" means the nonexclusive rights: (i) to use
the lands over, across and under the Transmission Line for purposes reasonably
necessary or desirable to construct, repair, maintain, utilize and operate the
BLM Facilities; (ii) of ingress and egress over, across and under the lands on
which the Transmission Line is located to construct, repair, maintain, utilize
and operate the BLM Facilities; and (iii) to construct, repair, maintain,
utilize and operate the Transmission Line for the benefit of the BLM Facilities;
provided, however, that the exercise by Assignor and its successors and assigns
of such rights shall not unreasonably interfere with Assignee's further
construction, maintenance and operation of the Project, and consequently, the
exercise by Assignor and its successors and
2
<PAGE>
assigns of such rights is subject to such reasonable restrictions upon the time,
place and manner of exercise as may be imposed by Assignee and its successors
and assigns;
(b) "Assignor's Rights and Powers" means all of Assignor's rights,
titles, interests, estates, powers and privileges in, to and under the Project
Area Rights, Project Authorizations and the Project Documents in and with
respect to the Project, and the Transmission Line as it relates to the BLM
Facilities (i.e., a 46.7% undivided interest in the portion of the Transmission
----
Line running from Inyokern to the east site of the BLM Facilities and related
rights), including, without limitation, its rights and powers under the Navy
Contract and the BLM Lease in and with respect to the Project, subject, in each
case, to the security interests and encumbrances on such Assignor's Rights and
Powers granted in connection with the financing of the Project, including,
without limitation, the "Liens" granted pursuant to the "Security Documents" (as
such terms are defined in the Credit Agreement) and the Mortgage; specifically
------------
excluding, however, the "Assignor's Easement," as such term is defined in
- --------- -------
Section 1(a) of that certain Agreement of Transfer and Assignment (Navy II Lands
and BLM Easement) of even date herewith, by and between CED and CPD, and
recorded concurrently herewith;
(c) "BLM Transmission Line Easement" means the nonexclusive rights of
ingress and egress across the BLM Project Area for the purpose of construction,
repair, maintenance, utilization and operation of the Project, provided,
however, that Assignee's exercise of such rights shall not unreasonably
interfere with Assignor's further construction, maintenance and operation of the
BLM Facilities and, consequently, Assignee's exercise of such rights are subject
to such reasonable restrictions upon the time, place and manner of exercise as
may be imposed by Assignor and its successors and assigns;
(d) "BLM Facilities" means the geothermal power plants together with
related wells, geothermal resource gathering system, geothermal resource
disposal system, the interconnection facilities related thereto, and all
equipment, improvements, fixtures and other items appurtenant thereto up to (but
not including) the Transmission Line, all of which are now or hereafter located
on, or used in connection with, the lands covered by the BLM Lease;
(e) "BLM Lease" means that certain Offer to Lease and Lease for
Geothermal Resources dated April 19, 1985, effective May 1, 1985, between the
BLM, as lessor, and California Energy Company, Inc., a Delaware corporation
("CECI"), as lessee, as assigned to Coso Land Company, a California joint
venture, pursuant to that certain Assignment Affecting Record Title to
Geothermal Resources Lease, dated as of May 17, 1985 and
3
<PAGE>
effective July 1, 1985, as further assigned to Coso Geothermal Company, a
California joint venture, pursuant to that certain Assignment of Record Title
Interest in a Lease for Oil and Gas or Geothermal resources, dated as of April
15, 1988, and effective as of May 1, 1988, and as further assigned to CED
pursuant to that certain Assignment of Record Title Interest in a Lease for Oil
and Gas or Geothermal Resources, dated as of April 15, 1988 and effective as of
May 1, 1988;
(f) "BLM Project Area" means the lands located in Inyo County,
California, as more particularly described in Exhibit A attached hereto and made
a part hereof;
(g) "Interconnection Facilities" means the interconnection facilities
and all equipment, improvements, fixtures and other items appurtenant thereto,
to be constructed and installed at or near SCE's Inyokern substation pursuant to
the Interconnection Agreement;
(h) "Interconnection Agreement" means that certain Interconnection and
Integration Facilities Agreement dated December 15, 1988, between CLJV and SCE,
and assigned to CED as of December 30, 1988;
(i) "Loan Instruments" means the Credit Agreement, the Resource Loan
Agreement, the "Security Documents", the "Notes", and "Financing Statements" (as
such terms are defined in the Credit Agreement and the Resource Loan Agreement)
and such other instruments defined as "Loan Instruments" pursuant to the Credit
Agreement or the Resource Loan Agreement;
(j) "Navy Contract" means that certain contract No. K-N62474-79-C-
5382, dated December 6, 1979, by and between the United States of America acting
through the Navy, and CECI, as modified, amended, assigned to China Lake Joint
Venture, a California joint venture ("CLJV"), and restated by Contract
Modification P00004, dated as of October 19, 1983, and as modified by
Modifications Nos. P00005, P00006, P00007, P00008, P00009, P00010, P00011,
P00012, P00013 and P00014 thereto of June 21, 1984, June 28, 1984, November 14,
1984, February 13, 1986, April 10, 1987, July 2, 1987, August 17, 1987,
September 18, 1987, October 13, 1987 and February 16, 1988, respectively, a
portion of which contract was assigned to CED on December 30, 1988, and as the
same is hereafter modified or amended;
(k) "Navy II - Units 4, 5 and 6" means the geothermal power plant,
consisting of three nominal 27 megawatt (net) electric generating units to be
designed, constructed and tested by Mission Power Engineering Company, a
California corporation ("MPE"), together with related wells, geothermal resource
gathering system, geothermal resource disposal system, the
4
<PAGE>
Interconnection Facilities, and all equipment, improvements, fixtures and other
items appurtenant thereto up to (but not including) the Transmission Line, for
the purpose of supplying electric energy and capacity to SCE, pursuant to, and
as more fully described in, the Project Documents;
(l) "Navy II Lands" means the public lands located in Inyo County,
California as more particularly described in Exhibit D attached hereto;
(m) "Project" means all elements of designing, testing, owning,
financing, leasing, operating and maintaining the Transmission Line;
(n) "Project Area Rights" means the entire rights, titles, interests,
estates, powers and privileges of Assignor under the Navy Contract and under the
BLM Lease in and with respect to the Project, including rights of access,
ingress and egress to and from the Navy II Lands and BLM Project Area, subject
to the terms and conditions of the Navy Contract and the BLM Lease;
(o) "Project Authorizations" means all permits, authorizations, rights
of way and licenses relating to the Project in favor of or held by Assignor
which are necessary or appropriate to operate, utilize and maintain the Project,
as each relates to the Project;
(p) "Project Documents" means all agreements relating to the Project
to which Assignor is a party or a beneficiary, which are necessary or
appropriate to operate and maintain the Project including, without limitation,
the Navy Contract, the BLM Lease, the warranties, guarantees and rights with
respect to the Transmission Line under the Turnkey Contract, and those documents
set forth in Exhibit B attached hereto and made a part hereof, as each relates
to the Project;
(q) "SCE Contract" means that certain Agreement effective June 28,
1985, between CLJV and Southern California Edison Company, Inc., a California
corporation ("SCE"), and assigned to CED as of December 30, 1988, pursuant to
which CED has agreed to construct, own and operate a Small Power Production
Facility (as defined in the SCE Contract) and sell electric power derived from
the Small Power Production Facility to SCE and SCE has agreed to purchase from
CED at fixed rates such electrical power;
(r) "Transmission Line" means that certain transmission line, and all
equipment, improvements, fixtures and other items appurtenant thereto which is
or will be located in the Counties of Inyo and Kern, State of California, on
that certain real property more particularly described in Exhibit C hereto; and
5
<PAGE>
(s) "Turnkey Contract" means that certain Contract for the Engineering
and Construction of Coso Geothermal Project BLM - Units 1, 2 and 3 between CED
and MPE dated as of May 11, 1987.
Section 2. Assignment. Concurrently with the execution of this
--------- ----------
Agreement, and in consideration of the agreement of Assignee to perform certain
obligations of Assignor (as set forth below), and other good and valuable
consideration, the receipt of which is hereby acknowledged, Assignor hereby
grants, transfers, sets over and assigns to Assignee the Assignor's Rights and
Powers, specifically reserving, however, Assignor's Easement, and hereby further
grants, transfers, sets over and assigns to Assignee the BLM Transmission Line
Easement.
Section 3. Acceptance of Assignment and Assumption of Obligations.
--------- ------------------------------------------------------
Subject to the terms and conditions of this Agreement, Assignee hereby accepts
the assignment hereunder, expressly agrees to be bound fully by all provisions
of, and expressly assumes and agrees to perform and discharge all duties, debts,
liabilities and all obligations of Assignor with respect to Assignor's Rights
and Powers.
Section 4. Consent of Credit Suisse. Credit Suisse hereby consents
--------- ------------------------
to the foregoing assignment from Assignor to Assignee.
Section 5. Assignor's Representations, Warranties and Covenants.
--------- ----------------------------------------------------
Assignor hereby represents and warrants to, and covenants with, Assignee that:
(a) Assignor's Rights and Powers, as and when assigned and transferred to
Assignee hereunder, are free of any liens, other than those arising under the
Loan Instruments; (b) the Project Authorizations and the Project Documents, to
the extent relating to the Project, as and when assigned and transferred to
Assignee hereunder, will be in full force and effect with respect to Assignee
and Assignor is not in breach or default of such Project Authorizations and
Project Documents; (c) except for the modification of the Navy Contract
providing for the construction, ownership, operation, utilization and
maintenance of the Transmission Line, there are no amendments, modifications or
supplements to the Project Documents, Project Area Rights or the Project
Authorizations other than those set forth herein; (d) the Project Documents are
the legal, valid and binding obligations of Assignor; (e) Assignor will take no
action which would result in the termination of the Project Authorizations,
Project Area Rights or the Project Documents; (f) Assignor has not sold,
assigned, pledged or otherwise hypothecated and will not sell, assign, pledge or
otherwise hypothecate, the whole or any part of Assignor's Rights and Powers,
other than pursuant to this Agreement or pursuant to the Loan Instruments; (g)
this Agreement has been duly authorized and executed by Assignor and, assuming
the due authorization and consent by the Navy, constitutes the legal, valid,
binding and
6
<PAGE>
enforceable obligation of Assignor in accordance with its terms; and (h) the
execution and delivery of this agreement by Assignor does not violate any law or
any contract with any other party and no other governmental authorization other
than the consent of the Navy is required for the effectiveness of this
Agreement.
Section 6. No Other Representations or Warranties. Except for the
--------- --------------------------------------
representations and warranties specifically set forth in Section 5 hereof,
Assignor makes no representations or warranties of any kind or character
whatsoever pursuant to this Agreement or with respect to Assignor's Rights and
Powers.
Section 7. Indemnification. The parties hereto shall each defend and
--------- ---------------
indemnify the other against and hold it harmless from all claims, damages,
liabilities, costs and expenses (including attorneys' fees and expenses)
incurred in connection with all claims, including any actions or proceedings
brought thereon, relating to the death of or injury to any person or to the
destruction of or damage to the property of any person arising from the use or
enjoyment by such indemnitor of any easement or other right granted or created
by this Agreement, except claims resulting from the gross negligence or willful
act or omissions of the indemnified owner or the agents, servants, employees or
contractors of such owner wherever the same may occur.
Section 8. Further Assurances. Assignor and Assignee agree that, at
--------- ------------------
any time and from time to time, upon the written request of the other, such
party will promptly and duly execute and deliver any and all such further
instruments and documents and take such further action as the other party may
reasonably request in order to obtain the full benefits of this Agreement and of
Assignor's Rights and Powers herein granted.
Section 9. Agreement for Benefit of Parties Hereto. This Agreement
--------- ---------------------------------------
is for the sole and exclusive benefit of the parties hereto and their respective
legal and beneficial successors and assigns, and nothing in this Agreement,
expressed or implied, is intended to, or shall be construed to, confer upon or
to give to, any person other than the parties hereto and their respective
successors and assigns, and other than the agent and lenders providing financing
pursuant to the Loan Instruments for the construction and operation of the
Project, any right, remedy or claim.
Section 10. Severability. Any provision of this Agreement which is
---------- ------------
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
7
<PAGE>
Section 11. Notices. All notices, certificates, requests and other
---------- -------
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile or similar writing) and shall be given to such party, addressed
to it, at its address or telex number or facsimile number set forth below, or
such other address or number as such party may be hereafter specify for such
purpose by notice to the other parties in accordance herewith. Each notice,
certificate, request or communication shall be effective (a) when presented
personally, (b) if given by telex, when such telex is transmitted to the telex
number specified below and the appropriate answerback is received, (c) if given
by mail, five (5) days after such communication is deposited in the U.S. mail,
registered, return receipt requested, with first class postage prepaid,
addressed as aforesaid or (d) if given by any other means, when delivered at the
address specified below. The telecopy (facsimile) numbers provided below are
for convenience of the parties only. Transmission by telecopy shall constitute
provision of notice under this Agreement only if receipt thereof is acknowledged
by the recipient.
If to Assignor: Coso Energy Developers
c/o Coso Hotsprings Intermountain Power, Inc.
601 California Street
San Francisco, California 94108
Attention: Chief Financial Officer
Telecopy: (415) 433-3839
with one copy to: Baker & McKenzie
Citicorp Plaza, 36th Floor
725 South Figueroa Street
Los Angeles, California 90017
Attention: Everett B. Leybourne, Esq.
Telex: 752718
Telecopy: (213) 629-7206
another to: Caithness Coso Holdings
c/o Caithness BLM Group, L.P.
c/o Mojave Power III, Inc.
c/o Caithness Corporation
1114 Avenue of the Americas
New York, New York 10036
Attention: Chairman
Telex: 640807
Telecopy: (212) 921-9239
8
<PAGE>
If to Assignee: Coso Transmission Line Partners
c/o Coso Technology Corporation
601 California Street
San Francisco, California 94108
Attention: Chief Financial Officer
Telecopy: (415) 433-3839
with one copy to: Baker & McKenzie
Citicorp Plaza, 36th Floor
725 South Figueroa Street
Los Angeles, CA 90017
Attention: Everett B. Leybourne, Esq.
Telex: 752718
Telecopy: (213) 629-7206
another to: Caithness Navy II Group, L.P.
c/o Mojave Power IV, Inc.
c/o Caithness Corporation
1114 Avenue of the Americas
New York, New York 10036
Attention: Chairman
Telex: 640807
Telecopy: (212) 921-9239
Section 12. Successors and Assigns. Whenever in this Agreement any of
---------- ----------------------
the parties hereto is named or referred to, successor and assigns of such party
shall be deemed to be included, and all covenants, promises and agreements in
this Agreement by and on behalf of the respective parties hereto shall bind and
inure to the benefit of the respective successors and assigns of such parties,
whether so expressed or not.
Section 13. Governing Law. The parties hereby expressly acknowledge
---------- -------------
and agree that this Agreement shall be governed by and construed in accordance
with the laws of the State of California. Nothing contained herein shall
preclude either party from bringing any legal suit, action or proceeding arising
out of or relating to this Agreement in the courts of any place where the other
party or any of its property or assets, or the property or assets of any of its
general partners, may be found or located. To the extent permitted by applicable
law, such party hereby irrevocably submits to the jurisdiction of any such court
and expressly waives, in respect of any such suit, action or proceeding, the
jurisdiction of any other court or courts which now or hereafter, by reason of
its present or future domicile, or otherwise, may be available to it.
9
<PAGE>
Section 14. Amendments and Waivers. This Agreement may be amended
---------- ----------------------
only by a writing signed by the parties hereto. No amendment or waiver of any
provision of this Agreement nor consent by either party to any departure by the
other party herefrom shall in any event be effective unless the same shall be in
writing and signed by the party to be charged thereby. Any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of any party hereto to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof (except as provided above) nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law. This Agreement supersedes any prior
agreements among the parties hereto with respect to the matters addressed
herein.
Section 15. Headings. The section headings in this Agreement are
---------- --------
included herein for convenience or reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 16. Counterparts. This Agreement may be executed in any
---------- ------------
number of counterparts, each of which shall be deemed an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Agreement of
Transfer and Assignment to be executed all as of the date first above written.
"ASSIGNOR" COSO ENERGY DEVELOPERS
----------------------
Coso Energy Developers,
a California general partnership
By: Coso Hotsprings Intermountain Power, Inc.
a Delaware corporation,
General Partner
By: /s/ Richard A. Nishkian
-----------------------
Richard A. Nishkian
Chief Financial Officer
By: Caithness Coso Holdings,
a California general partnership,
General Partner
10
<PAGE>
By: Caithness Navy II Group, L.P.,
a New Jersey limited partnership,
General Partner
By: Mojave Power IV, Inc.,
a Delaware corporation,
General Partner
By: /s/ Hiram A. Bingham
--------------------
Hiram A. Bingham
President
By: Caithness BLM Group, L.P.,
a New Jersey limited partnership,
General Partner
By: Mojave Power III, Inc.,
a Delaware corporation,
General Partner
By: /s/ Hiram A. Bingham
--------------------
Hiram A. Bingham
President
By: Caithness CEA Geothermal, L.P.,
a Delaware limited partnership,
General Partner
By: Mojave Power III, Inc.,
a Delaware corporation
General Partner
By: /s/ Hiram A. Bingham
--------------------
Hiram A. Bingham
President
11
<PAGE>
"ASSIGNEE" COSO TRANSMISSION LINE PARTNERS
-------------------------------
Coso Transmission Line Partners,
a California general partnership
By: Coso Power Developers,
a California general partnership,
General Partner
By: Coso Technology Corporation,
a Delaware corporation,
General Partner
By: /s/ Richard A. Nishkian
-----------------------
Richard A. Nishkian
Chief Financial Officer
By: Caithness Navy II Group, L.P.,
a New Jersey limited partnership,
General Partner
By: Mojave Power IV, Inc.,
a Delaware corporation,
General Partner
By: /s/ Hiram A. Bingham
--------------------------------
Hiram A. Bingham
President
By: Coso Energy Developers,
a California general partnership,
General Partner
By: Coso Hotsprings Intermountain
Power, Inc., a Delaware corporation,
General Partner
By: /s/ Richard A. Nishkian
---------------------------------
Richard A. Nishkian
Chief Financial Officer
By: Caithness Coso Holdings,
a California general partnership,
General Partner
12
<PAGE>
By: Caithness Navy II Group, L.P.,
a New Jersey limited partnership,
General Partner
By: Mojave Power IV, Inc.,
a Delaware corporation,
General Partner
By: /s/ Hiram A. Bingham
--------------------
Hiram A. Bingham
President
By: Caithness BLM Group, L.P.,
a New Jersey limited partnership,
General Partner
By: Mojave Power III, Inc.,
a Delaware corporation,
General Partner
By: /s/ Hiram A. Bingham
--------------------
Hiram A. Bingham
President
By: Caithness CEA Geothermal,
a Delaware limited partnership,
General Partner
By: Mojave Power III, Inc.,
a Delaware corporation,
General Partner
By: /s/ Hiram A. Bingham
--------------------
Hiram A. Bingham
President
13
<PAGE>
CREDIT SUISSE
-------------
Credit Suisse,
a Swiss banking corporation
By: /s/ Markus K. Christen
----------------------
Printed Name: Markus K. Christen
------------------
Its: Deputy Vice President
---------------------
14
<PAGE>
Exhibit 10.51
Recording requested by
and when recorded mail to:
Macdonald, Halsted & Laybourne
Citicorp Plaza, 36th Floor
725 S. Figueroa Street
Los Angeles, California 90017
Attention: Juliana Stamato, Esq.
- --------------------------------------------------------------------------------
THIS AGREEMENT REGARDING OVERRIDING ROYALTY (this "Agreement") is made as
of this 5th day of May, 1988, by and between Coso Energy Developers, a
California general partnership ("CED"), and Coso Land Company ("CLC"), a joint
venture between California Energy Company, Inc., a Delaware corporation
("CECI"), and Caithness Geothermal 1980 Ltd., a New Jersey Limited Partnership.
RECITALS:
--------
A. Pursuant to that certain Assignment of Record Title Interest in a
Lease for Oil and Gas or Geothermal Resources dated April 15, 1988, CLC assigned
to Coso Geothermal Company ("CGC"), a joint venture between CECI, CLC, Pacific
Geothermal Ltd., L.P., a New Jersey limited partnership, Mt. Whitney Geothermal
Limited Partnership, a New Jersey limited partnership, and Mojave Joint Venture
(a joint venture between West Coast Geothermal Ltd. and Caithness Geothermal
1980 Limited - Special Group 1, both New Jersey limited partnerships), all of
CLC's record title interest in and to that certain Offer to Lease and Lease for
Geothermal Resources dated April 19, 1985, effective May 1, 1985 (the "BLM
Lease"), between the Bureau of Land Management (the "BLM"), as lessor, and CECI,
as lessee. The BLM Lease covers the lands located in Inyo County, California, as
more particularly described in Exhibit A attached hereto and made a part hereof
(the "BLM Project Area").
B. CGC subsequently assigned all of its record title interest in the BLM
Lease to CED pursuant to that certain Assignment of Record Title Interest in a
Lease for Oil and Gas or Geothermal Resources dated April 15, 1988, effective
May 1, 1988.
<PAGE>
C. CLC, CGC and CED contemplated that CLC would have an overriding
royalty interest in the steam produced from the BLM Project Area. CED now
desires to grant to CLC such an overriding royalty interest.
NOW, THEREFORE, in consideration of the foregoing Recitals, which are by
this reference incorporated herein, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
Section 1. Royalty. CED shall pay to CLC an overriding royalty in an
--------- -------
amount equal to five percent (5%) of the value of the steam produced from the
BLM Project Area. The value of the steam shall be equal to the steam value used
in calculating the royalty payable to the BLM under the BLM Lease. The
overriding royalty shall be due and payable on the last day of the month
following the month in which the production occurs.
Section 2. Certification and Acknowledgment of CLC. CLC certifies that it
--------- ---------------------------------------
is a citizen of the United States, an association of such citizens or an
association of corporations and partnerships organized under the laws of the
United States or of any State thereof. CLC acknowledges and understands that an
overriding royalty may not be less than or greater than the percentages
specified in 43 Code of Federal Regulations Section 3241, as may be amended from
time to time. CLC further acknowledges and understands that the certification
and acknowledgment of CLC contained in this Section 2 are for the benefit of and
may be relied upon by CED and the BLM.
Section 3. Further Assurances. CLC and CED agree that, at any time and
--------- ------------------
from time to time, upon the written request of the other, such party will
promptly and duly execute and deliver any and all such further instruments and
documents and take such further action as the other party may reasonably request
in order to obtain the full benefits of this Agreement.
Section 4. Severability. Any provision of this Agreement which is
--------- ------------
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 5. Notices. All notices, certificates, requests and other
--------- -------
communications to any party hereunder shall be in writing (including bank wire,
facsimile or similar writing) and shall be given to such party, addressed to it,
at its address or facsimile number set forth below, or such other address or
number as such party may hereafter specify for such purpose by
-2-
<PAGE>
notice to the other party in accordance herewith. Each such notice,
certificate, request or communication shall be effective (i) when presented
personally, (ii) if give by mail, five (5) days after such communication is
deposited in the U.S. mails, registered, return receipt requested, with first
class postage prepaid, addressed as aforesaid or (iii) if given by any other
means, when delivered at the address specified below. The telecopy (facsimile)
numbers provided below are for convenience of the parties only. Transmission by
telecopy shall constitute provision of notice under this Agreement only if
receipt thereof is acknowledged by the recipient.
If to CED: Coso Energy Developers
c/o Coso Hotsprings Intermountain Power, Inc.
601 California Street
San Francisco, California 94108
Attention: Chief Financial Officer
Telecopy: (415) 391-8989
with copies to: Macdonald, Halsted & Laybourne
Citicorp Plaza, 36th Floor
725 South Figueroa Street
Los Angeles, California 90017
Attention: Jay M. Davis, Esq.
Telecopy: (213) 629-7206
Caithness Geothermal 1980 Ltd.
c/o Caithness Corporation
380 Lexington Avenue
New York, New York 10017
Attention: Mr. James D. Bishop
Telecopy: (212) 557-1587
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Attention: Ola T. Hox, Esq.
Telecopy: (212) 530-5219
If to CLC: Coso Land Company
c/o California Energy Company, Inc.
601 California Street
San Francisco, California 94108
Attention: Chief Financial Officer
Telecopy: (415) 391-8989
-3-
<PAGE>
with copies to: Macdonald, Halsted & Laybourne
Citicorp Plaza, 36th Floor
725 South Figueroa Street
Los Angeles, California 90017
Attention: Jay M. Davis, Esq.
Telecopy: (213) 629-7206
Caithness Geothermal 1980 Ltd.
c/o Caithness Corporation
380 Lexington Avenue
New York, New York 10017
Attention: Mr. James D. Bishop
Telecopy: (212) 557-1587
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Attention: Ola T. Hox, Esq.
Telecopy: (212) 530-5219
Section 6. Successors and Assigns. Whenever in this Agreement any of the
--------- ----------------------
parties hereto is named or referred to, successors and assigns of such party
shall be deemed to be included and all covenants, promises and agreements in
this Agreement by and on behalf of the respective parties hereto shall be
binding upon and inure to the benefit of the respective successors and permitted
assigns of such parties, whether so expressed or not.
Section 7. Governing Law. This Agreement shall be governed by,
--------- -------------
interpreted under, and construed and enforced in accordance with the laws of the
State of California. Nothing contained herein, however, shall preclude either
party from bringing any legal suit, action or proceeding arising out of or
relating to this Agreement in the courts of any place where the other party or
any of its property or assets, or the property or assets of any of its general
partners, may be found or located.
To the extent permitted by applicable law, such party hereby irrevocably submits
to the jurisdiction of any such court expressly waives, in respect of any such
suit, action or proceeding, the jurisdiction of any other court or courts now or
hereafter, by reason of its present or future domicile, or otherwise, may be
available to it.
Section 8. Amendments and Waivers. This Agreement may be amended only by
--------- ----------------------
a writing signed by the parties hereto.
-4-
<PAGE>
No amendment or waiver of any provision of this Agreement nor consent by either
party or any departure by the other party herefrom shall in any event be
effective unless the same shall be in writing and signed by the party to be
charged thereby. Any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No failure on
the part of any party hereto to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof (except as expressly provided
herein) nor shall any single or partial exercise or any right hereunder preclude
any other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law. This Agreement supersedes all prior agreements among the
parties hereto with respect to the matters addressed herein.
Section 9. Headings. The section headings in this Agreement are included
--------- --------
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
Section 10. Counterparts. This Agreement may be executed in any number of
---------- ------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first shown above.
COSO ENERGY DEVELOPERS
By: COSO HOTSPRINGS INTERMOUNTAIN POWER, INC.,
A general partner
By: /s/ Richard A. Nishkian
-----------------------
Name: Richard A. Nishkian
Title: Chief Financial Officer
By: CAITHNESS COSO HOLDINGS,
A general partner
By: CAITHNESS NAVY II GROUP, L.P.,
A general partner
By: MOJAVE POWER III, INC.,
A general partner
By: /s/ Hiram A. Bingham
--------------------
Name: Hiram A. Bingham
Title: President
By: CAITHNESS CORPORATION,
A general partner
By: /s/ Hiram A. Bingham
--------------------
Name: Hiram A. Bingham
Title: President
-6-
<PAGE>
By: CAITHNESS BLM GROUP, L.P.,
A general partner
By: MOJAVE POWER III, INC.,
A general partner
By: /s/ Hiram A. Bingham
--------------------
Name: Hiram A. Bingham
Title: President
By: CAITHNESS CORPORATION,
A general partner
By: /s/ Hiram A. Bingham
--------------------
Name: Hiram A. Bingham
Title: President
COSO LAND COMPANY,
a California Joint Venture
By: California Energy Company, Inc.,
a Delaware Corporation, General Partner
By: /s/ Richard A. Nishkian
-----------------------
Name: Richard A. Nishkian
Title: Senior Vice President and
Chief Financial Officer
By: Caithness Geothermal 1980 Ltd.,
a New Jersey Limited Partnership
A general partner
By: Caithness Corporation
a Delaware Corporation
A general partner
By: /s/ Hiram A. Bingham
--------------------
Hiram A. Bingham
President
-7-
<PAGE>
Exhibit 10.52
Coso Geothermal Project
Exchange Agreement
This EXCHANGE AGREEMENT, dated January 11, 1994, is between Coso Finance
Partners ("CFP"), Coso Power Developers ("CPD"), Coso Energy Developers ("CED")
(each a California general partnership), and California Energy Company, Inc.
(the "Operator"), which is a Delaware corporation and operator of steamfields
and power plants at the Coso geothermal field. CFP, CPD, and CED are sometimes
referred to herein individually as a "Partnership" or collectively as the
"Partnerships". The Partnerships and Operator are sometimes referred to herein
individually as a "Party" or collectively as the "Parties".
Recitals
1. The Partnerships financed the development of the Navy I Project, Navy
II Project, and BLM Project (each a "Project"; collectively the "Projects")
including power plants and the related geothermal steam fields (drilling pads,
exploratory and production wells, pipelines, separators and injection wells),
and the Operator operates these Projects under separate contracts with each
Project's respective Partnership.
2. Prior to this Exchange Agreement, each Project has only used steam
produced from wells located within its own surface boundaries. The Parties have
noted that this may result in inefficient use of available geothermal resource,
plant capacity and value created through the three Interim Standard Offer 4
power sales agreements with Southern California Edison ("SCE") Company. For
example, at any particular time turbines at one plant may run at less than full
power due to lack of steam, while the adjacent Project has excess steam.
3. The parties have studied the technical and economic issues, and have
concluded that an agreement to permit exchanges of Geothermal Fluids between the
Projects can offer substantial economic benefits to each Project, can equitably
allocate increased revenue sharing payments and royalties to the land owners,
and can provide more environmentally sound power to the people of Southern
California.
The Parties, intending to be legally bound, hereby agree as follows:
1. Definitions.
BLM means the Bureau of Land Management, Department of the Interior, lessor on
behalf of the federal government of the geothermal leases used to supply the BLM
Project.
BLM Project means the Project owned and operated by CED, located on property
leased from BLM, and utilized with the consent of the Navy at the Coso Known
Geothermal Resource Area of the Naval Air Weapons Station, China Lake,
California.
Gathering System means the facilities on each respective Project that are
constructed from time to time to connect the Project's wells to its plant(s) and
to the Transfer Facilities.
<PAGE>
Gathering System means the facilities on each respective Project that are
constructed from time to time to connect the Project's wells to its plant(s) and
to the Transfer Facilities.
Geothermal Fluids means any fluids produced from the geothermal reservoir,
including HP Steam, LP Steam, brine, condensate and noncondensable gas.
HP Steam means steam delivered at pressures suitable for entry at the high
pressure inlet of a turbine, including auxiliary steam and let-down steam.
Intermediate Project means a Project through which Geothermal Fluids are
transported to a Receiving Project.
LP Steam means steam delivered at pressures suitable for entry at the low
pressure inlet of a turbine.
Management Committee means the Management Committee of each respective
Partnership as established by its partnership agreement.
Navy means the China Lake Naval Air Weapons Station, acting on behalf of the
Department of the Navy as contracting agency making available the acreage
dedicated to the Navy I and Navy II Projects for geothermal development.
Navy I Project means the Project owned and operated by CFP, located on property
utilized with the consent of the Navy at the Coso Known Geothermal Resource Area
of the Naval Air Weapons Station, China Lake, California.
Navy II Project means the Project owned and operated by CPD, located on property
utilized with the consent of the Navy at the Coso Known Geothermal Resource Area
of the Navel Air Weapons Station, China Lake, California.
Originating Project means a Project containing the downhole productive portions
of wells from which exchanged Geothermal Fluids are produced and delivered for
use by another Project. If a well has its wellhead in one Project area and its
downhole productive portion in another Project area, the Originating Project for
Geothermal Fluids produced from the well shall be the Project containing the
downhole productive portion of the well.
Procedure means a procedure to be approved by the Management Committees of all
the Partnerships which describes the conditions under which the Operator
determines the appropriate transfers of Geothermal Fluids between the Projects,
as described in Section 3. Such Procedure shall be substantially as provided in
Exhibit C. The Procedures contained in Exhibit C shall serve as the Procedure
until such time as revisions to the Procedure are implemented, as provided in
Section 3.
2
<PAGE>
Project means any of the three geothermal installations owned by CFP, CPD and
CED (including plants, wells, pipelines, and the acreage dedicated to them for
the supply of Geothermal Fluids) which produce electricity for sale under their
respective power sales agreements with SCE.
Receiving Project means the "Project receiving Geothermal Fluids from an
Originating Project, either directly or through an Intermediate Project.
Transfer Facilities means the east-west trunkline and certain other facilities
(already existing or to be constructed) as designated by the Parties and
described in Exhibit B-1 and B-2 as amended or modified from time to time as
evidenced by the Parties dating and initialing such amended or modified Exhibit
B-1 or B-2.
Transfer Point means a point at which exchanges are metered as referred to in
Section 5.
Veizades Study means the Coso Geothermal Project Steam Utilization Study dated
September, 1993 by Veizades & Associates, Inc.
Wheeling means the transfer of Geothermal Fluids from one portion of a Project's
area to another portion of the same Project's area by the use of the Transfer
Facilities.
2. Exchanges. Subject to any required consents by the BLM or Navy, the
Partnerships hereby authorize the Operator to transfer and exchange Geothermal
Fluids between the Projects in order to enhance the resource management and
operations of the Projects and to increase the value received by the Originating
Project(s) for the exchanged Geothermal Fluids. Any value added by the transfer
and exchange of Geothermal Fluids shall be shared equally between the
Originating and the Receiving Projects. The Operator may cause any Partnership
receiving HP Steam or LP Steam to accept and dispose of any associated brines,
condensates, or noncondensable gas.
3. Transfer Procedure. Transfers of Geothermal Fluids shall be made
pursuant to the Procedure. The Operator may propose revisions to the Procedure
at any time. Until such revisions are approved by all Management Committees, the
most recently approved Procedure shall continue in effect. The Operator and all
Management Committees shall review the Procedure at such times as the Management
Committees shall direct, but no more frequently than quarterly. After such
review, any of the Management Committees may notify the other Parties of its
intent to suspend its approval of all or a specified portion of the Procedure
subject to such review ("Suspension Notice"). The Suspension Notice shall state
the provisions of the Procedure to which such Management Committee objects and
specify the resulting material adverse impact on the respective Partnership.
Upon receipt of the Suspension Notice, Operator shall retain Sandwell, Inc. or,
upon prior written notice to the Management Committees, such other independent
engineering firm selected by Operator and not objected to in writing by any of
the Management Committees within 10 days after receipt of Operator's designation
of such other independent engineering firm. The
3
<PAGE>
independent engineering firm shall review the issues raised by the Suspension
Notice to determine whether or not, considering the purposes and goals of this
Agreement and the Operator's obligations to comply with covenants in loan
documents relating to the Projects, the Procedure (i) impairs the interests of
the Project whose Management Committee issued the Suspension Notice, (ii) is not
reasonably designed to permit the Operator to operate and maintain such Project
for the long-term, (iii) is not reasonably designed to maximize the long-term
revenues and income of such Partnership in compliance with the principles of
this Agreement, and (iv) is not reasonably designed to satisfy the principle
that any value added by a transfer or exchange of Geothermal Fluids be shared
equally between the Originating Project and the Receiving Project. If the
independent engineering firm determines that the Procedure meets the foregoing
tests justifying suspension or modification of the Procedure, it shall also
determine whether, in fact, the Partnership whose Management Committee issued
the Suspension Notice has been economically damaged by the Procedure and shall
calculate the amount of damages accruing from the Notice to the date of its
determination. If the independent engineering firm does not make a written
determination within 90 days after the Operator's and other Management
Committees' receipt of the Suspension Notice, the provisions of the Procedure
specified in the Suspension Notice shall be suspended with respect to the
Partnership whose Management Committee issued the Suspension Notice until such a
written determination is issued. Upon the independent engineering firm's
delivery of a written determination after receipt of the Suspension Notice, the
Operator shall either (i) maintain the current Procedure in effect or, (ii) if
the determination is that the Procedure meets the foregoing tests justifying
suspension or modification of the Procedure, implement the changes to the
Procedure required by such written determination. If the independent
engineering firm's written determination concludes that the Partnership whose
Management Committee issued the Suspension Notice has been economically damaged
by the Procedure, the other Partnerships shall reimburse such damaged
Partnership in an amount equal to the respective damages that accrued from the
date of delivery of the Suspension Notice until the earlier of (i) the date the
relevant provision of the Procedure is suspended or (ii) the date the Operator
implements the written determination of the independent engineering firm. The
determination of the independent engineering firm shall be binding on all
Parties. The cost of the determination by the independent engineering firm
shall be shared equally by all of the Partnerships.
4. Wheeling. In the event that the available capacity of the Gathering
System and the Transfer Facilities falls short of the capacity required for
Project to Project transfers and intra-Project wheeling proposed by the
Operator, the Procedure shall give priority to the Wheeling requirements of the
Originating Project(s), unless the Management Committee of the affected Project
has specifically waived such Wheeling requirements in writing.
5. Metering. Geothermal Fluids shall be deemed transferred at the single
phase metering points upstream of the point of mixing with fluids from other
Projects ("Transfer Points"). The Operator shall construct and operate meters
generally as described in the Veizades Study in order to measure Geothermal
Fluids exchanged through the Transfer Facilities. Such meters shall be
considered part of the Transfer Facilities.
4
<PAGE>
6. Payment. Payment due to Originating Projects for exchanges of HP
Steam and LP Steam shall be based on a sharing of the value added by the
exchanges, as calculated in Exhibit A. Any payments for exchanges of brine,
condensate, or noncondensable gas shall be deemed to be cost sharing payments
and shall be made pursuant to the mutual agreement of the Parties on a case-by-
case basis, as described in Section 8.
7. Adjustment Factors. In calculating the value added by the exchange of
Geothermal Fluids, the following considerations shall be taken into account:
(a) the conversion factor between LP Steam and an equivalent quantity of HP
Steam as described in the Veizades Study;
(b) the conversion factor between HP Steam and kilowatt-hours as determined
by the actual performance of each plant;
(c) any variations in the concentrations of noncondensable gas in the
steam; and
(d) any losses of heat from steam due to distances of transport.
These considerations are reflected in adjustment factors which are described in
the calculation of payments for transfers of steam at Coso (Exhibit A).
Geothermal Fluids delivered from an Originating Project to an Intermediate
Project at one Transfer Point shall be deemed equivalent (after application of
such adjustment factors) to an equal mass of the same type of Geothermal Fluids
delivered from the Intermediate Project to a Receiving Project or to the
Originating Project at another Transfer Point.
8. Cost sharing. CFP, CPD, and CED shall share equally in the cost of
the Transfer Facilities (including capital and operating costs) and shall
reimburse whichever Parties have previously incurred costs for the construction
and operation of the Transfer Facilities. Capital and operating costs for any
other shared facilities that may be constructed from time to time (for such
purposes as the disposal of brine or condensate, the maintenance of reservoir
pressure by injection, and the disposal or processing of noncondensable gas)
will be borne by CFP, CPD, and CED on terms to which the Parties shall mutually
agree on a case-by-case basis, as verified by budget approval. Each Partnership
shall continue to bear all costs (including capital and operating costs) for its
own Gathering System, wells, and other facilities not part of the Transfer
Facilities or not subject to a separate written sharing agreement. The Operator
shall maintain an accounting of any costs to be shared with respect to the
Transfer Facilities or other shared facilities for which Operator has received
written direction ("Shared Costs") and shall charge each Partnership its
respective share. Receipt by a Partnership of cost sharing reimbursement shall
not constitute revenue under the power sales agreements and shall not be subject
to revenue sharing payments or royalties.
9. Invoices and payments. The Operator shall, within a reasonable time,
develop an accounting system implementing the pricing formulas described in
Exhibit A and the cost sharing payments described in Section 8. The Operator
shall make the pricing calculations, together with supporting records, available
to the Partnerships during normal
5
<PAGE>
business hours at its offices in Omaha, Nebraska, or shall transmit copies of
such calculations and records on request. The Partnerships requesting such
copies shall bear all reasonable costs of copyring and transmittal. The
Operator shall prepare invoices for the Partnerships monthly for net amounts due
to be transferred from one Partnership to another under this Exchange Agreement.
The invoices for each month shall be provided to the Partnerships on or before
the last business day of the following month. All costs associated with
developing, implementing and maintaining such accounting system shall be deemed
a cost of the Transfer Facilities and shared by the Partnerships, as verified by
budget approval.
10. Geothermal Contract. This Exchange Agreement is intended to be a
Geothermal Contract as defined in the Amended and Restated Credit Agreement
among Coso Funding Corp. and Coso Finance Partners dated as of December 16,
1992, the Amended and Restated Credit Agreement among Coso Funding Corp. and
Coso Power Developers dated December 16, 1992 and the Amended and Restated
Credit Agreement among Coso Funding Corp. and Coso Energy Developers dated
December 16, 1992.
11. Disclaimer. Neither the Operator nor any Partnership makes or shall
be deemed to make any representations or warranties to any other Partnership,
the Operator, the Navy or the BLM with respect to any matters subject to this
Exchange Agreement including the quality or availability of any Geothermal
Fluids or the availability of any wells for the injection or disposal thereof
and no WARRANTY, EXPRESS OR IMPLIED, IS HEREBY INTENDED BY ANY PARTY, AND EACH
PARTY DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
USE OR PURPOSE. The Operator shall act in good faith to satisfy the goals and
guidelines set forth in this Exchange Agreement; provided, however, the Operator
makes no representations or warranties, express or implied, with respect to the
performance of this Exchange Agreement.
12. Waiver and Release. Provided the Operator acts in good faith in
performing its duties or exercising its discretion as provided in this Exchange
Agreement, the Partnerships, for themselves and their successors, assigns,
partners, agents, servants, legal representatives, employees and affiliates
hereby release, remise, forgive, acquit and forever discharge the Operator and
its successors, assigns, partners, agents, servants, legal representatives and
employees from any and all actions and causes of action, suits, proceedings,
demands, claims, covenants, contracts, agreement, debts, duties, compensation,
costs, expenses, sums of money and damages whatsoever, whether compensatory,
consequential or punitive, and howsoever originating or existing, whether
sounding in contract, quasi-contract or tort, whether legal or equitable, known
or unknown, now existing or which may hereafter arise, with respect to the
performance of its duties and exercise of discretion under this Exchange
Agreement. It is the intention of each party that this Agreement be effective
as a full and final accord and satisfaction and release of every matter herein
and arising under the Exchange Agreement. In furtherance of such intention and
with full understanding that there are possible future unknown or unanticipated
events or claims,
6
<PAGE>
each party to this Agreement acknowledges it has read and understood California
Civil Code Section 1542, which provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected this
settlement with the debtor."
Being fully aware of this Code Section, the Parties hereby expressly waive and
relinquish each and all rights and benefits under Section 1542, as well as under
any other statutes or common law principle of similar effect.
13. Term. The initial term of this Exchange Agreement shall commence as
of the date first set forth above and continue until the date five years from
the date Geothermal Fluids are first exchanged pursuant to this Exchange
Agreement, and shall automatically renew for additional successive terms of one
year unless any Party delivers written notice of termination to the other
Parties at least 90 (but not more than 120) days before end of the then-current
term.
14. Notices. Any notice required or permitted under this Exchange
Agreement shall be given personally (which shall be deemed received upon
receipt), by certified or registered mail, return receipt requested (which shall
be deemed received 3 days after deposited with U.S. mail service), or by
overnight courier or facsimile (which shall be deemed received 24 hours after
being sent) addressed to the Party receiving the notice at its last known
address.
15. Disclosure. The Operator may deliver a copy of this Exchange
Agreement or disclose the terms and conditions of this Exchange Agreement to the
Navy and/or BLM and may disclose such other information to the Navy and BLM with
respect to the Exchange Agreement as the Operator deems appropriate. The
Operator may make such other disclosures as it deems appropriate under
applicable law.
16. Modification. This Exchange Agreement may not be modified orally, but
only by a writing signed by all Parties.
17. Interpretation. If there are any conflicts or disputes with respect
to the interpretation of this Exchange Agreement, the Operator shall determine
the appropriate interpretation and such determination shall be final.
18. Authorization. The Partnerships hereby authorize Operator to
negotiate with the Navy and BLM on behalf of each of the Partnerships for the
purpose of securing the Navy's and/or BLM's consent or agreement with respect to
this Exchange Agreement.
7
<PAGE>
19. Governing Law. This Exchange Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of
California and federal law applicable to government contracts and leases.
20. Counterparts. This Exchange Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute a single agreement with the same effect as if the
signatures thereto and hereto were upon the same instrument.
21. Binding. This Exchange Agreement is binding on the Parties and their
respective successors and assigns; provided, however no exchanges pursuant to
this Exchange Agreement shall occur between the Navy I Project or Navy II
Project and the BLM Project prior to the receipt of the necessary consent or
agreement of the Navy and BLM with respect thereto.
22. Entire Agreement. If there are any conflicts between the terms and
conditions of the body of this Exchange Agreement and any attachment, schedule,
annex or exhibit, the terms and conditions of the body of the Exchange Agreement
shall govern. This Exchange Agreement and its attachments, annexes, schedules
and exhibits constitute the entire agreement of the Parties with respect to the
subject matter hereof and supersedes any and all prior agreements concerning the
same.
[Signatures appear on the following page]
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Exchange Agreement to be duly
executed and delivered as of the date first above written.
"PARTNERSHIPS"
<TABLE>
<S> <C>
Coso Energy Developers Coso Power Developers
By Coso Hotsprings Intermountain Power By Coso Technology Corporation
By: /s/ Thomas R. Mason By: /s/ Thomas R. Mason
----------------------------- -----------------------------
Title: Sr. V.P. Title: Sr. V.P.
-------------------------- --------------------------
By Caithness Coso Holdings, L.P. By Caithness Navy II Group, L.P.
By Caithness BLM Group L.P. By: Mojave Power IV, Inc.
By Mojave Power III, Inc.
By: /s/ James D. Bishop, Jr. By: /s/ James D. Bishop, Jr.
----------------------------- -----------------------------
Title: President Title: President
-------------------------- --------------------------
By Caithness CA Geothermal, L.P. Coso Finance Partners
By Mojave Power III, Inc. By China Lake Operating Company
By: /s/ James D. Bishop, Jr. By: /s/ Thomas R. Mason
----------------------------- -----------------------------
Title: President Title: Sr. V.P.
-------------------------- --------------------------
By ESCA Limited Partnership
By ESI Geothermal Inc.
By: /s/ Kenneth P Hoffman
-----------------------------
Title: President
--------------------------
By Mojave Power, Inc.
By: /s/ James D. Bishop, Jr.
-----------------------------
Title: President
--------------------------
</TABLE>
"OPERATOR"
California Energy Company, Inc.
By: /s/ Thomas R. Mason
--------------------------------
Thomas R. Mason,
Senior Vice President,
Engineering, Construction and Operations
9
<PAGE>
Exhibit 10.53
-------------
AMENDMENT TO COSO EXCHANGE AGREEMENT
------------------------------------
The Parties to the EXCHANGE AGREEMENT dated January 11, 1994 do hereby amend
said Agreement to substitute the attached revision of Exhibit A dated April 12,
1995 in place of the original Exhibit A.
"PARTNERSHIPS"
<TABLE>
<S> <C>
Coso Energy Developers Coso Power Developers
By Coso Hotsprings Intermountain Power By Coso Technology Corporation
By:/s/ Thomas R. Mason By:/s/ Thomas R. Mason
----------------------------------- -----------------------------
Title: President Title: President
By Caithness Coso Holdings, L.P. By Caithness Navy II Group, L.P.
By Caithness BLM Group, L.P. By Mojave Power IV, Inc.
By Mojave Power III, Inc.
By:/s/ James D. Bishop, Jr. By:/s/ James D. Bishop, Jr.
- -------------------------------------- ------------------------------
Title: President Title: President
By Caithness CEA Geothermal, L.P. Coso Finance Partners
By Mojave Power III, Inc. By China Lake Operating Company
By: /s/ James D. Bishop By:/s/ Thomas R. Mason
---------------------------------- -----------------------------
Title: President Title: President
By ESCA Limited Partnership
By ESI Geothermal Inc.
By:/s/ Kenneth P. Hoffman
-----------------------------
Title: President
By Mojave Power, Inc.
By:/s/ James D. Bishop, Jr.
-----------------------------
Title: President
</TABLE>
"OPERATOR"
California Energy Company, Inc.
By: /s/ Thomas R. Mason
--------------------------------------------
Thomas R. Mason, President
<PAGE>
Exhibit 10.55
OPERATION AND MAINTENANCE AGREEMENT
(NAVY I PROJECT)
Dated as of May 28, 1999
among
COSO FINANCE PARTNERS
and
COSO OPERATING COMPANY LLC
and
FPL ENERGY OPERATING SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1 DEFINITIONS AND INTERPRETATION....................... 1
Section 1.1 Definitions.......................................... 1
Section 1.2 Interpretation....................................... 9
Section 1.3 Technical Meanings................................... 9
Section 1.4 Headings............................................. 9
Section 1.5 Interpretation; Precedence........................... 9
Section 1.6 Status of Operator and Owner......................... 9
SECTION 2 RESPONSIBILITIES OF OPERATOR......................... 10
Section 2.1 Scope of Services.................................... 10
Section 2.2 Standards for Performance of the Services............ 10
Section 2.3 Personnel Standards.................................. 10
Section 2.4 Approvals and Permits................................ 11
Section 2.5 Operating Data and Records........................... 11
Section 2.6 No Liens or Encumbrances............................. 12
Section 2.7 Preservation of Warranties........................... 12
Section 2.8 Emergency Action..................................... 12
Section 2.9 O & M Manuals........................................ 12
Section 2.10 Subcontractors....................................... 12
Section 2.11 Access............................................... 13
Section 2.12 Cooperation with Other Contractors................... 13
SECTION 3 LIMITATIONS ON AUTHORITY OF OPERATOR................. 13
Section 3.1 Agency............................................... 13
Section 3.2 General Limitations.................................. 13
Section 3.3 Execution of Documents............................... 15
SECTION 4 PROCEDURES, PLANS AND REPORTING...................... 15
Section 4.1 Representatives of Parties; Employees................ 15
Section 4.2 O&M Manuals.......................................... 15
Section 4.3 Annual Facility Operating Plan and Budget............ 16
Section 4.4 Availability of Operating Data and Records........... 17
Section 4.5 Accounts and Reports................................. 17
Section 4.6 Financial Records.................................... 18
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 5 COMPENSATION AND PAYMENT............................. 19
Section 5.1 Compensation......................................... 19
Section 5.2 Reimbursable Costs................................... 19
Section 5.3 Annual Operating Fee................................. 20
Section 5.4 Reserved............................................. 20
Section 5.5 Changed Conditions; Change in Scope of Services...... 20
SECTION 6 TERM................................................. 20
Section 6.1 Term................................................. 20
Section 6.2 Termination by Owner................................. 21
Section 6.3 Termination by Operator.............................. 21
Section 6.4 Facility Condition at End of Term; Transmission Line. 21
Section 6.5 Termination Costs.................................... 22
SECTION 7 INSURANCE............................................ 22
Section 7.1 General.............................................. 22
Section 7.2 Operator Insurance................................... 22
Section 7.4 Form and Content..................................... 23
Section 7.5 Certificates; Proof of Loss.......................... 24
SECTION 8 INDEMNIFICATION...................................... 24
Section 8.1 By Operator.......................................... 24
Section 8.2 By Owner............................................. 25
Section 8.3 Cooperation Regarding Claims......................... 25
SECTION 9 LIABILITIES OF THE PARTIES........................... 26
Section 9.1 Limitations of Liability............................. 26
Section 9.2 Environmental Liability.............................. 26
Section 9.3 Limitation of Owner's Liability...................... 26
Section 9.4 Limitation of Operator's Liability................... 27
Section 9.5 Section 1542......................................... 27
SECTION 10 TITLE, DOCUMENTS AND DATA............................ 28
Section 10.1 Materials and Equipment.............................. 28
Section 10.2 Documents; Proprietary Information................... 28
Section 10.3 Review by Owner...................................... 28
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 11 REPRESENTATIONS AND WARRANTIES....................... 28
Section 11.1 Operator Representations and Warranties.............. 28
Section 11.2 Owner Representations and Warranties................. 29
SECTION 12 FORCE MAJEURE........................................ 29
Section 12.1 Excused Performance.................................. 29
Section 12.2 Notice of Force Majeure.............................. 30
Section 12.3 Scope................................................ 30
SECTION 13 CONFIDENTIAL INFORMATION............................. 30
Section 13.1 Non-disclosure....................................... 30
Section 13.2 Disclosure to Government Agency...................... 30
SECTION 14 MISCELLANEOUS PROVISIONS............................. 31
Section 14.1 Assignment........................................... 31
Section 14.2 Entire Agreement and Amendments...................... 31
Section 14.3 Survival............................................. 32
Section 14.4 Severability......................................... 32
Section 14.5 Waiver............................................... 32
Section 14.6 Notices.............................................. 32
Section 14.7 GOVERNING LAW........................................ 33
Section 14.8 Further Assurances................................... 33
Section 14.9 No Third Person Rights............................... 33
Section 14.10 Dollars.............................................. 33
Section 14.11 Counterparts......................................... 33
Section 14.12 Strikes.............................................. 33
</TABLE>
Appendix A SCOPE OF SERVICES
Appendix B FACILITY AGREEMENTS
Appendix C EMPLOYMENT
Appendix D FORM OF AFE
-iii-
<PAGE>
OPERATION AND MAINTENANCE AGREEMENT
NAVY I PROJECT
THIS OPERATION AND MAINTENANCE AGREEMENT FOR NAVY I PROJECT (the
"Agreement") dated as of May 28, 1999 is made and entered into by and between
Coso Finance Partners, a California general partnership ("CFP"), Coso Operating
Company LLC, a Delaware limited liability company ("COC") (CFP and COC
collectively, the "Owner"), and FPL Energy Operating Services, Inc., a Florida
corporation ("Operator").
RECITALS
--------
WHEREAS, CFP owns a three unit 90 megawatt geothermal small power
production facility, steam production wells, a resource gathering and injection
system, power transmission lines and related equipment and facilities commonly
known as the Navy I Project located in Inyo County, California;
WHEREAS, COC is identified as the operator under certain permits to
operate issued by the Great Basin Unified Air Pollution Control District in
connection with the Navy I Project;
WHEREAS, Owner wishes to engage Operator to perform operation and
maintenance services for the Navy I Project, and Operator is willing to provide
such services, all on the terms provided herein.
NOW, THEREFORE, in consideration of the mutual covenants, undertakings
and conditions set forth below, the Parties agree as follows:
SECTION 1
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions. Except as otherwise expressly provided or
-----------
unless the context otherwise requires, the capitalized terms set forth below
where used in this Agreement (including the Recitals and Appendices) have the
following meanings:
"Actual O&M Expenses" shall mean the actual amount of Reimbursable
Costs incurred during a calendar month.
"Administrative Procedures Manual" has the meaning assigned to such
term in Section 4.2.
"Affiliate" means any entity owned by, owning, controlled by,
controlling or under common control or ownership with Operator or Owner or any
partner of Operator or Owner, as the case may be. "Control" of a Person
(including, with correlative meanings, the terms "controlled by" or "under
common control with") means the possession, direct or indirect,
<PAGE>
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise.
"AFE" or "Authorization for Expenditure" shall mean a document in the
form shown in Appendix D whereby Owner authorizes Operator to perform work and
authorizes the expenditure of funds therefor.
"Agreement" means this Operation and Maintenance Agreement between
Owner and Operator, including all Appendices, as the same may be modified or
amended from time to time in accordance with the provisions hereof.
"Annual Budget" has the meaning assigned to such term in Section 4.3.
"Annual Operating Plan" has the meaning assigned to such term in
Section 4.3.
"Annual Operating Fee" has the meaning assigned to such term in
Section 5.3.
"Appendices" means, collectively, the following appendices to this
Agreement, which are incorporated herein and made a part hereof:
Appendix A -- Scope of Services
Appendix B -- Facility Agreements
Appendix C -- Employment
Appendix D -- Form of AFE
"Applicable Law" shall mean any law, rule, regulation, permit,
license, approval, franchise, requirement or order of any federal, state or
local agency, court or other governmental body, applicable from time to time to
the construction, equipping, testing, start-up, financing, ownership, leasing or
operation of the Project or the performance of any obligations under any
agreement entered into with respect to the Project.
"BLM" means the United States Department of the Interior, Bureau of
Land Management.
"BLM Partnership" means Coso Energy Developers, a California general
partnership which owns the BLM Project.
"BLM Project" means the three unit 90 megawatt geothermal small power
production facility, steam production wells, a resource gathering and injection
system, power transmission lines and related equipment and facilities located on
lands leased from the BLM in Inyo County, California.
"Budgeted O&M Expenses" shall mean the operation, maintenance and
repair costs for the Project set forth in the Annual Budget for each month.
2
<PAGE>
"Business Day" means any day on which commercial banks are authorized
to open or are not required to close in New York, New York.
"Commencement Date" means the closing date of this Agreement.
"Dollar" or "$" means the lawful currency of the United States of
America.
"Energy and Capacity Revenues" means, with respect to any month or
reference period, including, without limitation, an Operating Year, gross
revenues received by Owner during such period from all sales of electric energy
and capacity generated by the Facility.
"Environmental Claim" means, with respect to any Person, any and all
suits, sanctions, liabilities, legal proceedings, claims, demands, losses, costs
and expenses of whatsoever kind or character, including reasonable attorneys'
fees (whether at the trial or appellate level), civil fines or penalties or
other expenses incurred, assessed or sustained by or against such Person as a
result of or in connection with any Environmental Law.
"Environmental Law" means any Law relating to the environment, health
or safety now or hereafter in effect applicable to the Facility, the Field or
the Facility Site.
"Extended Expiration Date" has the meaning assigned to such term in
Section 6.1.
"Facility" means the geothermal power facilities, located on the
Facility Site, consisting of three units, interconnection to the Transmission
Line, and certain common control and support facilities and any part of the
surface of the real property, fixtures and buildings which are located within
the Facility Site.
"Facility Agreements" means, collectively, this Agreement, and each
other agreement (or certain provisions thereof) set forth on Appendix C attached
hereto and, subject to Section 5.5, any other agreement reasonably designated by
Owner as a Facility Agreement, five Business Days after Owner provides such
agreement to Operator, or such longer period as Owner and Operator agree in
writing shall be necessary for Operator to comply with Section 2.1 with respect
thereto, including all exhibits, schedules and attachments to each such
agreement. Facility Agreements shall include any amendment to the foregoing
upon notification by Owner to Operator.
"Facility Manuals" means facility equipment manuals, system
descriptions, system operating instructions, equipment maintenance instructions,
pertinent design documentation, engineering drawings, plant electrical,
schematic, and all other applicable drawing, plant and equipment set points, and
plant processes and procedures.
"Facility Site" means the real property on which the Facility is
located as described in documents listed in Appendix B to this Agreement.
3
<PAGE>
"Fault of Operator" shall mean the negligent or grossly negligent acts
or omissions or willful misconduct of Operator or of its employees,
subcontractors or agents or any acts or omissions that are in breach of
Operator's obligations under this Agreement.
"Field" shall mean the geothermal wells and related fluid handling,
gathering and distribution systems located on the Facility Site.
"Financing Agreements" means any credit agreement, reimbursement
agreement, note purchase agreement, trust indenture, lease agreement or other
document under which Owner or its affiliates obtain financing (including any
credit enhancement for any bonds) for the acquisition, development,
construction, modification, repair or operation of the Project or any
refinancing thereof.
"Fluid" means the natural geothermal water, steam, brine and the
materials contained therein, obtained from the Production Wells.
"Force Majeure" means any act, event or condition, which is not within
the commercially reasonable control of a Party that causes delay in or failure
of performance of obligations under this Agreement, if such act, event or
condition (a) is beyond the reasonable control of the Party relying thereon, (b)
is not the result of any act, omission or delay of such Party (or any third
Person over whom such Party has control including, without limitation, any
subcontractor), (c) is not an act, event or condition, the risks or consequences
of which such Party has expressly agreed to assume hereunder and (d) then only
to the extent the same cannot be cured, remedied, avoided, offset, negotiated or
otherwise overcome by the prompt exercise of due diligence of the Party relying
thereon (or any third Person over whom such Party has control including, without
limitation, any subcontractor) including, without limitation, any event or
condition occasioned by or resulting from lightning, tornadoes, windstorms,
extreme weather conditions, fires, storms or failures or partial failures of any
equipment.
"Government Agency" means any federal, state, local or municipal
government, governmental department, commission, board, bureau, agency,
instrumentality, judicial or administrative body having jurisdiction over Owner,
Operator, the Facility, the Field or the Facility Site.
"Hazardous Materials" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, and transformers or other equipment that
contain dielectric fluid containing polychlorinated biphenyls ("PCBs"); (b) any
chemicals, materials or substances which are now or hereafter become defined as
or included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "extremely hazardous wastes", "restricted hazardous
wastes", "toxic substances", "toxic pollutants", or words of similar import,
under any Environmental Law or in any regulations thereto; and (c) any other
chemical, material, substance or waste, exposure to which is now or hereafter
prohibited, limited or regulated by any Government Agency.
"Hazardous Materials Laws" shall mean federal, state or local laws,
ordinances and regulations relating to any Hazardous Materials and applicable to
the Facility or the Field.
4
<PAGE>
"Indemnified Party" has the meaning assigned to such term in Section
8.3.
"Initial Expiration Date" has the meaning assigned to such term in
Section 6.1.
"Injection Wells" means the wells in the Field through which the Fluid
from the separator vessels and power plant is injected back into the ground.
"Law" means any act, statute, law or regulation of any Government
Agency as in effect from time to time relating to the Facility, the Facility
site and the Field and the operation thereof.
"Maintenance Reports" shall mean the maintenance and repair reports
maintained by Operator relating to the Facility, the Facility Site and the
Field.
"Major Equipment" means all equipment related to the production and
delivery of electric power, whose failure could result in a loss for an extended
period of time of more than five percent of the rated capacity of the Facility.
"Navy" means the United States Government, acting through the Western
Division (Code 022) Naval Facilities Engineering Company, San Bruno, California
and/or the Disbursing Officer, Code 0862, Naval Weapons Center, China Lake,
California, as the context may require.
"Navy I Partnership" means Coso Finance Partners, a California general
partnership.
"Navy II Partnership" means Coso Power Developers, a California
general partnership.
"NERC" means the North American Electric Reliability Council.
"O&M Manuals" has the meaning assigned to such term in Section 4.2
hereto.
"O&M Operating Account" has the meaning assigned to such terms in
Section 5.2.1.
"Operating Logs" shall mean the daily operating logs showing the
production from the Facility and the Field.
"Operating Year" means initially, the remainder of the calendar year
after the Commencement Date and thereafter, the twelve (12) month period
beginning on the first day of each calendar year and each successive twelve (12)
month period beginning on the consecutive anniversary dates thereof.
"Operator" has the meaning assigned to such term in the Preamble.
"Operator Indemnified Party" means Operator, its shareholders,
partners, principals, Affiliates, officers, directors, employees, agents and
representatives.
5
<PAGE>
"Owner" has the meaning assigned to such term in the Preamble..
"Owner Indemnified Party" means Owner, Secured Party and their
respective shareholders, partners, principals, Affiliates, officers, directors,
employees, agents and representatives.
"Party" means Operator or Owner and "Parties" means Operator and
Owner.
"Person" means any individual, partnership, corporation, association,
business, trust, government or political subdivision thereof, governmental
agency or other entity.
"Planned Maintenance" shall mean daily, routine, and preventive
maintenance and inspection of the equipment at the Facility and the Field as set
forth in the Annual Operating Plan and Annual Budget. Each Annual Operating
Plan is to be prepared with a view to the expected economic life of the Facility
and the Field, it being understood that each item of equipment may not last for
the entire economic life of the Facility or the Field and shall include as
Planned Maintenance, without limitation, all service, overhaul (other than
Unplanned Maintenance and major overhauls that constitute Unplanned
Maintenance), inspection, replacement of parts, and maintenance procedures
necessary or advisable for normal wear and tear and as recommended by the
manufacturers and/or vendors of equipment at the Facility and the Field not less
often than so recommended. For example, Planned Maintenance includes the
replacement of equipment and components from time to time near or after the
reasonably expected life of the equipment as set forth in the Annual Operating
Plan.
"Plant General Manager" has the meaning assigned to such term in
Section 4.1.
"Point of Interconnection" shall mean the point where electricity
generated by the Facility is delivered from the Facility to the SCE transmission
system.
"Production Wells" means the wells in the Field out of which hot Fluid
is extracted to produce electricity at the Facility from the heat of the Fluid.
"Project" shall mean the Facility, the Facility Site, the Field and
the Transmission Line.
"Prudent Operating and Maintenance Practices" means the generally
accepted and sound utility industry practices, methods and acts applicable to
similar independent power facilities situated in the United States which at a
particular time, in the exercise of reasonable judgment and in light of facts
known or that should have been known, would have been expected to accomplish the
desired results and goals established in the Annual Operating Plan, including
such goals as efficiency, reliability, economy, continuous improvement and
profitability, in a manner consistent with Law, safety, and environmental
protection. With respect to the Project, Prudent Operating and Maintenance
Practices include such things as taking reasonable actions to ensure or provide
the following:
(i) Adequate materials, resources and supplies are available to
meet the Project's needs under normal conditions and reasonably
anticipated abnormal conditions;
6
<PAGE>
(ii) A sufficient number of operating, maintenance and supervisory
personnel available and adequately experienced and trained to
operate, maintain and supervise the Project properly,
efficiently and within manufacturer's guidelines and
specifications and who are capable of responding to emergency
conditions;
(iii) The timely performance of preventive, predictive, routine, and
non-routine maintenance and repairs on a basis that ensures
long-term and safe operation and by knowledgeable and
experienced personnel utilizing specified equipment, tools and
procedures;
(iv) Appropriate monitoring, analysis and testing are done
periodically to confirm that equipment is functioning as
designed and to provide assurance that equipment will function
properly under both normal and emergency conditions;
(v) Equipment is operated in a safe manner and in a manner safe to
workers, the general public and the environment and with regard
to defined limitations such as steam pressure, temperature and
moisture content, operating voltage, current, frequency,
rotational speed, polarity, synchronization and control system
limits; and
(vi) Operations are conducted within all permit, governmental, and
regulatory requirements.
"PURPA" shall mean the Public Utility Regulatory Policies Act of 1978,
as amended.
"Regulatory Records" shall mean the records and other materials
required by any Government Agency to be maintained in respect of the Project.
"Reimbursable Costs" means those direct costs incurred by Operator in
the performance of its duties hereunder in accordance with Operator's
established practices and policies then in effect, subject to the annual limits
set forth in the applicable Annual Budget, unless such limits shall be revised
pursuant to an AFE or other agreement reached by Operator and Owner.
Reimbursable Costs shall include but not be limited to: direct labor costs
(regardless of whether or not the employees are located at the Project),
including benefits and employee bonuses (subject to Owner's approval of the
aggregate dollar amount of the bonus pool), maintenance costs, equipment rentals
(including allocable costs of equipment shared with other projects), parts and
supplies, and equipment overhaul costs. Reimbursable Costs shall include
reasonable expenses incurred by Operator pursuant to Sections 2.8 and 3.2.2 in
connection with an emergency. Where Reimbursable Costs occur based upon
Operator's established policies, Operator shall promptly provide Owner, for
approval, all such policies and any proposed changes in the documents pursuant
to which changes in such established policies shall be made, along with
cost/benefit analyses associated with such changes. Increased costs resulting
from changes to policies shall be Reimbursable Costs only to the extent that the
same shall have been approved in advance by Owner. Reimbursable Costs shall not
include legal, consulting,
7
<PAGE>
contractor, and indirect corporate overhead and management costs unless such
costs have been previously authorized by Owner in an Annual Budget, AFE or other
document.
"Remedial Action" shall mean actions required to (a) clean up, remove,
treat or in any other way address Hazardous Materials in the indoor or outdoor
environment; (b) prevent the release or threat of release or minimize the
further release of Hazardous Materials so they do not migrate or endanger or
threaten to endanger public health or welfare or the indoor or outdoor
environment; or (c) perform pre-remedial studies and investigations and post-
remedial monitoring and care.
"SCE" means Southern California Edison, a corporation organized and
existing under the laws of the State of California.
"Scheduled Outage" means a time period during which any of the Major
Equipment is shut down for maintenance as scheduled in the Annual Operating Plan
or otherwise agreed upon by the Parties and which is accepted by the applicable
parties to the Facility Agreements under the terms of such Facility Agreements.
Such maintenance shall be scheduled and performed based on the requirements of
manufacturers' warranties and recommendations, insurance requirements, and
Prudent Operating and Maintenance Practices.
"Secured Party" means, collectively, each Person providing financing
or refinancing under the Financing Agreements and any trustee or agent acting on
any such Person's behalf and their successors and assigns.
"Services" has the meaning assigned to such term in Section 2.1,
including, without limitation, such services set forth in Appendix A hereto.
"Term" has the meaning assigned to such term in Section 6.1.
"Termination Payment" has the meaning assigned to such term in Section
6.2.
"Transmission Line" means the 115 kV power line connected to the SCE
substation at Inyokern, California, through which electricity produced by the
Navy I Project is transmitted for delivery to SCE.
"Unplanned Maintenance" shall mean all maintenance, repair, and
replacements other than Planned Maintenance, and includes such items as
replacement of equipment or components prior to their reasonably expected
replacement date, major overhauls of equipment or components which in the
ordinary course would not be necessary during the expected economic life of the
Facility or the Field, repairs and replacements covered by insurance or
warranties, and repairs and replacements of components damaged or destroyed
following a casualty or event of Force Majeure or sudden equipment explosion or
breakdown event, whether or not covered by insurance, together with any services
required to take corrective action following any such event.
"Winding Up" of or in relation to a Person includes the amalgamation,
reconstruction, reorganization, administration, dissolution, liquidation,
bankruptcy, merger or consolidation of that Person and any equivalent or
analogous procedure under the law of any
8
<PAGE>
jurisdiction in which that Person is incorporated, domiciled or resident,
carries on business or has any assets.
Section 1.2 Interpretation. Unless the context otherwise requires:
--------------
1.2.1 Words singular and plural in number will be deemed to include
the other and pronouns having a masculine or feminine gender will be deemed to
include the other.
1.2.2 Any reference in this Agreement to any Person includes its
permitted successors and assigns and, in the case of any Government Agency, any
Person succeeding to its functions and capacities.
1.2.3 Any reference in this Agreement to any Section or Appendix means
and refers to the Section contained in or Appendix attached to this Agreement.
1.2.4 A reference to a document or agreement, including this
Agreement, includes a reference to that document or agreement as novated,
amended, modified, supplemented, restated or replaced from time to time.
Section 1.3 Technical Meanings. Words not otherwise defined herein
------------------
that have well-known and generally accepted technical or trade meanings are used
herein in accordance with such recognized meanings.
Section 1.4 Headings. Headings are for reference only and do not form
--------
Section 1.5 Interpretation; Precedence. In case of express conflict
--------------------------
between a Section and an Appendix, the order of precedence shall be as follows:
A. Section
B. Appendix
Subject to the foregoing, if any requirements specified in any Appendix are in
conflict with any other requirements in such Appendix or in any other Appendix,
the more detailed requirements shall prevail. Notwithstanding the above, the
provisions of this Agreement, including all Appendices, shall be wherever
possible construed as complementary rather than conflicting.
Section 1.6 Status of Operator and Owner. Operator shall perform and
----------------------------
execute its obligations under this Agreement as an independent contractor and,
to the limited extent set forth herein, agent to Owner and shall not be a
partner, joint venturer or employee of Owner. Each of CFP and COC shall be
jointly and severally liable for the obligations of Owner hereunder. Operator
acknowledges that, as an internal matter, Owner has allocated responsibility
such that CFP shall have primary responsibility for expenses related to the
Facility.
9
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SECTION 2
RESPONSIBILITIES OF Operator
Section 2.1 Scope of Services. Subject to the provisions of this
-----------------
Agreement, from the Commencement Date throughout the Term, Operator shall do all
things necessary or advisable for the proper operation and maintenance of the
Facility, the Field, and the Transmission Line and perform certain other
services as hereinafter set forth (collectively, the "Services"). Operator shall
operate and maintain the Facility, the Field and the Transmission Line in a
clean, safe, efficient and environmentally acceptable manner. Without limiting
the generality of the foregoing, Operator's responsibilities shall include the
following:
2.1.1 Services. Except as otherwise provided in this Agreement, from
--------
and after the Commencement Date until this Agreement is terminated, Operator
shall be in complete charge of, and have care, custody and control over, the
Facility, the Field and the Transmission Line. Operator shall, in accordance
with the provisions of this Agreement (subject to the limitations on Operator's
authority set forth in Section 3) perform all services and functions set forth
in Appendix A as Operator's responsibilities or requirements.
2.1.2 Waste Management. Operator shall be responsible for performing
----------------
the on-site management of and for arranging for the transportation and disposal
of all wastes (including Hazardous Materials) generated by or used in the
operation of the Project in compliance with all Applicable Laws and policies and
procedures which may be adopted by Owner.
2.1.3 General. Operator shall not permit or suffer any liens or
-------
encumbrances on the Project arising from the performance of the Services.
Subject to the limitations on Operator's authority set forth herein, Operator
shall use all reasonable and practical efforts to maximize Energy and Capacity
Revenues, to optimize the useful life of the Project, and to minimize fuel
consumption, Facility downtime and Reimbursable Costs.
Section 2.2 Standards for Performance of the Services. Subject to the
-----------------------------------------
limitations on Operator's authority set forth herein, Operator shall perform the
Services in all material respects in a prudent and efficient manner and in
accordance with (i) the O&M Manuals, (ii) the applicable subcontractor and
vendor warranties as provided by Owner to Operator, (iii) the applicable Annual
Operating Plan and Annual Budget, (iv) all Applicable Laws, licenses, permits,
governmental approvals and standards, (v) the Facility Agreements, (vi) the
requirements under the insurance policies maintained by Owner (copies of which
will be provided to Operator before the Commencement Date) and Operator with
respect to the Project, (vii) Prudent Operating and Maintenance Practices,
(viii) applicable guidelines established by NERC and the Institute of Electrical
and Electronic Engineers, Inc. and (ix) the terms of this Agreement. Operator
acknowledges that it has received and reviewed copies of all Facility Agreements
described on Appendix B.
Section 2.3 Personnel Standards.
-------------------
10
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2.3.1 Personnel. The Facility is a non-union plant. Operator shall
---------
provide and make available as necessary, in accordance with the requirements of
the O&M Manuals, all such labor and professional, supervisory and managerial
personnel as are required to perform the Services. Such personnel (i) shall be
qualified (including possessing appropriate licenses) and experienced in the
duties to which they are assigned and (ii) shall meet the requirements for
personnel under the O&M Manuals and in accordance with Prudent Operating and
Maintenance Practices. All individuals employed by Operator in the performance
of the Services shall be the employees of Operator or seconded employees of
affiliates of Operator, and their working hours, rates of compensation and all
other matters relating to their employment shall be determined solely by
Operator (subject to Owner's approval rights with respect to the Annual Budget).
With respect to hiring of personnel and its employment policy, Operator shall
comply with all Applicable Laws (including, without limitation, the Fair Labor
Standards Act and all of the rules, regulations and orders issued thereunder)
and shall exercise control over labor relations in a reasonable manner
consistent with the intent and purpose of this Agreement. In addition, Operator
shall comply with the provisions set forth in Appendix C, unless this Agreement
is exempt therefrom, under the rules, regulations and relevant orders of the
Secretary of Labor (41 C.F.R. (S) 60-1.5). From and after the Commencement
Date, Operator shall retain sole authority, control and responsibility with
respect to labor matters in connection with the performance of the Services.
Notwithstanding the foregoing, Operator acknowledges and agrees that it does not
have the authority to enter into any contracts or collective bargaining
agreements with respect to labor matters that purport to bind or otherwise
obligate Owner.
2.3.2 Training Program. Operator shall provide an ongoing training
----------------
and education program for personnel engaged in providing the Services. Such
training and education program shall explain in particular the design,
construction, operation and maintenance of all Project equipment as necessary to
educate Operator's personnel to safely operate the Project in accordance with
Prudent Operating and Maintenance Practices. The schedule and details of such
program shall be set forth in the Annual Operating Plan.
Section 2.4 Approvals and Permits. Prior to the Commencement Date,
---------------------
Owner shall cause copies of all permits and licenses presently required to be
maintained in respect of the Project to be delivered to Operator. Operator
shall review all Laws containing or establishing compliance requirements in
connection with the operation and maintenance of the Project and assist Owner at
Owner's request in securing and complying with, as appropriate, all necessary
permits, licenses and approvals (and renewals of the same). Operator shall
submit copies of all applications for, and proposed forms of, all such permits
and licenses to Owner with sufficient time to allow for Owner's review and
approval. Operator shall also initiate and maintain precautions and procedures
necessary to comply with applicable provisions of all such Laws or other
requirements, including those related to prevention of injury to persons or
damage to property at the Project. Operator shall notify Owner immediately
after Operator becomes aware of any violation of any Law, permit, license or
approval regarding the Project.
Section 2.5 Operating Data and Records. Operator shall prepare and
--------------------------
maintain the Operating Logs and Maintenance Reports. Operator shall maintain at
the Facility copies of all drawings, specifications lists, clarifications and
other materials regarding the Project (including all current revisions thereof)
provided to Operator by Owner or by any contractor performing services at the
Project. Operator shall also prepare reports and data which are related
11
<PAGE>
to the maintenance of Hazardous Materials on-site at the Project in a manner
complying with Applicable Laws. Operator shall prepare in a timely fashion, for
Owner's prior approval, all reports, plans and other materials required to be
delivered by Owner or on behalf of Owner (i) relating to the energy output and
consumption of the Project and (ii) with respect to the Project, any Government
Agency. Operator shall prepare all such reports, plans and other materials in
accordance with the format, standards and procedures required or prescribed by
the applicable Facility Agreement or such Government Agency, as the case may be.
Copies of all such approved reports that may be submitted to any Government
Agency by Operator shall be concurrently furnished to Owner.
Section 2.6 No Liens or Encumbrances. Operator shall keep and
------------------------
maintain the Project free and clear of all liens and encumbrances arising
through Operator.
Section 2.7 Preservation of Warranties. Operator shall not take
--------------------------
any action that would cause a default, or adversely affect any warranty that
runs to Owner, of which Operator is aware and of which Operator has been
provided a copy.
Section 2.8 Emergency Action. In the event of an emergency
----------------
affecting the safety or protection of Persons or endangering the Project or
property located at the Project, Operator shall take prompt action to attempt to
prevent, or to mitigate as much as practicable, such threatened damage, injury
or loss and shall as soon as practicable notify Owner of such emergency.
Section 2.9 O & M Manuals. Operator shall comply with the O&M
-------------
Manuals, and shall have an on-going program of review and updating of such O&M
Manuals, which will define the specific conditions under which Operator will
perform the Services, including specific provisions which will provide
compliance with all provisions of the Facility Agreements, all Applicable Laws,
permits and licenses applicable to the operation and maintenance of the Project.
Section 2.10 Subcontractors. As long as the amounts to be expended
--------------
pursuant to such subcontracts do not exceed the amounts set forth in the Annual
Budget for the services to be performed under such subcontracts, Operator may
enter into subcontracts for certain of the Services; provided, however, (i)
Operator shall not subcontract for routine operations and maintenance
activities, and shall subcontract only to the extent reasonably necessary; and
(ii) all subcontracts shall be fair and reasonable to Operator and Owner and
shall be negotiated on an arms' length basis. For all subcontracts pursuant to
which the compensation paid will or could be in an amount greater than $20,000,
Operator will use a competitive bid procedure to select the subcontractor and
shall provide to Owner a written summary of the bidding process and the bids
received or obtain Owner's prior written consent for use of a sole source. Any
subcontract pursuant to which the compensation paid will or could be in an
amount greater than $20,000 shall require the prior written approval of Owner,
which approval will not be unreasonably withheld or delayed. Each subcontract
entered into pursuant to this Section 2.10 by Operator which requires payment in
excess of $20,000 per year to the subcontractor thereunder shall contain
provisions making such subcontract assignable to Owner, and the Secured Party as
collateral pursuant to the Financing Agreements, unilaterally by Operator,
without the consent or approval of such subcontractor. Any subcontracting of
the Services shall not (a) relieve Operator
12
<PAGE>
of any of its duties, liabilities or obligations hereunder, (b) relieve Operator
of its responsibility for the performance of Services rendered by any such
subcontractor, or (c) create any relationship between Owner and any
subcontractor. Insofar as is reasonably practicable, Owner shall communicate
with any subcontractor only through Operator. No subcontractor is intended to
be or shall be deemed a third-party beneficiary of this Agreement. As a
condition of any subcontract, Operator shall require any subcontractor to waive
any claim it may have, in law or in equity, directly against Owner.
Section 2.11 Access.
------
2.11.1 Owner. At Owner's expense, Owner, Secured Party and their
-----
respective agents and representatives shall have access at all reasonable times
to the Project for purposes of inspection and review. At Owner's expense, Owner
shall have access at all reasonable times for the performance of Owner's
responsibilities.
2.11.2 Cooperation. During any such inspection or review of the
-----------
Project and performance of Owner's responsibilities, Owner, Secured Party and
their respective agents and representatives, as applicable, shall comply with
all of Operator's reasonable safety and security procedures, and Owner, Secured
Party and their respective agents and representatives shall conduct such
inspection, reviews and performance of Owner's responsibilities in such a manner
as to cause minimum interference with Operator's activities. Operator also
shall cooperate with Owner in allowing other visitors access to the Project
under conditions that are mutually agreeable to the Parties.
Section 2.12 Cooperation with Other Contractors. Operator
----------------------------------
acknowledges that Owner may, from time to time, retain other contractors to
provide administrative and management services for Owner in connection with the
Project. Operator shall cooperate and coordinate its activities hereunder with
such contractors. In the event of any overlap, duplication or conflict with
respect to the Services to be provided by Operator under this Agreement and the
services to be provided by any such other contractor under their respective
agreements with Owner, Owner shall resolve such matters and determine the
respective responsibilities of the parties so as to avoid overlap or
duplication. Owner shall inform Operator in writing of any such determination.
SECTION 3
LIMITATIONS ON AUTHORITY OF Operator
Section 3.1 Agency. Subject to the limitations on Operator's
------
authority set forth in this Agreement, the Annual Operating Plan, the Annual
Budget, and the administrative procedures set forth in the O&M Manual, Operator
is hereby authorized by Owner to enter into, on behalf of Owner and as agent of
Owner, purchase orders and service agreements in connection with the delivery of
the Services. Operator shall not claim title to any supplies, consumables,
tools, office equipment or furniture acquired on behalf of Owner.
Section 3.2 General Limitations. Notwithstanding any provision in
-------------------
this Agreement to the contrary, unless previously expressly approved in the
applicable Annual
13
<PAGE>
Operating Plan or Annual Budget or otherwise expressly approved in writing by
Owner, Operator shall not (and shall not permit any of its agents or
representatives to):
3.2.1 Disposition of Assets. Lease, pledge, mortgage, convey,
---------------------
license, exchange or make any other transfer or disposition of any property or
assets of Owner, including any personal property acquired by Operator under this
Agreement, except for the trade-in of equipment and the sale of scrap in the
ordinary course of business, in either case, not to exceed in any one instance
$20,000; provided, however, that Operator may lease or otherwise provide Owner's
equipment, materials, assets or other items to Affiliates of Owner on
commercially reasonable terms. The proceeds of any sales of scrap shall inure
to the benefit of Owner and Operator shall hold the proceeds in trust for Owner
and immediately forward such proceeds to Owner;
3.2.2 Expenditures. Make or commit to make any Reimbursable Cost or
------------
acquire on a Reimbursable Cost basis any equipment, materials, assets or other
items, except in conformity with the Annual Budget, the Annual Operating Plan
and the Administrative Procedures Manual, or consent or agree to do any of the
foregoing; provided, however, that in the event of an emergency affecting the
safety or protection of Persons or endangering the Project or property located
at the Project, Operator, without approval from Owner, shall be authorized to
take all reasonable actions to prevent such threatened damage, injury or loss;
provided further, however, that notwithstanding any other provision of this
Agreement, Operator shall not, without the prior written consent of Owner, make
any single expenditure in an amount greater than $20,000, provided, however,
that if, notwithstanding Operator's diligent efforts to contact Owner, Operator
is unable to do so, Operator shall be authorized to make such emergency
expenditures in excess of $20,000;
3.2.3 Other Actions. Take or agree to take any other action that
-------------
varies from the applicable O&M Manuals or Annual Budget or causes Owner to
violate any of the Facility Agreements;
3.2.4 Lawsuits and Settlements. Settle, compromise, assign,
------------------------
pledge, release or consent to the compromise, assignment, pledge, transfer or
release of, any claim, suit, debt, demand or judgment against or due by, Owner
or Operator (including, agreeing to any penalty for violation of any license or
permit), the cost of which, in the case of Operator, would be a Reimbursable
Cost hereunder, or submit any such claim, dispute or controversy to arbitration
or judicial process, or stipulate in respect thereof to a judgment, or consent
to do the same (Operator agrees that Owner shall retain control of any claim,
suit, debt, demand and any other litigation regarding the Project, except as to
Operator's individual liability.);
3.2.5 Transactions on Behalf of Owner. Engage in any transaction on
-------------------------------
behalf of Owner not permitted under this Agreement or the Facility Agreements;
or
3.2.6 Changes in Configuration. Modify or alter the Project or any
------------------------
component thereof in a manner that materially alters the function, output or
efficiency of the Project or any component thereof.
14
<PAGE>
Section 3.3 Execution of Documents. Any agreement, contract,
----------------------
notice or other document that is expressly permitted hereunder (or with written
approval of Owner) to be executed by Operator shall, subject to prior written
notice to Owner, be executed by the Plant General Manager or such other
individual representative of Operator who is authorized and empowered by
Operator to execute such documents.
SECTION 4
PROCEDURES, PLANS AND REPORTING
Section 4.1 Representatives of Parties; Employees.
-------------------------------------
(a) On the Commencement Date, Operator shall appoint an individual
representative, subject to Owner's prior approval (the "Plant General
Manager") authorized and empowered to act for and on behalf of Operator on
all matters concerning this Agreement and Operator's obligations hereunder;
provided, however, in all such matters, Operator shall be bound by the
written communications, directions, requests and decisions made by the
Plant General Manager. Operator shall notify Owner in writing of the
identity of the Plant General Manager.
(b) On the Commencement Date, Owner shall appoint an individual
representative authorized and empowered to act for and on behalf of Owner
on all matters concerning this Agreement and Owner's obligations hereunder,
provided, however, in all such matters, Operator shall be bound by the
written communications, directions, requests and decisions made by Owner's
appointed representative. Owner shall notify Operator in writing of the
identity of its appointed representative.
(c) In addition to the Plant General Manager, Operator's appointment
of the Production Manager shall require Owner's prior approval.
(d) Operator shall not, without Owner's consent, terminate the
employment of any employee of Operator employed at the Facility Site for
any reason other than cause, provided that Operator shall no longer be
bound by this provision six (6) months after providing written notice to
Owner of its decision not to be so bound.
Section 4.2 O&M Manuals. Owner shall provide Operator with copies
-----------
of all manuals and operating plans and procedures maintained with respect to the
Project. Within 90 days after the Commencement Date, Operator shall submit for
review and approval by Owner proposed revisions to the manuals and operating
plans and procedures provided by Owner, which revisions shall include those
management and administrative policies, procedures, and processes and operating
and maintenance parameters necessary to perform the Services. Included in such
proposed manuals shall be an administrative procedures manual providing such
information as (i) staffing plan, (ii) organization of Operator's employee's
providing the Services and reporting procedures, (iii) administrative
procedures, including correspondence, reporting and review procedures, (iv)
procurement and contracting procedures, including a work order tracking system
and an inventory procurement and tracking system, (v) accounting, bookkeeping
and record keeping systems and procedures, (vi) personnel policies for
Operator's activities at the Project,
15
<PAGE>
(vii) operating procedures, (viii) maintenance program, (ix) safety and security
program, (x) environmental safety and compliance procedures, and (xi) outage
planning procedures. Promptly after the receipt by Owner of such proposed
manual, Owner shall submit written comments thereon to Operator, and thereafter
the Parties shall meet to resolve all outstanding differences and to agree upon
a final manual (the "O&M Manuals") including the administrative procedures
manual (the "Administrative Procedures Manual"), which shall be approved in
writing by both Parties. Owner's and Operator's approval of such manuals shall
not be unreasonably delayed or withheld. Such final manuals shall remain in
effect for the term of this Agreement, subject to such revision and amendment as
may be mutually acceptable to the Parties hereto.
Section 4.3 Annual Facility Operating Plan and Budget. Prior to the
-----------------------------------------
Commencement Date, Owner has provided Operator with a copy of the current budget
and operating plan for the Project, which until changed as provided in this
Section shall be the Annual Operating Plan and Annual Budget for all purposes of
this Agreement. Within 60 days after the Commencement Date, and 90 days prior
to the beginning of each calendar year thereafter, Operator shall prepare and
submit to Owner a proposed annual budget for the remainder of the Operating Year
in which the Commencement Date occurs or such calendar year, as applicable,
established on a monthly basis, which shall include a separate operating budget
and capital budget and shall set forth, in detail reasonably acceptable to
Owner, anticipated operations plans and costs, including forecasts of
electricity production and corresponding usage of major commodities, repairs and
capital improvements (including major maintenance and a cost\benefits analysis
for proposed capital improvements), Scheduled Outages, routine maintenance and
overhaul schedules, procurement (including equipment acquisitions and spare
parts and consumable inventories indicating a breakdown of capital items and
expense items), staffing, personnel and labor activities (including unit rates
for labor and holidays to be observed), administrative activities, data
regarding other work proposed to be undertaken by Operator and regarding
expected environmental performance, together with an itemized estimate, in
detail reasonably acceptable to Owner, of all Reimbursable Costs to be incurred
in connection therewith. Such budget shall be accompanied by an annual operating
plan setting forth the underlying assumptions and implementation plans in
connection with the budget ("Annual Operating Plan"). Owner shall promptly
review Operator's proposed budget and Annual Operating Plan and may require
changes, additions, deletions and modifications. Owner and Operator will then
meet and use their best efforts to agree upon a final budget and Annual
Operating Plan (i) as soon as practicable for the remainder of the Operating
Year in which the Commencement Date occurs and (ii) for each subsequent year by
sixty days prior to such calendar year. Owner's and Operator's approval of the
budget and Annual Operating Plan shall not be unreasonably withheld or delayed.
Such final budget ("Annual Budget") and Annual Operating Plan shall remain in
effect throughout the applicable calendar year, subject to any AFE or such other
updating, revision and amendment as may be proposed by either Party and
consented to in writing, subject to Section 5.5 of this Agreement, by the other
Party. Any actions proposed under the Annual Operating Plan shall be consistent
with the O&M Manuals, the Facility Agreements and Operator's obligations set
forth herein.
4.3.1 Force Majeure Adjustments. If an event of Force Majeure
-------------------------
occurs which results in increased costs to Operator, Operator shall be entitled
to a reimbursement reflecting the reasonable value of any such increased costs
from such event.
16
<PAGE>
4.3.2 Carryover Provisions. If, by the first day of any calendar
--------------------
year, the Parties are unable to reach agreement concerning any portion of the
Annual Budget or the Annual Operating Plan for such calendar year, the portion
of the Annual Budget and Annual Operating Plan for such calendar year which is
in dispute shall be resolved by using the portion of the Annual Budget and
Annual Operating Plan proposed by Owner for such disputed portion. However, in
no event shall such revised Annual Budget or Annual Operating Plan require
Operator to (i) deviate from its practices regarding salary administration,
compensation and personnel practices, except as required by Laws or (ii) perform
services that might conflict with Operator's duties under this Agreement or
Applicable Laws. Project staffing levels and the Annual Budget and Annual
Operating Plan shall be adjusted to appropriately respond to any material and
sustained changes in the operation of the Project required by changes to the
Facility Agreements, or as mutually agreed upon by Owner and Operator.
Section 4.4 Availability of Operating Data and Records. Operator
------------------------------------------
shall monitor and record all operating data required under the Facility
Agreements and otherwise reasonably requested by Owner and shall make such
operating data available to Owner (i) on each Business Day immediately following
the last day of the applicable period as determined under such Facility
Agreement and (ii) upon any reasonable request at any time by Owner, on the
Business Day immediately following such request. Such operating data shall
include, without limitation, the Operating Logs and Maintenance Reports.
Section 4.5 Accounts and Reports. Operator shall comply with the
--------------------
reporting requirements relating to power generation, field production,
procurement, labor relations and other matters as set forth in the
Administrative Procedures Manual. Operator shall cooperate with Owner in
complying with the reporting requirements set forth in the Facility Agreements
and shall furnish or cause to be furnished to Owner, the following reports, in
each case prepared in accordance with the standards established by NERC,
concerning the Project operations and the Services.
4.5.1 Monthly Reports. Within 15 days after the end of each
---------------
calendar month after the Commencement Date, Operator shall submit: (i) a
progress report, in detail acceptable to Owner, covering all operations
conducted during such calendar month with respect to operations and maintenance
(including, without limitation, information regarding power generation, well
performance, Fluid temperatures, general procurement activities, capital
improvements and labor relations) which report shall include (with respect to
quantitative items) a comparison of such items to corresponding values for the
then preceding month and year and a listing of any significant operating
problems along with remedial actions planned and a brief summary of major
activities planned for the next two reporting periods; and (ii) a statement
setting forth all Reimbursable Costs paid or incurred, which statement shall
itemize, in detail acceptable to Owner, the computation of such Reimbursable
Costs and shall state whether or not the Project operations have conformed to
the applicable Annual Operating Plan and Annual Budget during such reporting
period and if not, the extent and reasons for such deviation and if remediable
such remedial action proposed to be taken.
4.5.2 Annual Reports. As soon as available, and in any event within
--------------
60 days after the end of each calendar year, Operator shall submit to Owner an
annual report certified by the Plant General Manager describing, in detail
substantially similar to that contained in the
17
<PAGE>
monthly reports referred to in Section 4.5.1 above, all of the Project
operations for such calendar year (including, without limitation, inventories of
fixed assets, tools, spare parts and consumables) and presenting a comparison of
such Project operations with the Annual Operating Plan and the budget set forth
in the Annual Budget for such calendar year and with those obtained for the
preceding calendar year, if any.
4.5.3 Litigation; Permit Lapses. Upon obtaining knowledge thereof,
-------------------------
Operator shall submit prompt written notice of: (i) any litigation, claims,
disputes or actions, threatened or filed, concerning the Project or the Services
to be performed hereunder; (ii) any refusal or threatened refusal to grant,
renew or extend or any action pending or threatened that might affect the
granting, renewal or extension of any license, permit, approval, authorization
or consent; (iii) any dispute with any Government Agency; (iv), all penalties or
notices of violation issued by any Government Agency; and (v) any breach or
contravention of any Applicable Law, permit, license or approval; which in each
case might have a material adverse effect on the operation or maintenance of the
Project.
4.5.4 Other Information. Operator shall promptly submit to Owner
-----------------
any material information concerning new or significant aspects of the Project
operations such as, but not limited to (a) any emergency affecting the safety or
protection of Persons or endangering the Facility or property located at the
Facility, including any action taken by Operator to prevent or mitigate the
same, (b) any violation of any Applicable Law, Permit, license or approval
regarding the Facility, (c) forced outages of Major Equipment (and the causes
thereof and the corrective action taken with respect thereto), and/or planned
outages of any kind, and (d) any material deviations or discrepancies from the
projections contained in the Annual Operating Plan. Upon Owner's reasonable
request, Operator shall promptly submit to Owner such other information
concerning the Project or its Services as Owner may request, which may include
any information and certifications reasonably required by any Secured Party.
4.5.5 Records Retention. At Owner's expense, Operator shall retain
-----------------
and preserve all records, reports, documents and data, including all data
retrievable from an electronic data storage source, created in connection with
the operation and maintenance of the Project, for a period of seven (7) years or
longer periods as required by Applicable Law or the Facility Agreements from the
date of the creation of such record, report, document or datum, provided that
Operator shall notify Owner in writing at least sixty (60) days prior to the
destruction or other disposition of any record, report, document or data. If
Owner gives written notice to Operator prior to the expiration of the sixty (60)
day period, Operator will maintain custody of such material until such time as
Owner notifies Operator to dispose of such material, provided that Owner shall
make storage space available at the Facility for storage of all such materials.
If Owner does not provide written notice to Operator prior to the expiration of
the sixty (60) day period, Operator may destroy or dispose of such material and
shall provide Owner with a notice confirming such destruction or disposition.
Section 4.6 Financial Records. Operator shall keep and maintain
-----------------
complete and accurate records of its costs and expenses related to the Services
or this Agreement in accordance with generally accepted accounting principles
applied on a consistent basis. Operator shall provide Owner access to such
records for examination, copying and audit as requested from time to time by
Owner. Operator shall keep such records for a period of not less
18
<PAGE>
than seven (7) years after the year in which such records were prepared, or such
longer period as required by Law, any regulatory or other agency having
jurisdiction, or the Facility Agreements. After such time Operator shall either
continue to keep such documents or deliver the same to Owner unless otherwise
directed by Owner.
SECTION 5
COMPENSATION AND PAYMENT
Section 5.1 Compensation. As compensation to Operator for the
------------
performance of the Services, Owner shall pay Operator, in the manner and at the
times specified in this Section 5, the Annual Operating Fee as further described
herein.
Section 5.2 Reimbursable Costs. Subject to the provisions of this
------------------
Section 5, Owner shall reimburse Operator for those Reimbursable Costs incurred
by Operator while performing the Services in the manner set forth herein.
5.2.1 Manner and Times of Payment of Reimbursable Costs. On or
-------------------------------------------------
prior to the Commencement Date, Owner shall establish and maintain an O&M
operating account in a bank reasonably acceptable to Owner ("O&M Operating
Account") and will designate Operator as an additional signatory on the account.
Owner will deposit into the O&M Operating Account, subject to all applicable
Financing Agreement provisions each month, on or before a day of month to be
agreed upon by the Owner and Operator, an amount equal to (i) the amount of
Reimbursable Costs set forth in the approved Annual Budget for such month or
otherwise approved by Owner to be incurred during such month, plus or minus (ii)
the difference between the amounts deposited in the O&M Operating Account in the
preceding month and the actual amount of Reimbursable Costs incurred in that
month. On or before the 10th day of each month, Operator shall deliver to Owner
an accounting report (together with appropriate supporting invoices and
receipts) that reflects all Reimbursable Costs for the preceding month,
reconciled against the amounts deposited to the O&M Operating Account.
If at any time during the performance of its obligations, Operator
believes that, except in the case of an emergency as provided in Section 3.2.2,
actual expenses or costs in any category of the Annual Budget will exceed the
budgeted amount in such category by more than Twenty Thousand Dollars ($20,000),
during the calendar year, Operator shall notify Owner of such belief within ten
(10) days of forming such belief and shall follow Owner's directions regarding
future expenditures on Owner's behalf pursuant to this Agreement. Until such
time as Operator shall receive such directions from Owner, Operator shall
continue to operate the Project according to the terms of this Agreement as
permitted under the Annual Budget then in effect, if Operator receives an AFE or
other directions from Owner in writing or Operator and Owner otherwise agree in
writing on changes to the Annual Budget, such directions and such changes shall
then be part of the Annual Budget. Notwithstanding any provision hereof to the
contrary, Operator's obligation to perform the Services shall be subject to
Owner's adequately funding the O&M Operating Account.
5.2.2 Adjustments and Conditions. Notwithstanding the payment of
--------------------------
any amount pursuant to the foregoing provisions, no payment made pursuant to the
foregoing
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provisions shall be considered as approval or acceptance of the Services
performed hereunder and Owner shall remain entitled to conduct a subsequent
audit and review of all Reimbursable Costs incurred by Operator and paid by
Owner hereunder, together with any supporting documentation, for a period of
three (3) years from and after the close of the calendar year in which such
Reimbursable Costs were incurred. Any such audit to be conducted in the manner
set forth in Section 1.1(1) of Appendix A. If, pursuant to such audit and
review, it is determined that any amount previously paid by Owner did not
constitute a due and payable item of Reimbursable Costs, Owner may recover such
amount from Operator or deduct or cause to be deducted such amount from any
payment that thereafter may become due to Operator.
Section 5.3 Annual Operating Fee. Owner shall pay to Operator for
--------------------
the Services performed hereunder an annual operating fee (the "Annual Operating
Fee") as follows: (i) $134,000 from the Commencement Date through the first
anniversary of the Commencement Date; (ii) $100,000 from the first anniversary
of the Commencement Date through the the second anniversary of the Commencement
Date; and (iii) $84,000 for each year after the second anniversary of the
Commencement Date. On or before June 30 and December 31 of each year, Owner
will pay to Operator one-half of the Annual Operating Fee in arrears. Payment
of the Annual Operating Fee shall be pro rated for partial calendar years and
months.
Section 5.4 Reserved.
--------
Section 5.5 Changed Conditions; Change in Scope of Services. Owner
-----------------------------------------------
may by written notification to Operator make changes in, additions to, including
with respect to Section 1.2(b) of Appendix A to this Agreement, or deletions
from Operator's Services and Operator shall thereafter perform its Services in
accordance with such notification. If, (a) Owner directs Operator to perform
tasks in addition to the Services, (b) Owner directs Operator to perform the
Services differently, (c) an event of Force Majeure occurs, (d) modifications
are made to any Facility Agreement or the power purchase agreement entered into
by Owner contains terms and conditions which, in either case, alter the scope or
actions necessary to perform the Services, or (e) changes in any Applicable Law
occur, and any such event results in increased costs to Operator, Operator shall
be entitled to an adjustment reflecting the reasonable value of any such
increased costs from such event so long as Secured Party, if any, consents to
such adjustment, and the Parties agree to adjust such other provisions of this
Agreement that are directly affected by such event.
SECTION 6
TERM
Section 6.1 Term. The term ( the "Term") of this Agreement shall
----
commence on the Commencement Date and, unless extended as provided below, expire
on the third anniversary of such date (the "Initial Expiration Date"). This
Agreement shall be subject to an automatic extension for an additional 3 year
period from the Initial Expiration Date (the last day of the extension period
shall be referred to as the "Extended Expiration Date"), unless either Party
informs the other in writing at least 90 days prior to the Initial or Extended
Expiration Date that it does not intend to extend the term of this Agreement.
Notwithstanding the foregoing, this Agreement is subject to earlier termination
pursuant to Sections 6.2 and 6.3.
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Section 6.2 Termination by Owner. Owner shall be permitted to
--------------------
terminate this Agreement if any of the following events occur: (i) a voluntary
Winding-Up of Operator commenced by Operator; (ii) an involuntary Winding-Up
instituted against Operator that is not stayed, dismissed or terminated within
ninety (90) days after commencement; (iii) a material default by Operator of its
obligations under this Agreement, provided Operator shall have up to thirty (30)
days after receipt of written notice by Owner to cure such default or make
substantial progress (in the reasonable opinion of Owner) towards curing such
default, if the default is capable of being cured; (iv) an event of Force
Majeure affecting Operator's performance of the Services continues for a period
of one hundred eighty (180) consecutive days (or in the case of a strike or
labor stoppage continuing for ninety (90) consecutive days unless Owner impairs
Operator's ability to resolve such strike or labor stoppage); (v) the Project or
any part thereof becomes subject to regulation as a public utility by any
Government Agency (other than the Federal Energy Regulatory Commission); (vi)
the Project is shut down by, or termination of this Agreement is required by,
any regulatory or governmental authorities having jurisdiction over the Project;
(vii) the occurrence of a total or partial failure of the Field (including,
without limitation, a substantial change in the quantity of temperature of the
Fluid) or destruction of the Project; or (viii) at Owner's convenience without
cause upon six (6) months' prior written notice. Promptly after the date of
termination, Operator shall be paid for the Services rendered by Operator
through such termination date, including all fees earned through the date of
termination (the "Termination Payment"). Except for the Termination Payment,
Owner shall not be liable for any costs incident to termination in the case of
any termination under this Section 6.2.
Section 6.3 Termination by Operator. Operator shall be permitted
-----------------------
to terminate this Agreement if any of the following events occur: (i) a payment
default by Owner that is not cured within sixty (60) days, provided Owner has
received written notice of such default; (ii) a voluntary Winding-Up of Owner
commenced by Owner; (iii) an involuntary Winding-Up of Owner instituted against
Owner, that is not stayed, dismissed or terminated within ninety (90) days after
commencement; (iv) a material default by Owner of any other obligation under
this Agreement, provided Owner shall have up to sixty (60) days after receipt of
written notice by Operator to cure such other default or make substantial
progress (in the reasonable opinion of Operator) towards cure if the default is
capable of being cured; (v) at Operator's convenience without cause upon six (6)
months' prior written notice; (vi) the Project becomes subject to regulation as
a public utility by any Government Agency (other than the Federal Energy
Regulatory Commission); or (vii) upon thirty (30) days prior written notice if
an event of Force Majeure occurs or changed condition described in Section 5.5
occurs and the Secured Party does not approve an adjustment agreed upon by Owner
and Operator. Except as otherwise provided in this Section 6.3, Operator shall
provide Owner with written notice of its intent to terminate this Agreement no
later than three (3) months prior to the date of termination.
Section 6.4 Facility Condition at End of Term; Transmission Line.
----------------------------------------------------
Upon expiration or termination of this Agreement, Operator shall assist with the
transition of the operations of the Project to its successor and shall cooperate
with the successor's offering of employment to employees at the Project.
Operator shall leave the Facility and the equipment used in the Field in as good
condition as on the Commencement Date, normal wear and tear and casualty
excepted, and with the equivalent supply of spare parts, and any other operating
items (other than items for which Owner is responsible) as were provided by
Owner to Operator on the Commencement Date, or such modified supply thereof as
has been approved by Owner (and
21
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shall be reimbursed for all Reimbursable Costs incurred in connection
therewith). All special tools, improvements, software, inventory of supplies,
spare parts, safety equipment, O&M Manuals (in each case as provided to or
obtained by or provided by Operator during the term of this Agreement) and any
other items furnished on a Reimbursable Cost basis under this Agreement will be
left at the Facility and will become or remain the property of Owner without
additional charge. Owner shall also have the right, in its sole discretion, to
directly assume and become liable for any contracts or obligations that Operator
may have undertaken with third parties in connection with the Services. Operator
shall execute all documents and take all other reasonable steps requested by
Owner that may be required to assign to and vest in Owner all rights, benefits,
interests and title in connection with such contracts or obligations.
Section 6.5 Termination Costs. In the event of a termination of
-----------------
this Agreement by Owner pursuant to clauses (i), (ii), or (iii) of Section 6.2
or a termination of this Agreement by Operator pursuant to clause (v) of Section
6.3, Owner shall be entitled to recover from Operator any damages, fines or
penalties for which Operator is liable hereunder.
SECTION 7
INSURANCE
Section 7.1 General. The provisions of this Section 7 do not
-------
modify, change or abrogate any responsibility of Operator stated elsewhere in
this Agreement. Owner assumes no responsibility for the solvency of any insurer
or the failure of any insurer to settle any claim. A summary of certain
provisions of Operator's and Owner's policies are set forth below.
Section 7.2 Operator Insurance. Subject to Owner's approval,
------------------
Operator shall obtain and maintain, or cause to be obtained and maintained, as a
Reimbursable Cost, the insurance set forth below as and from the Commencement
Date:
Statutory workers' compensation insurance, including coverage for
Longshoremen's and Federal Harbor Workers Act, if applicable, and with
minimum Employer Liability limits of $1,000,000.
Section 7.3 Owner Insurance. Owner shall secure, at its sole
---------------
expense, prior to the Commencement Date and maintain in effect during the term
hereof the following insurance subject to the availability of same at reasonably
commercial terms:
(i) Comprehensive General Liability insurance with minimum limits
of $10,000,000 per occurrence including premises/operations,
explosion, collapse and underground hazards, broad form
contractual, products/completed operations and personal injury.
(ii) Comprehensive Automobile Liability Insurance for all owned,
non-owned and hired vehicles in a minimum amount of $1,000,000
per occurrence.
(iii) Broad form all risk property insurance on a replacement cost
basis, with limits acceptable to Secured Party.
22
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Operator will explore with its insurers whether it is possible to
include Owner's insurance obligations set forth in this Section with Operator's
insurance coverage and to include such insurance expenses as Reimbursable Costs.
Section 7.4 Form and Content. All policies, binders or interim
----------------
insurance contracts with respect to insurance maintained under this Section 7
shall:
(a) be placed with insurance companies that are acceptable to Owner
and Secured Party, and for policies procured by Owner, shall name Operator
as an additional insured to the extent of its interest; provided, that
Operator shall have no interest with respect to business interruption
coverage or property insurance;
(b) include as named insureds Owner, each Partner, Secured Party and
Operator and the officers, directors, affiliates and employees of each of
them with respect to such parties' interest in the Project and/or
operations and maintenance activities on behalf of Owner, and include such
other parties as additional insureds as Owner deems necessary;
(c) provide for general liability coverage either in a single policy
or through a combination of policies. Such policy or combination of
policies shall have deductibles not to exceed $100,000 for each claim for
loss or damage and include blanket contractual, broad form property damage,
severability of interests or cross liability for named or additional
insureds and independent contractor coverage;
(d) be primary with respect to any other insurance coverages
available to Owner or Operator or the additional insureds and not be in
excess to, or contributing with, any insurance maintained by any other
Person and that all provisions, except the policy limits, shall operate in
the same manner as if there were a separate policy covering such insured
under each such policy;
(e) provide for no recourse for payment of any premium against Owner,
Secured Party or additional insureds for Operator furnished insurance under
Section 7.2 and no recourse for payment of any premium against Operator,
Secured Party or additional insureds for Owner furnished insurance under
Section 7.3;
(f) waive (i) any right of subrogation of the insurers thereunder
against Owner, Operator, Secured Party or additional insureds and the
officers, directors, employees, agents and representatives of each of them,
and (ii) any right of the insurers to any setoff or counterclaim or any
other deduction, whether by attachment or otherwise, in respect of any
liability of any such Person insured under such policy;
(g) expressly provide that it may not be canceled or materially
changed without giving Owner or Operator, as the case may be, and Secured
Party sixty (60) days prior written notice thereof except in the case of
non-payment for which the later of twenty (20) days prior notice thereof or
such period agreed to by the relevant insurer shall be provided; and
23
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(h) not be invalidated by any action or inaction of any additional
insured and shall insure each such insured regardless of any breach or
violation of any warranty, declaration or condition contained in such
insurance by the primary named insured.
Section 7.5 Certificates; Proof of Loss. On or before the required
---------------------------
date for the insurance to be provided hereunder, each Party shall furnish
certificates of insurance to the other Party evidencing the insurance required
hereunder. The Party maintaining each insurance policy hereunder shall make
proofs of loss under each such policy and shall take all other action reasonably
required to ensure collection from insurers for any loss under any such policy,
except that Owner may at its discretion require Operator to provide such proof
of loss and take such other action on behalf of Owner in the case of the
insurance maintained by Owner pursuant to Section 7.3. Operator shall provide
Owner with copies of the insurance policies obtained by it promptly upon receipt
thereof.
SECTION 8
INDEMNIFICATION
Section 8.1 By Operator.
-----------
8.1.1 General Indemnity. Subject to the provisions of Section 9,
-----------------
Operator shall indemnify, defend and hold harmless the Owner Indemnified Parties
from and against any and all suits, actions, liabilities, legal proceedings,
claims, demands, losses, costs and expenses of whatsoever kind or character,
including reasonable attorneys' fees and expenses, for injury or death of
persons or physical loss of or damage to property of Persons arising from
Operator's (including its employees or agents) gross negligence or willful
misconduct in connection with performance of the Services.
8.1.2 Indemnity for Violation of Law. Subject to the provisions of
------------------------------
Section 9, Operator shall also indemnify, defend and hold harmless the Owner
Indemnified Parties from and against any and all regulatory penalties or fines
and reasonable expenses (including attorneys' fees and expenses whether at the
trial or appellate level) arising from Operator's violation of any Law, license,
permit, or government approval.
8.1.3 Indemnity for Patent Infringement. If any of the Services
---------------------------------
would infringe upon any patent, trademark or copyright or would involve the
unauthorized use of a third Person's trade secrets, Operator agrees to render
consultation, assistance and modifications to the Services as necessary to avoid
such infringement or unauthorized use. If any Owner Indemnified Party is
charged with infringement or unauthorized use by reason of the Services or of
the operation of the Project by Operator, subject to the provisions of Section
9, Operator agrees to fully defend and indemnify such Owner Indemnified Party
from any and all suits, actions, liabilities, legal proceedings, claims,
demands, losses, costs and expenses and shall settle such claim, action,
proceeding or suit (at Operator's expense) without impairing the operation of
the Project.
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8.1.4 Costs. It is understood and agreed by the Parties that any
-----
costs or expenses incurred by Operator pursuant to its indemnity obligations
under this Section 8.1 shall not constitute Reimbursable Costs.
Section 8.2 By Owner.
--------
8.2.1 General Indemnity. Subject to the provisions of Section 9,
-----------------
Owner shall indemnify, defend and hold harmless the Operator Indemnified Parties
from and against any and all suits, actions, liabilities, legal proceedings,
claims, demands, losses, costs and expenses of whatsoever kind or character,
including reasonable attorneys' fees and expenses, for injury or death of
persons or physical loss of or damage to property of Persons and entities other
than Operator arising from Owner's (including its employees or agents) gross
negligence or willful misconduct in connection with the performance of Owner's
obligations hereunder.
8.2.2 Indemnity for Violation of Law. Subject to the provisions of
------------------------------
Section 9, Owner shall also indemnify, defend and hold harmless the Operator
Indemnified Parties from and against any and all regulatory penalties or fines
(other than any Environmental Claims which shall be governed by Section 9), and
reasonable expenses (including attorneys' fees and expenses whether at the trial
or appellate level) arising from Owner's violation of any Law, license, permit,
or government approval, including (i) with respect to any claim based on
identifying COC as the operator of the Project in Project permits, and (ii) with
respect to the performance of Owner's obligations under Section 1.2(b) of
Appendix A hereto, provided that with respect to any such penalties, fines or
expenses included in (i) or (ii) the limitation of liability contained in
Section 9.1 shall not apply.
Section 8.3 Cooperation Regarding Claims. If any Party hereto
----------------------------
(each an "Indemnified Party") shall receive notice or have knowledge of any
claim that may result in a claim for indemnification by such Indemnified Party
against a Party pursuant to Section 8 or 9, such Indemnified Party shall, as
promptly as possible, give the indemnifying Party notice of such claim,
including a reasonably detailed description of the facts and circumstances
relating to such claim, and a complete copy of all notices, pleadings and other
papers related thereto, and in reasonable detail the basis for its potential
claim for indemnification with respect thereto; provided that failure promptly
to give such notice or to provide such information and documents shall relieve
the indemnifying Party from the obligation hereunder to respond to or to defend
the Indemnified Party failing to give such notice against such claim only to the
extent such failure prejudiced the interests of the indemnifying party with
respect to such claim. The Party against whom indemnification is claimed shall,
upon its acknowledgment in writing of its obligation to indemnify the
Indemnified Party seeking indemnification, be entitled to assume the defense or
to represent the interests of the Indemnified Party seeking indemnification in
respect of such claim, which shall include the right to select and direct legal
counsel and other consultants, appear in proceedings on behalf of such
Indemnified Party and to propose, accept or reject offers of settlement, all at
its sole cost; provided, however, that without the Indemnified Party's consent,
which consent may not be unreasonably withheld, the indemnifying Party may only
consent to entry of a judgment or settlement that does not provide for
injunctive or other nonmonetary relief affecting the Indemnified Party.
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SECTION 9
LIABILITIES OF THE PARTIES
Section 9.1 Limitations of Liability. Notwithstanding any
------------------------
provision herein to the contrary, neither Party nor any of their respective
shareholders, partners, principals, Affiliates, officers, directors, agents,
subcontractors or employees shall be liable hereunder for consequential or
indirect loss or damage, including loss of Energy and Capacity Revenues, loss of
profit and anticipated revenues, cost of capital, loss of goodwill, increased
operating costs or any other special or incidental damages. The Parties further
agree that the waivers and disclaimers of liability, indemnities, releases from
liability, and limitations on liability expressed herein shall survive
termination or expiration of this Agreement, and shall apply at all times,
whether in contract, equity, tort or otherwise, regardless of the fault,
negligence (in whole or in part), strict liability, breach of contract or breach
of warranty of the Party indemnified, released or whose liabilities are limited,
and shall extend to the shareholders, partners, principals, Affiliates,
directors, officers and employees, agents and related or affiliated entities of
such Party, and their shareholders, partners, principals, Affiliates, directors,
officers and employees.
Section 9.2 Environmental Liability.
-----------------------
9.2.1 Prior to the Commencement Date. Owner alone shall be solely
------------------------------
responsible for present or future Environmental Claims directly or indirectly
related to or arising out of the actual or alleged existence, generation, use,
collection, treatment, storage, transportation, recovery, removal, discharge or
disposal of Hazardous Materials present at, in or under the Project and/or
adjacent areas prior to the Commencement Date. Owner shall defend, indemnify
and hold Operator harmless against all such Environmental Claims.
9.2.2 After the Commencement Date. Operator shall be responsible for
---------------------------
transporting and/or disposing Hazardous Materials off the Facility Site in
compliance with applicable Laws and shall be responsible for all Environmental
Claims directly or indirectly related to or arising out of the actual or alleged
generation, use, collection, storage, recovery, removal, discharge or disposal
of Hazardous Materials at the Project and/or adjacent areas other than in
compliance with applicable Laws arising after the Commencement Date except to
the extent that such generation, use, collection, storage, recovery or removal
is due to the negligence or intentional misconduct of Owner. Subject to the
provisions of Section 9.4 Operator shall defend, indemnify and hold Owner and
each Owner Indemnified Party harmless against all such Environmental Claims for
which Operator is responsible.
Section 9.3 Limitation of Owner's Liability. Subject to Operator's
-------------------------------
rights under Sections 5, 6, 7, 8, 9 and 13, Operator's remedy for breach of this
Agreement by Owner shall be to terminate this Agreement pursuant to Section 6.
Notwithstanding anything to the contrary herein, it is specifically understood
and agreed that there shall be absolutely no personal liability or recourse for
the payment of any amounts due hereunder, or the performance of any obligations
hereunder against any employee, shareholder, partner, member, officer or
director, whether past, present or future, of Owner, any direct or indirect
parent company or any Affiliate thereof, and Operator shall look solely to the
assets of Owner for the satisfaction of each and every remedy of Operator in the
event of any breach by Owner; provided, however that nothing
26
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herein shall relieve any of the foregoing Persons from liability for such
Person's willful misconduct or gross negligence.
Section 9.4 Limitation of Operator's Liability. Operator's
----------------------------------
liability hereunder shall be limited as follows:
9.4.1 Liability for Loss or Damage to the Facility. Unless such
--------------------------------------------
loss or damage arises through the gross negligence or willful misconduct of
Operator, its employees or its agents, Operator's liability for any loss of or
damage to the Project, or any other property in the care, custody or control of
Operator (including loss or damage to spare parts and materials) shall be
limited to the proceeds of the insurance described in Section 7.
9.4.2 Operator's Total Aggregate Liability. The total aggregate
------------------------------------
liability of Operator to Owner for all liability arising out of or in connection
with the performance of the Services, Operator's obligations hereunder or the
operation of the Project in any calendar year under any theory of recovery,
whether based in contract, in tort (including negligence and strict liability),
under warranty or otherwise, and notwithstanding any other provisions of this
Agreement shall equal the sum of the Annual Operating Fee payable during the
calendar year in which the action or inaction giving rise to the claim for
indemnity occurred whether or not actually paid.
9.4.3 No Recourse. Notwithstanding anything to the contrary herein,
-----------
it is specifically understood and agreed that there shall be absolutely no
personal liability or recourse for the payment of any amounts due hereunder, or
the performance of any obligations hereunder against any employee, shareholder,
partner, officer or director, whether past, present or future, of Operator, any
direct or indirect parent corporation or any Affiliate thereof, and Owner shall
look solely to the assets of Operator for the satisfaction of each and every
remedy of Owner in the event of any breach by Operator; provided, however that
nothing herein shall relieve any of the foregoing Persons from liability for
such Person's willful misconduct or gross negligence.
Section 9.5 Section 1542. Owner and Operator do not believe that
------------
this Agreement is governed by Section 1542 of the California Civil Code, which
provides that:
A General Release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
To the extent that Section 1542 may be deemed to govern Section 9 of this
Agreement, Owner and Operator each knowingly and voluntarily waives the
provisions of Section 1542 and acknowledges and agrees that this waiver is an
essential and material term of this Agreement and without the waiver the
Agreement would not have been entered into. Each of Owner and Operator have
been advised by its legal counsel and understands and acknowledges the
significance and consequences of this Agreement and of this specific waiver of
Section 1542.
27
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SECTION 10
TITLE, DOCUMENTS AND DATA
Section 10.1 Materials and Equipment. Title to all materials,
-----------------------
equipment, software, supplies, consumables, spare parts and other items
purchased or obtained by Operator on a Reimbursable Cost basis hereunder shall
pass immediately to and vest in Owner or its designee upon the passage of title
from the vendor or supplier thereof; provided, however, that such transfer of
title shall in no way affect Operator's obligations as set forth in the other
provisions hereof; provided, further, that Operator shall not invoice Owner for
materials and equipment unless and until title has passed.
Section 10.2 Documents; Proprietary Information. All materials and
----------------------------------
documents prepared or developed by Operator or its employees, representatives or
contractors solely in connection with the Project or the performance of the
Services shall become the property of Owner when prepared. Operator makes no
warranty regarding the use of such material by Owner (i) other than in
connection with the Project or (ii) after the termination of this Agreement.
Notwithstanding the foregoing, where materials or documents prepared or
developed by Operator or its employees, representatives or contractors contain
proprietary or technical information, systems, techniques, or know-how
previously known to Operator or its contractors or previously acquired by
Operator or its contractors from third parties, Operator or its contractors
shall have the unrestricted right to use or dispose of such information,
systems, techniques, or know-how as they see fit; provided, however, that Owner
shall have the right to utilize the same in connection with the Project without
cost to Owner. All such materials and documents, together with any materials
and documents furnished to Operator or to its contractors by Owner, shall be
delivered to Owner upon expiration or termination of this Agreement and before
final payment is made to Operator; provided that Operator may retain and use
copies of all such materials and documents prepared by Operator subject to the
terms of Section 13 hereof.
Section 10.3 Review by Owner. In addition, all such materials and
---------------
documents shall be available for review by Owner at all reasonable times during
development and promptly upon completion. All such materials and documents
required to be submitted for the approval of Owner shall be prepared and
processed in accordance with the requirements and specifications set forth in
the O&M Manuals. Owner's approval of materials and documents submitted by
Operator shall not relieve Operator of its responsibility for the correctness
thereof or of its obligation to meet all the requirements hereof.
SECTION 11
REPRESENTATIONS AND WARRANTIES
Section 11.1 Operator Representations and Warranties. Operator
---------------------------------------
represents and warrants to Owner that:
11.1.1 Organization and Good Standing. Operator is a corporation
------------------------------
duly organized, validly existing, and in good standing under the laws of
Florida.
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11.1.2 Enforceability. This Agreement constitutes the legal, valid,
--------------
and binding obligation of Operator except as enforceability may be limited by
(i) applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the rights of creditors generally and (ii) general principles of
equity.
11.1.3 Due Authorization. The execution, delivery, and performance
-----------------
of this Agreement by Operator has been duly authorized by all requisite action
and will not conflict with any provisions of any Law, or any agreement or
instrument to which it is a party or by which it, its property or assets may be
bound or affected.
11.1.4 Licenses. Operator is the holder of all necessary
--------
governmental consents, licenses, permits or other authorizations required to
operate or conduct its business as contemplated herein.
11.1.5 Qualifications and Skill of Operator. Operator is qualified
------------------------------------
to operate and maintain the Project and to provide the services contemplated by
this Agreement. All personnel employed by Operator to perform its obligations
hereunder shall be qualified to perform such obligations and shall be
experienced or shall be properly trained in performing the tasks which they
shall perform.
Section 11.2 Owner Representations and Warranties. Owner
------------------------------------
represents and warrants to Operator that:
11.2.1 Organization and Good Standing. CFP is a general partnership
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of California. COC is a limited liability company duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
11.2.2 Enforceability. This Agreement constitutes the legal, valid,
--------------
and binding obligation of Owner except as enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally and (ii) general principles of
equity.
11.2.3 Due Authorization. The execution, delivery, and performance
-----------------
of this Agreement by Owner has been duly authorized by all requisite action and
will not conflict with any provisions of any Law, or any agreement or instrument
to which it is a party or by which it, its property or assets may be bound or
affected.
11.2.4 Facility Agreements. Prior to Commencement Date, Owner will
-------------------
provide Operator with complete and correct copies of the Facility Agreements
described on Appendix B.
SECTION 12
FORCE MAJEURE
Section 12.1 Excused Performance. Except for the obligation to
-------------------
make payments for the Services actually rendered hereunder, either Party shall
be excused from
29
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performance and shall not be considered to be in default in respect to any
obligation hereunder, if failure of performance shall be due to an event of
Force Majeure.
Section 12.2 Notice of Force Majeure. If either Party's ability to
-----------------------
perform its obligations hereunder is affected by an event of Force Majeure, such
Party shall promptly, upon learning of such event of Force Majeure and
ascertaining that it will affect its performance hereunder, give notice to the
other Party within 48 hours of its discovery stating the nature of the event,
its anticipated duration and any action being taken to avoid or minimize its
effect. The burden of proof shall be on the Party asserting excuse from
performance due to such event of Force Majeure.
Section 12.3 Scope. The suspension of performance shall be of no
-----
greater scope and no longer duration than that which is absolutely necessary.
The excused Party shall use its reasonable best efforts to remedy its inability
to perform and to mitigate any damage as a result thereof.
SECTION 13
CONFIDENTIAL INFORMATION
Section 13.1 Non-disclosure. Each Party agrees to hold in
--------------
confidence any information imparted to it by the other Party which pertains to
Owner's or Operator's business activity in any manner, and which is not the
subject of general public knowledge, including, without limitation, proprietary
processes, technical information and know-how, information concerning Owner's
other projects, management policies, economic policies, financial and other data
and the like. This obligation shall continue to remain in full force and effect
during the Term of this Agreement and for two (2) years after the date of
termination or expiration of this Agreement. The preceding non-disclosure
requirements shall not apply to:
(i) information furnished without restriction by one Party to the
other Party prior to the Commencement Date;
(ii) information in the public domain; or
(iii) information obtained by one Party from a third Person not under
an obligation of non-disclosure to Owner or Operator, as the
case may be.
Section 13.2 Disclosure to Government Agency. Either Party may
-------------------------------
disclose any such information to the extent that such Party is required by any
Government Agency to make such disclosure. If a Party becomes legally compelled
to disclose any of such confidential information, such Party shall provide the
other Party with prompt notice so that the other Party may seek to obtain a
protective order or other appropriate remedy.
In addition, Owner may disclose such information to the extent that
such disclosure is required by Secured Party, the Facility Agreements, any
prospective Secured Party, any prospective member of Owner, independent
engineer, power purchaser, SCE, any supplier to the Project and any Person
providing any type of interconnection services to the Project, it being
understood that prior to any disclosure of such information, such Persons shall
be informed of
30
<PAGE>
the confidential nature of the information and shall agree (i) to keep the
information confidential and (ii) to the other terms of Section 13 of this
Agreement.
SECTION 14
MISCELLANEOUS PROVISIONS
Section 14.1 Assignment. This Agreement shall not be assignable by
----------
either Party without the prior written consent of the other Party.
Notwithstanding the foregoing, this Agreement may be assigned to Secured Party
as security for Secured Party's financing of the Project and, with ninety (90)
days prior written notice to Operator: (i) to the successor of Owner, (ii) to a
Person acquiring all or a controlling interest in the business assets of Owner,
(iii) to a wholly-owned subsidiary of Owner, or (iv) in connection with a sale
or transfer of the Project by Secured Party; provided that any such assignment
(except pursuant to paragraph (iv)) shall not relieve the assigning Party of any
of its obligations under this Agreement.
Notwithstanding the foregoing or any provisions of this Agreement to
the contrary, if default shall occur in the observance of performance of any of
the covenants or conditions required to be observed or performed by Owner
hereunder, Operator agrees that it will (a) give each Secured Party who has been
identified, in writing, by Owner as a Secured Party prompt written notice of
such default and of the nature thereof (such notice to be delivered to the
address for each Secured party provided by Owner to Operator), (b) advise such
Secured Party as to the action Operator proposes to take in respect of such
default, and (c) not take action to enforce any of its rights or remedies
hereunder prior to the expiration of a 30-day period following the giving of the
notice in clause (a) above.
If the default has not been remedied by Owner within twenty (20) days
after the giving of such notice, the Secured Party shall have the right (but not
the obligation) at any time prior to the expiration of the thirty (30) day
period referred to in (c) above to remedy such default, and Operator agrees to
accept the payment or performance tendered (if in compliance with the terms
hereof) as constituting payment or performance by Owner for all purposes hereof.
Section 14.2 Entire Agreement and Amendments. This Agreement
-------------------------------
embodies the entire agreement between the Parties relating to the subject matter
hereof. The Parties shall not be bound by or liable for any documents proposed
or submitted prior to the date of this Agreement and not incorporated in this
Agreement (by reference or otherwise), or for any statement, representation,
promise, inducement or understanding of any kind or nature relating to the
Services or any other matter covered by this Agreement which is not set forth or
provided for herein. This Agreement shall be binding upon and shall inure to
the benefit of the successors and permitted assigns of the Parties. No changes,
amendments or modifications of any of the terms or conditions of this Agreement
shall be valid unless set forth in writing and signed by each of the Parties.
Unless and until Operator shall have received written notice from the Secured
Party that the lien of any security agreements between Secured Party and Owner
has been released no amendment or modification of any of the provisions of this
Agreement shall be effective unless the Secured Party shall have joined in such
amendment, modification or shall have given its prior written consent thereto.
31
<PAGE>
Section 14.3 Survival. Notwithstanding any provisions herein to
--------
the contrary, the obligations set forth in Sections 5, 6, 8 and 13 and the
limitations on liabilities set forth in Section 9 shall survive in full force
the expiration or termination of this Agreement.
Section 14.4 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or such unenforceability and
shall not invalidate the enforceable portions of such provision or the remaining
provisions of this Agreement or affect the validity or enforceability of any
such provision in any other jurisdiction. Except as otherwise provided for
herein, the remedies expressly afforded hereunder to Owner and Operator,
respectively, are in addition to any other remedies provided at law or in
equity.
Section 14.5 Waiver. None of the provisions of this Agreement
------
shall be considered waived by a Party unless such waiver is in writing and
signed by such Party. No waiver shall be construed as a modification of any of
the provisions of this Agreement or as a waiver of any default (present or
future) hereunder or breach hereof, except as expressly stated in such waiver.
Section 14.6 Notices. All notices required or permitted under this
-------
Agreement shall be in writing and shall be hand-delivered or sent by certified
or registered mail, return receipt requested, facsimile or commercial delivery
subject to written record of receipt, to Owner or Operator, as the case may be,
at their respective addresses set forth below, or to such other addresses as may
be designated by notice given as herein required. All notices shall be
effective upon first receipt as evidenced by written record of delivery or
confirmation of transmission.
Owner: Coso Finance Partners
----- 1114 Avenue of the Americas
41st Floor
New York, New York 10036-7790
Attention: President
Facsimile No.: (212) 921-9239
with a copy to: Caithness Energy, L.L.C.
350 Indiana Street
Suite 601
Golden, Colorado 80401
Facsimile No.: (303) 279-3486
Operator: FPL Energy Operating Services, Inc.
-------- 700 Universe Boulevard
Juno Beach, Florida 33408
Attention: Vice President - Operations
Facsimile No.: (561) 691-7309
32
<PAGE>
FPL Energy Operating Services, Inc.
c/o FPLE West Region
6952 Preston Avenue
Livermore, CA 94552
Attention: Vice President - Operations
Facsimile No.: (925) 455-3101
Section 14.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
REGARD TO CONFLICT OF LAW PRINCIPLES.
Section 14.8 Further Assurances. If either Party reasonably
------------------
determines that any further instruments or any other acts or things are
necessary or desirable to carry out the terms of this Agreement, the other Party
will execute and deliver all such instruments and assurances and do all such
things as the first Party reasonably deems necessary or desirable to carry out
the terms of this Agreement (at the cost of the first Party).
Section 14.9 No Third Person Rights. Except for the provisions of
----------------------
Sections 14.1 and 14.2 to which the Secured Party is an intended third party
beneficiary, this Agreement is not for the benefit of any Person other than the
Parties, and no other Person shall be deemed to be a third party beneficiary
hereof or entitled to any benefits hereunder.
Section 14.10 Dollars. All payments made to be made by either
-------
Party to the other hereunder shall be in Dollars.
Section 14.11 Counterparts. This Agreement may be executed in
------------
more than one counterpart, each of which shall be deemed to be an original.
Section 14.12 Strikes. In the event of a whole or partial
-------
nonoperation of the Facility due to a strike or other form of labor action by
Operator's personnel, Owner shall have the right to continue operating the
Facility and to retain such other personnel or agents as Owner in its sole
discretion deems necessary or advisable for such purposes. Owner shall have no
obligation to pay the Annual Operating Fee for the period during which Owner
operates the Facility.
[Remainder of the page intentionally left blank; signature page immediately
following]
33
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first set forth above.
OWNER:
COSO FINANCE PARTNERS
By NEW CLOC COMPANY, LLC
By: /s/ Christopher T. McCallion
---------------------------------
Name: Christopher T. McCallion
Title: Executive Vice President
COSO OPERATING COMPANY LLC
By: /s/ Christopher T. McCallion
---------------------------------
Name: Christopher T. McCallion
Title: Executive Vice President
COSO TRANSMISSION LINE PARTNERS
By: COSO FINANCE PARTNERS
By: NEW CLOC COMPANY, LLC
By: /s/ Christopher T. McCallion
---------------------------------
Name: Christopher T. McCallion
Title: Executive Vice President
Operator:
FPL ENERGY OPERATING SERVICES, INC.
By: /s/ John A. Keener
---------------------------------
Name: John A. Keener
Title: Vice President
34
<PAGE>
Exhibit 10.56
OPERATION AND MAINTENANCE AGREEMENT
(BLM PROJECT)
Dated as of May 28, 1999
among
COSO ENERGY DEVELOPERS
and
COSO OPERATING COMPANY LLC
and
COSO TRANSMISSION LINE PARTNERS
and
FPL ENERGY OPERATING SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1 DEFINITIONS AND INTERPRETATION.......................... 1
Section 1.1 Definitions........................................ 1
Section 1.2 Interpretation..................................... 9
Section 1.3 Technical Meanings................................. 9
Section 1.4 Headings........................................... 9
Section 1.5 Interpretation; Precedence......................... 9
Section 1.6 Status of Operator and Owner....................... 9
SECTION 2 RESPONSIBILITIES OF OPERATOR............................ 10
Section 2.1 Scope of Services.................................. 10
Section 2.2 Standards for Performance of the Services.......... 10
Section 2.3 Personnel Standards................................ 10
Section 2.4 Approvals and Permits.............................. 11
Section 2.5 Operating Data and Records......................... 11
Section 2.6 No Liens or Encumbrances........................... 12
Section 2.7 Preservation of Warranties......................... 12
Section 2.8 Emergency Action................................... 12
Section 2.9 O & M Manuals...................................... 12
Section 2.10 Subcontractors..................................... 12
Section 2.11 Access............................................. 13
Section 2.12 Cooperation with Other Contractors................. 13
SECTION 3 LIMITATIONS ON AUTHORITY OF OPERATOR.................... 13
Section 3.1 Agency............................................. 13
Section 3.2 General Limitations................................ 13
Section 3.3 Execution of Documents............................. 15
SECTION 4 PROCEDURES, PLANS AND REPORTING......................... 15
Section 4.1 Representatives of Parties; Employees.............. 15
Section 4.2 O&M Manuals........................................ 15
Section 4.3 Annual Facility Operating Plan and Budget.......... 16
Section 4.4 Availability of Operating Data and Records......... 17
Section 4.5 Accounts and Reports............................... 17
Section 4.6 Financial Records.................................. 18
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 5 COMPENSATION AND PAYMENT.................................... 19
Section 5.1 Compensation........................................... 19
Section 5.2 Reimbursable Costs..................................... 19
Section 5.3 Annual Operating Fee................................... 20
Section 5.4 Reserved............................................... 20
Section 5.5 Changed Conditions; Change in Scope of Services........ 20
SECTION 6 TERM........................................................ 20
Section 6.1 Term................................................... 20
Section 6.2 Termination by Owner................................... 21
Section 6.3 Termination by Operator................................ 21
Section 6.4 Facility Condition at End of Term; Transmission Line... 21
Section 6.5 Termination Costs...................................... 22
SECTION 7 INSURANCE.................................................... 22
Section 7.1 General................................................ 22
Section 7.2 Operator Insurance..................................... 22
Section 7.4 Form and Content....................................... 23
Section 7.5 Certificates; Proof of Loss............................ 24
SECTION 8 INDEMNIFICATION............................................. 24
Section 8.1 By Operator............................................ 24
Section 8.2 By Owner............................................... 25
Section 8.3 Cooperation Regarding Claims........................... 25
SECTION 9 LIABILITIES OF THE PARTIES.................................. 26
Section 9.1 Limitations of Liability............................... 26
Section 9.2 Environmental Liability................................ 26
Section 9.3 Limitation of Owner's Liability........................ 26
Section 9.4 Limitation of Operator's Liability..................... 27
Section 9.5 Section 1542........................................... 27
SECTION 10 TITLE, DOCUMENTS AND DATA................................... 28
Section 10.1 Materials and Equipment................................ 28
Section 10.2 Documents; Proprietary Information..................... 28
Section 10.3 Review by Owner........................................ 28
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 11 REPRESENTATIONS AND WARRANTIES.......................... 29
Section 11.1 Operator Representations and Warranties............ 29
Section 11.2 Owner Representations and Warranties............... 29
SECTION 12 FORCE MAJEURE........................................... 30
Section 12.1 Excused Performance................................ 30
Section 12.2 Notice of Force Majeure............................ 30
Section 12.3 Scope.............................................. 30
SECTION 13 CONFIDENTIAL INFORMATION................................ 30
Section 13.1 Non-disclosure..................................... 30
Section 13.2 Disclosure to Government Agency.................... 30
SECTION 14 MISCELLANEOUS PROVISIONS................................ 31
Section 14.1 Assignment......................................... 31
Section 14.2 Entire Agreement and Amendments.................... 31
Section 14.3 Survival........................................... 32
Section 14.4 Severability....................................... 32
Section 14.5 Waiver............................................. 32
Section 14.6 Notices............................................ 32
Section 14.7 GOVERNING LAW...................................... 33
Section 14.8 Further Assurances................................. 33
Section 14.9 No Third Person Rights............................. 33
Section 14.10 Dollars............................................ 33
Section 14.11 Counterparts....................................... 33
Section 14.12 Strikes............................................ 33
</TABLE>
Appendix A SCOPE OF SERVICES
Appendix B FACILITY AGREEMENTS
Appendix C EMPLOYMENT
Appendix D FORM OF AFE
-iii-
<PAGE>
OPERATION AND MAINTENANCE AGREEMENT
BLM PROJECT
THIS OPERATION AND MAINTENANCE AGREEMENT FOR BLM PROJECT (the
"Agreement") dated as of May 28, 1999 is made and entered into by and between
Coso Energy Developers, a California general partnership ("CED"), Coso
Operating Company LLC, a Delaware limited liability company ("COC"), Coso
Transmission Line Partners, a California general partnership ("CTLP") (CED, COC
and CTLP collectively, the "Owner"), and FPL Energy Operating Services, Inc., a
Florida corporation ("Operator").
RECITALS
--------
WHEREAS, CED owns a three unit 90 megawatt geothermal small power
production facility, steam production wells, a resource gathering and injection
system and related equipment and facilities commonly known as the BLM Project
located in Inyo County, California;
WHEREAS, COC is identified as the operator under certain permits to
operate issued by the Great Basin Unified Air Pollution Control District in
connection with the BLM Project;
WHEREAS, CTLP owns the Transmission Line, interconnection to the
Transmission Line, the switchgear, and certain common control and support
facilities and certain real property, fixtures and buildings located on the
Facility Site;
WHEREAS, Owner wishes to engage Operator to perform operation and
maintenance services for the BLM Project, and Operator is willing to provide
such services, all on the terms provided herein.
NOW, THEREFORE, in consideration of the mutual covenants, undertakings
and conditions set forth below, the Parties agree as follows:
SECTION 1
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions. Except as otherwise expressly provided or
-----------
unless the context otherwise requires, the capitalized terms set forth below
where used in this Agreement (including the Recitals and Appendices) have the
following meanings:
"Actual O&M Expenses" shall mean the actual amount of Reimbursable
Costs incurred during a calendar month.
"Administrative Procedures Manual" has the meaning assigned to such
term in Section 4.2.
<PAGE>
"Affiliate" means any entity owned by, owning, controlled by,
controlling or under common control or ownership with Operator or Owner or any
partner of Operator or Owner, as the case may be. "Control" of a Person
(including, with correlative meanings, the terms "controlled by" or "under
common control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"AFE" or "Authorization for Expenditure" shall mean a document in the
form shown in Appendix D whereby Owner authorizes Operator to perform work and
authorizes the expenditure of funds therefor.
"Agreement" means this Operation and Maintenance Agreement between
Owner and Operator, including all Appendices, as the same may be modified or
amended from time to time in accordance with the provisions hereof.
"Annual Budget" has the meaning assigned to such term in Section 4.3.
"Annual Operating Plan" has the meaning assigned to such term in
Section 4.3.
"Annual Operating Fee" has the meaning assigned to such term in
Section 5.3.
"Appendices" means, collectively, the following appendices to this
Agreement, which are incorporated herein and made a part hereof:
Appendix A -- Scope of Services
Appendix B -- Facility Agreements
Appendix C -- Employment
Appendix D -- Form of AFE
"Applicable Law" shall mean any law, rule, regulation, permit,
license, approval, franchise, requirement or order of any federal, state or
local agency, court or other governmental body, applicable from time to time to
the construction, equipping, testing, start-up, financing, ownership, leasing or
operation of the Project or the performance of any obligations under any
agreement entered into with respect to the Project.
"BLM" means the United States Department of the Interior, Bureau of
Land Management.
"BLM Partnership" means Coso Energy Developers, a California general
partnership which owns the BLM Project.
"BLM Project" means the three unit 90 megawatt geothermal small power
production facility, steam production wells, a resource gathering and injection
system, power transmission lines and related equipment and facilities located on
lands leased from the BLM in Inyo County, California.
2
<PAGE>
"Budgeted O&M Expenses" shall mean the operation, maintenance and
repair costs for the Project set forth in the Annual Budget for each month.
"Business Day" means any day on which commercial banks are authorized
to open or are not required to close in New York, New York.
"Commencement Date" means the closing date of this Agreement.
"CTLP" means Coso Transmission Line Partners, a California general
partnership, owned 50% by the Navy II Partnership and 50% by the BLM
Partnership.
"Dollar" or "$" means the lawful currency of the United States of
America.
"Energy and Capacity Revenues" means, with respect to any month or
reference period, including, without limitation, an Operating Year, gross
revenues received by Owner during such period from all sales of electric energy
and capacity generated by the Facility.
"Environmental Claim" means, with respect to any Person, any and all
suits, sanctions, liabilities, legal proceedings, claims, demands, losses, costs
and expenses of whatsoever kind or character, including reasonable attorneys'
fees (whether at the trial or appellate level), civil fines or penalties or
other expenses incurred, assessed or sustained by or against such Person as a
result of or in connection with any Environmental Law.
"Environmental Law" means any Law relating to the environment, health
or safety now or hereafter in effect applicable to the Facility, the Field or
the Facility Site.
"Extended Expiration Date" has the meaning assigned to such term in
Section 6.1.
"Facility" means the geothermal power facilities, located on the
Facility Site, consisting of three units, interconnection to the Transmission
Line, and certain common control and support facilities and any part of the
surface of the real property, fixtures and buildings which are located within
the Facility Site.
"Facility Agreements" means, collectively, this Agreement, and each
other agreement (or certain provisions thereof) set forth on Appendix C attached
hereto and, subject to Section 5.5, any other agreement reasonably designated by
Owner as a Facility Agreement, five Business Days after Owner provides such
agreement to Operator, or such longer period as Owner and Operator agree in
writing shall be necessary for Operator to comply with Section 2.1 with respect
thereto, including all exhibits, schedules and attachments to each such
agreement. Facility Agreements shall include any amendment to the foregoing
upon notification by Owner to Operator.
"Facility Manuals" means facility equipment manuals, system
descriptions, system operating instructions, equipment maintenance instructions,
pertinent design documentation, engineering drawings, plant electrical,
schematic, and all other applicable drawing, plant and equipment set points, and
plant processes and procedures.
3
<PAGE>
"Facility Site" means the real property on which the Facility is
located as described in documents listed in Appendix B to this Agreement.
"Fault of Operator" shall mean the negligent or grossly negligent acts
or omissions or willful misconduct of Operator or of its employees,
subcontractors or agents or any acts or omissions that are in breach of
Operator's obligations under this Agreement.
"Field" shall mean the geothermal wells and related fluid handling,
gathering and distribution systems located on the Facility Site.
"Financing Agreements" means any credit agreement, reimbursement
agreement, note purchase agreement, trust indenture, lease agreement or other
document under which Owner or its affiliates obtains financing (including any
credit enhancement for any bonds) for the acquisition, development,
construction, modification, repair or operation of the Project or any
refinancing thereof.
"Fluid" means the natural geothermal water, steam, brine and the
materials contained therein, obtained from the Production Wells.
"Force Majeure" means any act, event or condition, which is not within
the commercially reasonable control of a Party that causes delay in or failure
of performance of obligations under this Agreement, if such act, event or
condition (a) is beyond the reasonable control of the Party relying thereon, (b)
is not the result of any act, omission or delay of such Party (or any third
Person over whom such Party has control including, without limitation, any
subcontractor), (c) is not an act, event or condition, the risks or consequences
of which such Party has expressly agreed to assume hereunder and (d) then only
to the extent the same cannot be cured, remedied, avoided, offset, negotiated or
otherwise overcome by the prompt exercise of due diligence of the Party relying
thereon (or any third Person over whom such Party has control including, without
limitation, any subcontractor) including, without limitation, any event or
condition occasioned by or resulting from lightning, tornadoes, windstorms,
extreme weather conditions, fires, storms or failures or partial failures of any
equipment.
"Government Agency" means any federal, state, local or municipal
government, governmental department, commission, board, bureau, agency,
instrumentality, judicial or administrative body having jurisdiction over Owner,
Operator, the Facility, the Field or the Facility Site.
"Hazardous Materials" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, and transformers or other equipment that
contain dielectric fluid containing polychlorinated biphenyls ("PCBs"); (b) any
chemicals, materials or substances which are now or hereafter become defined as
or included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "extremely hazardous wastes", "restricted hazardous
wastes", "toxic substances", "toxic pollutants", or words of similar import,
under any Environmental Law or in any regulations thereto; and (c) any other
chemical, material, substance or waste, exposure to which is now or hereafter
prohibited, limited or regulated by any Government Agency.
4
<PAGE>
"Hazardous Materials Laws" shall mean federal, state or local laws,
ordinances and regulations relating to any Hazardous Materials and applicable to
the Facility or the Field.
"Indemnified Party" has the meaning assigned to such term in Section
8.3.
"Initial Expiration Date" has the meaning assigned to such term in
Section 6.1.
"Injection Wells" means the wells in the Field through which the Fluid
from the separator vessels and power plant is injected back into the ground.
"Law" means any act, statute, law or regulation of any Government
Agency as in effect from time to time relating to the Facility, the Facility
site and the Field and the operation thereof.
"Maintenance Reports" shall mean the maintenance and repair reports
maintained by Operator relating to the Facility, the Facility Site and the
Field.
"Major Equipment" means all equipment related to the production and
delivery of electric power, whose failure could result in a loss for an extended
period of time of more than five percent of the rated capacity of the Facility.
"Navy" means the United States Government, acting through the Western
Division (Code 022) Naval Facilities Engineering Company, San Bruno, California
and/or the Disbursing Officer, Code 0862, Naval Weapons Center, China Lake,
California, as the context may require.
"Navy I Partnership" means Coso Finance Partners, a California general
partnership.
"Navy II Partnership" means Coso Power Developers, a California
general partnership.
"NERC" means the North American Electric Reliability Council.
"O&M Manuals" has the meaning assigned to such term in Section 4.2
hereto.
"O&M Operating Account" has the meaning assigned to such terms in
Section 5.2.1.
"Operating Logs" shall mean the daily operating logs showing the
production from the Facility and the Field.
"Operating Year" means initially, the remainder of the calendar year
after the Commencement Date and thereafter, the twelve (12) month period
beginning on the first day of each calendar year and each successive twelve (12)
month period beginning on the consecutive anniversary dates thereof.
"Operator" has the meaning assigned to such term in the Preamble.
5
<PAGE>
"Operator Indemnified Party" means Operator, its shareholders,
partners, principals, Affiliates, officers, directors, employees, agents and
representatives.
"Owner" has the meaning assigned to such term in the Preamble.
"Owner Indemnified Party" means Owner, Secured Party and their
respective shareholders, partners, principals, Affiliates, officers, directors,
employees, agents and representatives.
"Party" means either Operator or Owner and "Parties" means both
Operator and Owner.
"Person" means any individual, partnership, corporation, association,
business, trust, government or political subdivision thereof, governmental
agency or other entity.
"Planned Maintenance" shall mean daily, routine, and preventive
maintenance and inspection of the equipment at the Facility and the Field as set
forth in the Annual Operating Plan and Annual Budget. Each Annual Operating
Plan is to be prepared with a view to the expected economic life of the Facility
and the Field, it being understood that each item of equipment may not last for
the entire economic life of the Facility or the Field and shall include as
Planned Maintenance, without limitation, all service, overhaul (other than
Unplanned Maintenance and major overhauls that constitute Unplanned
Maintenance), inspection, replacement of parts, and maintenance procedures
necessary or advisable for normal wear and tear and as recommended by the
manufacturers and/or vendors of equipment at the Facility and the Field not less
often than so recommended. For example, Planned Maintenance includes the
replacement of equipment and components from time to time near or after the
reasonably expected life of the equipment as set forth in the Annual Operating
Plan.
"Plant General Manager" has the meaning assigned to such term in
Section 4.1.
"Point of Interconnection" shall mean the point where electricity
generated by the Facility is delivered from the Facility to the SCE transmission
system.
"Production Wells" means the wells in the Field out of which hot Fluid
is extracted to produce electricity at the Facility from the heat of the Fluid.
"Project" shall mean the Facility, the Facility Site, the Field and
the Transmission Line.
"Prudent Operating and Maintenance Practices" means the generally
accepted and sound utility industry practices, methods and acts applicable to
similar independent power facilities situated in the United States which at a
particular time, in the exercise of reasonable judgment and in light of facts
known or that should have been known, would have been expected to accomplish the
desired results and goals established in the Annual Operating Plan, including
such goals as efficiency, reliability, economy, continuous improvement and
profitability, in a manner consistent with Law, safety, and environmental
protection. With respect to the Project, Prudent Operating and Maintenance
Practices include such things as taking reasonable actions to ensure or provide
the following:
6
<PAGE>
(i) Adequate materials, resources and supplies are available to
meet the Project's needs under normal conditions and reasonably
anticipated abnormal conditions;
(ii) A sufficient number of operating, maintenance and supervisory
personnel available and adequately experienced and trained to
operate, maintain and supervise the Project properly,
efficiently and within manufacturer's guidelines and
specifications and who are capable of responding to emergency
conditions;
(iii) The timely performance of preventive, predictive, routine, and
non-routine maintenance and repairs on a basis that ensures
long-term and safe operation and by knowledgeable and
experienced personnel utilizing specified equipment, tools and
procedures;
(iv) Appropriate monitoring, analysis and testing are done
periodically to confirm that equipment is functioning as
designed and to provide assurance that equipment will function
properly under both normal and emergency conditions;
(v) Equipment is operated in a safe manner and in a manner safe to
workers, the general public and the environment and with regard
to defined limitations such as steam pressure, temperature and
moisture content, operating voltage, current, frequency,
rotational speed, polarity, synchronization and control system
limits; and
(vi) Operations are conducted within all permit, governmental, and
regulatory requirements.
"PURPA" shall mean the Public Utility Regulatory Policies Act of 1978,
as amended.
"Regulatory Records" shall mean the records and other materials
required by any Government Agency to be maintained in respect of the Project.
"Reimbursable Costs" means those direct costs incurred by Operator in
the performance of its duties hereunder in accordance with Operator's
established practices and policies then in effect, subject to the annual limits
set forth in the applicable Annual Budget, unless such limits shall be revised
pursuant to an AFE or other agreement reached by Operator and Owner.
Reimbursable Costs shall include but not be limited to: direct labor costs
(regardless of whether or not the employees are located at the Project),
including benefits and employee bonuses (subject to Owner's approval of the
aggregate dollar amount of the bonus pool), maintenance costs, equipment rentals
(including allocable costs of equipment shared with other projects), parts and
supplies, and equipment overhaul costs. Reimbursable Costs shall include
reasonable expenses incurred by Operator pursuant to Sections 2.8 and 3.2.2 in
connection with an emergency. Where Reimbursable Costs occur based upon
Operator's established policies, Operator shall promptly provide Owner, for
approval, all such policies and any proposed changes in the documents pursuant
to which changes in such established policies shall be made,
7
<PAGE>
along with cost/benefit analyses associated with such changes. Increased costs
resulting from changes to policies shall be Reimbursable Costs only to the
extent that the same shall have been approved in advance by Owner. Reimbursable
Costs shall not include legal, consulting, contractor, and indirect corporate
overhead and management costs unless such costs have been previously authorized
by Owner in an Annual Budget, AFE or other document.
"Remedial Action" shall mean actions required to (a) clean up, remove,
treat or in any other way address Hazardous Materials in the indoor or outdoor
environment; (b) prevent the release or threat of release or minimize the
further release of Hazardous Materials so they do not migrate or endanger or
threaten to endanger public health or welfare or the indoor or outdoor
environment; or (c) perform pre-remedial studies and investigations and post-
remedial monitoring and care.
"SCE" means Southern California Edison, a corporation organized and
existing under the laws of the State of California.
"Scheduled Outage" means a time period during which any of the Major
Equipment is shut down for maintenance as scheduled in the Annual Operating Plan
or otherwise agreed upon by the Parties and which is accepted by the applicable
parties to the Facility Agreements under the terms of such Facility Agreements.
Such maintenance shall be scheduled and performed based on the requirements of
manufacturers' warranties and recommendations, insurance requirements, and
Prudent Operating and Maintenance Practices.
"Secured Party" means, collectively, each Person providing financing
or refinancing under the Financing Agreements and any trustee or agent acting on
any such Person's behalf and their successors and assigns.
"Services" has the meaning assigned to such term in Section 2.1,
including, without limitation, such services set forth in Appendix A hereto.
"Term" has the meaning assigned to such term in Section 6.1.
"Termination Payment" has the meaning assigned to such term in Section
6.2.
"Transmission Line" means the 230 kV power line connected to the SCE
substation at Inyokern, California, owned by CTLP, through which electricity
produced by the BLM Project and the Navy II Project is transmitted for delivery
to SCE.
"Unplanned Maintenance" shall mean all maintenance, repair, and
replacements other than Planned Maintenance, and includes such items as
replacement of equipment or components prior to their reasonably expected
replacement date, major overhauls of equipment or components which in the
ordinary course would not be necessary during the expected economic life of the
Facility or the Field, repairs and replacements covered by insurance or
warranties, and repairs and replacements of components damaged or destroyed
following a casualty or event of Force Majeure or sudden equipment explosion or
breakdown event, whether or not covered by insurance, together with any services
required to take corrective action following any such event.
8
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"Winding Up" of or in relation to a Person includes the amalgamation,
reconstruction, reorganization, administration, dissolution, liquidation,
bankruptcy, merger or consolidation of that Person and any equivalent or
analogous procedure under the law of any jurisdiction in which that Person is
incorporated, domiciled or resident, carries on business or has any assets.
Section 1.2 Interpretation. Unless the context otherwise requires:
--------------
1.2.1 Words singular and plural in number will be deemed to include
the other and pronouns having a masculine or feminine gender will be deemed to
include the other.
1.2.2 Any reference in this Agreement to any Person includes its
permitted successors and assigns and, in the case of any Government Agency, any
Person succeeding to its functions and capacities.
1.2.3 Any reference in this Agreement to any Section or Appendix means
and refers to the Section contained in or Appendix attached to this Agreement.
1.2.4 A reference to a document or agreement, including this
Agreement, includes a reference to that document or agreement as novated,
amended, modified, supplemented, restated or replaced from time to time.
Section 1.3 Technical Meanings. Words not otherwise defined herein
------------------
that have well-known and generally accepted technical or trade meanings are used
herein in accordance with such recognized meanings.
Section 1.4 Headings. Headings are for reference only and do not
--------
form part of this Agreement.
Section 1.5 Interpretation; Precedence. In case of express
--------------------------
conflict between a Section and an Appendix, the order of precedence shall be as
follows:
A. Section
B. Appendix
Subject to the foregoing, if any requirements specified in any Appendix are in
conflict with any other requirements in such Appendix or in any other Appendix,
the more detailed requirements shall prevail. Notwithstanding the above, the
provisions of this Agreement, including all Appendices, shall be wherever
possible construed as complementary rather than conflicting.
Section 1.6 Status of Operator and Owner. Operator shall perform
----------------------------
and execute its obligations under this Agreement as an independent contractor
and, to the limited extent set forth herein, agent to Owner and shall not be a
partner, joint venturer or employee of Owner. Each of CED, COC and CTLP shall be
jointly and severally liable for the obligations of Owner hereunder. Operator
acknowledges that, as an internal matter, Owner has allocated responsibility
such that CED shall have primary responsibility for expenses related to the
Facility and CTLP shall primary responsibility for expenses related to the
Transmission Line.
9
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SECTION 2
RESPONSIBILITIES OF Operator
Section 2.1 Scope of Services. Subject to the provisions of this
-----------------
Agreement, from the Commencement Date throughout the Term, Operator shall do all
things necessary or advisable for the proper operation and maintenance of the
Facility, the Field, and the Transmission Line and perform certain other
services as hereinafter set forth (collectively, the "Services"). Operator shall
operate and maintain the Facility, the Field and the Transmission Line in a
clean, safe, efficient and environmentally acceptable manner. Without limiting
the generality of the foregoing, Operator's responsibilities shall include the
following:
2.1.1 Services. Except as otherwise provided in this Agreement,
--------
from and after the Commencement Date until this Agreement is terminated,
Operator shall be in complete charge of, and have care, custody and control
over, the Facility, the Field and the Transmission Line. Operator shall, in
accordance with the provisions of this Agreement (subject to the limitations on
Operator's authority set forth in Section 3) perform all services and functions
set forth in Appendix A as Operator's responsibilities or requirements.
2.1.2 Waste Management. Operator shall be responsible for performing
----------------
the on-site management of and for arranging for the transportation and disposal
of all wastes (including Hazardous Materials) generated by or used in the
operation of the Project in compliance with all Applicable Laws and policies and
procedures which may be adopted by Owner.
2.1.3 General. Operator shall not permit or suffer any liens or
-------
encumbrances limitations on Operator's authority set forth herein, Operator
shall use all reasonable and practical efforts to maximize Energy and Capacity
Revenues, to optimize the useful life of the Project, and to minimize fuel
consumption, Facility downtime and Reimbursable Costs.
Section 2.2 Standards for Performance of the Services. Subject to the
-----------------------------------------
limitations on Operator's authority set forth herein, Operator shall perform the
Services in all material respects in a prudent and efficient manner and in
accordance with (i) the O&M Manuals, (ii) the applicable subcontractor and
vendor warranties as provided by Owner to Operator, (iii) the applicable Annual
Operating Plan and Annual Budget, (iv) all Applicable Laws, licenses, permits,
governmental approvals and standards, (v) the Facility Agreements, (vi) the
requirements under the insurance policies maintained by Owner (copies of which
will be provided to Operator before the Commencement Date) and Operator with
respect to the Project, (vii) Prudent Operating and Maintenance Practices,
(viii) applicable guidelines established by NERC and the Institute of Electrical
and Electronic Engineers, Inc. and (ix) the terms of this Agreement. Operator
acknowledges that it has received and reviewed copies of all Facility Agreements
described on Appendix B.
Section 2.3 Personnel Standards.
-------------------
10
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2.3.1 Personnel. The Facility is a non-union plant. Operator shall
---------
provide and make available as necessary, in accordance with the requirements of
the O&M Manuals, all such labor and professional, supervisory and managerial
personnel as are required to perform the Services. Such personnel (i) shall be
qualified (including possessing appropriate licenses) and experienced in the
duties to which they are assigned and (ii) shall meet the requirements for
personnel under the O&M Manuals and in accordance with Prudent Operating and
Maintenance Practices. All individuals employed by Operator in the performance
of the Services shall be the employees of Operator or seconded employees of
affiliates of Operator, and their working hours, rates of compensation and all
other matters relating to their employment shall be determined solely by
Operator (subject to Owner's approval rights with respect to the Annual Budget).
With respect to hiring of personnel and its employment policy, Operator shall
comply with all Applicable Laws (including, without limitation, the Fair Labor
Standards Act and all of the rules, regulations and orders issued thereunder)
and shall exercise control over labor relations in a reasonable manner
consistent with the intent and purpose of this Agreement. In addition, Operator
shall comply with the provisions set forth in Appendix C, unless this Agreement
is exempt therefrom, under the rules, regulations and relevant orders of the
Secretary of Labor (41 C.F.R. (S) 60-1.5). From and after the Commencement Date,
Operator shall retain sole authority, control and responsibility with respect to
labor matters in connection with the performance of the Services.
Notwithstanding the foregoing, Operator acknowledges and agrees that it does not
have the authority to enter into any contracts or collective bargaining
agreements with respect to labor matters that purport to bind or otherwise
obligate Owner.
2.3.2 Training Program. Operator shall provide an ongoing training
----------------
and education program for personnel engaged in providing the Services. Such
training and education program shall explain in particular the design,
construction, operation and maintenance of all Project equipment as necessary to
educate Operator's personnel to safely operate the Project in accordance with
Prudent Operating and Maintenance Practices. The schedule and details of such
program shall be set forth in the Annual Operating Plan.
Section 2.4 Approvals and Permits. Prior to the Commencement Date,
---------------------
Owner shall cause copies of all permits and licenses presently required to be
maintained in respect of the Project to be delivered to Operator. Operator shall
review all Laws containing or establishing compliance requirements in connection
with the operation and maintenance of the Project and assist Owner at Owner's
request in securing and complying with, as appropriate, all necessary permits,
licenses and approvals (and renewals of the same). Operator shall submit copies
of all applications for, and proposed forms of, all such permits and licenses to
Owner with sufficient time to allow for Owner's review and approval. Operator
shall also initiate and maintain precautions and procedures necessary to comply
with applicable provisions of all such Laws or other requirements, including
those related to prevention of injury to persons or damage to property at the
Project. Operator shall notify Owner immediately after Operator becomes aware of
any violation of any Law, permit, license or approval regarding the Project.
Section 2.5 Operating Data and Records. Operator shall prepare and
--------------------------
maintain the Operating Logs and Maintenance Reports. Operator shall maintain at
the Facility copies of all drawings, specifications lists, clarifications and
other materials regarding the Project (including all current revisions thereof)
provided to Operator by Owner or by any contractor performing services at the
Project. Operator shall also prepare reports and data which are related
11
<PAGE>
to the maintenance of Hazardous Materials on-site at the Project in a manner
complying with Applicable Laws. Operator shall prepare in a timely fashion, for
Owner's prior approval, all reports, plans and other materials required to be
delivered by Owner or on behalf of Owner (i) relating to the energy output and
consumption of the Project and (ii) with respect to the Project, any Government
Agency. Operator shall prepare all such reports, plans and other materials in
accordance with the format, standards and procedures required or prescribed by
the applicable Facility Agreement or such Government Agency, as the case may be.
Copies of all such approved reports that may be submitted to any Government
Agency by Operator shall be concurrently furnished to Owner.
Section 2.6 No Liens or Encumbrances. Operator shall keep and
------------------------
maintain the Project free and clear of all liens and encumbrances arising
through Operator.
Section 2.7 Preservation of Warranties. Operator shall not take
--------------------------
any action that would cause a default, or adversely affect any warranty that
runs to Owner, of which Operator is aware and of which Operator has been
provided a copy.
Section 2.8 Emergency Action. In the event of an emergency
----------------
affecting the safety or protection of Persons or endangering the Project or
property located at the Project, Operator shall take prompt action to attempt to
prevent, or to mitigate as much as practicable, such threatened damage, injury
or loss and shall as soon as practicable notify Owner of such emergency.
Section 2.9 O & M Manuals. Operator shall comply with the O&M
-------------
Manuals, and shall have an on-going program of review and updating of such O&M
Manuals, which will define the specific conditions under which Operator will
perform the Services, including specific provisions which will provide
compliance with all provisions of the Facility Agreements, all Applicable Laws,
permits and licenses applicable to the operation and maintenance of the Project.
Section 2.10 Subcontractors. As long as the amounts to be expended
--------------
pursuant to such subcontracts do not exceed the amounts set forth in the Annual
Budget for the services to be performed under such subcontracts, Operator may
enter into subcontracts for certain of the Services; provided, however, (i)
Operator shall not subcontract for routine operations and maintenance
activities, and shall subcontract only to the extent reasonably necessary; and
(ii) all subcontracts shall be fair and reasonable to Operator and Owner and
shall be negotiated on an arms' length basis. For all subcontracts pursuant to
which the compensation paid will or could be in an amount greater than $20,000,
Operator will use a competitive bid procedure to select the subcontractor and
shall provide to Owner a written summary of the bidding process and the bids
received or obtain Owner's prior written consent for use of a sole source. Any
subcontract pursuant to which the compensation paid will or could be in an
amount greater than $20,000 shall require the prior written approval of Owner,
which approval will not be unreasonably withheld or delayed. Each subcontract
entered into pursuant to this Section 2.10 by Operator which requires payment in
excess of $20,000 per year to the subcontractor thereunder shall contain
provisions making such subcontract assignable to Owner, and the Secured Party as
collateral pursuant to the Financing Agreements, unilaterally by Operator,
without the consent or approval of such subcontractor. Any subcontracting of the
Services shall not (a) relieve Operator
12
<PAGE>
of any of its duties, liabilities or obligations hereunder, (b) relieve Operator
of its responsibility for the performance of Services rendered by any such
subcontractor, or (c) create any relationship between Owner and any
subcontractor. Insofar as is reasonably practicable, Owner shall communicate
with any subcontractor only through Operator. No subcontractor is intended to be
or shall be deemed a third-party beneficiary of this Agreement. As a condition
of any subcontract, Operator shall require any subcontractor to waive any claim
it may have, in law or in equity, directly against Owner.
Section 2.11 Access.
------
2.11.1 Owner. At Owner's expense, Owner, Secured Party and their
-----
respective agents and representatives shall have access at all reasonable times
to the Project for purposes of inspection and review. At Owner's expense, Owner
shall have access at all reasonable times for the performance of Owner's
responsibilities.
2.11.2 Cooperation. During any such inspection or review of the
-----------
Project and performance of Owner's responsibilities, Owner, Secured Party and
their respective agents and representatives, as applicable, shall comply with
all of Operator's reasonable safety and security procedures, and Owner, Secured
Party and their respective agents and representatives shall conduct such
inspection, reviews and performance of Owner's responsibilities in such a manner
as to cause minimum interference with Operator's activities. Operator also
shall cooperate with Owner in allowing other visitors access to the Project
under conditions that are mutually agreeable to the Parties.
Section 2.12 Cooperation with Other Contractors. Operator
----------------------------------
acknowledges that Owner may, from time to time, retain other contractors to
provide administrative and management services for Owner in connection with the
Project. Operator shall cooperate and coordinate its activities hereunder with
such contractors. In the event of any overlap, duplication or conflict with
respect to the Services to be provided by Operator under this Agreement and the
services to be provided by any such other contractor under their respective
agreements with Owner, Owner shall resolve such matters and determine the
respective responsibilities of the parties so as to avoid overlap or
duplication. Owner shall inform Operator in writing of any such determination.
SECTION 3
LIMITATIONS ON AUTHORITY OF Operator
Section 3.1 Agency. Subject to the limitations on Operator's
------
authority set forth in this Agreement, the Annual Operating Plan, the Annual
Budget, and the administrative procedures set forth in the O&M Manual, Operator
is hereby authorized by Owner to enter into, on behalf of Owner and as agent of
Owner, purchase orders and service agreements in connection with the delivery of
the Services. Operator shall not claim title to any supplies, consumables,
tools, office equipment or furniture acquired on behalf of Owner.
Section 3.2 General Limitations. Notwithstanding any provision in
-------------------
this Agreement to the contrary, unless previously expressly approved in the
applicable Annual
13
<PAGE>
Operating Plan or Annual Budget or otherwise expressly approved in writing by
Owner, Operator shall not (and shall not permit any of its agents or
representatives to):
3.2.1 Disposition of Assets. Lease, pledge, mortgage, convey,
---------------------
license, exchange or make any other transfer or disposition of any property or
assets of Owner, including any personal property acquired by Operator under this
Agreement, except for the trade-in of equipment and the sale of scrap in the
ordinary course of business, in either case, not to exceed in any one instance
$20,000; provided, however, that Operator may lease or otherwise provide Owner's
equipment, materials, assets or other items to Affiliates of Owner on
commercially reasonable terms. The proceeds of any sales of scrap shall inure
to the benefit of Owner and Operator shall hold the proceeds in trust for Owner
and immediately forward such proceeds to Owner;
3.2.2 Expenditures. Make or commit to make any Reimbursable Cost or
------------
acquire on a Reimbursable Cost basis any equipment, materials, assets or other
items, except in conformity with the Annual Budget, the Annual Operating Plan
and the Administrative Procedures Manual, or consent or agree to do any of the
foregoing; provided, however, that in the event of an emergency affecting the
safety or protection of Persons or endangering the Project or property located
at the Project, Operator, without approval from Owner, shall be authorized to
take all reasonable actions to prevent such threatened damage, injury or loss;
provided further, however, that notwithstanding any other provision of this
Agreement, Operator shall not, without the prior written consent of Owner, make
any single expenditure in an amount greater than $20,000, provided, however,
that if, notwithstanding Operator's diligent efforts to contact Owner, Operator
is unable to do so, Operator shall be authorized to make such emergency
expenditures in excess of $20,000;
3.2.3 Other Actions. Take or agree to take any other action that
-------------
varies from the applicable O&M Manuals or Annual Budget or causes Owner to
violate any of the Facility Agreements;
3.2.4 Lawsuits and Settlements. Settle, compromise, assign,
------------------------
pledge, transfer, release or consent to the compromise, assignment, pledge,
transfer or release of, any claim, suit, debt, demand or judgment against or due
by, Owner or Operator (including, agreeing to any penalty for violation of any
license or permit), the cost of which, in the case of Operator, would be a
Reimbursable Cost hereunder, or submit any such claim, dispute or controversy to
arbitration or judicial process, or stipulate in respect thereof to a judgment,
or consent to do the same (Operator agrees that Owner shall retain control of
any claim, suit, debt, demand and any other litigation regarding the Project,
except as to Operator's individual liability.);
3.2.5 Transactions on Behalf of Owner. Engage in any transaction on
-------------------------------
behalf of Owner not permitted under this Agreement or the Facility Agreements;
or
3.2.6 Changes in Configuration. Modify or alter the Project or any
------------------------
component thereof in a manner that materially alters the function, output or
efficiency of the Project or any component thereof.
14
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Section 3.3 Execution of Documents. Any agreement, contract,
----------------------
notice or other document that is expressly permitted hereunder (or with written
approval of Owner) to be executed by Operator shall, subject to prior written
notice to Owner, be executed by the Plant General Manager or such other
individual representative of Operator who is authorized and empowered by
Operator to execute such documents.
SECTION 4
PROCEDURES, PLANS AND REPORTING
Section 4.1 Representatives of Parties; Employees.
-------------------------------------
(a) On the Commencement Date, Operator shall appoint an individual
representative, subject to Owner's prior approval (the "Plant General
Manager") authorized and empowered to act for and on behalf of Operator on
all matters concerning this Agreement and Operator's obligations hereunder;
provided, however, in all such matters, Operator shall be bound by the
written communications, directions, requests and decisions made by the
Plant General Manager. Operator shall notify Owner in writing of the
identity of the Plant General Manager.
(b) On the Commencement Date, Owner shall appoint an individual
representative authorized and empowered to act for and on behalf of Owner
on all matters concerning this Agreement and Owner's obligations hereunder,
provided, however, in all such matters, Operator shall be bound by the
written communications, directions, requests and decisions made by Owner's
appointed representative. Owner shall notify Operator in writing of the
identity of its appointed representative.
(c) In addition to the Plant General Manager, Operator's appointment
of the Production Manager shall require Owner's prior approval.
(d) Operator shall not, without Owner's consent, terminate the
employment of any employee of Operator employed at the Facility Site for
any reason other than cause, provided that Operator shall no longer be
bound by this provision six (6) months after providing written notice to
Owner of its decision not to be so bound.
Section 4.2 O&M Manuals. Owner shall provide Operator with copies
-----------
of all manuals and operating plans and procedures maintained with respect to the
Project. Within 90 days after the Commencement Date, Operator shall submit for
review and approval by Owner proposed revisions to the manuals and operating
plans and procedures provided by Owner, which revisions shall include those
management and administrative policies, procedures, and processes and operating
and maintenance parameters necessary to perform the Services. Included in such
proposed manuals shall be an administrative procedures manual providing such
information as (i) staffing plan, (ii) organization of Operator's employee's
providing the Services and reporting procedures, (iii) administrative
procedures, including correspondence, reporting and review procedures, (iv)
procurement and contracting procedures, including a work order tracking system
and an inventory procurement and tracking system, (v) accounting, bookkeeping
and record keeping systems and procedures, (vi) personnel policies for
Operator's activities at the Project,
15
<PAGE>
(vii) operating procedures, (viii) maintenance program, (ix) safety and security
program, (x) environmental safety and compliance procedures, and (xi) outage
planning procedures. Promptly after the receipt by Owner of such proposed
manual, Owner shall submit written comments thereon to Operator, and thereafter
the Parties shall meet to resolve all outstanding differences and to agree upon
a final manual (the "O&M Manuals") including the administrative procedures
manual (the "Administrative Procedures Manual"), which shall be approved in
writing by both Parties. Owner's and Operator's approval of such manuals shall
not be unreasonably delayed or withheld. Such final manuals shall remain in
effect for the term of this Agreement, subject to such revision and amendment as
may be mutually acceptable to the Parties hereto.
Section 4.3 Annual Facility Operating Plan and Budget. Prior to the
-----------------------------------------
Commencement Date, Owner has provided Operator with a copy of the current budget
and operating plan for the Project, which until changed as provided in this
Section shall be the Annual Operating Plan and Annual Budget for all purposes of
this Agreement. Within 60 days after the Commencement Date, and 90 days prior
to the beginning of each calendar year thereafter, Operator shall prepare and
submit to Owner a proposed annual budget for the remainder of the Operating Year
in which the Commencement Date occurs or such calendar year, as applicable,
established on a monthly basis, which shall include a separate operating budget
and capital budget and shall set forth, in detail reasonably acceptable to
Owner, anticipated operations plans and costs, including forecasts of
electricity production and corresponding usage of major commodities, repairs and
capital improvements (including major maintenance and a cost\benefits analysis
for proposed capital improvements), Scheduled Outages, routine maintenance and
overhaul schedules, procurement (including equipment acquisitions and spare
parts and consumable inventories indicating a breakdown of capital items and
expense items), staffing, personnel and labor activities (including unit rates
for labor and holidays to be observed), administrative activities, data
regarding other work proposed to be undertaken by Operator and regarding
expected environmental performance, together with an itemized estimate, in
detail reasonably acceptable to Owner, of all Reimbursable Costs to be incurred
in connection therewith. Such budget shall be accompanied by an annual operating
plan setting forth the underlying assumptions and implementation plans in
connection with the budget ("Annual Operating Plan"). Owner shall promptly
review Operator's proposed budget and Annual Operating Plan and may require
changes, additions, deletions and modifications. Owner and Operator will then
meet and use their best efforts to agree upon a final budget and Annual
Operating Plan (i) as soon as practicable for the remainder of the Operating
Year in which the Commencement Date occurs and (ii) for each subsequent year by
sixty days prior to such calendar year. Owner's and Operator's approval of the
budget and Annual Operating Plan shall not be unreasonably withheld or delayed.
Such final budget ("Annual Budget") and Annual Operating Plan shall remain in
effect throughout the applicable calendar year, subject to any AFE or such other
updating, revision and amendment as may be proposed by either Party and
consented to in writing, subject to Section 5.5 of this Agreement, by the other
Party. Any actions proposed under the Annual Operating Plan shall be
consistent with the O&M Manuals, the Facility Agreements and Operator's
obligations set forth herein.
4.3.1 Force Majeure Adjustments. If an event of Force Majeure
-------------------------
occurs which results in increased costs to Operator, Operator shall be entitled
to a reimbursement reflecting the reasonable value of any such increased costs
from such event.
16
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4.3.2 Carryover Provisions. If, by the first day of any calendar
--------------------
year, the Parties are unable to reach agreement concerning any portion of the
Annual Budget or the Annual Operating Plan for such calendar year, the portion
of the Annual Budget and Annual Operating Plan for such calendar year which is
in dispute shall be resolved by using the portion of the Annual Budget and
Annual Operating Plan proposed by Owner for such disputed portion. However, in
no event shall such revised Annual Budget or Annual Operating Plan require
Operator to (i) deviate from its practices regarding salary administration,
compensation and personnel practices, except as required by Laws or (ii) perform
services that might conflict with Operator's duties under this Agreement or
Applicable Laws. Project staffing levels and the Annual Budget and Annual
Operating Plan shall be adjusted to appropriately respond to any material and
sustained changes in the operation of the Project required by changes to the
Facility Agreements, or as mutually agreed upon by Owner and Operator.
Section 4.4 Availability of Operating Data and Records. Operator
------------------------------------------
shall monitor and record all operating data required under the Facility
Agreements and otherwise reasonably requested by Owner and shall make such
operating data available to Owner (i) on each Business Day immediately following
the last day of the applicable period as determined under such Facility
Agreement and (ii) upon any reasonable request at any time by Owner, on the
Business Day immediately following such request. Such operating data shall
include, without limitation, the Operating Logs and Maintenance Reports.
Section 4.5 Accounts and Reports. Operator shall comply with the
--------------------
reporting requirements relating to power generation, field production,
procurement, labor relations and other matters as set forth in the
Administrative Procedures Manual. Operator shall cooperate with Owner in
complying with the reporting requirements set forth in the Facility Agreements
and shall furnish or cause to be furnished to Owner, the following reports, in
each case prepared in accordance with the standards established by NERC,
concerning the Project operations and the Services.
4.5.1 Monthly Reports. Within 15 days after the end of each
---------------
calendar month after the Commencement Date, Operator shall submit: (i) a
progress report, in detail acceptable to Owner, covering all operations
conducted during such calendar month with respect to operations and maintenance
(including, without limitation, information regarding power generation, well
performance, Fluid temperatures, general procurement activities, capital
improvements and labor relations) which report shall include (with respect to
quantitative items) a comparison of such items to corresponding values for the
then preceding month and year and a listing of any significant operating
problems along with remedial actions planned and a brief summary of major
activities planned for the next two reporting periods; and (ii) a statement
setting forth all Reimbursable Costs paid or incurred, which statement shall
itemize, in detail acceptable to Owner, the computation of such Reimbursable
Costs and shall state whether or not the Project operations have conformed to
the applicable Annual Operating Plan and Annual Budget during such reporting
period and if not, the extent and reasons for such deviation and if remediable
such remedial action proposed to be taken.
4.5.2 Annual Reports. As soon as available, and in any event within
--------------
60 days after the end of each calendar year, Operator shall submit to Owner an
annual report certified by the Plant General Manager describing, in detail
substantially similar to that contained in the
17
<PAGE>
monthly reports referred to in Section 4.5.1 above, all of the Project
operations for such calendar year (including, without limitation, inventories of
fixed assets, tools, spare parts and consumables) and presenting a comparison of
such Project operations with the Annual Operating Plan and the budget set forth
in the Annual Budget for such calendar year and with those obtained for the
preceding calendar year, if any.
4.5.3 Litigation; Permit Lapses. Upon obtaining knowledge thereof,
-------------------------
Operator shall submit prompt written notice of: (i) any litigation, claims,
disputes or actions, threatened or filed, concerning the Project or the Services
to be performed hereunder; (ii) any refusal or threatened refusal to grant,
renew or extend or any action pending or threatened that might affect the
granting, renewal or extension of any license, permit, approval, authorization
or consent; (iii) any dispute with any Government Agency; (iv), all penalties or
notices of violation issued by any Government Agency; and (v) any breach or
contravention of any Applicable Law, permit, license or approval; which in each
case might have a material adverse effect on the operation or maintenance of the
Project.
4.5.4 Other Information. Operator shall promptly submit to Owner
-----------------
any material information concerning new or significant aspects of the Project
operations such as, but not limited to (a) any emergency affecting the safety or
protection of Persons or endangering the Facility or property located at the
Facility, including any action taken by Operator to prevent or mitigate the
same, (b) any violation of any Applicable Law, Permit, license or approval
regarding the Facility, (c) forced outages of Major Equipment (and the causes
thereof and the corrective action taken with respect thereto), and/or planned
outages of any kind, and (d) any material deviations or discrepancies from the
projections contained in the Annual Operating Plan. Upon Owner's reasonable
request, Operator shall promptly submit to Owner such other information
concerning the Project or its Services as Owner may request, which may include
any information and certifications reasonably required by any Secured Party.
4.5.5 Records Retention. At Owner's expense, Operator shall retain
-----------------
and preserve all records, reports, documents and data, including all data
retrievable from an electronic data storage source, created in connection with
the operation and maintenance of the Project, for a period of seven (7) years or
longer periods as required by Applicable Law or the Facility Agreements from the
date of the creation of such record, report, document or datum, provided that
Operator shall notify Owner in writing at least sixty (60) days prior to the
destruction or other disposition of any record, report, document or data. If
Owner gives written notice to Operator prior to the expiration of the sixty (60)
day period, Operator will maintain custody of such material until such time as
Owner notifies Operator to dispose of such material, provided that Owner shall
make storage space available at the Facility for storage of all such materials.
If Owner does not provide written notice to Operator prior to the expiration of
the sixty (60) day period, Operator may destroy or dispose of such material and
shall provide Owner with a notice confirming such destruction or disposition.
Section 4.6 Financial Records. Operator shall keep and maintain
-----------------
complete and accurate records of its costs and expenses related to the Services
or this Agreement in accordance with generally accepted accounting principles
applied on a consistent basis. Operator shall provide Owner access to such
records for examination, copying and audit as requested from time to time by
Owner. Operator shall keep such records for a period of not less
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than seven (7) years after the year in which such records were prepared, or such
longer period as required by Law, any regulatory or other agency having
jurisdiction, or the Facility Agreements. After such time Operator shall either
continue to keep such documents or deliver the same to Owner unless otherwise
directed by Owner.
SECTION 5
COMPENSATION AND PAYMENT
Section 5.1 Compensation. As compensation to Operator for the
------------
performance of the Services, Owner shall pay Operator, in the manner and at the
times specified in this Section 5, the Annual Operating Fee as further described
herein.
Section 5.2 Reimbursable Costs. Subject to the provisions of this
------------------
Section 5, Owner shall reimburse Operator for those Reimbursable Costs incurred
by Operator while performing the Services in the manner set forth herein.
5.2.1 Manner and Times of Payment of Reimbursable Costs. On or
-------------------------------------------------
prior to the Commencement Date, Owner shall establish and maintain an O&M
operating account in a bank reasonably acceptable to Owner ("O&M Operating
Account") and will designate Operator as an additional signatory on the account.
Owner will deposit into the O&M Operating Account, subject to all applicable
Financing Agreement provisions each month, on or before a day of month to be
agreed upon by the Owner and Operator, an amount equal to (i) the amount of
Reimbursable Costs set forth in the approved Annual Budget for such month or
otherwise approved by Owner to be incurred during such month, plus or minus (ii)
the difference between the amounts deposited in the O&M Operating Account in the
preceding month and the actual amount of Reimbursable Costs incurred in that
month. On or before the 10th day of each month, Operator shall deliver to Owner
an accounting report (together with appropriate supporting invoices and
receipts) that reflects all Reimbursable Costs for the preceding month,
reconciled against the amounts deposited to the O&M Operating Account.
If at any time during the performance of its obligations, Operator
believes that, except in the case of an emergency as provided in Section 3.2.2,
actual expenses or costs in any category of the Annual Budget will exceed the
budgeted amount in such category by more than Twenty Thousand Dollars ($20,000),
during the calendar year, Operator shall notify Owner of such belief within ten
(10) days of forming such belief and shall follow Owner's directions regarding
future expenditures on Owner's behalf pursuant to this Agreement. Until such
time as Operator shall receive such directions from Owner, Operator shall
continue to operate the Project according to the terms of this Agreement as
permitted under the Annual Budget then in effect, if Operator receives an AFE or
other directions from Owner in writing or Operator and Owner otherwise agree in
writing on changes to the Annual Budget, such directions and such changes shall
then be part of the Annual Budget. Notwithstanding any provision hereof to the
contrary, Operator's obligation to perform the Services shall be subject to
Owner's adequately funding the O&M Operating Account.
5.2.2 Adjustments and Conditions. Notwithstanding the payment of
--------------------------
any amount pursuant to the foregoing provisions, no payment made pursuant to the
foregoing
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provisions shall be considered as approval or acceptance of the Services
performed hereunder and Owner shall remain entitled to conduct a subsequent
audit and review of all Reimbursable Costs incurred by Operator and paid by
Owner hereunder, together with any supporting documentation, for a period of
three (3) years from and after the close of the calendar year in which such
Reimbursable Costs were incurred. Any such audit to be conducted in the manner
set forth in Section 1.1(1) of Appendix A. If, pursuant to such audit and
review, it is determined that any amount previously paid by Owner did not
constitute a due and payable item of Reimbursable Costs, Owner may recover such
amount from Operator or deduct or cause to be deducted such amount from any
payment that thereafter may become due to Operator.
Section 5.3 Annual Operating Fee. Owner shall pay to Operator for
--------------------
the Services performed hereunder an annual operating fee (the "Annual Operating
Fee") as follows: (i) $134,000 from the Commencement Date through the first
anniversary of the Commencement Date; (ii) $100,000 from the first anniversary
of the Commencement Date through the the second anniversary of the Commencement
Date; and (iii) $84,000 for each year after the second anniversary of the
Commencement Date. On or before June 30 and December 31 of each year, Owner
will pay to Operator one-half of the Annual Operating Fee in arrears. Payment of
the Annual Operating Fee shall be pro rated for partial calendar years and
months.
Section 5.4 Reserved.
--------
Section 5.5 Changed Conditions; Change in Scope of Services. Owner
-----------------------------------------------
may by written notification to Operator make changes in, additions to, including
with respect to Section 1.2(b) of Appendix A to this Agreement, or deletions
from Operator's Services and Operator shall thereafter perform its Services in
accordance with such notification. If, (a) Owner directs Operator to perform
tasks in addition to the Services, (b) Owner directs Operator to perform the
Services differently, (c) an event of Force Majeure occurs, (d) modifications
are made to any Facility Agreement or the power purchase agreement entered into
by Owner contains terms and conditions which, in either case, alter the scope or
actions necessary to perform the Services, or (e) changes in any Applicable Law
occur, and any such event results in increased costs to Operator, Operator shall
be entitled to an adjustment reflecting the reasonable value of any such
increased costs from such event so long as Secured Party, if any, consents to
such adjustment, and the Parties agree to adjust such other provisions of this
Agreement that are directly affected by such event.
SECTION 6
TERM
Section 6.1 Term. The term (the "Term") of this Agreement shall
----
commence on the Commencement Date and, unless extended as provided below, expire
on the third anniversary of such date (the "Initial Expiration Date"). This
Agreement shall be subject to an automatic extension for an additional 3 year
period from the Initial Expiration Date (the last day of the extension period
shall be referred to as the "Extended Expiration Date"), unless either Party
informs the other in writing at least 90 days prior to the Initial or Extended
Expiration Date that it does not intend to extend the term of this Agreement.
Notwithstanding the foregoing, this Agreement is subject to earlier termination
pursuant to Sections 6.2 and 6.3.
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Section 6.2 Termination by Owner. Owner shall be permitted to
--------------------
terminate this Agreement if any of the following events occur: (i) a voluntary
Winding-Up of Operator commenced by Operator; (ii) an involuntary Winding-Up
instituted against Operator that is not stayed, dismissed or terminated within
ninety (90) days after commencement; (iii) a material default by Operator of its
obligations under this Agreement, provided Operator shall have up to thirty (30)
days after receipt of written notice by Owner to cure such default or make
substantial progress (in the reasonable opinion of Owner) towards curing such
default, if the default is capable of being cured; (iv) an event of Force
Majeure affecting Operator's performance of the Services continues for a period
of one hundred eighty (180) consecutive days (or in the case of a strike or
labor stoppage continuing for ninety (90) consecutive days unless Owner impairs
Operator's ability to resolve such strike or labor stoppage); (v) the Project or
any part thereof becomes subject to regulation as a public utility by any
Government Agency (other than the Federal Energy Regulatory Commission); (vi)
the Project is shut down by, or termination of this Agreement is required by,
any regulatory or governmental authorities having jurisdiction over the Project;
(vii) the occurrence of a total or partial failure of the Field (including,
without limitation, a substantial change in the quantity of temperature of the
Fluid) or destruction of the Project; or (viii) at Owner's convenience without
cause upon six (6) months' prior written notice. Promptly after the date of
termination, Operator shall be paid for the Services rendered by Operator
through such termination date, including all fees earned through the date of
termination (the "Termination Payment"). Except for the Termination Payment,
Owner shall not be liable for any costs incident to termination in the case of
any termination under this Section 6.2.
Section 6.3 Termination by Operator. Operator shall be permitted
-----------------------
to terminate this Agreement if any of the following events occur: (i) a payment
default by Owner that is not cured within sixty (60) days, provided Owner has
received written notice of such default; (ii) a voluntary Winding-Up of Owner
commenced by Owner; (iii) an involuntary Winding-Up of Owner instituted against
Owner, that is not stayed, dismissed or terminated within ninety (90) days after
commencement; (iv) a material default by Owner of any other obligation under
this Agreement, provided Owner shall have up to sixty (60) days after receipt of
written notice by Operator to cure such other default or make substantial
progress (in the reasonable opinion of Operator) towards cure if the default is
capable of being cured; (v) at Operator's convenience without cause upon six (6)
months' prior written notice; (vi) the Project becomes subject to regulation as
a public utility by any Government Agency (other than the Federal Energy
Regulatory Commission); or (vii) upon thirty (30) days prior written notice if
an event of Force Majeure occurs or changed condition described in Section 5.5
occurs and the Secured Party does not approve an adjustment agreed upon by Owner
and Operator. Except as otherwise provided in this Section 6.3, Operator shall
provide Owner with written notice of its intent to terminate this Agreement no
later than three (3) months prior to the date of termination.
Section 6.4 Facility Condition at End of Term; Transmission Line.
----------------------------------------------------
(a) Upon expiration or termination of this Agreement, Operator shall
assist with the transition of the operations of the Project to its
successor and shall cooperate with the successor's offering of employment
to employees at the Project. Operator shall leave the Facility and the
equipment used in the Field in as good condition as on the Commencement
Date, normal wear and tear and casualty excepted, and with the equivalent
supply of spare parts, and any other operating items (other than items for
which Owner is
21
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responsible) as were provided by Owner to Operator on the Commencement
Date, or such modified supply thereof as has been approved by Owner (and
shall be reimbursed for all Reimbursable Costs incurred in connection
therewith). All special tools, improvements, software, inventory of
supplies, spare parts, safety equipment, O&M Manuals (in each case as
provided to or obtained by or provided by Operator during the term of this
Agreement) and any other items furnished on a Reimbursable Cost basis under
this Agreement will be left at the Facility and will become or remain the
property of Owner without additional charge. Owner shall also have the
right, in its sole discretion, to directly assume and become liable for any
contracts or obligations that Operator may have undertaken with third
parties in connection with the Services. Operator shall execute all
documents and take all other reasonable steps requested by Owner that may
be required to assign to and vest in Owner all rights, benefits, interests
and title in connection with such contracts or obligations.
(b) If the Operation and Maintenance Agreement between Operator and
the Owner of the Navy II Project is terminated and this Agreement is not
simultaneously terminated, Owner and Operator shall agree on responsibility
for maintenance of the Transmission Line following termination of the Navy
II Project Operation and Maintenance Agreement.
Section 6.5 Termination Costs. In the event of a termination of
-----------------
this Agreement by Owner pursuant to clauses (i), (ii), or (iii) of Section 6.2
or a termination of this Agreement by Operator pursuant to clause (v) of Section
6.3, Owner shall be entitled to recover from Operator any damages, fines or
penalties for which Operator is liable hereunder.
SECTION 7
INSURANCE
Section 7.1 General. The provisions of this Section 7 do not
-------
modify, change or abrogate any responsibility of Operator stated elsewhere in
this Agreement. Owner assumes no responsibility for the solvency of any insurer
or the failure of any insurer to settle any claim. A summary of certain
provisions of Operator's and Owner's policies are set forth below.
Section 7.2 Operator Insurance. Subject to Owner's approval,
------------------
Operator shall obtain and maintain, or cause to be obtained and maintained, as a
Reimbursable Cost, the insurance set forth below as and from the Commencement
Date:
Statutory workers' compensation insurance, including coverage for
Longshoremen's and Federal Harbor Workers Act, if applicable, and with
minimum Employer Liability limits of $1,000,000.
Section 7.3 Owner Insurance. Owner shall secure, at its sole
---------------
expense, prior to the Commencement Date and maintain in effect during the term
hereof the following insurance subject to the availability of same at reasonably
commercial terms:
(i) Comprehensive General Liability insurance with minimum limits
of $10,000,000 per occurrence including premises/operations,
explosion,
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collapse and underground hazards, broad form contractual,
products/completed operations and personal injury.
(ii) Comprehensive Automobile Liability Insurance for all owned,
non-owned and hired vehicles in a minimum amount of $1,000,000
per occurrence.
(iii) Broad form all risk property insurance on a replacement cost
basis, with limits acceptable to Secured Party.
Operator will explore with its insurers whether it is possible to
include Owner's insurance obligations set forth in this Section with Operator's
insurance coverage and to include such insurance expenses as Reimbursable Costs.
Section 7.4 Form and Content. All policies, binders or interim
----------------
insurance contracts with respect to insurance maintained under this Section 7
shall:
(a) be placed with insurance companies that are acceptable to Owner
and Secured Party, and for policies procured by Owner, shall name Operator
as an additional insured to the extent of its interest; provided, that
Operator shall have no interest with respect to business interruption
coverage or property insurance;
(b) include as named insureds Owner, each Partner, Secured Party and
Operator and the officers, directors, affiliates and employees of each of
them with respect to such parties' interest in the Project and/or
operations and maintenance activities on behalf of Owner, and include such
other parties as additional insureds as Owner deems necessary;
(c) provide for general liability coverage either in a single policy
or through a combination of policies. Such policy or combination of
policies shall have deductibles not to exceed $100,000 for each claim for
loss or damage and include blanket contractual, broad form property damage,
severability of interests or cross liability for named or additional
insureds and independent contractor coverage;
(d) be primary with respect to any other insurance coverages
available to Owner or Operator or the additional insureds and not be in
excess to, or contributing with, any insurance maintained by any other
Person and that all provisions, except the policy limits, shall operate in
the same manner as if there were a separate policy covering such insured
under each such policy;
(e) provide for no recourse for payment of any premium against Owner,
Secured Party or additional insureds for Operator furnished insurance under
Section 7.2 and no recourse for payment of any premium against Operator,
Secured Party or additional insureds for Owner furnished insurance under
Section 7.3;
(f) waive (i) any right of subrogation of the insurers thereunder
against Owner, Operator, Secured Party or additional insureds and the
officers, directors, employees, agents and representatives of each of them,
and (ii) any right of the insurers to
23
<PAGE>
any setoff or counterclaim or any other deduction, whether by attachment or
otherwise, in respect of any liability of any such Person insured under
such policy;
(g) expressly provide that it may not be canceled or materially
changed without giving Owner or Operator, as the case may be, and Secured
Party sixty (60) days prior written notice thereof except in the case of
non-payment for which the later of twenty (20) days prior notice thereof or
such period agreed to by the relevant insurer shall be provided; and
(h) not be invalidated by any action or inaction of any additional
insured and shall insure each such insured regardless of any breach or
violation of any warranty, declaration or condition contained in such
insurance by the primary named insured.
Section 7.5 Certificates; Proof of Loss. On or before the required
---------------------------
date for the insurance to be provided hereunder, each Party shall furnish
certificates of insurance to the other Party evidencing the insurance required
hereunder. The Party maintaining each insurance policy hereunder shall make
proofs of loss under each such policy and shall take all other action reasonably
required to ensure collection from insurers for any loss under any such policy,
except that Owner may at its discretion require Operator to provide such proof
of loss and take such other action on behalf of Owner in the case of the
insurance maintained by Owner pursuant to Section 7.3. Operator shall provide
Owner with copies of the insurance policies obtained by it promptly upon receipt
thereof.
SECTION 8
INDEMNIFICATION
Section 8.1 By Operator.
-----------
8.1.1 General Indemnity. Subject to the provisions of Section 9,
-----------------
Operator shall indemnify, defend and hold harmless the Owner Indemnified Parties
from and against any and all suits, actions, liabilities, legal proceedings,
claims, demands, losses, costs and expenses of whatsoever kind or character,
including reasonable attorneys' fees and expenses, for injury or death of
persons or physical loss of or damage to property of Persons arising from
Operator's (including its employees or agents) gross negligence or willful
misconduct in connection with performance of the Services.
8.1.2 Indemnity for Violation of Law. Subject to the provisions of
------------------------------
Section 9, Operator shall also indemnify, defend and hold harmless the Owner
Indemnified Parties from and against any and all regulatory penalties or fines
and reasonable expenses (including attorneys' fees and expenses whether at the
trial or appellate level) arising from Operator's violation of any Law, license,
permit, or government approval.
8.1.3 Indemnity for Patent Infringement. If any of the Services
---------------------------------
would infringe upon any patent, trademark or copyright or would involve the
unauthorized use of a third Person's trade secrets, Operator agrees to render
consultation, assistance and modifications to the Services as necessary to avoid
such infringement or unauthorized use. If any Owner Indemnified Party is
charged with infringement or unauthorized use by reason of the Services or
24
<PAGE>
of the operation of the Project by Operator, subject to the provisions of
Section 9, Operator agrees to fully defend and indemnify such Owner Indemnified
Party from any and all suits, actions, liabilities, legal proceedings, claims,
demands, losses, costs and expenses and shall settle such claim, action,
proceeding or suit (at Operator's expense) without impairing the operation of
the Project.
8.1.4 Costs. It is understood and agreed by the Parties that any
-----
costs or expenses incurred by Operator pursuant to its indemnity obligations
under this Section 8.1 shall not constitute Reimbursable Costs.
Section 8.2 By Owner.
--------
8.2.1 General Indemnity. Subject to the provisions of Section 9,
-----------------
Owner shall indemnify, defend and hold harmless the Operator Indemnified Parties
from and against any and all suits, actions, liabilities, legal proceedings,
claims, demands, losses, costs and expenses of whatsoever kind or character,
including reasonable attorneys' fees and expenses, for injury or death of
persons or physical loss of or damage to property of Persons and entities other
than Operator arising from Owner's (including its employees or agents) gross
negligence or willful misconduct in connection with the performance of Owner's
obligations hereunder.
8.2.2 Indemnity for Violation of Law. Subject to the provisions of
------------------------------
Section 9, Owner shall also indemnify, defend and hold harmless the Operator
Indemnified Parties from and against any and all regulatory penalties or fines
(other than any Environmental Claims which shall be governed by Section 9), and
reasonable expenses (including attorneys' fees and expenses whether at the trial
or appellate level) arising from Owner's violation of any Law, license, permit,
or government approval, including (i) with respect to any claim based on
identifying COC as the operator of the Project in Project permits, and (ii) with
respect to the performance of Owner's obligations under Section 1.2(b) of
Appendix A hereto, provided that with respect to any such penalties, fines or
expenses included in (i) or (ii) the limitation of liability contained in
Section 9.1 shall not apply.
Section 8.3 Cooperation Regarding Claims. If any Party hereto
----------------------------
(each an "Indemnified Party") shall receive notice or have knowledge of any
claim that may result in a claim for indemnification by such Indemnified Party
against a Party pursuant to Section 8 or 9, such Indemnified Party shall, as
promptly as possible, give the indemnifying Party notice of such claim,
including a reasonably detailed description of the facts and circumstances
relating to such claim, and a complete copy of all notices, pleadings and other
papers related thereto, and in reasonable detail the basis for its potential
claim for indemnification with respect thereto; provided that failure promptly
to give such notice or to provide such information and documents shall relieve
the indemnifying Party from the obligation hereunder to respond to or to defend
the Indemnified Party failing to give such notice against such claim only to the
extent such failure prejudiced the interests of the indemnifying party with
respect to such claim. The Party against whom indemnification is claimed shall,
upon its acknowledgment in writing of its obligation to indemnify the
Indemnified Party seeking indemnification, be entitled to assume the defense or
to represent the interests of the Indemnified Party seeking indemnification in
respect of such claim, which shall include the right to select and direct legal
counsel and other consultants, appear in proceedings on behalf of such
Indemnified Party and to propose, accept or reject offers of
25
<PAGE>
settlement, all at its sole cost; provided, however, that without the
Indemnified Party's consent, which consent may not be unreasonably withheld, the
indemnifying Party may only consent to entry of a judgment or settlement that
does not provide for injunctive or other nonmonetary relief affecting the
Indemnified Party.
SECTION 9
LIABILITIES OF THE PARTIES
Section 9.1 Limitations of Liability. Notwithstanding any
------------------------
provision herein to the contrary, neither Party nor any of their respective
shareholders, partners, principals, Affiliates, officers, directors, agents,
subcontractors or employees shall be liable hereunder for consequential or
indirect loss or damage, including loss of Energy and Capacity Revenues, loss of
profit and anticipated revenues, cost of capital, loss of goodwill, increased
operating costs or any other special or incidental damages. The Parties further
agree that the waivers and disclaimers of liability, indemnities, releases from
liability, and limitations on liability expressed herein shall survive
termination or expiration of this Agreement, and shall apply at all times,
whether in contract, equity, tort or otherwise, regardless of the fault,
negligence (in whole or in part), strict liability, breach of contract or breach
of warranty of the Party indemnified, released or whose liabilities are limited,
and shall extend to the shareholders, partners, principals, Affiliates,
directors, officers and employees, agents and related or affiliated entities of
such Party, and their shareholders, partners, principals, Affiliates, directors,
officers and employees.
Section 9.2 Environmental Liability.
-----------------------
9.2.1 Prior to the Commencement Date. Owner alone shall be solely
------------------------------
responsible for present or future Environmental Claims directly or indirectly
related to or arising out of the actual or alleged existence, generation, use,
collection, treatment, storage, transportation, recovery, removal, discharge or
disposal of Hazardous Materials present at, in or under the Project and/or
adjacent areas prior to the Commencement Date. Owner shall defend, indemnify and
hold Operator harmless against all such Environmental Claims.
9.2.2 After the Commencement Date. Operator shall be responsible for
---------------------------
transporting and/or disposing Hazardous Materials off the Facility Site in
compliance with applicable Laws and shall be responsible for all Environmental
Claims directly or indirectly related to or arising out of the actual or alleged
generation, use, collection, storage, recovery, removal, discharge or disposal
of Hazardous Materials at the Project and/or adjacent areas other than in
compliance with applicable Laws arising after the Commencement Date except to
the extent that such generation, use, collection, storage, recovery or removal
is due to the negligence or intentional misconduct of Owner. Subject to the
provisions of Section 9.4 Operator shall defend, indemnify and hold Owner and
each Owner Indemnified Party harmless against all such Environmental Claims for
which Operator is responsible.
Section 9.3 Limitation of Owner's Liability. Subject to Operator's
-------------------------------
rights under Sections 5, 6, 7, 8, 9 and 13, Operator's remedy for breach of this
Agreement by Owner shall be to terminate this Agreement pursuant to Section 6.
Notwithstanding anything to the contrary herein, it is specifically understood
and agreed that there shall be absolutely no personal
26
<PAGE>
liability or recourse for the payment of any amounts due hereunder, or the
performance of any obligations hereunder against any employee, shareholder,
partner, member, officer or director, whether past, present or future, of Owner,
any direct or indirect parent company or any Affiliate thereof, and Operator
shall look solely to the assets of Owner for the satisfaction of each and every
remedy of Operator in the event of any breach by Owner; provided, however that
nothing herein shall relieve any of the foregoing Persons from liability for
such Person's willful misconduct or gross negligence.
Section 9.4 Limitation of Operator's Liability. Operator's
----------------------------------
liability hereunder shall be limited as follows:
9.4.1 Liability for Loss or Damage to the Facility. Unless such
--------------------------------------------
loss or damage arises through the gross negligence or willful misconduct of
Operator, its employees or its agents, Operator's liability for any loss of or
damage to the Project, or any other property in the care, custody or control of
Operator (including loss or damage to spare parts and materials) shall be
limited to the proceeds of the insurance described in Section 7.
9.4.2 Operator's Total Aggregate Liability. The total aggregate
------------------------------------
liability of Operator to Owner for all liability arising out of or in connection
with the performance of the Services, Operator's obligations hereunder or the
operation of the Project in any calendar year under any theory of recovery,
whether based in contract, in tort (including negligence and strict liability),
under warranty or otherwise, and notwithstanding any other provisions of this
Agreement shall equal the sum of the Annual Operating Fee payable during the
calendar year in which the action or inaction giving rise to the claim for
indemnity occurred whether or not actually paid.
9.4.3 No Recourse. Notwithstanding anything to the contrary herein,
-----------
it is specifically understood and agreed that there shall be absolutely no
personal liability or recourse for the payment of any amounts due hereunder, or
the performance of any obligations hereunder against any employee, shareholder,
partner, officer or director, whether past, present or future, of Operator, any
direct or indirect parent corporation or any Affiliate thereof, and Owner shall
look solely to the assets of Operator for the satisfaction of each and every
remedy of Owner in the event of any breach by Operator; provided, however that
nothing herein shall relieve any of the foregoing Persons from liability for
such Person's willful misconduct or gross negligence.
Section 9.5 Section 1542. Owner and Operator do not believe that
------------
this Agreement is governed by Section 1542 of the California Civil Code, which
provides that:
A General Release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
To the extent that Section 1542 may be deemed to govern Section 9 of this
Agreement, Owner and Operator each knowingly and voluntarily waives the
provisions of Section 1542 and acknowledges and agrees that this waiver is an
essential and material term of this Agreement and without the waiver the
Agreement would not have been entered into. Each of Owner and
27
<PAGE>
Operator have been advised by its legal counsel and understands and acknowledges
the significance and consequences of this Agreement and of this specific waiver
of Section 1542.
SECTION 10
TITLE, DOCUMENTS AND DATA
Section 10.1 Materials and Equipment. Title to all materials,
-----------------------
equipment, software, supplies, consumables, spare parts and other items
purchased or obtained by Operator on a Reimbursable Cost basis hereunder shall
pass immediately to and vest in Owner or its designee upon the passage of title
from the vendor or supplier thereof; provided, however, that such transfer of
title shall in no way affect Operator's obligations as set forth in the other
provisions hereof; provided, further, that Operator shall not invoice Owner for
materials and equipment unless and until title has passed.
Section 10.2 Documents; Proprietary Information. All materials and
----------------------------------
documents prepared or developed by Operator or its employees, representatives or
contractors solely in connection with the Project or the performance of the
Services shall become the property of Owner when prepared. Operator makes no
warranty regarding the use of such material by Owner (i) other than in
connection with the Project or (ii) after the termination of this Agreement.
Notwithstanding the foregoing, where materials or documents prepared or
developed by Operator or its employees, representatives or contractors contain
proprietary or technical information, systems, techniques, or know-how
previously known to Operator or its contractors or previously acquired by
Operator or its contractors from third parties, Operator or its contractors
shall have the unrestricted right to use or dispose of such information,
systems, techniques, or know-how as they see fit; provided, however, that Owner
shall have the right to utilize the same in connection with the Project without
cost to Owner. All such materials and documents, together with any materials
and documents furnished to Operator or to its contractors by Owner, shall be
delivered to Owner upon expiration or termination of this Agreement and before
final payment is made to Operator; provided that Operator may retain and use
copies of all such materials and documents prepared by Operator subject to the
terms of Section 13 hereof.
Section 10.3 Review by Owner. In addition, all such materials and
---------------
documents shall be available for review by Owner at all reasonable times during
development and promptly upon completion. All such materials and documents
required to be submitted for the approval of Owner shall be prepared and
processed in accordance with the requirements and specifications set forth in
the O&M Manuals. Owner's approval of materials and documents submitted by
Operator shall not relieve Operator of its responsibility for the correctness
thereof or of its obligation to meet all the requirements hereof.
28
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SECTION 11
REPRESENTATIONS AND WARRANTIES
Section 11.1 Operator Representations and Warranties. Operator
---------------------------------------
represents and warrants to Owner that:
11.1.1 Organization and Good Standing. Operator is a corporation
------------------------------
duly organized, validly existing, and in good standing under the laws of
Florida.
11.1.2 Enforceability. This Agreement constitutes the legal, valid,
--------------
and binding obligation of Operator except as enforceability may be limited by
(i) applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the rights of creditors generally and (ii) general principles of
equity.
11.1.3 Due Authorization. The execution, delivery, and performance
-----------------
of this Agreement by Operator has been duly authorized by all requisite action
and will not conflict with any provisions of any Law, or any agreement or
instrument to which it is a party or by which it, its property or assets may be
bound or affected.
11.1.4 Licenses. Operator is the holder of all necessary
--------
governmental consents, licenses, permits or other authorizations required to
operate or conduct its business as contemplated herein.
11.1.5 Qualifications and Skill of Operator. Operator is qualified
------------------------------------
to operate and maintain the Project and to provide the services contemplated by
this Agreement. All personnel employed by Operator to perform its obligations
hereunder shall be qualified to perform such obligations and shall be
experienced or shall be properly trained in performing the tasks which they
shall perform.
Section 11.2 Owner Representations and Warranties. Owner
------------------------------------
represents and warrants to Operator that:
11.2.1 Organization and Good Standing. Each of CED and CTLP is a
------------------------------
general partnership duly organized, validly existing, and in good standing under
the laws of the State of California. COC is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State of
Delaware.
11.2.2 Enforceability. This Agreement constitutes the legal, valid,
--------------
and binding obligation of Owner except as enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally and (ii) general principles of
equity.
11.2.3 Due Authorization. The execution, delivery, and performance
-----------------
of this Agreement by Owner has been duly authorized by all requisite action and
will not conflict with any provisions of any Law, or any agreement or instrument
to which it is a party or by which it, its property or assets may be bound or
affected.
29
<PAGE>
11.2.4 Facility Agreements. Prior to Commencement Date, Owner will
-------------------
provide Operator with complete and correct copies of the Facility Agreements
described on Appendix B.
SECTION 12
FORCE MAJEURE
Section 12.1 Excused Performance. Except for the obligation to
-------------------
make payments for the Services actually rendered hereunder, either Party shall
be excused from performance and shall not be considered to be in default in
respect to any obligation hereunder, if failure of performance shall be due to
an event of Force Majeure.
Section 12.2 Notice of Force Majeure. If either Party's ability to
-----------------------
perform its obligations hereunder is affected by an event of Force Majeure, such
Party shall promptly, upon learning of such event of Force Majeure and
ascertaining that it will affect its performance hereunder, give notice to the
other Party within 48 hours of its discovery stating the nature of the event,
its anticipated duration and any action being taken to avoid or minimize its
effect. The burden of proof shall be on the Party asserting excuse from
performance due to such event of Force Majeure.
Section 12.3 Scope. The suspension of performance shall be of no
-----
greater scope and no longer duration than that which is absolutely necessary.
The excused Party shall use its reasonable best efforts to remedy its inability
to perform and to mitigate any damage as a result thereof.
SECTION 13
CONFIDENTIAL INFORMATION
Section 13.1 Non-disclosure. Each Party agrees to hold in
--------------
confidence any information imparted to it by the other Party which pertains to
Owner's or Operator's business activity in any manner, and which is not the
subject of general public knowledge, including, without limitation, proprietary
processes, technical information and know-how, information concerning Owner's
other projects, management policies, economic policies, financial and other data
and the like. This obligation shall continue to remain in full force and effect
during the Term of this Agreement and for two (2) years after the date of
termination or expiration of this Agreement. The preceding non-disclosure
requirements shall not apply to:
(i) information furnished without restriction by one Party to the
other Party prior to the Commencement Date;
(ii) information in the public domain; or
(iii) information obtained by one Party from a third Person not under
an obligation of non-disclosure to Owner or Operator, as the
case may be.
Section 13.2 Disclosure to Government Agency. Either Party may
-------------------------------
disclose any such information to the extent that such Party is required by any
Government Agency to
30
<PAGE>
make such disclosure. If a Party becomes legally compelled to disclose any of
such confidential information, such Party shall provide the other Party with
prompt notice so that the other Party may seek to obtain a protective order or
other appropriate remedy.
In addition, Owner may disclose such information to the extent that
such disclosure is required by Secured Party, the Facility Agreements, any
prospective Secured Party, any prospective member of Owner, independent
engineer, power purchaser, SCE, any supplier to the Project and any Person
providing any type of interconnection services to the Project, it being
understood that prior to any disclosure of such information, such Persons shall
be informed of the confidential nature of the information and shall agree (i) to
keep the information confidential and (ii) to the other terms of Section 13 of
this Agreement.
SECTION 14
MISCELLANEOUS PROVISIONS
Section 14.1 Assignment. This Agreement shall not be assignable by
----------
either Party without the prior written consent of the other Party.
Notwithstanding the foregoing, this Agreement may be assigned to Secured Party
as security for Secured Party's financing of the Project and, with ninety (90)
days prior written notice to Operator: (i) to the successor of Owner, (ii) to a
Person acquiring all or a controlling interest in the business assets of Owner,
(iii) to a wholly-owned subsidiary of Owner, or (iv) in connection with a sale
or transfer of the Project by Secured Party; provided that any such assignment
(except pursuant to paragraph (iv)) shall not relieve the assigning Party of any
of its obligations under this Agreement.
Notwithstanding the foregoing or any provisions of this Agreement to
the contrary, if default shall occur in the observance of performance of any of
the covenants or conditions required to be observed or performed by Owner
hereunder, Operator agrees that it will (a) give each Secured Party who has been
identified, in writing, by Owner as a Secured Party prompt written notice of
such default and of the nature thereof (such notice to be delivered to the
address for each Secured party provided by Owner to Operator), (b) advise such
Secured Party as to the action Operator proposes to take in respect of such
default, and (c) not take action to enforce any of its rights or remedies
hereunder prior to the expiration of a 30-day period following the giving of the
notice in clause (a) above.
If the default has not been remedied by Owner within twenty (20) days
after the giving of such notice, the Secured Party shall have the right (but not
the obligation) at any time prior to the expiration of the thirty (30) day
period referred to in (c) above to remedy such default, and Operator agrees to
accept the payment or performance tendered (if in compliance with the terms
hereof) as constituting payment or performance by Owner for all purposes hereof.
Section 14.2 Entire Agreement and Amendments. This Agreement
-------------------------------
embodies the entire agreement between the Parties relating to the subject matter
hereof. The Parties shall not be bound by or liable for any documents proposed
or submitted prior to the date of this Agreement and not incorporated in this
Agreement (by reference or otherwise), or for any statement, representation,
promise, inducement or understanding of any kind or nature relating to the
Services or any other matter covered by this Agreement which is not set forth or
provided for
31
<PAGE>
herein. This Agreement shall be binding upon and shall inure to the benefit of
the successors and permitted assigns of the Parties. No changes, amendments or
modifications of any of the terms or conditions of this Agreement shall be valid
unless set forth in writing and signed by each of the Parties. Unless and until
Operator shall have received written notice from the Secured Party that the lien
of any security agreements between Secured Party and Owner has been released no
amendment or modification of any of the provisions of this Agreement shall be
effective unless the Secured Party shall have joined in such amendment,
modification or shall have given its prior written consent thereto.
Section 14.3 Survival. Notwithstanding any provisions herein to
--------
the contrary, the obligations set forth in Sections 5, 6, 8 and 13 and the
limitations on liabilities set forth in Section 9 shall survive in full force
the expiration or termination of this Agreement.
Section 14.4 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or such unenforceability and
shall not invalidate the enforceable portions of such provision or the remaining
provisions of this Agreement or affect the validity or enforceability of any
such provision in any other jurisdiction. Except as otherwise provided for
herein, the remedies expressly afforded hereunder to Owner and Operator,
respectively, are in addition to any other remedies provided at law or in
equity.
Section 14.5 Waiver. None of the provisions of this Agreement
------
shall be considered waived by a Party unless such waiver is in writing and
signed by such Party. No waiver shall be construed as a modification of any of
the provisions of this Agreement or as a waiver of any default (present or
future) hereunder or breach hereof, except as expressly stated in such waiver.
Section 14.6 Notices. All notices required or permitted under this
-------
Agreement shall be in writing and shall be hand-delivered or sent by certified
or registered mail, return receipt requested, facsimile or commercial delivery
subject to written record of receipt, to Owner or Operator, as the case may be,
at their respective addresses set forth below, or to such other addresses as may
be designated by notice given as herein required. All notices shall be effective
upon first receipt as evidenced by written record of delivery or confirmation of
transmission.
Owner and Operator: Coso Energy Developers
------------------ c/o Cathness Energy, L.L.C.
1114 Avenue of the Americas
41st Floor
New York, New York 10036-7790
Attention: President
Facsimile No.: (212) 921-9239
with a copy to: Caithness Energy, L.L.C.
350 Indiana Street
Suite 601
Golden, Colorado 80401
32
<PAGE>
Facsimile No.: (303) 279-3486
Operator: FPL Energy Operating Services, Inc.
-------- 700 Universe Boulevard
Juno Beach, Florida 33408
Attention: Vice President - Operations
Facsimile No.: (561) 691-7309
FPL Energy Operating Services, Inc.
c/o FPLE West Region
6952 Preston Avenue
Livermore, CA 94552
Attention: Vice President - Operations
Facsimile No.: (925) 455-3101
Section 14.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
REGARD TO CONFLICT OF LAW PRINCIPLES.
Section 14.8 Further Assurances. If either Party reasonably
------------------
determines that any further instruments or any other acts or things are
necessary or desirable to carry out the terms of this Agreement, the other Party
will execute and deliver all such instruments and assurances and do all such
things as the first Party reasonably deems necessary or desirable to carry out
the terms of this Agreement (at the cost of the first Party).
Section 14.9 No Third Person Rights. Except for the provisions of
----------------------
Sections 14.1 and 14.2 to which the Secured Party is an intended third party
beneficiary, this Agreement is not for the benefit of any Person other than the
Parties, and no other Person shall be deemed to be a third party beneficiary
hereof or entitled to any benefits hereunder.
Section 14.10 Dollars. All payments made to be made by either
-------
Party to the other hereunder shall be in Dollars.
Section 14.11 Counterparts. This Agreement may be executed in
------------
more than one counterpart, each of which shall be deemed to be an original.
Section 14.12 Strikes. In the event of a whole or partial
-------
nonoperation of the Facility due to a strike or other form of labor action by
Operator's personnel, Owner shall have the right to continue operating the
Facility and to retain such other personnel or agents as Owner in its sole
discretion deems necessary or advisable for such purposes. Owner shall have no
obligation to pay the Annual Operating Fee for the period during which Owner
operates the Facility.
33
<PAGE>
[Remainder of the page intentionally left blank; signature page immediately
following]
34
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first set forth above.
OWNER:
COSO ENERGY DEVELOPERS
By NEW CHIP COMPANY, LLC
By: /s/ Christopher T. McCallion
---------------------------------
Name: Christopher T. McCallion
Title: Executive Vice President
COSO OPERATING COMPANY LLC
By: /s/ Christopher T. McCallion
---------------------------------
Name: Christopher T. McCallion
Title: Executive Vice President
COSO TRANSMISSION LINE PARTNERS
By: COSO ENERGY DEVELOPERS
By: NEW CHIP COMPANY, LLC
By: /s/ Christopher T. McCallion
---------------------------------
Name: Christopher T. McCallion
Title: Executive Vice President
Operator:
FPL ENERGY OPERATING SERVICES, INC.
By: /s/ John A. Keener
---------------------------------
Name: John A. Keener
Title: Vice President
35
<PAGE>
Exhibit 10.57
OPERATION AND MAINTENANCE AGREEMENT
(NAVY II PROJECT)
Dated as of May 28, 1999
among
COSO POWER DEVELOPERS
and
COSO OPERATING COMPANY LLC
and
COSO TRANSMISSION LINE PARTNERS
and
FPL ENERGY OPERATING SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1 DEFINITIONS AND INTERPRETATION.................................... 1
Section 1.1 Definitions....................................................... 1
Section 1.2 Interpretation.................................................... 9
Section 1.3 Technical Meanings................................................ 9
Section 1.4 Headings.......................................................... 9
Section 1.5 Interpretation; Precedence........................................ 9
Section 1.6 Status of Operator and Owner...................................... 9
SECTION 2 RESPONSIBILITIES OF OPERATOR...................................... 10
Section 2.1 Scope of Services................................................. 10
Section 2.2 Standards for Performance of the Services......................... 10
Section 2.3 Personnel Standards............................................... 11
Section 2.4 Approvals and Permits............................................. 11
Section 2.5 Operating Data and Records........................................ 11
Section 2.6 No Liens or Encumbrances.......................................... 12
Section 2.7 Preservation of Warranties........................................ 12
Section 2.8 Emergency Action.................................................. 12
Section 2.9 O&M Manuals....................................................... 12
Section 2.10 Subcontractors.................................................... 12
Section 2.11 Access............................................................ 13
Section 2.12 Cooperation with Other Contractors................................ 13
SECTION 3 LIMITATIONS ON AUTHORITY OF OPERATOR.............................. 13
Section 3.1 Agency............................................................ 13
Section 3.2 General Limitations............................................... 14
Section 3.3 Execution of Documents............................................ 15
SECTION 4 PROCEDURES, PLANS AND REPORTING................................... 15
Section 4.2 O&M Manuals....................................................... 15
Section 4.3 Annual Facility Operating Plan and Budget......................... 16
Section 4.4 Availability of Operating Data and Records........................ 17
Section 4.5 Accounts and Reports.............................................. 17
Section 4.6 Financial Records................................................. 18
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 5 COMPENSATION AND PAYMENT................................. 19
Section 5.1 Compensation............................................. 19
Section 5.2 Reimbursable Costs....................................... 19
Section 5.3 Annual Operating Fee..................................... 20
Section 5.4 Reserved................................................. 20
Section 5.5 Changed Conditions; Change in Scope of Services.......... 20
SECTION 6 TERM..................................................... 20
Section 6.1 Term..................................................... 20
Section 6.2 Termination by Owner..................................... 21
Section 6.3 Termination by Operator.................................. 21
Section 6.4 Facility Condition at End of Term; Transmission Line..... 21
Section 6.5 Termination Costs........................................ 22
SECTION 7 INSURANCE................................................ 22
Section 7.1 General.................................................. 22
Section 7.2 Operator Insurance....................................... 22
Section 7.4 Form and Content......................................... 23
Section 7.5 Certificates; Proof of Loss.............................. 24
SECTION 8 INDEMNIFICATION.......................................... 24
Section 8.1 By Operator.............................................. 24
Section 8.2 By Owner................................................. 25
Section 8.3 Cooperation Regarding Claims............................. 25
SECTION 9 LIABILITIES OF THE PARTIES............................... 26
Section 9.1 Limitations of Liability................................. 26
Section 9.2 Environmental Liability.................................. 26
Section 9.3 Limitation of Owner's Liability.......................... 26
Section 9.4 Limitation of Operator's Liability....................... 27
Section 9.5 Section 1542............................................. 27
SECTION 10 TITLE, DOCUMENTS AND DATA................................ 28
Section 10.1 Materials and Equipment.................................. 28
Section 10.2 Documents; Proprietary Information....................... 28
Section 10.3 Review by Owner.......................................... 28
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 11 REPRESENTATIONS AND WARRANTIES................................. 29
Section 11.1 Operator Representations and Warranties........................ 29
Section 11.2 Owner Representations and Warranties........................... 29
SECTION 12 FORCE MAJEURE.................................................. 30
Section 12.1 Excused Performance............................................ 30
Section 12.2 Notice of Force Majeure........................................ 30
Section 12.3 Scope.......................................................... 30
SECTION 13 CONFIDENTIAL INFORMATION....................................... 30
Section 13.1 Non-disclosure................................................. 30
Section 13.2 Disclosure to Government Agency................................ 30
SECTION 14 MISCELLANEOUS PROVISIONS....................................... 31
Section 14.1 Assignment..................................................... 31
Section 14.2 Entire Agreement and Amendments................................ 31
Section 14.3 Survival....................................................... 32
Section 14.4 Severability................................................... 32
Section 14.5 Waiver......................................................... 32
Section 14.6 Notices........................................................ 32
Section 14.7 GOVERNING LAW.................................................. 33
Section 14.8 Further Assurances............................................. 33
Section 14.9 No Third Person Rights......................................... 33
Section 14.10 Dollars........................................................ 33
Section 14.11 Counterparts................................................... 33
Section 14.12 Strikes........................................................ 33
</TABLE>
Appendix A SCOPE OF SERVICES
Appendix B FACILITY AGREEMENTS
Appendix C EMPLOYMENT
Appendix D FORM OF AFE
iii
<PAGE>
OPERATION AND MAINTENANCE AGREEMENT
(NAVY II PROJECT)
THIS OPERATION AND MAINTENANCE AGREEMENT FOR NAVY II PROJECT (the
"Agreement") dated as of May 28, 1999 is made and entered into by and between
Coso Power Developers, a California general partnership ("CPD"), Coso Operating
Company LLC, a Delaware limited liability company ("COC"), Coso Transmission
Line Partners, a California general partnership ("CTLP") (CPD, COC and CTLP
collectively, the "Owner"), and FPL Energy Operating Services, Inc., a Florida
corporation ("Operator").
RECITALS
--------
WHEREAS, CPD owns a three unit 90 megawatt geothermal small power
production facility, steam production wells, a resource gathering and injection
system and related equipment and facilities commonly known as the Navy II
Project located in Inyo County, California;
WHEREAS, COC is identified as the operator under certain permits to
operate issued by the Great Basin Unified Air Pollution Control District in
connection with the Navy II Project;
WHEREAS, CTLP owns the Transmission Line, interconnection to the
Transmission Line, the switchgear, and certain common control and support
facilities and certain real property, fixtures and buildings located on the
Facility Site;
WHEREAS, Owner wishes to engage Operator to perform operation and
maintenance services for the Navy II Project, and Operator is willing to provide
such services, all on the terms provided herein.
NOW, THEREFORE, in consideration of the mutual covenants, undertakings
and conditions set forth below, the Parties agree as follows:
SECTION 1
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions. Except as otherwise expressly provided
-----------
or unless the context otherwise requires, the capitalized terms set forth below
where used in this Agreement (including the Recitals and Appendices) have the
following meanings:
"Actual O&M Expenses" shall mean the actual amount of Reimbursable
Costs incurred during a calendar month.
"Administrative Procedures Manual" has the meaning assigned to such
term in Section 4.2.
<PAGE>
"Affiliate" means any entity owned by, owning, controlled by,
controlling or under common control or ownership with Operator or Owner or any
partner of Operator or Owner, as the case may be. "Control" of a Person
(including, with correlative meanings, the terms "controlled by" or "under
common control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"AFE" or "Authorization for Expenditure" shall mean a document in the
form shown in Appendix D whereby Owner authorizes Operator to perform work and
authorizes the expenditure of funds therefor.
"Agreement" means this Operation and Maintenance Agreement between
Owner and Operator, including all Appendices, as the same may be modified or
amended from time to time in accordance with the provisions hereof.
"Annual Budget" has the meaning assigned to such term in Section 4.3.
"Annual Operating Plan" has the meaning assigned to such term in
Section 4.3.
"Annual Operating Fee" has the meaning assigned to such term in
Section 5.3.
"Appendices" means, collectively, the following appendices to this
Agreement, which are incorporated herein and made a part hereof:
Appendix A -- Scope of Services
Appendix B -- Facility Agreements
Appendix C Employment
Appendix D Form of AFE
"Applicable Law" shall mean any law, rule, regulation, permit,
license, approval, franchise, requirement or order of any federal, state or
local agency, court or other governmental body, applicable from time to time to
the construction, equipping, testing, start-up, financing, ownership, leasing or
operation of the Project or the performance of any obligations under any
agreement entered into with respect to the Project.
"BLM" means the United States Department of the Interior, Bureau of
Land Management.
"BLM Partnership" means Coso Energy Developers, a California general
partnership which owns the BLM Project.
"BLM Project" means the three unit 90 megawatt geothermal small power
production facility, steam production wells, a resource gathering and injection
system, power transmission lines and related equipment and facilities located on
lands leased from the BLM in Inyo County, California.
2
<PAGE>
"Budgeted O&M Expenses" shall mean the operation, maintenance and
repair costs for the Project set forth in the Annual Budget for each month.
"Business Day" means any day on which commercial banks are authorized
to open or are not required to close in New York, New York.
"Commencement Date" means the closing date of this Agreement.
"CTLP" means Coso Transmission Line Partners, a California general
partnership, owned 50% by the BLM Partnership and 50% by the Navy II
Partnership.
"Dollar" or "$" means the lawful currency of the United States of
America.
"Energy and Capacity Revenues" means, with respect to any month or
reference period, including, without limitation, an Operating Year, gross
revenues received by Owner during such period from all sales of electric energy
and capacity generated by the Facility.
"Environmental Claim" means, with respect to any Person, any and all
suits, sanctions, liabilities, legal proceedings, claims, demands, losses, costs
and expenses of whatsoever kind or character, including reasonable attorneys'
fees (whether at the trial or appellate level), civil fines or penalties or
other expenses incurred, assessed or sustained by or against such Person as a
result of or in connection with any Environmental Law.
"Environmental Law" means any Law relating to the environment, health
or safety now or hereafter in effect applicable to the Facility, the Field or
the Facility Site.
"Extended Expiration Date" has the meaning assigned to such term in
Section 6.1.
"Facility" means the geothermal power facilities, located on the
Facility Site, consisting of three units, interconnection to the Transmission
Line, and certain common control and support facilities and any part of the
surface of the real property, fixtures and buildings which are located within
the Facility Site.
"Facility Agreements" means, collectively, this Agreement, and each
other agreement (or certain provisions thereof) set forth on Appendix C attached
hereto and, subject to Section 5.5, any other agreement reasonably designated by
Owner as a Facility Agreement, five Business Days after Owner provides such
agreement to Operator, or such longer period as Owner and Operator agree in
writing shall be necessary for Operator to comply with Section 2.1 with respect
thereto, including all exhibits, schedules and attachments to each such
agreement. Facility Agreements shall include any amendment to the foregoing
upon notification by Owner to Operator.
"Facility Manuals" means facility equipment manuals, system
descriptions, system operating instructions, equipment maintenance instructions,
pertinent design documentation, engineering drawings, plant electrical,
schematic, and all other applicable drawing, plant and equipment set points, and
plant processes and procedures.
3
<PAGE>
"Facility Site" means the real property on which the Facility is
located as described in documents listed in Appendix B to this Agreement.
"Fault of Operator" shall mean the negligent or grossly negligent acts
or omissions or willful misconduct of Operator or of its employees,
subcontractors or agents or any acts or omissions that are in breach of
Operator's obligations under this Agreement.
"Field" shall mean the geothermal wells and related fluid handling,
gathering and distribution systems located on the Facility Site.
"Financing Agreements" means any credit agreement, reimbursement
agreement, note purchase agreement, trust indenture, lease agreement or other
document under which Owner or its affiliates obtain financing (including any
credit enhancement for any bonds) for the acquisition, development,
construction, modification, repair or operation of the Project or any
refinancing thereof.
"Fluid" means the natural geothermal water, steam, brine and the
materials contained therein, obtained from the Production Wells.
"Force Majeure" means any act, event or condition, which is not within
the commercially reasonable control of a Party that causes delay in or failure
of performance of obligations under this Agreement, if such act, event or
condition (a) is beyond the reasonable control of the Party relying thereon, (b)
is not the result of any act, omission or delay of such Party (or any third
Person over whom such Party has control including, without limitation, any
subcontractor), (c) is not an act, event or condition, the risks or consequences
of which such Party has expressly agreed to assume hereunder and (d) then only
to the extent the same cannot be cured, remedied, avoided, offset, negotiated or
otherwise overcome by the prompt exercise of due diligence of the Party relying
thereon (or any third Person over whom such Party has control including, without
limitation, any subcontractor) including, without limitation, any event or
condition occasioned by or resulting from lightning, tornadoes, windstorms,
extreme weather conditions, fires, storms or failures or partial failures of any
equipment.
"Government Agency" means any federal, state, local or municipal
government, governmental department, commission, board, bureau, agency,
instrumentality, judicial or administrative body having jurisdiction over Owner,
Operator, the Facility, the Field or the Facility Site.
"Hazardous Materials" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, and transformers or other equipment that
contain dielectric fluid containing polychlorinated biphenyls ("PCBs"); (b) any
chemicals, materials or substances which are now or hereafter become defined as
or included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "extremely hazardous wastes", "restricted hazardous
wastes", "toxic substances", "toxic pollutants", or words of similar import,
under any Environmental Law or in any regulations thereto; and (c) any other
chemical, material, substance or waste, exposure to which is now or hereafter
prohibited, limited or regulated by any Government Agency.
4
<PAGE>
"Hazardous Materials Laws" shall mean federal, state or local laws,
ordinances and regulations relating to any Hazardous Materials and applicable to
the Facility or the Field.
"Indemnified Party" has the meaning assigned to such term in Section
8.3.
"Initial Expiration Date" has the meaning assigned to such term in
Section 6.1.
"Injection Wells" means the wells in the Field through which the Fluid
from the separator vessels and power plant is injected back into the ground.
"Law" means any act, statute, law or regulation of any Government
Agency as in effect from time to time relating to the Facility, the Facility
site and the Field and the operation thereof.
"Maintenance Reports" shall mean the maintenance and repair reports
maintained by Operator relating to the Facility, the Facility Site and the
Field.
"Major Equipment" means all equipment related to the production and
delivery of electric power, whose failure could result in a loss for an extended
period of time of more than five percent of the rated capacity of the Facility.
"Navy" means the United States Government, acting through the Western
Division (Code 022) Naval Facilities Engineering Company, San Bruno, California
and/or the Disbursing Officer, Code 0862, Naval Weapons Center, China Lake,
California, as the context may require.
"Navy I Partnership" means Coso Finance Partners, a California general
partnership.
"Navy II Partnership" means Coso Power Developers, a California
general partnership.
"NERC" means the North American Electric Reliability Council.
"O&M Manuals" has the meaning assigned to such term in Section 4.2
hereto.
"O&M Operating Account" has the meaning assigned to such terms in
Section 5.2.1.
"Operating Logs" shall mean the daily operating logs showing the
production from the Facility and the Field.
"Operating Year" means initially, the remainder of the calendar year
after the Commencement Date and thereafter, the twelve (12) month period
beginning on the first day of each calendar year and each successive twelve (12)
month period beginning on the consecutive anniversary dates thereof.
"Operator" has the meaning assigned to such term in the Preamble.
5
<PAGE>
"Operator Indemnified Party" means Operator, its shareholders,
partners, principals, Affiliates, officers, directors, employees, agents and
representatives.
"Owner" has the meaning assigned to such term in the Preamble.
"Owner Indemnified Party" means Owner, Secured Party and their
respective shareholders, partners, principals, Affiliates, officers, directors,
employees, agents and representatives.
"Party" means either Operator or Owner and "Parties" means both
Operator and Owner.
"Person" means any individual, partnership, corporation, association,
business, trust, government or political subdivision thereof, governmental
agency or other entity.
"Planned Maintenance" shall mean daily, routine, and preventive
maintenance and inspection of the equipment at the Facility and the Field as set
forth in the Annual Operating Plan and Annual Budget. Each Annual Operating
Plan is to be prepared with a view to the expected economic life of the Facility
and the Field, it being understood that each item of equipment may not last for
the entire economic life of the Facility or the Field and shall include as
Planned Maintenance, without limitation, all service, overhaul (other than
Unplanned Maintenance and major overhauls that constitute Unplanned
Maintenance), inspection, replacement of parts, and maintenance procedures
necessary or advisable for normal wear and tear and as recommended by the
manufacturers and/or vendors of equipment at the Facility and the Field not less
often than so recommended. For example, Planned Maintenance includes the
replacement of equipment and components from time to time near or after the
reasonably expected life of the equipment as set forth in the Annual Operating
Plan.
"Plant General Manager" has the meaning assigned to such term in
Section 4.1.
"Point of Interconnection" shall mean the point where electricity
generated by the Facility is delivered from the Facility to the SCE transmission
system.
"Production Wells" means the wells in the Field out of which hot Fluid
is extracted to produce electricity at the Facility from the heat of the Fluid.
"Project" shall mean the Facility, the Facility Site, the Field and
the Transmission Line.
"Prudent Operating and Maintenance Practices" means the generally
accepted and sound utility industry practices, methods and acts applicable to
similar independent power facilities situated in the United States which at a
particular time, in the exercise of reasonable judgment and in light of facts
known or that should have been known, would have been expected to accomplish the
desired results and goals established in the Annual Operating Plan, including
such goals as efficiency, reliability, economy, continuous improvement and
profitability, in a manner consistent with Law, safety, and environmental
protection. With respect to the Project, Prudent Operating and Maintenance
Practices include such things as taking reasonable actions to ensure or provide
the following:
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(i) Adequate materials, resources and supplies are available to meet
the Project's needs under normal conditions and reasonably
anticipated abnormal conditions;
(ii) A sufficient number of operating, maintenance and supervisory
personnel available and adequately experienced and trained to
operate, maintain and supervise the Project properly,
efficiently and within manufacturer's guidelines and
specifications and who are capable of responding to emergency
conditions;
(iii) The timely performance of preventive, predictive, routine, and
non-routine maintenance and repairs on a basis that ensures
long-term and safe operation and by knowledgeable and
experienced personnel utilizing specified equipment, tools and
procedures;
(iv) Appropriate monitoring, analysis and testing are done
periodically to confirm that equipment is functioning as
designed and to provide assurance that equipment will function
properly under both normal and emergency conditions;
(v) Equipment is operated in a safe manner and in a manner safe to
workers, the general public and the environment and with regard
to defined limitations such as steam pressure, temperature and
moisture content, operating voltage, current, frequency,
rotational speed, polarity, synchronization and control system
limits; and
(vi) Operations are conducted within all permit, governmental, and
regulatory requirements.
"PURPA" shall mean the Public Utility Regulatory Policies Act of 1978,
as amended.
"Regulatory Records" shall mean the records and other materials
required by any Government Agency to be maintained in respect of the Project.
"Reimbursable Costs" means those direct costs incurred by Operator in
the performance of its duties hereunder in accordance with Operator's
established practices and policies then in effect, subject to the annual limits
set forth in the applicable Annual Budget, unless such limits shall be revised
pursuant to an AFE or other agreement reached by Operator and Owner.
Reimbursable Costs shall include but not be limited to: direct labor costs
(regardless of whether or not the employees are located at the Project),
including benefits and employee bonuses (subject to Owner's approval of the
aggregate dollar amount of the bonus pool), maintenance costs, equipment rentals
(including allocable costs of equipment shared with other projects), parts and
supplies, and equipment overhaul costs. Reimbursable Costs shall include
reasonable expenses incurred by Operator pursuant to Sections 2.8 and 3.2.2 in
connection with an emergency. Where Reimbursable Costs occur based upon
Operator's established policies, Operator shall promptly provide Owner, for
approval, all such policies and any proposed changes in the documents pursuant
to which changes in such established policies shall be made,
7
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along with cost/benefit analyses associated with such changes. Increased costs
resulting from changes to policies shall be Reimbursable Costs only to the
extent that the same shall have been approved in advance by Owner. Reimbursable
Costs shall not include legal, consulting, contractor, and indirect corporate
overhead and management costs unless such costs have been previously authorized
by Owner in an Annual Budget, AFE or other document.
"Remedial Action" shall mean actions required to (a) clean up, remove,
treat or in any other way address Hazardous Materials in the indoor or outdoor
environment; (b) prevent the release or threat of release or minimize the
further release of Hazardous Materials so they do not migrate or endanger or
threaten to endanger public health or welfare or the indoor or outdoor
environment; or (c) perform pre-remedial studies and investigations and post-
remedial monitoring and care.
"SCE" means Southern California Edison, a corporation organized and
existing under the laws of the State of California.
"Scheduled Outage" means a time period during which any of the Major
Equipment is shut down for maintenance as scheduled in the Annual Operating Plan
or otherwise agreed upon by the Parties and which is accepted by the applicable
parties to the Facility Agreements under the terms of such Facility Agreements.
Such maintenance shall be scheduled and performed based on the requirements of
manufacturers' warranties and recommendations, insurance requirements, and
Prudent Operating and Maintenance Practices.
"Secured Party" means, collectively, each Person providing financing
or refinancing under the Financing Agreements and any trustee or agent acting on
any such Person's behalf and their successors and assigns.
"Services" has the meaning assigned to such term in Section 2.1,
including, without limitation, such services set forth in Appendix A hereto.
"Term" has the meaning assigned to such term in Section 6.1.
"Termination Payment" has the meaning assigned to such term in Section
6.2.
"Transmission Line" means the 230 kV power line connected to the SCE
substation at Inyokern, California, owned by CTLP, through which electricity
produced by the BLM Project and the Navy II Project is transmitted for delivery
to SCE.
"Unplanned Maintenance" shall mean all maintenance, repair, and
replacements other than Planned Maintenance, and includes such items as
replacement of equipment or components prior to their reasonably expected
replacement date, major overhauls of equipment or components which in the
ordinary course would not be necessary during the expected economic life of the
Facility or the Field, repairs and replacements covered by insurance or
warranties, and repairs and replacements of components damaged or destroyed
following a casualty or event of Force Majeure or sudden equipment explosion or
breakdown event, whether or not covered by insurance, together with any services
required to take corrective action following any such event.
8
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"Winding Up" of or in relation to a Person includes the amalgamation,
reconstruction, reorganization, administration, dissolution, liquidation,
bankruptcy, merger or consolidation of that Person and any equivalent or
analogous procedure under the law of any jurisdiction in which that Person is
incorporated, domiciled or resident, carries on business or has any assets.
Section 1.2 Interpretation. Unless the context otherwise requires:
--------------
1.2.1 Words singular and plural in number will be deemed to include
the other and pronouns having a masculine or feminine gender will be deemed to
include the other.
1.2.2 Any reference in this Agreement to any Person includes its
permitted successors and assigns and, in the case of any Government Agency, any
Person succeeding to its functions and capacities.
1.2.3 Any reference in this Agreement to any Section or Appendix means
and refers to the Section contained in or Appendix attached to this Agreement.
1.2.4 A reference to a document or agreement, including this
Agreement, includes a reference to that document or agreement as novated,
amended, modified, supplemented, restated or replaced from time to time.
Section 1.3 Technical Meanings. Words not otherwise defined herein
------------------
that have well-known and generally accepted technical or trade meanings are used
herein in accordance with such recognized meanings.
Section 1.4 Headings. Headings are for reference only and do not form
--------
part of this Agreement.
Section 1.5 Interpretation; Precedence. In case of express conflict
--------------------------
between a Section and an Appendix, the order of precedence shall be as follows:
A. Section
B. Appendix
Subject to the foregoing, if any requirements specified in any Appendix are in
conflict with any other requirements in such Appendix or in any other Appendix,
the more detailed requirements shall prevail. Notwithstanding the above, the
provisions of this Agreement, including all Appendices, shall be wherever
possible construed as complementary rather than conflicting.
Section 1.6 Status of Operator and Owner. Operator shall perform and
----------------------------
executeits obligations under this Agreement as an independent contractor and, to
the limited extent set forth herein, agent to Owner and shall not be a partner,
joint venturer or employee of Owner. Each of CPD, COC and CTLP shall be jointly
and severally liable for the obligations of Owner hereunder. Operator
acknowledges that, as an internal matter, Owner has allocated responsibility
such that CPD shall have primary responsibility for expenses related to the
Facility and CTLP shall have primary responsibility for expenses related to the
Transmission Line.
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SECTION 2
RESPONSIBILITIES OF Operator
Section 2.1 Scope of Services. Subject to the provisions of this
-----------------
Agreement, from the Commencement Date throughout the Term, Operator shall do all
things necessary or advisable for the proper operation and maintenance of the
Facility, the Field, and the Transmission Line and perform certain other
services as hereinafter set forth (collectively, the "Services"). Operator shall
operate and maintain the Facility, the Field and the Transmission Line in a
clean, safe, efficient and environmentally acceptable manner. Without limiting
the generality of the foregoing, Operator's responsibilities shall include the
following:
2.1.1 Services. Except as otherwise provided in this Agreement, from
--------
and after the Commencement Date until this Agreement is terminated, Operator
shall be in complete charge of, and have care, custody and control over, the
Facility, the Field and the Transmission Line. Operator shall, in accordance
with the provisions of this Agreement (subject to the limitations on Operator's
authority set forth in Section 3) perform all services and functions set forth
in Appendix A as Operator's responsibilities or requirements.
2.1.2 Waste Management. Operator shall be responsible for performing
----------------
the on-site management of and for arranging for the transportation and disposal
of all wastes (including Hazardous Materials) generated by or used in the
operation of the Project in compliance with all Applicable Laws and policies and
procedures which may be adopted by Owner.
2.1.3 General. Operator shall not permit or suffer any liens or
-------
encumbrances on the Project arising from the performance of the Services.
Subject to the limitations on Operator's authority set forth herein, Operator
shall use all reasonable and practical efforts to maximize Energy and Capacity
Revenues, to optimize the useful life of the Project, and to minimize fuel
consumption, Facility downtime and Reimbursable Costs.
Section 2.2 Standards for Performance of the Services. Subject to
-----------------------------------------
the limitations on Operator's authority set forth herein, Operator shall perform
the Services in all material respects in a prudent and efficient manner and in
accordance with (i) the O&M Manuals, (ii) the applicable subcontractor and
vendor warranties as provided by Owner to Operator, (iii) the applicable Annual
Operating Plan and Annual Budget, (iv) all Applicable Laws, licenses, permits,
governmental approvals and standards, (v) the Facility Agreements, (vi) the
requirements under the insurance policies maintained by Owner (copies of which
will be provided to Operator before the Commencement Date) and Operator with
respect to the Project, (vii) Prudent Operating and Maintenance Practices,
(viii) applicable guidelines established by NERC and the Institute of Electrical
and Electronic Engineers, Inc. and (ix) the terms of this Agreement. Operator
acknowledges that it has received and reviewed copies of all Facility Agreements
described on Appendix B.
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Section 2.3 Personnel Standards.
-------------------
2.3.1 Personnel. The Facility is a non-union plant. Operator shall
---------
provide and make available as necessary, in accordance with the requirements of
the O&M Manuals, all such labor and professional, supervisory and managerial
personnel as are required to perform the Services. Such personnel (i) shall be
qualified (including possessing appropriate licenses) and experienced in the
duties to which they are assigned and (ii) shall meet the requirements for
personnel under the O&M Manuals and in accordance with Prudent Operating and
Maintenance Practices. All individuals employed by Operator in the performance
of the Services shall be the employees of Operator or seconded employees of
affiliates of Operator, and their working hours, rates of compensation and all
other matters relating to their employment shall be determined solely by
Operator (subject to Owner's approval rights with respect to the Annual Budget).
With respect to hiring of personnel and its employment policy, Operator shall
comply with all Applicable Laws (including, without limitation, the Fair Labor
Standards Act and all of the rules, regulations and orders issued thereunder)
and shall exercise control over labor relations in a reasonable manner
consistent with the intent and purpose of this Agreement. In addition, Operator
shall comply with the provisions set forth in Appendix C, unless this Agreement
is exempt therefrom, under the rules, regulations and relevant orders of the
Secretary of Labor (41 C.F.R. (S) 60-1.5). From and after the Commencement Date,
Operator shall retain sole authority, control and responsibility with respect to
labor matters in connection with the performance of the Services.
Notwithstanding the foregoing, Operator acknowledges and agrees that it does not
have the authority to enter into any contracts or collective bargaining
agreements with respect to labor matters that purport to bind or otherwise
obligate Owner.
2.3.2 Training Program. Operator shall provide an ongoing training
----------------
and education program for personnel engaged in providing the Services. Such
training and education program shall explain in particular the design,
construction, operation and maintenance of all Project equipment as necessary to
educate Operator's personnel to safely operate the Project in accordance with
Prudent Operating and Maintenance Practices. The schedule and details of such
program shall be set forth in the Annual Operating Plan.
Section 2.4 Approvals and Permits. Prior to the Commencement Date,
---------------------
Owner shall cause copies of all permits and licenses presently required to be
maintained in respect of the Project to be delivered to Operator. Operator shall
review all Laws containing or establishing compliance requirements in connection
with the operation and maintenance of the Project and assist Owner at Owner's
request in securing and complying with, as appropriate, all necessary permits,
licenses and approvals (and renewals of the same). Operator shall submit copies
of all applications for, and proposed forms of, all such permits and licenses to
Owner with sufficient time to allow for Owner's review and approval. Operator
shall also initiate and maintain precautions and procedures necessary to comply
with applicable provisions of all such Laws or other requirements, including
those related to prevention of injury to persons or damage to property at the
Project. Operator shall notify Owner immediately after Operator becomes aware of
any violation of any Law, permit, license or approval regarding the Project.
Section 2.5 Operating Data and Records. Operator shall prepare and
--------------------------
maintain the Operating Logs and Maintenance Reports. Operator shall maintain at
the Facility copies of all drawings, specifications lists, clarifications and
other materials regarding the Project
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(including all current revisions thereof) provided to Operator by Owner or by
any contractor performing services at the Project. Operator shall also prepare
reports and data which are related to the maintenance of Hazardous Materials on-
site at the Project in a manner complying with Applicable Laws. Operator shall
prepare in a timely fashion, for Owner's prior approval, all reports, plans and
other materials required to be delivered by Owner or on behalf of Owner (i)
relating to the energy output and consumption of the Project and (ii) with
respect to the Project, any Government Agency. Operator shall prepare all such
reports, plans and other materials in accordance with the format, standards and
procedures required or prescribed by the applicable Facility Agreement or such
Government Agency, as the case may be. Copies of all such approved reports that
may be submitted to any Government Agency by Operator shall be concurrently
furnished to Owner.
Section 2.6 No Liens or Encumbrances. Operator shall keep and
------------------------
maintain the Project free and clear of all liens and encumbrances arising
through Operator.
Section 2.7 Preservation of Warranties. Operator shall not take any
--------------------------
action that would cause a default, or adversely affect any warranty that runs to
Owner, of which Operator is aware and of which Operator has been provided a
copy.
Section 2.8 Emergency Action. In the event of an emergency
----------------
affecting the safety or protection of Persons or endangering the Project or
property located at the Project, Operator shall take prompt action to attempt to
prevent, or to mitigate as much as practicable, such threatened damage, injury
or loss and shall as soon as practicable notify Owner of such emergency.
Section 2.9 O&M Manuals. Operator shall comply with the O&M
-----------
Manuals, and shall have an on-going program of review and updating of such O&M
Manuals, which will define the specific conditions under which Operator will
perform the Services, including specific provisions which will provide
compliance with all provisions of the Facility Agreements, all Applicable Laws,
permits and licenses applicable to the operation and maintenance of the Project.
Section 2.10 Subcontractors. As long as the amounts to be expended
--------------
pursuant to such subcontracts do not exceed the amounts set forth in the Annual
Budget for the services to be performed under such subcontracts, Operator may
enter into subcontracts for certain of the Services; provided, however, (i)
Operator shall not subcontract for routine operations and maintenance
activities, and shall subcontract only to the extent reasonably necessary; and
(ii) all subcontracts shall be fair and reasonable to Operator and Owner and
shall be negotiated on an arms' length basis. For all subcontracts pursuant to
which the compensation paid will or could be in an amount greater than $20,000,
Operator will use a competitive bid procedure to select the subcontractor and
shall provide to Owner a written summary of the bidding process and the bids
received or obtain Owner's prior written consent for use of a sole source. Any
subcontract pursuant to which the compensation paid will or could be in an
amount greater than $20,000 shall require the prior written approval of Owner,
which approval will not be unreasonably withheld or delayed. Each subcontract
entered into pursuant to this Section 2.10 by Operator which requires payment in
excess of $20,000 per year to the subcontractor thereunder shall contain
provisions making such subcontract assignable to Owner, and the Secured Party as
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<PAGE>
collateral pursuant to the Financing Agreements, unilaterally by Operator,
without the consent or approval of such subcontractor. Any subcontracting of the
Services shall not (a) relieve Operator of any of its duties, liabilities or
obligations hereunder, (b) relieve Operator of its responsibility for the
performance of Services rendered by any such subcontractor, or (c) create any
relationship between Owner and any subcontractor. Insofar as is reasonably
practicable, Owner shall communicate with any subcontractor only through
Operator. No subcontractor is intended to be or shall be deemed a third-party
beneficiary of this Agreement. As a condition of any subcontract, Operator shall
require any subcontractor to waive any claim it may have, in law or in equity,
directly against Owner.
Section 2.11 Access.
------
2.11.1 Owner. At Owner's expense, Owner, Secured Party and their
-----
respective agents and representatives shall have access at all reasonable times
to the Project for purposes of inspection and review. At Owner's expense, Owner
shall have access at all reasonable times for the performance of Owner's
responsibilities.
2.11.2 Cooperation. During any such inspection or review of the
-----------
Project and performance of Owner's responsibilities, Owner, Secured Party and
their respective agents and representatives, as applicable, shall comply with
all of Operator's reasonable safety and security procedures, and Owner, Secured
Party and their respective agents and representatives shall conduct such
inspection, reviews and performance of Owner's responsibilities in such a manner
as to cause minimum interference with Operator's activities. Operator also shall
cooperate with Owner in allowing other visitors access to the Project under
conditions that are mutually agreeable to the Parties.
Section 2.12 Cooperation with Other Contractors. Operator
----------------------------------
acknowledges that Owner may, from time to time, retain other contractors to
provide administrative and management services for Owner in connection with the
Project. Operator shall cooperate and coordinate its activities hereunder with
such contractors. In the event of any overlap, duplication or conflict with
respect to the Services to be provided by Operator under this Agreement and the
services to be provided by any such other contractor under their respective
agreements with Owner, Owner shall resolve such matters and determine the
respective responsibilities of the parties so as to avoid overlap or
duplication. Owner shall inform Operator in writing of any such determination.
SECTION 3
LIMITATIONS ON AUTHORITY OF Operator
Section 3.1 Agency. Subject to the limitations on Operator's
------
authority set forth in this Agreement, the Annual Operating Plan, the Annual
Budget, and the administrative procedures set forth in the O&M Manual, Operator
is hereby authorized by Owner to enter into, on behalf of Owner and as agent of
Owner, purchase orders and service agreements in connection with the delivery of
the Services. Operator shall not claim title to any supplies, consumables,
tools, office equipment or furniture acquired on behalf of Owner.
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Section 3.2 General Limitations. Notwithstanding any provision in this
-------------------
Agreement to the contrary, unless previously expressly approved in the
applicable Annual Operating Plan or Annual Budget or otherwise expressly
approved in writing by Owner, Operator shall not (and shall not permit any of
its agents or representatives to):
3.2.1 Disposition of Assets. Lease, pledge, mortgage, convey, license,
---------------------
exchange or make any other transfer or disposition of any property or assets of
Owner, including any personal property acquired by Operator under this
Agreement, except for the trade-in of equipment and the sale of scrap in the
ordinary course of business, in either case, not to exceed in any one instance
$20,000; provided, however, that Operator may lease or otherwise provide Owner's
equipment, materials, assets or other items to Affiliates of Owner on
commercially reasonable terms. The proceeds of any sales of scrap shall inure
to the benefit of Owner and Operator shall hold the proceeds in trust for Owner
and immediately forward such proceeds to Owner;
3.2.2 Expenditures. Make or commit to make any Reimbursable Cost or
------------
acquire on a Reimbursable Cost basis any equipment, materials, assets or other
items, except in conformity with the Annual Budget, the Annual Operating Plan
and the Administrative Procedures Manual, or consent or agree to do any of the
foregoing; provided, however, that in the event of an emergency affecting the
safety or protection of Persons or endangering the Project or property located
at the Project, Operator, without approval from Owner, shall be authorized to
take all reasonable actions to prevent such threatened damage, injury or loss;
provided further, however, that notwithstanding any other provision of this
Agreement, Operator shall not, without the prior written consent of Owner, make
any single expenditure in an amount greater than $20,000, provided, however,
that if, notwithstanding Operator's diligent efforts to contact Owner, Operator
is unable to do so, Operator shall be authorized to make such emergency
expenditures in excess of $20,000;
3.2.3 Other Actions. Take or agree to take any other action that
-------------
varies from the applicable O&M Manuals or Annual Budget or causes Owner to
violate any of the Facility Agreements;
3.2.4 Lawsuits and Settlements. Settle, compromise, assign, pledge,
------------------------
transfer, release or consent to the compromise, assignment, pledge, transfer or
release of, any claim, suit, debt, demand or judgment against or due by, Owner
or Operator (including, agreeing to any penalty for violation of any license or
permit), the cost of which, in the case of Operator, would be a Reimbursable
Cost hereunder, or submit any such claim, dispute or controversy to arbitration
or judicial process, or stipulate in respect thereof to a judgment, or consent
to do the same (Operator agrees that Owner shall retain control of any claim,
suit, debt, demand and any other litigation regarding the Project, except as to
Operator's individual liability.);
3.2.5 Transactions on Behalf of Owner. Engage in any transaction on
-------------------------------
behalf of Owner not permitted under this Agreement or the Facility Agreements;
or
3.2.6 Changes in Configuration. Modify or alter the Project or any
------------------------
component thereof in a manner that materially alters the function, output or
efficiency of the Project or any component thereof.
14
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Section 3.3 Execution of Documents. Any agreement, contract, notice or
----------------------
other document that is expressly permitted hereunder (or with written approval
of Owner) to be executed by Operator shall, subject to prior written notice to
Owner, be executed by the Plant General Manager or such other individual
representative of Operator who is authorized and empowered by Operator to
execute such documents.
SECTION 4
PROCEDURES, PLANS AND REPORTING
Section 4.1 Representatives of Parties; Employees.
-------------------------------------
(a) On the Commencement Date, Operator shall appoint an individual
representative, subject to Owner's prior approval (the "Plant General
Manager") authorized and empowered to act for and on behalf of Operator on all
matters concerning this Agreement and Operator's obligations hereunder;
provided, however, in all such matters, Operator shall be bound by the written
communications, directions, requests and decisions made by the Plant General
Manager. Operator shall notify Owner in writing of the identity of the Plant
General Manager.
(b) On the Commencement Date, Owner shall appoint an individual
representative authorized and empowered to act for and on behalf of Owner on
all matters concerning this Agreement and Owner's obligations hereunder,
provided, however, in all such matters, Operator shall be bound by the written
communications, directions, requests and decisions made by Owner's appointed
representative. Owner shall notify Operator in writing of the identity of its
appointed representative.
(c) In addition to the Plant General Manager, Operator's appointment of
the Production Manager shall require Owner's prior approval.
(d) Operator shall not, without Owner's consent, terminate the employment
of any employee of Operator employed at the Facility Site for any reason other
than cause, provided that Operator shall no longer be bound by this provision
six (6) months after providing written notice to Owner of its decision not to
be so bound.
Section 4.2 O&M Manuals. Owner shall provide Operator with copies of
-----------
all manuals and operating plans and procedures maintained with respect to the
Project. Within 90 days after the Commencement Date, Operator shall submit for
review and approval by Owner proposed revisions to the manuals and operating
plans and procedures provided by Owner, which revisions shall include those
management and administrative policies, procedures, and processes and operating
and maintenance parameters necessary to perform the Services. Included in such
proposed manuals shall be an administrative procedures manual providing such
information as (i) staffing plan, (ii) organization of Operator's employee's
providing the Services and reporting procedures, (iii) administrative
procedures, including correspondence, reporting and review procedures, (iv)
procurement and contracting procedures, including a work order tracking system
and an inventory procurement and tracking system, (v) accounting, bookkeeping
and record keeping systems and procedures, (vi) personnel policies for
Operator's activities at the Project,
15
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(vii) operating procedures, (viii) maintenance program, (ix) safety and security
program, (x) environmental safety and compliance procedures, and (xi) outage
planning procedures. Promptly after the receipt by Owner of such proposed
manual, Owner shall submit written comments thereon to Operator, and thereafter
the Parties shall meet to resolve all outstanding differences and to agree upon
a final manual (the "O&M Manuals") including the administrative procedures
manual (the "Administrative Procedures Manual"), which shall be approved in
writing by both Parties. Owner's and Operator's approval of such manuals shall
not be unreasonably delayed or withheld. Such final manuals shall remain in
effect for the term of this Agreement, subject to such revision and amendment as
may be mutually acceptable to the Parties hereto.
Section 4.3 Annual Facility Operating Plan and Budget. Prior to the
-----------------------------------------
Commencement Date, Owner has provided Operator with a copy of the current budget
and operating plan for the Project, which until changed as provided in this
Section shall be the Annual Operating Plan and Annual Budget for all purposes of
this Agreement. Within 60 days after the Commencement Date, and 90 days prior
to the beginning of each calendar year thereafter, Operator shall prepare and
submit to Owner a proposed annual budget for the remainder of the Operating Year
in which the Commencement Date occurs or such calendar year, as applicable,
established on a monthly basis, which shall include a separate operating budget
and capital budget and shall set forth, in detail reasonably acceptable to
Owner, anticipated operations plans and costs, including forecasts of
electricity production and corresponding usage of major commodities, repairs and
capital improvements (including major maintenance and a cost\benefits analysis
for proposed capital improvements), Scheduled Outages, routine maintenance and
overhaul schedules, procurement (including equipment acquisitions and spare
parts and consumable inventories indicating a breakdown of capital items and
expense items), staffing, personnel and labor activities (including unit rates
for labor and holidays to be observed), administrative activities, data
regarding other work proposed to be undertaken by Operator and regarding
expected environmental performance, together with an itemized estimate, in
detail reasonably acceptable to Owner, of all Reimbursable Costs to be incurred
in connection therewith. Such budget shall be accompanied by an annual operating
plan setting forth the underlying assumptions and implementation plans in
connection with the budget ("Annual Operating Plan"). Owner shall promptly
review Operator's proposed budget and Annual Operating Plan and may require
changes, additions, deletions and modifications. Owner and Operator will then
meet and use their best efforts to agree upon a final budget and Annual
Operating Plan (i) as soon as practicable for the remainder of the Operating
Year in which the Commencement Date occurs and (ii) for each subsequent year by
sixty days prior to such calendar year. Owner's and Operator's approval of the
budget and Annual Operating Plan shall not be unreasonably withheld or delayed.
Such final budget ("Annual Budget") and Annual Operating Plan shall remain in
effect throughout the applicable calendar year, subject to any AFE or such other
updating, revision and amendment as may be proposed by either Party and
consented to in writing, subject to Section 5.5 of this Agreement, by the other
Party. Any actions proposed under the Annual Operating Plan shall be
consistent with the O&M Manuals, the Facility Agreements and Operator's
obligations set forth herein.
4.3.1 Force Majeure Adjustments. If an event of Force Majeure occurs
-------------------------
which results in increased costs to Operator, Operator shall be entitled to a
reimbursement reflecting the reasonable value of any such increased costs from
such event.
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4.3.2 Carryover Provisions. If, by the first day of any calendar year,
--------------------
the Parties are unable to reach agreement concerning any portion of the Annual
Budget or the Annual Operating Plan for such calendar year, the portion of the
Annual Budget and Annual Operating Plan for such calendar year which is in
dispute shall be resolved by using the portion of the Annual Budget and Annual
Operating Plan proposed by Owner for such disputed portion. However, in no
event shall such revised Annual Budget or Annual Operating Plan require Operator
to (i) deviate from its practices regarding salary administration, compensation
and personnel practices, except as required by Laws or (ii) perform services
that might conflict with Operator's duties under this Agreement or Applicable
Laws. Project staffing levels and the Annual Budget and Annual Operating Plan
shall be adjusted to appropriately respond to any material and sustained changes
in the operation of the Project required by changes to the Facility Agreements,
or as mutually agreed upon by Owner and Operator.
Section 4.4 Availability of Operating Data and Records. Operator shall
------------------------------------------
monitor and record all operating data required under the Facility Agreements and
otherwise reasonably requested by Owner and shall make such operating data
available to Owner (i) on each Business Day immediately following the last day
of the applicable period as determined under such Facility Agreement and (ii)
upon any reasonable request at any time by Owner, on the Business Day
immediately following such request. Such operating data shall include, without
limitation, the Operating Logs and Maintenance Reports.
Section 4.5 Accounts and Reports. Operator shall comply with the
--------------------
reporting requirements relating to power generation, field production,
procurement, labor relations and other matters as set forth in the
Administrative Procedures Manual. Operator shall cooperate with Owner in
complying with the reporting requirements set forth in the Facility Agreements
and shall furnish or cause to be furnished to Owner, the following reports, in
each case prepared in accordance with the standards established by NERC,
concerning the Project operations and the Services.
4.5.1 Monthly Reports. Within 15 days after the end of each calendar
---------------
month after the Commencement Date, Operator shall submit: (i) a progress report,
in detail acceptable to Owner, covering all operations conducted during such
calendar month with respect to operations and maintenance (including, without
limitation, information regarding power generation, well performance, Fluid
temperatures, general procurement activities, capital improvements and labor
relations) which report shall include (with respect to quantitative items) a
comparison of such items to corresponding values for the then preceding month
and year and a listing of any significant operating problems along with remedial
actions planned and a brief summary of major activities planned for the next two
reporting periods; and (ii) a statement setting forth all Reimbursable Costs
paid or incurred, which statement shall itemize, in detail acceptable to Owner,
the computation of such Reimbursable Costs and shall state whether or not the
Project operations have conformed to the applicable Annual Operating Plan and
Annual Budget during such reporting period and if not, the extent and reasons
for such deviation and if remediable such remedial action proposed to be taken.
4.5.2 Annual Reports. As soon as available, and in any event within 60
--------------
days after the end of each calendar year, Operator shall submit to Owner an
annual report certified by the Plant General Manager describing, in detail
substantially similar to that contained in the
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monthly reports referred to in Section 4.5.1 above, all of the Project
operations for such calendar year (including, without limitation, inventories of
fixed assets, tools, spare parts and consumables) and presenting a comparison of
such Project operations with the Annual Operating Plan and the budget set forth
in the Annual Budget for such calendar year and with those obtained for the
preceding calendar year, if any.
4.5.3 Litigation; Permit Lapses. Upon obtaining knowledge thereof,
-------------------------
Operator shall submit prompt written notice of: (i) any litigation, claims,
disputes or actions, threatened or filed, concerning the Project or the Services
to be performed hereunder; (ii) any refusal or threatened refusal to grant,
renew or extend or any action pending or threatened that might affect the
granting, renewal or extension of any license, permit, approval, authorization
or consent; (iii) any dispute with any Government Agency; (iv), all penalties or
notices of violation issued by any Government Agency; and (v) any breach or
contravention of any Applicable Law, permit, license or approval; which in each
case might have a material adverse effect on the operation or maintenance of the
Project.
4.5.4 Other Information. Operator shall promptly submit to Owner any
-----------------
material information concerning new or significant aspects of the Project
operations such as, but not limited to (a) any emergency affecting the safety or
protection of Persons or endangering the Facility or property located at the
Facility, including any action taken by Operator to prevent or mitigate the
same, (b) any violation of any Applicable Law, Permit, license or approval
regarding the Facility, (c) forced outages of Major Equipment (and the causes
thereof and the corrective action taken with respect thereto), and/or planned
outages of any kind, and (d) any material deviations or discrepancies from the
projections contained in the Annual Operating Plan. Upon Owner's reasonable
request, Operator shall promptly submit to Owner such other information
concerning the Project or its Services as Owner may request, which may include
any information and certifications reasonably required by any Secured Party.
4.5.5 Records Retention. At Owner's expense, Operator shall retain and
-----------------
preserve all records, reports, documents and data, including all data
retrievable from an electronic data storage source, created in connection with
the operation and maintenance of the Project, for a period of seven (7) years or
longer periods as required by Applicable Law or the Facility Agreements from the
date of the creation of such record, report, document or datum, provided that
Operator shall notify Owner in writing at least sixty (60) days prior to the
destruction or other disposition of any record, report, document or data. If
Owner gives written notice to Operator prior to the expiration of the sixty (60)
day period, Operator will maintain custody of such material until such time as
Owner notifies Operator to dispose of such material, provided that Owner shall
make storage space available at the Facility for storage of all such materials.
If Owner does not provide written notice to Operator prior to the expiration of
the sixty (60) day period, Operator may destroy or dispose of such material and
shall provide Owner with a notice confirming such destruction or disposition.
Section 4.6 Financial Records. Operator shall keep and maintain
-----------------
complete and accurate records of its costs and expenses related to the Services
or this Agreement in accordance with generally accepted accounting principles
applied on a consistent basis. Operator shall provide Owner access to such
records for examination, copying and audit as requested from time to time by
Owner. Operator shall keep such records for a period of not less
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than seven (7) years after the year in which such records were prepared, or such
longer period as required by Law, any regulatory or other agency having
jurisdiction, or the Facility Agreements. After such time Operator shall either
continue to keep such documents or deliver the same to Owner unless otherwise
directed by Owner.
SECTION 5
COMPENSATION AND PAYMENT
Section 5.1 Compensation. As compensation to Operator for the
------------
performance of the Services, Owner shall pay Operator, in the manner and at the
times specified in this Section 5, the Annual Operating Fee as further described
herein.
Section 5.2 Reimbursable Costs. Subject to the provisions of this
------------------
Section 5, Owner shall reimburse Operator for those Reimbursable Costs incurred
by Operator while performing the Services in the manner set forth herein.
5.2.1 Manner and Times of Payment of Reimbursable Costs. On or prior
-------------------------------------------------
to the Commencement Date, Owner shall establish and maintain an O&M operating
account in a bank reasonably acceptable to Owner ("O&M Operating Account") and
will designate Operator as an additional signatory on the account. Owner will
deposit into the O&M Operating Account, subject to all applicable Financing
Agreement provisions each month, on or before a day of month to be agreed upon
by the Owner and Operator, an amount equal to (i) the amount of Reimbursable
Costs set forth in the approved Annual Budget for such month or otherwise
approved by Owner to be incurred during such month, plus or minus (ii) the
difference between the amounts deposited in the O&M Operating Account in the
preceding month and the actual amount of Reimbursable Costs incurred in that
month. On or before the 10th day of each month, Operator shall deliver to Owner
an accounting report (together with appropriate supporting invoices and
receipts) that reflects all Reimbursable Costs for the preceding month,
reconciled against the amounts deposited to the O&M Operating Account.
If at any time during the performance of its obligations, Operator
believes that, except in the case of an emergency as provided in Section 3.2.2,
actual expenses or costs in any category of the Annual Budget will exceed the
budgeted amount in such category by more than Twenty Thousand Dollars ($20,000),
during the calendar year, Operator shall notify Owner of such belief within ten
(10) days of forming such belief and shall follow Owner's directions regarding
future expenditures on Owner's behalf pursuant to this Agreement. Until such
time as Operator shall receive such directions from Owner, Operator shall
continue to operate the Project according to the terms of this Agreement as
permitted under the Annual Budget then in effect, if Operator receives an AFE or
other directions from Owner in writing or Operator and Owner otherwise agree in
writing on changes to the Annual Budget, such directions and such changes shall
then be part of the Annual Budget. Notwithstanding any provision hereof to the
contrary, Operator's obligation to perform the Services shall be subject to
Owner's adequately funding the O&M Operating Account.
5.2.2 Adjustments and Conditions. Notwithstanding the payment of any
--------------------------
amount pursuant to the foregoing
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provisions, no payment made pursuant to the foregoing provisions shall be
considered as approval or acceptance of the Services performed hereunder and
Owner shall remain entitled to conduct a subsequent audit and review of all
Reimbursable Costs incurred by Operator and paid by Owner hereunder, together
with any supporting documentation, for a period of three (3) years from and
after the close of the calendar year in which such Reimbursable Costs were
incurred. Any such audit to be conducted in the manner set forth in Section
1.1(1) of Appendix A. If, pursuant to such audit and review, it is determined
that any amount previously paid by Owner did not constitute a due and payable
item of Reimbursable Costs, Owner may recover such amount from Operator or
deduct or cause to be deducted such amount from any payment that thereafter may
become due to Operator.
Section 5.3 Annual Operating Fee. Owner shall pay to Operator for the
--------------------
Services performed hereunder an annual operating fee (the "Annual Operating
Fee") as follows: (i) $134,000 from the Commencement Date through the first
anniversary of the Commencement Date; (ii) $100,000 from the first anniversary
of the Commencement Date through the the second anniversary of the Commencement
Date; and (iii) $84,000 for each year after the second anniversary of the
Commencement Date. On or before June 30 and December 31 of each year, Owner
will pay to Operator one-half of the Annual Operating Fee in arrears. Payment
of the Annual Operating Fee shall be pro rated for partial calendar years and
months.
Section 5.4 Reserved.
--------
Section 5.5 Changed Conditions; Change in Scope of Services. Owner may
-----------------------------------------------
by written notification to Operator make changes in, additions to, including
with respect to Section 1.2(b) of Appendix A to this Agreement, or deletions
from Operator's Services and Operator shall thereafter perform its Services in
accordance with such notification. If, (a) Owner directs Operator to perform
tasks in addition to the Services, (b) Owner directs Operator to perform the
Services differently, (c) an event of Force Majeure occurs, (d) modifications
are made to any Facility Agreement or the power purchase agreement entered into
by Owner contains terms and conditions which, in either case, alter the scope or
actions necessary to perform the Services, or (e) changes in any Applicable Law
occur, and any such event results in increased costs to Operator, Operator shall
be entitled to an adjustment reflecting the reasonable value of any such
increased costs from such event so long as Secured Party, if any, consents to
such adjustment, and the Parties agree to adjust such other provisions of this
Agreement that are directly affected by such event.
SECTION 6
TERM
Section 6.1 Term. The term ( the "Term") of this Agreement shall
----
commence on the Commencement Date and, unless extended as provided below, expire
on the third anniversary of such date (the "Initial Expiration Date"). This
Agreement shall be subject to an automatic extension for an additional 3 year
period from the Initial Expiration Date (the last day of the extension period
shall be referred to as the "Extended Expiration Date"), unless either Party
informs the other in writing at least 90 days prior to the Initial or Extended
Expiration Date that it does not intend to extend the term of this Agreement.
Notwithstanding the foregoing, this Agreement is subject to earlier termination
pursuant to Sections 6.2 and 6.3.
20
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Section 6.2 Termination by Owner. Owner shall be permitted to terminate
--------------------
this Agreement if any of the following events occur: (i) a voluntary Winding-Up
of Operator commenced by Operator; (ii) an involuntary Winding-Up instituted
against Operator that is not stayed, dismissed or terminated within ninety (90)
days after commencement; (iii) a material default by Operator of its obligations
under this Agreement, provided Operator shall have up to thirty (30) days after
receipt of written notice by Owner to cure such default or make substantial
progress (in the reasonable opinion of Owner) towards curing such default, if
the default is capable of being cured; (iv) an event of Force Majeure affecting
Operator's performance of the Services continues for a period of one hundred
eighty (180) consecutive days (or in the case of a strike or labor stoppage
continuing for ninety (90) consecutive days unless Owner impairs Operator's
ability to resolve such strike or labor stoppage); (v) the Project or any part
thereof becomes subject to regulation as a public utility by any Government
Agency (other than the Federal Energy Regulatory Commission); (vi) the Project
is shut down by, or termination of this Agreement is required by, any regulatory
or governmental authorities having jurisdiction over the Project; (vii) the
occurrence of a total or partial failure of the Field (including, without
limitation, a substantial change in the quantity of temperature of the Fluid) or
destruction of the Project; or (viii) at Owner's convenience without cause upon
six (6) months' prior written notice. Promptly after the date of termination,
Operator shall be paid for the Services rendered by Operator through such
termination date, including all fees earned through the date of termination (the
"Termination Payment"). Except for the Termination Payment, Owner shall not be
liable for any costs incident to termination in the case of any termination
under this Section 6.2.
Section 6.3 Termination by Operator. Operator shall be permitted to
-----------------------
terminate this Agreement if any of the following events occur: (i) a payment
default by Owner that is not cured within sixty (60) days, provided Owner has
received written notice of such default; (ii) a voluntary Winding-Up of Owner
commenced by Owner; (iii) an involuntary Winding-Up of Owner instituted against
Owner, that is not stayed, dismissed or terminated within ninety (90) days after
commencement; (iv) a material default by Owner of any other obligation under
this Agreement, provided Owner shall have up to sixty (60) days after receipt of
written notice by Operator to cure such other default or make substantial
progress (in the reasonable opinion of Operator) towards cure if the default is
capable of being cured; (v) at Operator's convenience without cause upon six (6)
months' prior written notice; (vi) the Project becomes subject to regulation as
a public utility by any Government Agency (other than the Federal Energy
Regulatory Commission); or (vii) upon thirty (30) days prior written notice if
an event of Force Majeure occurs or changed condition described in Section 5.5
occurs and the Secured Party does not approve an adjustment agreed upon by Owner
and Operator. Except as otherwise provided in this Section 6.3, Operator shall
provide Owner with written notice of its intent to terminate this Agreement no
later than three (3) months prior to the date of termination.
Section 6.4 Facility Condition at End of Term; Transmission Line.
----------------------------------------------------
(a) Upon expiration or termination of this Agreement, Operator shall
assist with the transition of the operations of the Project to its successor
and shall cooperate with the successor's offering of employment to employees
at the Project. Operator shall leave the Facility and the equipment used in
the Field in as good condition as on the Commencement Date, normal wear and
tear and casualty excepted, and with the equivalent supply of spare parts, and
any other operating items (other than items for which Owner is
21
<PAGE>
responsible) as were provided by Owner to Operator on the Commencement Date,
or such modified supply thereof as has been approved by Owner (and shall be
reimbursed for all Reimbursable Costs incurred in connection therewith). All
special tools, improvements, software, inventory of supplies, spare parts,
safety equipment, O&M Manuals (in each case as provided to or obtained by or
provided by Operator during the term of this Agreement) and any other items
furnished on a Reimbursable Cost basis under this Agreement will be left at
the Facility and will become or remain the property of Owner without
additional charge. Owner shall also have the right, in its sole discretion, to
directly assume and become liable for any contracts or obligations that
Operator may have undertaken with third parties in connection with the
Services. Operator shall execute all documents and take all other reasonable
steps requested by Owner that may be required to assign to and vest in Owner
all rights, benefits, interests and title in connection with such contracts or
obligations.
(b) If the Operation and Maintenance Agreement between Operator and the
Owner of the BLM Project is terminated and this Agreement is not
simultaneously terminated, Owner and Operator shall agree on responsibility
for maintenance of the Transmission Line following termination of the BLM
Project Operation and Maintenance Agreement.
Section 6.5 Termination Costs. In the event of a termination of this
-----------------
Agreement by Owner pursuant to clauses (i), (ii), or (iii) of Section 6.2 or a
termination of this Agreement by Operator pursuant to clause (v) of Section 6.3,
Owner shall be entitled to recover from Operator any damages, fines or penalties
for which Operator is liable hereunder.
SECTION 7
INSURANCE
Section 7.1 General. The provisions of this Section 7 do not modify,
-------
change or abrogate any responsibility of Operator stated elsewhere in this
Agreement. Owner assumes no responsibility for the solvency of any insurer or
the failure of any insurer to settle any claim. A summary of certain provisions
of Operator's and Owner's policies are set forth below.
Section 7.2 Operator Insurance. Subject to Owner's approval, Operator
------------------
shall obtain and maintain, or cause to be obtained and maintained, as a
Reimbursable Cost, the insurance set forth below as and from the Commencement
Date:
Statutory workers' compensation insurance, including coverage for
Longshoremen's and Federal Harbor Workers Act, if applicable, and with
minimum Employer Liability limits of $1,000,000.
Section 7.3 Owner Insurance. Owner shall secure, at its sole expense,
---------------
prior to the Commencement Date and maintain in effect during the term hereof the
following insurance subject to the availability of same at reasonably commercial
terms:
(i) Comprehensive General Liability insurance with minimum limits of
$10,000,000 per occurrence including premises/operations, explosion,
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collapse and underground hazards, broad form contractual,
products/completed operations and personal injury.
(ii) Comprehensive Automobile Liability Insurance for all owned, non-owned
and hired vehicles in a minimum amount of $1,000,000 per occurrence.
(iii) Broad form all risk property insurance on a replacement cost basis,
with limits acceptable to Secured Party.
Operator will explore with its insurers whether it is possible to
include Owner's insurance obligations set forth in this Section with Operator's
insurance coverage and to include such insurance expenses as Reimbursable Costs.
Section 7.4 Form and Content. All policies, binders or interim
----------------
insurance contracts with respect to insurance maintained under this Section 7
shall:
(a) be placed with insurance companies that are acceptable to Owner and
Secured Party, and for policies procured by Owner, shall name Operator as an
additional insured to the extent of its interest; provided, that Operator
shall have no interest with respect to business interruption coverage or
property insurance;
(b) include as named insureds Owner, each Partner, Secured Party and
Operator and the officers, directors, affiliates and employees of each of them
with respect to such parties' interest in the Project and/or operations and
maintenance activities on behalf of Owner, and include such other parties as
additional insureds as Owner deems necessary;
(c) provide for general liability coverage either in a single policy or
through a combination of policies. Such policy or combination of policies
shall have deductibles not to exceed $100,000 for each claim for loss or
damage and include blanket contractual, broad form property damage,
severability of interests or cross liability for named or additional insureds
and independent contractor coverage;
(d) be primary with respect to any other insurance coverages available to
Owner or Operator or the additional insureds and not be in excess to, or
contributing with, any insurance maintained by any other Person and that all
provisions, except the policy limits, shall operate in the same manner as if
there were a separate policy covering such insured under each such policy;
(e) provide for no recourse for payment of any premium against Owner,
Secured Party or additional insureds for Operator furnished insurance under
Section 7.2 and no recourse for payment of any premium against Operator,
Secured Party or additional insureds for Owner furnished insurance under
Section 7.3;
(f) waive (i) any right of subrogation of the insurers thereunder against
Owner, Operator, Secured Party or additional insureds and the officers,
directors, employees, agents and representatives of each of them, and (ii) any
right of the insurers to
23
<PAGE>
any setoff or counterclaim or any other deduction, whether by attachment or
otherwise, in respect of any liability of any such Person insured under such
policy;
(g) expressly provide that it may not be canceled or materially changed
without giving Owner or Operator, as the case may be, and Secured Party sixty
(60) days prior written notice thereof except in the case of non-payment for
which the later of twenty (20) days prior notice thereof or such period agreed
to by the relevant insurer shall be provided; and
(h) not be invalidated by any action or inaction of any additional
insured and shall insure each such insured regardless of any breach or
violation of any warranty, declaration or condition contained in such
insurance by the primary named insured.
Section 7.5 Certificates; Proof of Loss. On or before the required date
---------------------------
for the insurance to be provided hereunder, each Party shall furnish
certificates of insurance to the other Party evidencing the insurance required
hereunder. The Party maintaining each insurance policy hereunder shall make
proofs of loss under each such policy and shall take all other action reasonably
required to ensure collection from insurers for any loss under any such policy,
except that Owner may at its discretion require Operator to provide such proof
of loss and take such other action on behalf of Owner in the case of the
insurance maintained by Owner pursuant to Section 7.3. Operator shall provide
Owner with copies of the insurance policies obtained by it promptly upon receipt
thereof.
SECTION 8
INDEMNIFICATION
Section 8.1 By Operator.
-----------
8.1.1 General Indemnity. Subject to the provisions of Section 9,
-----------------
Operator shall indemnify, defend and hold harmless the Owner Indemnified Parties
from and against any and all suits, actions, liabilities, legal proceedings,
claims, demands, losses, costs and expenses of whatsoever kind or character,
including reasonable attorneys' fees and expenses, for injury or death of
persons or physical loss of or damage to property of Persons arising from
Operator's (including its employees or agents) gross negligence or willful
misconduct in connection with performance of the Services.
8.1.2 Indemnity for Violation of Law. Subject to the provisions of
------------------------------
Section 9, Operator shall also indemnify, defend and hold harmless the Owner
Indemnified Parties from and against any and all regulatory penalties or fines
and reasonable expenses (including attorneys' fees and expenses whether at the
trial or appellate level) arising from Operator's violation of any Law, license,
permit, or government approval, provided that, notwithstanding the foregoing or
any other provision of this Agreement (including Section 9), Operator shall not
indemnify, defend and hold harmless Owner Indemnified Parties, and Owner shall
indemnify, defend and hold harmless Operator Indemnified Parties, from and
against any and all regulatory penalties or fines and reasonable expenses
(including attorneys' fees and expenses whether at the trial or appellate level)
arising from the discharge of geothermal steam or from any gases therein
24
<PAGE>
in excess of emissions levels allowable under any Law, license, permit or
governmental approval.
8.1.3 Indemnity for Patent Infringement. If any of the Services would
---------------------------------
infringe upon any patent, trademark or copyright or would involve the
unauthorized use of a third Person's trade secrets, Operator agrees to render
consultation, assistance and modifications to the Services as necessary to avoid
such infringement or unauthorized use. If any Owner Indemnified Party is
charged with infringement or unauthorized use by reason of the Services or of
the operation of the Project by Operator, subject to the provisions of Section
9, Operator agrees to fully defend and indemnify such Owner Indemnified Party
from any and all suits, actions, liabilities, legal proceedings, claims,
demands, losses, costs and expenses and shall settle such claim, action,
proceeding or suit (at Operator's expense) without impairing the operation of
the Project.
8.1.4 Costs. It is understood and agreed by the Parties that any costs
-----
or expenses incurred by Operator pursuant to its indemnity obligations under
this Section 8.1 shall not constitute Reimbursable Costs.
Section 8.2 By Owner.
--------
8.2.1 General Indemnity. Subject to the provisions of Section 9, Owner
-----------------
shall indemnify, defend and hold harmless the Operator Indemnified Parties from
and against any and all suits, actions, liabilities, legal proceedings, claims,
demands, losses, costs and expenses of whatsoever kind or character, including
reasonable attorneys' fees and expenses, for injury or death of persons or
physical loss of or damage to property of Persons and entities other than
Operator arising from Owner's (including its employees or agents) gross
negligence or willful misconduct in connection with the performance of Owner's
obligations hereunder.
8.2.2 Indemnity for Violation of Law. Subject to the provisions of
------------------------------
Section 9, Owner shall also indemnify, defend and hold harmless the Operator
Indemnified Parties from and against any and all regulatory penalties or fines
and reasonable expenses (including attorneys' fees and expenses whether at the
trial or appellate level) arising from Owner's violation of any Law, license,
permit, or government approval, including (i) with respect to any claim based on
identifying COC as the operator of the Project in Project permits, and (ii) with
respect to the performance of Owner's obligations under Section 1.2(b) of
Appendix A hereto, provided that with respect to any such penalties, fines or
expenses included in (i) or (ii) the provisions of Section 9 shall not apply.
Section 8.3 Cooperation Regarding Claims. If any Party hereto (each an
----------------------------
"Indemnified Party") shall receive notice or have knowledge of any claim that
may result in a claim for indemnification by such Indemnified Party against a
Party pursuant to Section 8 or 9, such Indemnified Party shall, as promptly as
possible, give the indemnifying Party notice of such claim, including a
reasonably detailed description of the facts and circumstances relating to such
claim, and a complete copy of all notices, pleadings and other papers related
thereto, and in reasonable detail the basis for its potential claim for
indemnification with respect thereto; provided that failure promptly to give
such notice or to provide such information and documents shall relieve the
indemnifying Party from the obligation hereunder to respond to or to defend the
25
<PAGE>
Indemnified Party failing to give such notice against such claim only to the
extent such failure prejudiced the interests of the indemnifying party with
respect to such claim. The Party against whom indemnification is claimed shall,
upon its acknowledgment in writing of its obligation to indemnify the
Indemnified Party seeking indemnification, be entitled to assume the defense or
to represent the interests of the Indemnified Party seeking indemnification in
respect of such claim, which shall include the right to select and direct legal
counsel and other consultants, appear in proceedings on behalf of such
Indemnified Party and to propose, accept or reject offers of settlement, all at
its sole cost; provided, however, that without the Indemnified Party's consent,
which consent may not be unreasonably withheld, the indemnifying Party may only
consent to entry of a judgment or settlement that does not provide for
injunctive or other nonmonetary relief affecting the Indemnified Party.
SECTION 9
LIABILITIES OF THE PARTIES
Section 9.1 Limitations of Liability. Notwithstanding any provision
------------------------
herein to the contrary, neither Party nor any of their respective shareholders,
partners, principals, Affiliates, officers, directors, agents, subcontractors or
employees shall be liable hereunder for consequential or indirect loss or
damage, including loss of Energy and Capacity Revenues, loss of profit and
anticipated revenues, cost of capital, loss of goodwill, increased operating
costs or any other special or incidental damages. The Parties further agree
that the waivers and disclaimers of liability, indemnities, releases from
liability, and limitations on liability expressed herein shall survive
termination or expiration of this Agreement, and shall apply at all times,
whether in contract, equity, tort or otherwise, regardless of the fault,
negligence (in whole or in part), strict liability, breach of contract or breach
of warranty of the Party indemnified, released or whose liabilities are limited,
and shall extend to the shareholders, partners, principals, Affiliates,
directors, officers and employees, agents and related or affiliated entities of
such Party, and their shareholders, partners, principals, Affiliates, directors,
officers and employees.
Section 9.2 Environmental Liability.
-----------------------
9.2.1 Prior to the Commencement Date. Owner alone shall be solely
------------------------------
responsible for present or future Environmental Claims directly or indirectly
related to or arising out of the actual or alleged existence, generation, use,
collection, treatment, storage, transportation, recovery, removal, discharge or
disposal of Hazardous Materials present at, in or under the Project and/or
adjacent areas prior to the Commencement Date. Owner shall defend, indemnify
and hold Operator harmless against all such Environmental Claims.
9.2.2 After the Commencement Date. Operator shall be responsible for
---------------------------
transporting and/or disposing Hazardous Materials off the Facility Site in
compliance with applicable Laws and shall be responsible for all Environmental
Claims directly or indirectly related to or arising out of the actual or alleged
generation, use, collection, storage, recovery, removal, discharge or disposal
of Hazardous Materials at the Project and/or adjacent areas other than in
compliance with applicable Laws arising after the Commencement Date except to
the extent that such generation, use, collection, storage, recovery or removal
is due to the negligence or intentional misconduct of Owner. Subject to the
provisions of Section 9.4 Operator shall
26
<PAGE>
defend, indemnify and hold Owner and each Owner Indemnified Party harmless
against all such Environmental Claims for which Operator is responsible.
Section 9.3 Limitation of Owner's Liability. Subject to Operator's
-------------------------------
rights under Sections 5, 6, 7, 8, 9 and 13, Operator's remedy for breach of this
Agreement by Owner shall be to terminate this Agreement pursuant to Section 6.
Notwithstanding anything to the contrary herein, it is specifically understood
and agreed that there shall be absolutely no personal liability or recourse for
the payment of any amounts due hereunder, or the performance of any obligations
hereunder against any employee, shareholder, partner, member, officer or
director, whether past, present or future, of Owner, any direct or indirect
parent company or any Affiliate thereof, and Operator shall look solely to the
assets of Owner for the satisfaction of each and every remedy of Operator in the
event of any breach by Owner; provided, however that nothing herein shall
relieve any of the foregoing Persons from liability for such Person's willful
misconduct or gross negligence.
Section 9.4 Limitation of Operator's Liability. Operator's liability
----------------------------------
hereunder shall be limited as follows:
9.4.1 Liability for Loss or Damage to the Facility. Unless such loss
--------------------------------------------
or damage arises through the gross negligence or willful misconduct of Operator,
its employees or its agents, Operator's liability for any loss of or damage to
the Project, or any other property in the care, custody or control of Operator
(including loss or damage to spare parts and materials) shall be limited to the
proceeds of the insurance described in Section 7.
9.4.2 Operator's Total Aggregate Liability. The total aggregate
------------------------------------
liability of Operator to Owner for all liability arising out of or in connection
with the performance of the Services, Operator's obligations hereunder or the
operation of the Project in any calendar year under any theory of recovery,
whether based in contract, in tort (including negligence and strict liability),
under warranty or otherwise, and notwithstanding any other provisions of this
Agreement shall equal the sum of the Annual Operating Fee payable during the
calendar year in which the action or inaction giving rise to the claim for
indemnity occurred whether or not actually paid.
9.4.3 No Recourse. Notwithstanding anything to the contrary herein, it
-----------
is specifically understood and agreed that there shall be absolutely no personal
liability or recourse for the payment of any amounts due hereunder, or the
performance of any obligations hereunder against any employee, shareholder,
partner, officer or director, whether past, present or future, of Operator, any
direct or indirect parent corporation or any Affiliate thereof, and Owner shall
look solely to the assets of Operator for the satisfaction of each and every
remedy of Owner in the event of any breach by Operator; provided, however that
nothing herein shall relieve any of the foregoing Persons from liability for
such Person's willful misconduct or gross negligence.
Section 9.5 Section 1542. Owner and Operator do not believe that this
------------
Agreement is governed by Section 1542 of the California Civil Code, which
provides that:
A General Release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the
27
<PAGE>
time of executing the release, which if known by him must have materially
affected his settlement with the debtor.
To the extent that Section 1542 may be deemed to govern Section 9 of this
Agreement, Owner and Operator each knowingly and voluntarily waives the
provisions of Section 1542 and acknowledges and agrees that this waiver is an
essential and material term of this Agreement and without the waiver the
Agreement would not have been entered into. Each of Owner and Operator have
been advised by its legal counsel and understands and acknowledges the
significance and consequences of this Agreement and of this specific waiver of
Section 1542.
SECTION 10
TITLE, DOCUMENTS AND DATA
Section 10.1 Materials and Equipment. Title to all materials, equipment,
-----------------------
software, supplies, consumables, spare parts and other items purchased or
obtained by Operator on a Reimbursable Cost basis hereunder shall pass
immediately to and vest in Owner or its designee upon the passage of title from
the vendor or supplier thereof; provided, however, that such transfer of title
shall in no way affect Operator's obligations as set forth in the other
provisions hereof; provided, further, that Operator shall not invoice Owner for
materials and equipment unless and until title has passed.
Section 10.2 Documents; Proprietary Information. All materials and
----------------------------------
documents prepared or developed by Operator or its employees, representatives or
contractors solely in connection with the Project or the performance of the
Services shall become the property of Owner when prepared. Operator makes no
warranty regarding the use of such material by Owner (i) other than in
connection with the Project or (ii) after the termination of this Agreement.
Notwithstanding the foregoing, where materials or documents prepared or
developed by Operator or its employees, representatives or contractors contain
proprietary or technical information, systems, techniques, or know-how
previously known to Operator or its contractors or previously acquired by
Operator or its contractors from third parties, Operator or its contractors
shall have the unrestricted right to use or dispose of such information,
systems, techniques, or know-how as they see fit; provided, however, that Owner
shall have the right to utilize the same in connection with the Project without
cost to Owner. All such materials and documents, together with any materials
and documents furnished to Operator or to its contractors by Owner, shall be
delivered to Owner upon expiration or termination of this Agreement and before
final payment is made to Operator; provided that Operator may retain and use
copies of all such materials and documents prepared by Operator subject to the
terms of Section 13 hereof.
Section 10.3 Review by Owner. In addition, all such materials and
---------------
documents shall be available for review by Owner at all reasonable times during
development and promptly upon completion. All such materials and documents
required to be submitted for the approval of Owner shall be prepared and
processed in accordance with the requirements and specifications set forth in
the O&M Manuals. Owner's approval of materials and documents submitted by
Operator shall not relieve Operator of its responsibility for the correctness
thereof or of its obligation to meet all the requirements hereof.
28
<PAGE>
SECTION 11
REPRESENTATIONS AND WARRANTIES
Section 11.1 Operator Representations and Warranties. Operator
---------------------------------------
represents and warrants to Owner that:
11.1.1 Organization and Good Standing. Operator is a corporation duly
------------------------------
organized, validly existing, and in good standing under the laws of Florida.
11.1.2 Enforceability. This Agreement constitutes the legal, valid, and
--------------
binding obligation of Operator except as enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally and (ii) general principles of
equity.
11.1.3 Due Authorization. The execution, delivery, and performance of
-----------------
this Agreement by Operator has been duly authorized by all requisite action and
will not conflict with any provisions of any Law, or any agreement or instrument
to which it is a party or by which it, its property or assets may be bound or
affected.
11.1.4 Licenses. Operator is the holder of all necessary governmental
--------
consents, licenses, permits or other authorizations required to operate or
conduct its business as contemplated herein.
11.1.5 Qualifications and Skill of Operator. Operator is qualified to
------------------------------------
operate and maintain the Project and to provide the services contemplated by
this Agreement. All personnel employed by Operator to perform its obligations
hereunder shall be qualified to perform such obligations and shall be
experienced or shall be properly trained in performing the tasks which they
shall perform.
Section 11.2 Owner Representations and Warranties. Owner represents and
------------------------------------
warrants to Operator that:
11.2.1 Organization and Good Standing. Each of CDP and CTLP is a general
------------------------------
partnership duly organized, validly existing, and in good standing under the
laws of the State of California. COC is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State of
Delaware.
11.2.2 Enforceability. This Agreement constitutes the legal, valid, and
--------------
binding obligation of Owner except as enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally and (ii) general principles of
equity.
11.2.3 Due Authorization. The execution, delivery, and performance of
-----------------
this Agreement by Owner has been duly authorized by all requisite action and
will not conflict with any provisions of any Law, or any agreement or instrument
to which it is a party or by which it, its property or assets may be bound or
affected.
29
<PAGE>
11.2.4 Facility Agreements. Prior to Commencement Date, Owner will
-------------------
provide Operator with complete and correct copies of the Facility Agreements
described on Appendix B.
SECTION 12
FORCE MAJEURE
Section 12.1 Excused Performance. Except for the obligation to make
-------------------
payments for the Services actually rendered hereunder, either Party shall be
excused from performance and shall not be considered to be in default in respect
to any obligation hereunder, if failure of performance shall be due to an event
of Force Majeure.
Section 12.2 Notice of Force Majeure. If either Party's ability to
-----------------------
perform its obligations hereunder is affected by an event of Force Majeure, such
Party shall promptly, upon learning of such event of Force Majeure and
ascertaining that it will affect its performance hereunder, give notice to the
other Party within 48 hours of its discovery stating the nature of the event,
its anticipated duration and any action being taken to avoid or minimize its
effect. The burden of proof shall be on the Party asserting excuse from
performance due to such event of Force Majeure.
Section 12.3 Scope. The suspension of performance shall be of no greater
-----
scope and no longer duration than that which is absolutely necessary. The
excused Party shall use its reasonable best efforts to remedy its inability to
perform and to mitigate any damage as a result thereof.
SECTION 13
CONFIDENTIAL INFORMATION
Section 13.1 Non-disclosure. Each Party agrees to hold in confidence any
--------------
information imparted to it by the other Party which pertains to Owner's or
Operator's business activity in any manner, and which is not the subject of
general public knowledge, including, without limitation, proprietary processes,
technical information and know-how, information concerning Owner's other
projects, management policies, economic policies, financial and other data and
the like. This obligation shall continue to remain in full force and effect
during the Term of this Agreement and for two (2) years after the date of
termination or expiration of this Agreement. The preceding non-disclosure
requirements shall not apply to:
(i) information furnished without restriction by one Party to the other
Party prior to the Commencement Date;
(ii) information in the public domain; or
(iii) information obtained by one Party from a third Person not under an
obligation of non-disclosure to Owner or Operator, as the case may
be.
Section 13.2 Disclosure to Government Agency. Either Party may disclose
-------------------------------
any such information to the extent that such Party is required by any Government
Agency to
30
<PAGE>
make such disclosure. If a Party becomes legally compelled to disclose any of
such confidential information, such Party shall provide the other Party with
prompt notice so that the other Party may seek to obtain a protective order or
other appropriate remedy.
In addition, Owner may disclose such information to the extent that
such disclosure is required by Secured Party, the Facility Agreements, any
prospective Secured Party, any prospective member of Owner, independent
engineer, power purchaser, SCE, any supplier to the Project and any Person
providing any type of interconnection services to the Project, it being
understood that prior to any disclosure of such information, such Persons shall
be informed of the confidential nature of the information and shall agree (i) to
keep the information confidential and (ii) to the other terms of Section 13 of
this Agreement.
SECTION 14
MISCELLANEOUS PROVISIONS
Section 14.1 Assignment. This Agreement shall not be assignable by
----------
either Party without the prior written consent of the other Party.
Notwithstanding the foregoing, this Agreement may be assigned to Secured Party
as security for Secured Party's financing of the Project and, with ninety (90)
days prior written notice to Operator: (i) to the successor of Owner, (ii) to a
Person acquiring all or a controlling interest in the business assets of Owner,
(iii) to a wholly-owned subsidiary of Owner, or (iv) in connection with a sale
or transfer of the Project by Secured Party; provided that any such assignment
(except pursuant to paragraph (iv)) shall not relieve the assigning Party of any
of its obligations under this Agreement.
Notwithstanding the foregoing or any provisions of this Agreement to
the contrary, if default shall occur in the observance of performance of any of
the covenants or conditions required to be observed or performed by Owner
hereunder, Operator agrees that it will (a) give each Secured Party who has been
identified, in writing, by Owner as a Secured Party prompt written notice of
such default and of the nature thereof (such notice to be delivered to the
address for each Secured party provided by Owner to Operator), (b) advise such
Secured Party as to the action Operator proposes to take in respect of such
default, and (c) not take action to enforce any of its rights or remedies
hereunder prior to the expiration of a 30-day period following the giving of the
notice in clause (a) above.
If the default has not been remedied by Owner within twenty (20) days
after the giving of such notice, the Secured Party shall have the right (but not
the obligation) at any time prior to the expiration of the thirty (30) day
period referred to in (c) above to remedy such default, and Operator agrees to
accept the payment or performance tendered (if in compliance with the terms
hereof) as constituting payment or performance by Owner for all purposes hereof.
Section 14.2 Entire Agreement and Amendments. This Agreement embodies
-------------------------------
the entire agreement between the Parties relating to the subject matter hereof.
The Parties shall not be bound by or liable for any documents proposed or
submitted prior to the date of this Agreement and not incorporated in this
Agreement (by reference or otherwise), or for any statement, representation,
promise, inducement or understanding of any kind or nature relating to the
Services or any other matter covered by this Agreement which is not set forth or
provided for
31
<PAGE>
herein. This Agreement shall be binding upon and shall inure to the benefit of
the successors and permitted assigns of the Parties. No changes, amendments or
modifications of any of the terms or conditions of this Agreement shall be valid
unless set forth in writing and signed by each of the Parties. Unless and until
Operator shall have received written notice from the Secured Party that the lien
of any security agreements between Secured Party and Owner has been released no
amendment or modification of any of the provisions of this Agreement shall be
effective unless the Secured Party shall have joined in such amendment,
modification or shall have given its prior written consent thereto.
Section 14.3 Survival. Notwithstanding any provisions herein to the
--------
contrary, the obligations set forth in Sections 5, 6, 8 and 13 and the
limitations on liabilities set forth in Section 9 shall survive in full force
the expiration or termination of this Agreement.
Section 14.4 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or such unenforceability and
shall not invalidate the enforceable portions of such provision or the remaining
provisions of this Agreement or affect the validity or enforceability of any
such provision in any other jurisdiction. Except as otherwise provided for
herein, the remedies expressly afforded hereunder to Owner and Operator,
respectively, are in addition to any other remedies provided at law or in
equity.
Section 14.5 Waiver. None of the provisions of this Agreement shall be
------
considered waived by a Party unless such waiver is in writing and signed by such
Party. No waiver shall be construed as a modification of any of the provisions
of this Agreement or as a waiver of any default (present or future) hereunder or
breach hereof, except as expressly stated in such waiver.
Section 14.6 Notices. All notices required or permitted under this
-------
Agreement shall be in writing and shall be hand-delivered or sent by certified
or registered mail, return receipt requested, facsimile or commercial delivery
subject to written record of receipt, to Owner or Operator, as the case may be,
at their respective addresses set forth below, or to such other addresses as may
be designated by notice given as herein required. All notices shall be
effective upon first receipt as evidenced by written record of delivery or
confirmation of transmission.
Owner: Coso Power Developers
----- c/o Cathness Energy, L.L.C.
1114 Avenue of the Americas
41st Floor
New York, New York 10036-7790
Attention: President
Facsimile No.: (212) 921-9239
with a copy to: Caithness Energy, L.L.C.
350 Indiana Street
Suite 601
Golden, Colorado 80401
32
<PAGE>
Facsimile No.: (303) 279-3486
Operator: FPL Energy Operating Services, Inc.
-------- 700 Universe Boulevard
Juno Beach, Florida 33408
Attention: Vice President - Operations
Facsimile No.: (561) 691-7309
FPL Energy Operating Services, Inc.
c/o FPLE West Region
6952 Preston Avenue
Livermore, CA 94552
Attention: Vice President - Operations
Facsimile No.: (925) 455-3101
Section 14.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD
TO CONFLICT OF LAW PRINCIPLES.
Section 14.8 Further Assurances. If either Party reasonably determines
------------------
that any further instruments or any other acts or things are necessary or
desirable to carry out the terms of this Agreement, the other Party will execute
and deliver all such instruments and assurances and do all such things as the
first Party reasonably deems necessary or desirable to carry out the terms of
this Agreement (at the cost of the first Party).
Section 14.9 No Third Person Rights. Except for the provisions of
----------------------
Sections 14.1 and 14.2 to which the Secured Party is an intended third party
beneficiary, this Agreement is not for the benefit of any Person other than the
Parties, and no other Person shall be deemed to be a third party beneficiary
hereof or entitled to any benefits hereunder.
Section 14.10 Dollars. All payments made to be made by either Party to
-------
the other hereunder shall be in Dollars.
Section 14.11 Counterparts. This Agreement may be executed in more than
------------
one counterpart, each of which shall be deemed to be an original.
Section 14.12 Strikes. In the event of a whole or partial nonoperation
-------
of the Facility due to a strike or other form of labor action by Operator's
personnel, Owner shall have the right to continue operating the Facility and to
retain such other personnel or agents as Owner in its sole discretion deems
necessary or advisable for such purposes. Owner shall have no obligation to pay
the Annual Operating Fee for the period during which Owner operates the
Facility.
[Remainder of the page intentionally left blank; signature page immediately
following]
33
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first set forth above.
OWNER:
COSO POWER DEVELOPERS
By NEW CTC COMPANY, LLC
By: /s/ Christopher T. McCallion
--------------------------------
Name: Christopher T. McCallion
Title: Executive Vice President
COSO OPERATING COMPANY LLC
By: /s/ Christopher T. McCallion
--------------------------------
Name: Christopher T. McCallion
Title: Executive Vice President
COSO TRANSMISSION LINE PARTNERS
By: COSO POWER DEVELOPERS
By: NEW CTC COMPANY, LLC
By: /s/ Christopher T. McCallion
--------------------------------
Name: Christopher T. McCallion
Title: Executive Vice President
Operator:
FPL ENERGY OPERATING SERVICES, INC.
By: /s/ John A. Keener
--------------------------------
Name: John A. Keener
Title: Vice President
34
<PAGE>
Exhibit 10.58
FIELD OPERATION AND MAINTENANCE AGREEMENT
(Navy I)
This Field Operation and Maintenance Agreement ("Agreement") is entered
into as of May 28, 1999 (the "Effective Date"), by and between COSO FINANCE
PARTNERS, a California general partnership ("CFP"), and COSO OPERATING COMPANY
LLC, a Delaware limited liability company ("COC").
WHEREAS, CFP owns a three unit 90 megawatt output power facility and
related geothermal resources (collectively the "Facility," as further defined
herein) located at the Naval Air Weapons Center near China Lake, California
designated as the Navy I Project; and
WHEREAS, CFP and COC wish to provide for the terms and conditions of the
operations and maintenance of the Facility as more fully provided for herein.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
-----------
The following capitalized words and phrases used in this Agreement shall
have the meanings specified in this Article 1.
1.1 Additional Services means services other than Required Services,
-------------------
which will be provided by COC at such times and at such costs as approved by
CFP.
1.2 Annual Operating Fee means the Annual Operating Fee as provided
--------------------
for in Section 4.3 hereof.
1.3 CFP Partnership Agreement means that certain Amended and Restated
-------------------------
General Partnership Agreement of Coso Finance Partners, dated as of the
Effective Date.
1.4 CLJV means China Lake Joint Venture, a California single-purpose
----
partnership organized as a joint venture between Caithness Acquisition Company,
LLC and Caithness Geothermal 1980, Ltd., a New Jersey limited partnership.
1.5 Commencement Date means February 25, 1999, the date of the previous
-----------------
operations and maintenance agreement.
<PAGE>
1.6 Direct Costs means Direct Costs as defined in Section 4.2 hereof.
------------
1.7 Drilling Services means Drilling Services as defined in Section
-----------------
2.1(c) hereof.
1.8 Emergency means an event occurring at the Resource Area which poses
---------
actual or imminent risk of serious personal injury, physical damage, violation
of a material Governmental Requirement or loss of material contractual rights of
CFP requiring, in the good faith determination of COC, immediate preventative or
remedial action by COC and for which advance approval by CFP otherwise required
under this Agreement would be impossible or impractical and for which there was
no reasonable advance notice to COC of the need for such action.
1.9 ESCA means ESCA LLC, a Delaware limited liability company, the two
----
members of which are ESI and Mojave.
1.10 ESI means ESI Geothermal, Inc., a Florida Corporation.
---
1.11 Facility means the geothermal power facility, located on the lands
--------
of the Naval Weapons Center, known as the Navy I Project, consisting of three
Units, the Transmission Line, interconnection to the Transmission Line, certain
common control and support facilities, and any part of the surface of the real
property, fixtures and buildings which are located within the Fencelines of any
of the three Units.
1.12 Fenceline means the perimeter described by the fence or fences
---------
which enclose any Unit.
1.13 FERC means the Federal Energy Regulatory Commission.
----
1.14 Field Operations means the well drilling and well workover work
----------------
within the Resource Area, and related accounting activities, and management and
engineering of the geothermal resource, but shall exclude the surface steam
gathering system and steam, noncondensable gas and brine disposal systems
connected to the Facility and well operation and maintenance.
1.15 Field Operator means COC in its capacity as field operator under
--------------
this Agreement.
1.16 FPLE means FPL Energy Operating Services, Inc., or such other
----
operator as may be selected by CFP.
1.17 Geothermal Reserve means not less than One Hundred Five Percent
------------------
(105%) or such lesser percentage as CFP may specify in writing of the geothermal
resource available at the wellhead (stabilized and tested in accordance with
generally recognized standards
2
<PAGE>
and procedures) sufficient to operate the Facility continuously and economically
at a capacity reflected from time to time in the projections included in the
Independent Engineer's Report, dated May 20, 1999, attached as an Appendix to
the Caithness Coso Funding Corp. Offering Memorandum, dated May 20, 1999, in
compliance with the Project Documents and all Governmental Requirements during
the term of the Navy Contract.
1.18 Governmental Authority means the government of any federal, state,
----------------------
municipal or other political subdivision in which the Facility is located, and
any other government or political subdivision thereof exercising jurisdiction
over the Resource Area, Facility, or CFP, including all agencies and
instrumentalities of such governments and political subdivisions (including,
without limitation, the Navy).
1.19 Governmental Requirements means all Laws, ordinances, statutes,
-------------------------
codes, rules, regulations, orders and decrees of any Governmental Authority,
including, without limitation, all authoritizations, consents, approvals,
registrations, exemptions, permits and licenses with or from any Governmental
Authority, applicable to the Resource Area, Facility, or CFP.
1.20 Law means any constitution or treaty, any law, ordinance, decree,
---
regulation, order, rule, judicial or arbitral decision and any voluntary
restraint, policy or guideline not having the force of law, with which such
party must reasonably comply, or any of the provisions of such Laws binding on
or affecting the party referred to in the context in which the term is used.
1.21 Navy means the United States Government, acting through the Western
----
Division (Code 022) Naval Facilities Engineering Command, San Bruno, California
and or the Disbursing officer, Code 0862, Naval Weapons Center, China Lake,
California, as the context may require.
1.22 Navy Contract means that certain contract No. K-N62474-79-C-5382,
-------------
dated December 6, 1979, by and between the United States of America acting
through the Navy and California Energy Company, Inc., as modified, amended,
assigned to CLJV and restated by Contract Modification P00004, dated as of
October 19, 1983 and as the same may have been or may be further modified or
amended.
1.23 Operating Budget means an annual budget approved by CFP pursuant to
----------------
Section 3.1.
1.24 Operations means those operations delineated by Section 2 of the
----------
Operation and Maintenance Agreement.
1.25 Operations and Maintenance Agreement means the Operations and
------------------------------------
Maintenance Agreement (Navy I Project), dated the Effective Date, entered into
by CFP, COC and FPLE.
3
<PAGE>
1.26 Permitted Assigns means Permitted Assigns as defined in Section 12.7.
-----------------
1.27 Permitted Liens means Liens which are:
---------------
(a) liens for taxes, assessments and governmental charges which are
not delinquent and remain payable without penalty or are being contested in good
faith by appropriate proceedings and for which adequate reserves, bonds or other
security has been provided; and
(b) purchase money security interests in real or personal property
when the obligation secured is incurred for the purchase of such property and
does not exceed one hundred percent (100%) of the lesser of cost or fair market
value thereof at the time of acquisition, and the security interest does not
extend beyond the property involved; and
(c) mechanics', materialmen's and similar liens which do not
individually or in the aggregate materially interfere with the conduct of CFP's
business which are being contested in good faith and have not proceeded to
judgment and for which a bond or other security has been posted; and
(d) deposits or pledges to secure statutory obligations or appeals;
releases of mechanics' and materialmen's liens and similar attachments, stays of
execution or injunction; performance of bids, tenders, contracts (other than for
the repayment of borrowed money) or leases; or for purposes of like general
nature in the ordinary course of its business; and
(e) any other liens approved by CFP.
1.28 Power Purchase Contract means that certain Agreement dated June 4,
-----------------------
1984, as amended on May 29, 1985, and that certain Interconnect Agreement dated
May 29, 1985, both between SCE and CLJV and all as assigned to CFP as of July
14, 1987, in each case as the same maybe modified or amended from time to time.
1.29 Project means the Facility, the Resource Area and the associated
-------
rights to geothermal resources.
1.30 PURPA means Public Utility Regulatory Policies Act of 1978, as
-----
amended.
1.31 Required Services means the services described in Section 2.1
-----------------
hereof.
1.32 Resource Area means all real property described in Exhibit A to
-------------
this Agreement, exclusive of the area on which the Facility is located.
1.33 Resource Management Plan means the annual written plan for the
------------------------
management and development of the Resource Area and the performance of its other
services hereunder
4
<PAGE>
prepared by COC in accordance with Section 2.1(a)(vi) hereof,
as the same may be modified from time to time with the approval of CFP.
1.34 SCE means Southern California Edison Company, a corporation
---
organized and existing under the laws of the State of California.
1.35 Subordination Agreement means the Operating Fee Subordination
-----------------------
Agreement (Navy I) between COC and U.S. Bank Trust, National Association, as
collateral agent of even date herewith.
1.36 Transmission Line means that certain 115Kv overhead transmission
-----------------
line, including associated equipment, connecting the Facility to SCE's Inyokern
Substation.
1.37 Units. The geothermal power plant (Units 1, 2, and 3) owned by CFP
-----
and the related geothermal resource gathering system, the geothermal resource
disposal system, and the geothermal reserve that is on property of the Naval
Weapons Center, China Lake, California, for the purpose of supplying electric
energy and capacity to SCE and the Navy.
1.38 Warranties means the warranties provided by the contractors for the
----------
Facility.
ARTICLE 2
OPERATION AND MAINTENANCE; SUPPORT SERVICE
------------------------------------------
2.1 Required Services. During the term of this Agreement, commencing on
-----------------
the date of this Agreement, COC shall, to the extent contemplated by the
Operating Budget and the Resource Management Plan, provide field operation and
maintenance services for the Project as described below (all of which constitute
Required Services):
(a) The following testing, permitting, reporting and recordkeeping
services:
(i) Review all testing of geothermal production wells and
maintain all records regarding the geothermal reserves of the Resource Area as
may reasonably be required by CFP;
(ii) Area as is usual or advisable for maintenance of
existing wells and for determining the necessity of drilling replacement wells,
in accordance with general industry practice;
(iii) Select one or more individuals to act as liaison
with the Navy, SCE, CFP, and FPLE with respect to all services to be rendered by
COC under this Agreement;
5
<PAGE>
(iv) Provide CFP, FPLE and any person designated by CFP prompt notice
of all events, occurrences, conditions and issues with respect to the Geothermal
Resources of which COC shall become aware and which COC reasonably believes are
material to, or are likely to have a material effect on, Operations;
(v) Provide to CFP analysis of reports, test data, and other
information related to the Resource Area with respect to all services to be
rendered by COC as reasonably requested by CFP from time to time; and
(vi) Prepare not later than ninety (90) days prior to the end of each
calendar year, in connection with the preparation of the Operating Budget, the
Resource Management Plan with respect to (A) the management and development of
the Resource Area, (B) performance of its other services hereunder in substance
and format acceptable to CFP, (C) a schedule of anticipated tests, including
justification as to technical and scientific requirements and estimated costs of
testing, (D) a review of the actions taken hereunder during the preceding twelve
(12) month period, including specifically an analysis of drilling and
maintenance activities, resource operations and capital expenditures paid or
incurred during such period and (E) a forecast of drilling and maintenance
activities, resource operations and required capital expenditures for the
ensuing calendar year.
(b) The following support services:
(i) Maintain, as appropriate, third-party contracts for drilling
geothermal wells;
(ii) Provide adequate safety and security measures for the Resource
Area, in coordination with CFP, the Navy, SCE and FPLE; and
(iii) Assist CFP and FPLE in maintaining good community relations.
(c) COC shall, to the extent contemplated by the Operating Budget and
the Resource Management Plan, provide the following exploration, drilling,
testing and injection services (all of which constitute Drilling Services):
(i) Explore for new well sites, drill new wells, and complete, test,
and make available new wells for tie in to the resource gathering systems for
the Project; and
(ii) Drill, test, workover, repair and make available new wells
to the disposal system; and
(iii) Perform well workovers and related activities; and
6
<PAGE>
(iv) Perform all reservoir and resource management related services
and reservoir engineering and geologic activities with respect to the field and
sub-surface reservoir, including, without limitation, scheduling and supervising
well testing, well surveys, maintaining production data bases, reservoir
modeling, identifying candidates for well workovers, acid jobs, providing
reports on resource availability, declines, production projections, targeting
new wells, providing three dimensional models of the reservoir, maintaining and
distributing maps, scheduling and supervising geologic geophysical and/or
geochemical surveys.
2.2 CFP may by written notification to COC make changes in, additions to,
or deletions from COC's Required Services or Drilling Services. COC shall
thereafter perform its Required Services and Drilling Services in accordance
with such notification, and the Operating Budget pursuant to Article shall be
increased or decreased by the estimated amount of the Direct Costs resulting
from the change.
2.3 If, as a result of an Emergency, COC reasonably believes it necessary
to perform services outside the scope of the Operating Budget then in effect and
for which advance approval by CFP otherwise required under this Agreement would
be impossible or impractical, COC may perform such reasonably necessary services
(except Drilling Services, unless such Drilling Services are needed to control
blow-outs) so long as the Emergency continues. Payment of all costs including
Direct Costs will be made as if the services were part of the Operating Budget
then in effect, except to the extent such Emergency is the result of COC's
failure (by reason of gross negligence or willful misconduct) to perform the
services required hereunder. COC shall provide notice of such Emergency to CFP
and FPLE as soon as is practical, together with a statement (including
appropriate supporting documentation) for its services provided in connection
therewith.
ARTICLE 3
OPERATING BUDGET
----------------
3.1 COC shall prepare a proposed annual budget for Required Services and
Drilling Services itemizing separately for services described in Section 2.1 and
more particularly described in the related Resource Management Plan. In
preparing each proposed budget, COC shall take into account the amounts
described in Section 4.2. The budgets shall be in format and substance
acceptable to CFP. Each proposed budget for Drilling Services will be
accompanied by a written report describing drilling, steam gathering and related
activities, recommendations on any actions necessary to maintain the Geothermal
Reserve, and long-term projections on resource availability. The proposed
budgets will be submitted by COC for consideration and approval by CFP in
connection with the approval of CFP's Budget (as defined in the CFP Partnership
Agreement) as more fully described in the CFP Partnership Agreement. COC shall
submit each proposed budget and related proposed Resource
7
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Management Plan to CFP not later than ninety (90) days prior to the calendar
year to which such budgets relate.
3.2 COC shall perform all Required Services and Drilling Services in
accordance with the Operating Budget and related Resource Management Plan
(except for Emergencies under Section 2.3). Should COC determine during the
course of the year that it cannot in good faith perform the Required Services
and Drilling Services within the Operating Budget, COC shall immediately notify
CFP. COC shall prepare a revised Operating Budget, together with any necessary
supplementary materials, setting forth in reasonable detail the reasons for the
inability of COC to perform the services contemplated hereunder within the
Operating Budget and the reasons for omission from such Operating Budget of
expenses, the incurrence of which COC considers necessary, and submit them to
CFP within fifteen (15) days after determining the need for the revised
Operating Budget. The proposed revised Operating Budget shall be subject to
approval in the manner described in Section 3.1.
3.3 COC shall report to CFP any variance of the $20,000 or ten percent
(10%) or more between (a) actual expenditures for budgeted line items, and (b)
budgeted expenditures for such line items on a year-to-date basis, within
fifteen (15) days of the end of each calendar quarter and within fifteen (15)
days of the determination by COC during the course of any quarter that such
variance is likely to occur.
3.4 COC shall make available to CFP, at reasonable times, all records
relating to the charges incurred in connection with COC's performance of COC's
obligations under this Agreement.
ARTICLE 4
PAYMENT
-------
4.1 Compensation. Subject to the constraints of the Operating Budget, CFP
------------
shall pay COC, as compensation for Required Services and Drilling Services
performed under this Agreement, all Direct Costs plus the Annual Operating Fee.
4.2 Direct Costs. Direct Costs are the following:
------------
(a) Costs for personnel reasonably assigned to work at the Resource
Area, as well as additional personnel, including home office personnel as may be
required by COC, together with related overhead costs calculated at COC's actual
overhead rate. Personnel costs reimbursable hereunder shall include, but not be
limited to, direct salaries and wages, overtime premiums, employer paid social
security and unemployment insurance costs, insurance coverages required to be
furnished by COC pursuant to Article 9, medical, hospital, dental, eye care,
disability and life insurance coverages, employer retirement savings program
8
<PAGE>
contributions, and vacation, holiday and sick leave in accordance with COC's
standard policies.
(b) All other expenses reasonably incurred by COC at the Resource
Area, including but not limited to materials, supplies, rental equipment and
vehicles, subcontracted services, communication costs and spare parts, and any
other cost or expense not otherwise reimbursed hereunder, including those in
excess of the insurance coverage to be maintained by COC under Article 9 of this
Agreement subject to the Operating Budget; excepting only those costs or
expenses that are (a) due to the gross negligence or willful misconduct of COC
or its employees, officers or agents or (b) due to replacement of items lost or
stolen as a result of gross negligence in security, tracking or control by COC.
COC may not, without the approval of CFP, enter into any subcontract for the
performance of the services set forth herein or for the supply of materials
therefor having an aggregate value in excess of $50,000 in any calendar year;
provided, however, that all items in an approved Operating Budget indicated as
being subcontracted shall be deemed approved for purposes of this provision up
to the amounts budgeted for such items.
4.3 Annual Operating Fee. CFP shall pay to COC for the Required Services
--------------------
and Drilling Services performed hereunder an annual operating fee (the "Annual
Operating Fee") as follows: (i) $532,000 from the Effective Date through the
first anniversary of the Commencement Date; (ii) $400,000 from the first
anniversary of the Commencement Date through the second anniversary of the
Commencement Date; and (iii) $334,000 for each year after the second anniversary
of the Commencement Date. On or before June 30 and December 31 of each year,
CFP will pay to COC one-half of the Annual Operating Fee in arrears.
4.4 Procedure for Payment. COC shall submit all invoices for services
---------------------
performed under this Agreement to CFP. All invoices for amounts within the
Operating Budget or covered by Section 2.3 hereof shall be paid promptly by CFP.
ARTICLE 5
STANDARD OF CARE
----------------
5.1 COC shall perform its obligations under this Agreement in conformance
with applicable industry standards and in a good, workmanlike and commercially
reasonable manner. COC will exercise such care, skill and diligence as a
prudent business entity engaged in the business of managing and operating a
geothermal power project would exercise for the advancement and protection of
its own economic interests.
5.2 All operation and maintenance services shall be performed in a manner
designed to have the least possible adverse effect on the Resource Area and on
the Facility. Maintenance, overhauls and (to the extent possible) repairs or
overhauls required as a result
9
<PAGE>
of unexpected events shall be scheduled with CFP
and FPLE so as to minimize interference with the operations of the Facility.
5.3 COC shall at all times keep, or cause to be kept, qualified personnel
on the Project site, and shall pay all wages and benefits required by contract
and by law. COC shall administer all matters relating to labor relations,
working conditions, training, employee benefits, safety and related matters
pertaining to its employees.
5.4 CFP understands that COC's management personnel for operations under
this Agreement may be assigned to the Facility part-time as is reasonably
necessary to satisfy COC's obligations under this Agreement, but may also be
assigned to work on other projects in which COC or its affiliates are involved
as equity participants and/or in which an affiliate of FPLE may have an
interest. CFP may make requests of COC to replace personnel deemed by CFP to be
inadequately experienced or otherwise unqualified to perform the services
contemplated by this Agreement, which request shall not be unreasonably refused.
5.5 COC shall comply with, and cause the Resource Area and all Resource
Area personnel to comply with, any applicable standards required by any
applicable insurance policies in effect from time to time, all applicable
Governmental Requirements (including all requirements imposed by PURPA and
FERC), the Power Purchase Contract, the Navy Contract and the operating manuals
for the Units.
5.6 COC shall not, directly or indirectly, create, incur or permit to
exist any lien, other than Permitted Liens, on the Facility, the Resource Area
or any materials, equipment, services, supplies or other items supplied or
procured by COC under this Agreement.
ARTICLE 6
RESPONSIBILITIES OF OTHERS
AND COOPERATION WITH FPLE
--------------------------
6.1 CFP shall obtain and maintain all permits and licenses with respect to
the Project necessary to allow COC to provide all services contemplated by this
Agreement.
6.2 CFP grants to COC a limited license under the Navy Contract and other
rights that CFP has to the Project and the surrounding areas that are reasonable
and necessary to allow COC to perform the services contemplated by this
Agreement.
6.3 CFP shall provide for COC's use in connection with COC's performance
of its duties and obligations under this Agreement of permanent furnished office
facilities and a maintenance building.
10
<PAGE>
6.4 Inasmuch as COC must interface directly with parties other than CFP in
the performance of its obligations, CFP shall, when requested by COC, exert its
best efforts to secure the performance of such third parties for COC, including
but not limited to the compliance with warranties, and the furnishing of
information, assistance, or permission. Such third persons shall include, but
are not limited to the Navy, SCE, and FPLE. COC shall use its best efforts to
cooperate with such third parties in the performance of its obligation under
this Agreement.
ARTICLE 7
COC WARRANTY
------------
7.1 Limited Warranty. COC warrants that it will perform the Required
----------------
Services and Drilling Services in a good and workmanlike manner by qualified
personnel in accordance with generally accepted sound operating and engineering
practices for the maintenance of equipment and structures like the Facility.
COC shall assign to CFP all warranties provided by manufacturers, contractors or
vendors of spare parts provided for the Facility, and shall pass on to CFP
copies of any such warranty. THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED, WHICH
EXTEND BEYOND THE DESCRIPTION ON THE FACE HEREOF.
7.2 Warranty Period Remedies. COC's limited warranty described in Section
------------------------
7.1 shall be for a period of twelve (12) months from the date such Required
Services and Drilling Services were performed or such parts were put into
service (the "Warranty Period"). Any claim by CFP under the limited warranty
must be made in writing promptly after such party is informed of the deficient
Required Services and Drilling Services. COC's sole liability for breach of the
limited warranty shall be, in the case of Required Services and Drilling
Services, promptly to perform the defective services correctly free of charge
and/or promptly to replace unfit or unqualified personnel.
7.3 No Implied Warranties. ANY IMPLIED WARRANTIES OF MERCHANTABILITY,
---------------------
QUALITY, SUITABILITY AND FITNESS ARE EXCLUDED. THERE ARE NO WARRANTIES WHICH
EXTEND BEYOND THE DESCRIPTION ON THE FACE HEREOF. COC's limited warranty in
Section 7.1 is exclusive and in lieu of any other warranties.
7.4 No Additional Payments. If work required to be performed pursuant to
----------------------
this Agreement must be performed, or personnel must be replaced, due to a breach
of the warranties contained in this Article 7 within the Warranty Period, COC
shall not be entitled to be paid under this Agreement for any and all costs
incurred in performing its limited warranty hereunder.
11
<PAGE>
ARTICLE 8
SUSPENSION OF SERVICES
----------------------
8.1 CFP may suspend all or a part of the services to be performed by COC
under this Agreement by written notice to COC, for any of the following reasons:
(a) Force Majeure causes as set forth in Paragraph 12.1, or any other
reason that causes shutdown of the Facility or Resource Area for a period of
more than 20 consecutive calendar days or for more than 30 days in any 60 day
period.
(b) Inability of the Facility or the Resource Area to properly operate
for any reason including but not limited to unavailability of geothermal
resource in sufficient quality or quantity, malfunction of equipment,
unavailability of materials, equipment, supplies or labor, or structural
defects.
(c) SCE's inability or refusal to accept power from the Facility.
(d) Navy activities or restrictions which prohibit economical
operation of the Facility or the Resource Area.
(e) Failure of COC to perform the Required Services, Drilling Services
or Emergency Services in accordance with the standards set forth in Article 5 of
this Agreement.
8.2 Upon receipt of notice of suspension from CFP, COC shall continue to
perform its non-suspended services under this Agreement at such personnel
staffing and performance levels as are prudently dictated by the circumstances.
COC shall have the right during any such suspension to terminate the employment
of any of its personnel. Except in connection with Section 8.1(c), any cost of
reemployment for the performance of services under this Agreement shall be
payable as a Direct Cost under Section 4.2.
8.3 Except in connection with Section 8.1(e), in the event of suspension,
CFP shall continue to pay COC all compensation in accordance with Article 4,
unless it is determined that such suspension will extend for more than 30
calendar days. In the event such suspension will extend for more than 30
calendar days, CFP shall compensate COC for costs associated with winding down
and restarting the operation and maintenance activities to the extent provided
for in the Operating Budget.
8.4 COC may, by giving 30 days written notice to CFP, suspend all or a
part of its services under this Agreement if CFP shall fail to make any payment
when due as required under Article 4, provided that no such suspension shall
occur if the required payment is made within the notice period and except for
any Operating Fees which are not paid on account of the Subordination Agreement.
12
<PAGE>
ARTICLE 9
INSURANCE
---------
9.1 COC shall procure and maintain in force the insurances listed below,
which shall contain waivers of subrogation with respect to loss or damage
resulting from COC's performance under this Agreement;
(a) Comprehensive general liability coverage, including bodily injury,
physical damage, and automobile liability, in the amount of $5,000,000 combined
single limit.
(b) California Workers' Compensation coverage in statutory form and
amount.
(c) Such additional insurance as may be reasonably required by CFP
from time to time.
9.2 COC shall provide to CFP such evidence of the required insurance as
CFP may reasonably specify.
9.3 Each of the required policies shall be endorsed to provide that the
party requiring the insurance be given thirty (30) days advance notice of
cancellation or material change.
9.4 Each of the required insurances shall be primary insurance for all
purposes and shall be so endorsed.
ARTICLE 10
TERMINATION
-----------
10.1 COC may terminate its performance under this Agreement upon six
months' written notice to CFP. CFP may terminate COC's performance under this
Agreement upon six months' written notice to COC. Should such termination
occur, COC shall be paid for its services to the date of termination in
accordance with Article 4 (including any costs payable under Section 10.3) less
any out-of-pocket costs incurred by CFP in obtaining a replacement operator to
perform the services contemplated by this Agreement.
10.2 If either party commits a material breach of its obligations under
this Agreement, the other party (hereinafter the "Non-Defaulting Party") may
give such party in default (hereinafter the "Defaulting Party") a written notice
describing such breach in
13
<PAGE>
reasonable detail and, if the breach is remediable, demanding that the
Defaulting Party cure it. If the breach is not remediable, the Defaulting Party
shall be in default under this Article 10. If the breach is remediable, and the
Defaulting Party does not cure the breach within sixty (60) days after its
receipt of such notice or, if the breach is such that it can be cured but not
within such period of time, does not promptly commence action which is
calculated to cure such breach within a reasonable period of time and thereafter
diligently pursue such action to completion, then the Defaulting Party shall be
deemed to be in default under this Article 10. Upon a default under this Article
10:
(a) If the Defaulting Party is CFP, then COC shall have the right to
terminate this Agreement by written notice to CFP, without prejudice to any
remedies at law or in equity that are available to COC by reason of CFP's
default. In addition, the costs reasonably incurred by COC in effecting
termination in accordance with the terms of this provision, including severance
pay and relocation costs for any terminated employees, shall be paid to COC.
(b) If the Defaulting Party is COC, then CFP may suspend COC's
performance under this Agreement and engage a third party to perform the
services COC is obligated to perform under this Agreement until such time as COC
is able to resume performance. If, within 30 days of such suspension, COC
demonstrates to the reasonable satisfaction of CFP that it is able to perform
fully under this Agreement, and to compensate CFP for all costs, losses or
damages incurred which arise from COC's prior incomplete performance or failure
to perform, then COC shall be reinstated under this Agreement with full powers
and rights as it had prior to the suspension. If COC shall not be reinstated
under the Agreement as contemplated in the preceding sentence, then CFP shall
have the right to terminate this Agreement by written notice to COC, effective
immediately upon such notice, without prejudice to any remedies at law or in
equity that are available to CFP by reason of COC's default.
10.3 If a default is not cured as provided in Section 10.2, the Non-
Defaulting Party may elect to suspend performance hereof on a month-by-month
basis rather than terminate the Agreement. If the Non-Defaulting Party suspends
performance, the Defaulting Party may remedy such default during the period of
suspension and pay the Non-Defaulting Party its losses or damages, plus interest
at the rate of 10% per annum. Upon the remedy of such default and payment of
---------
such damages to the Non-Defaulting Party, such default shall cease to exist and
the Non-Defaulting Party may not terminate this Agreement unless the Defaulting
Party commits a separate material breach of this Agreement which permits
termination pursuant to this Article. The remedy provided by this Section 10.3
is in addition to other remedies provided elsewhere in this Agreement.
10.4 Subject to the applicable provisions of other documents entered into
by the parties, either party may terminate this Agreement by written notice to
the other party if the latter party (a) commences a voluntary proceeding under
any federal or state bankruptcy,
14
<PAGE>
insolvency or reorganization law, or (b) has such a proceeding filed against it
and fails to have such proceeding stayed or vacated within 30 days, or (c) upon
the end of any such stay, fails to have such involuntary proceeding vacated
within 30 days thereafter, or (d) admits the material allegations of any
petition in bankruptcy filed against it, or (e) is adjudged bankrupt, or (f)
makes a general assignment for the benefit of its creditors, or if a receiver is
appointed for all or a substantial portion of such party's assets and is not
discharged within 30 days after his appointment. Any termination of this
Agreement pursuant to this Section 10.4 shall be considered to be by reason of
anticipatory breach of contract, and such termination shall be without prejudice
to any rights the terminating party may have by reason of such anticipatory
breach.
10.5 If SCE terminates the Power Purchase Contract because of an uncured
default of the Power Purchase Contract that was the result of COC's gross
negligence or willful misconduct, then this Agreement shall be terminated
effective upon termination of the Power Purchase Contract.
10.6 In case of a termination pursuant to this Article 10, CFP and COC
shall arrive at a schedule for a transition period, at the end of which COC
shall be relieved of its obligations under this Agreement. During the
transition period, COC shall cooperate with any party appointed to be
replacement field operator to ensure a smooth transition of service. In
addition, COC shall arrange for the transfer to CFP of any permits and licenses
for the Facility or any resource development activities in connection therewith
held in the name of COC. In case of a termination, COC shall be entitled to the
termination and demobilization payments contemplated by this Article 10, unless
the termination results from a default by COC as defined in this Article 10, in
which case no termination or demobilization payments shall be due to COC under
this Agreement.
10.7 Subject to earlier termination pursuant to the terms of this Article
10, the term of this Agreement shall expire on December 31, 2009.
ARTICLE 11
INDEMNIFICATION
---------------
11.1 Each party shall defend, indemnify, and hold harmless the other from
and against all claims, demands, liability, loss, suit, judgment, cost, damage
or expense incurred or suffered by the indemnified party (including the cost of
investigating, analyzing and defending such matters, and including court costs
and reasonable attorneys' fees) relating to, resulting from or arising out of
acts or omissions of the indemnifying party and connected in any way with its
performance under this Agreement, whether or not insured against, except to the
extent caused by the gross negligence of the party otherwise indemnified. The
indemnity granted herein shall include indemnity for damage to property or to
the environment and for
15
<PAGE>
injury to or death of any person, including employees of COC and CFP. "Acts or
omissions" of a party shall include acts or omissions of lower tier
subcontractors, suppliers, or others operating within the scope of authorization
of such party.
11.2 Where one party is obligated under this or other Articles to
indemnify another, such obligations shall extend to the partners and affiliates
of the party indemnified, and to directors, officers, agents, and employees of
any of them.
ARTICLE 12
MISCELLANEOUS PROVISIONS
------------------------
12.1 Any delay or stoppage of work due to any of the following causes
shall constitute a Force Majeure event for such a period as such obligations
cannot be performed: acts of God, fire, flood, earthquake, explosion, riot, war,
sabotage, terrorism, or governmental acts and decrees. However, such delay or
stoppage shall not constitute a Force Majeure event if such event is caused by
the active or passive negligence or the intentional acts or omissions of the
delayed party. The delayed party shall recommence the performance of its
obligations as promptly and expeditiously as possible following any such delay
or stoppage. If any such Force Majeure event continues for 45 days, either party
may terminate this Agreement in accordance with the provisions of Article 10,
including without limitation the provisions regarding payment to COC of
termination and demobilization payments.
12.2 Any controversy between COC and CFP or claim of COC or CFP arising
out of or related to this Agreement, or the breach thereof, shall first be
referred to the management of COC and the Management Committee of CFP for
resolution. If agreement cannot be reached, the parties may pursue other means
for resolving the dispute.
12.3 Any notice, demand or request provided for in this Agreement shall be
in writing and shall be deemed properly served, given or made if delivered in
person or upon five days after being dispatched by registered or certified mail,
postage prepaid, to the entities specified below:
If to COC: Caithness Operating Company LLC
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas
New York, New York 10036
Attn: President
16
<PAGE>
If to CFP: Caithness Finance Partners
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas
New York, New York 10036
Attn: President
and
ESI Geothermal, Inc.
700 Universe Boulevard
Juno Beach, Florida 33408
Attn: Vice President - Business Management
If to FPLE: FPL Energy Operating Services, Inc.
700 Universe Boulevard
Juno Beach, Florida 33408
Attn: Vice President - Operations
Any party may at any time by written notice to all other parties designate
different or additional entities or different addresses for the giving of these
notices. No notice to CFP shall be effective unless given to ESI separately.
Further, all consents and approval required by this Agreement shall be in
writing, sent as any notice would be under this Section 12.3; provided, however,
that in case of Emergency, approvals or consents may be made by telefax,
telegraph, or other similar means.
12.4 During the term of this Agreement, COC acting in its capacity under
this Agreement shall act as an independent contractor of CFP, not as a partner
or joint venturer. No party shall be the agent or have a right or power to bind
any other party without its express consent.
12.5 The captions and headings appearing in this Agreement are inserted
merely to facilitate reference and shall have no bearing upon the interpretation
of this Agreement.
12.6 This Agreement shall be governed by the laws of the State of
California respecting contracts made and to be performed in the State of
California.
12.7 This Agreement shall inure to the benefit of and be binding upon (i)
the parties hereto and (ii) any other persons or entities to which either of
them may assign or transfer their rights and/or obligations hereunder in
accordance herewith (such persons or entities collectively the "Permitted
Assigns"). The parties hereto acknowledge that this Agreement is being entered
into for the benefit of CFP. Neither party may assign its rights or delegate
its obligations under this Agreement, except by prior written approval of the
parties; provided,
17
<PAGE>
however, that COC and CFP shall have the right to assign their rights under this
Agreement without consent to any lender or lenders in connection with any
financing secured by the Facility.
12.8 Wherever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
any applicable law in any jurisdiction, such provision shall be ineffective to
the extent of such prohibition or invalidity, without prohibiting or
invalidating the remainder of such provision or the remaining provisions of this
Agreement in such jurisdiction, and without affecting the validity of such
provision or the remaining provisions of this Agreement in any other
jurisdiction.
12.9 No failure to exercise and no delay in exercising, on the part of
either party, any right, power or privilege in this Agreement shall operate as a
waiver of such right, power or privilege. The rights and remedies this
Agreement are cumulative and not exclusive of any rights or remedies provided by
law.
12.10 This Agreement sets forth the entire Agreement and understanding
between the parties and supersedes and replaces all prior written agreements and
negotiations and oral understandings, if any, with respect to this Agreement,
including the Amended and Restated Operation and Maintenance Agreement (Navy I),
dated December 16, 1992, by and between China Lake Operating Company and
California Energy Company, Inc., as amended. This Agreement may not be amended
without the written consent of CFP.
12.11 COC agrees that it does not and shall not discriminate against or
segregate any applicant or employee, or group of applicants or employees, on
account of race, color, religion, sex, national origin, disability, or status as
a disabled veteran or veteran of the Vietnam era. Further, unless this Agreement
is exempted by statute, rules, or regulations, the following clauses are
incorporated herein by reference and are binding on COC: (a) "Equal Employment
Opportunity Clause," paragraphs one (1) through seven (7), set forth at Section
202 of Executive Order 11246, as amended by Executive Order 11375, 41 C.F.R. 60-
1.4, (applicable to contract exceeding $10,000); (b) "Affirmative Action for
Disabled Veterans and Veterans of the Vietnam Era Clause," set forth at 41
C.F.R. 60-250.4 (applicable to contracts exceeding $10,000); and (c)
"Affirmative Action for Handicapped Worker Clause," set forth at 41 C.F.R. 60-
741.4 (applicable to contract exceeding $2,500).
END OF PAGE
18
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
COSO OPERATING COMPANY LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
-----------------------------
Its: Executive Vice President
----------------------------------------------
19
<PAGE>
EXHIBIT A
REAL PROPERTY DESCRIPTION
-------------------------
The Southwest quarter of the Southwest quarter of Section 4; the South half of
the South half of Section 5; the South half of the Southeast quarter and the
Southeast quarter of the Southwest quarter of Section 6; the East half of
Section 7; all of Section 8; and all of Section 9; all located in Township 22
South, Range 39 East, Mount Diablo Base and Meridian; in the County of Inyo,
State of California, according to the official plat thereof.
20
<PAGE>
Exhibit 10.59
FIELD OPERATION AND MAINTENANCE AGREEMENT
(Navy II)
This Field Operation and Maintenance Agreement ("Agreement") is entered
into May 28, 1999 (the "Effective Date") by and between COSO POWER DEVELOPERS, a
California general partnership ("CPD"), and COSO OPERATING COMPANY LLC, a
Delaware limited liability company ("COC").
WHEREAS, CPD owns a three unit 90 megawatt output power facility and
related geothermal resources (collectively, the "Facility," as further defined
herein) located at the Naval Air Weapons Center near China Lake, California,
designated as the Navy II Project; and
WHEREAS, CPD and COC wish to provide for the terms and conditions of the
operations and maintenance of the Facility as more fully provided for herein.
Now THEREFORE, the parties to this Agreement agree as follows:
ARTICLE 1
DEFINITIONS
The following capitalized words and phrases used in this Agreement shall
have the meanings specified in this Article 1.
1.1 Additional Services means services other than Required Services,
-------------------
which will be provided by COC at such times and at such costs as approved by
CPD.
1.2 Annual Operating Fee means the Annual Operating Fee as provided for
--------------------
in Section 4.3 hereof.
1.3 CLJV means China Lake Joint Venture, a California single-purpose
----
partnership organized as a joint venture, between Caithness Acquisition Company,
LLC and Caithness Geothermal 1980, Ltd.
1.4 Commencement Date means February 25, 1999, the date of the previous
-----------------
operations and maintenance agreement.
1.5 CPD means Coso Power Developers, a California general partnership.
---
1.6 CPD Partnership Agreement means that certain Amended and Restated
-------------------------
General Partnership Agreement of Coso Power Developers, dated as of the
Effective Date.
<PAGE>
1.7 Direct Costs means Direct Costs as defined in Section 4.2 hereof.
------------
1.8 Drilling Services means Drilling Services as defined in Section
-----------------
2.1(c) hereof.
1.9 Emergency means an event occurring at the Resource Area which poses
---------
actual or imminent risk of serious personal injury, physical damage, violation
of material Governmental Requirement or loss of material contractual rights of
CPD requiring, in the good faith determination of COC, immediate preventative or
remedial action by COC and for which advance approval by CPD otherwise required
under this Agreement would be impossible or impractical and for which there was
no reasonable advance notice to COC of the need for such action.
1.10 Facility means the geothermal power facilities, located on the lands
--------
of the Navy, consisting of three Units known as the Navy II Project,
interconnection to the Transmission Line, certain common control and support
facilities, and any part of the surface of the real property, fixtures and
buildings which are located within the Fencelines of any of the three Units.
1.11 Fenceline means the perimeter described by the fence or fences which
---------
enclose any Unit.
1.12 FERC means the Federal Energy Regulatory commission.
----
1.13 Field Operations means the well drilling and well workover work
----------------
within the Resource Area, and related accounting activities, and management and
engineering of the geothermal resource, but shall exclude the surface steam
gathering system and steam, noncondensable gas and brine disposal systems
connected to the Facility and well operation and maintenance.
1.14 Field Operator means COC in its capacity as field operator under this
--------------
Agreement.
1.15 FPLE means FPL Energy Operating Services, Inc., or such other
----
operator as may be selected by CPD.
1.16 Geothermal Reserve means not less than one hundred five percent
------------------
(105%) or such other lesser percentage as CPD may specify in writing of the
geothermal resource available at the wellhead (stabilized and tested in
accordance with generally recognized standards and procedures) sufficient to
operate the Facility continuously and economically at a capacity reflected from
time to time in the projections included in the Independent Engineer's Report,
dated May 20, 1999, attached as an Appendix to the Caithness Coso Funding Corp.
Offering Memorandum, dated May 20, 1999, in compliance with all Governmental
Requirements during the term of the Navy Contract.
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1.17 Governmental Authority means the government of any federal, state,
----------------------
municipal or other political subdivision in which the Facility is located, and
any other government or political subdivision thereof exercising jurisdiction
over the Resource Area, the Facility, or CPD, including all agencies and
instrumentalities of such governments and political subdivisions (including,
without limitation, the Navy).
1.18 Governmental Requirements means all Laws, ordinances, statutes,
-------------------------
codes, rules, regulations, orders and decrees of any Governmental Authority,
including, without limitation, all authorizations, consents, approvals,
registrations, exemptions, permits and licenses with or from any Governmental
Authority, applicable to the Resource Area, the Facility, or CPD.
1.19 Law means any constitution or treaty, any law, ordinance, decree,
---
regulation, order, rule, judicial or arbitral decision and any voluntary
restraint, policy or guideline not having the force of law, with which such
party must reasonably comply, or any of the provisions of such Laws binding on
or affecting the party referred to in the context in which the term is used.
1.20 Navy means the United States Government, acting through the Western
----
Division (Code 022) Naval Facilities Engineering Command, San Bruno, California
and/or the Disbursing Officer, Code 0862, Naval Weapons Center, China Lake,
California, as the contents may require.
1.21 Navy Contract means that certain contract No. K-N64274-79-C-5382,
-------------
dated December 6, 1979, by and between the United States of America acting
through the Navy and California Energy Company, Inc., as modified, amended,
assigned to CLJV and restated by Contract Modification P00004, dated as of
October 19, 1983 and as the same may have been or may be modified or amended.
1.22 Operating Budget means an annual budget approved by CPD pursuant to
----------------
Section 3.1.
1.23 Operations means those operations delineated by Section 2 of the
----------
Operation and Maintenance Agreement.
1.24 Operations and Maintenance Agreement means the Operations and
------------------------------------
Maintenance Agreement (Navy II Project), dated the Effective Date, entered into
by CPD, COC and FPLE.
1.25 Permitted Assigns means Permitted Assigns as defined in Section 12.7.
----------------- ------------
1.26 Permitted Liens means Liens which are:
---------------
(a) liens for taxes, assessments and governmental charges which are
not delinquent and remain payable without penalty or are being contested in good
faith by appropriate proceedings and for which adequate reserves, bonds or other
security has been provided; and
3
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(b) purchase money security interests in real or personal property
when the obligation secured is incurred for the purchase of such property and
does not exceed one hundred per cent (100%) of the lesser of cost or fair market
value thereof at the time of acquisition, and the security interest does not
extend beyond the property involved; and
(c) mechanics', materialmen's and similar liens which do not
individually or in the aggregate materially interfere with the conduct of CPD's
business which are being contested in good faith and have not proceeded to
judgment and for which a bond or other security has been posted; and
(d) deposits or pledges to secure statutory obligations or appeals;
release of mechanics' and materialmen's liens and similar attachments, stay of
execution or injunction; performance of bids, tenders, contracts (other than for
the repayment of borrowed money) or leases; or for purposes of like general
nature in the ordinary course of its business; and
(e) any other Liens approved by CPD.
1.27 Power Purchase Contract means that certain Agreement effective
-----------------------
February 1, 1985 between SCE and CLJV (as assigned to CPD), and that certain
Interconnect Agreement dated December 15, 1988, between SCE and CED (as assigned
to CPD), in each case as the same may be modified or amended.
1.28 Project means the Facility, the Resource Area, and the associated
-------
rights to geothermal resources.
1.29 PURPA means Public Utilities Regulatory Policies Act of 1978, as
-----
amended.
1.30 Required Services means the services described in Section 2.1 hereof.
-----------------
1.31 Resource Area means all real property described in Exhibit A to this
-------------
Agreement, exclusive of the area on which the Facility is located.
1.32 Resource Management Plan means the annual written plan for the
------------------------
management and development of the Resource Area and performance of its other
services hereunder prepared by COC in accordance with Section 2.1(a)(vi) hereof,
as the same may be modified from time to time with the approval of CPD.
1.33 SCE means Southern California Edison Company, a corporation organized
---
and existing under the laws of the State of California.
1.34 Subordination Agreement means the Operating Fee Subordination
-----------------------
Agreement (Navy I) between COC and U.S. Bank Trust, National Association, as
collateral agent of even date herewith.
4
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1.35 Transmission Line means that certain 230Kv overhead transmission
-----------------
line, including associated equipment, connecting the Facility to SCE's Inyokern
substation.
1.36 Unit means any of the three single geothermal turbine generators of
----
the Facility.
1.37 Warranties means the warranties provided by the contractor for the
----------
Facility.
ARTICLE 2
OPERATION AND MAINTENANCE; SUPPORT SERVICE
2.1 Required Services. During the term of this Agreement, commencing on
-----------------
the date of this Agreement, COC shall, to the extent contemplated by the
Operating Budget and the Resource Management Plan, provide operation and
maintenance services for the Project as described below (all of which constitute
Required Services):
(a) The following testing, permitting, reporting and record keeping
services:
(i) Review all testing of geothermal production wells and
maintain all records regarding the geothermal reserves of the Resource Area as
may reasonably be required by CPD;
(ii) Review all normal testing and record keeping of the
Resource Area as is usual or advisable for maintenance of existing wells and for
determining the necessity of drilling replacement wells, in accordance with
general industry practice;
(iii) Select one or more individuals to act as liaison with the
Navy, SCE, CPD, and FPLE with respect to all services to be rendered by COC
under this Agreement;
(iv) Provide CPD, and FPLE and any person designated by CPD
prompt notice of all events, occurrences, conditions and issues with respect to
the Geothermal Resource of which COC shall become aware and which COC reasonably
believes are material to, or are likely to have a material effect on,
Operations;
(v) Provide to CPD analysis of reports, test data, and other
information related to the Resource Area with respect to all services to be
rendered by COC hereunder, as reasonably requested by CPD from time to time; and
(vi) Prepare not later than 90 days prior to the end of each
calendar year, in connection with the preparation of the Operating Budget, the
Resource Management Plan with respect to (A) the management and development of
the Resource Area, (B) performance of its other services hereunder in substance
and format acceptable to CPD, (C) a schedule of anticipated tests, including
justification as to technical and scientific requirements
5
<PAGE>
and estimated costs of testing, (D) a review of the actions taken hereunder
during the preceding twelve (12) month period, including specifically an
analysis of drilling and maintenance activities, resource operations and capital
expenditures paid or incurred during such period and (E) a forecast of drilling
and maintenance activities, resource operations and required capital
expenditures for the ensuing calendar year.
(b) The following support services:
(i) Maintain, as appropriate, third-party contracts for
drilling geothermal wells;
(ii) Provide adequate safety and security measures for the
Resource Area, in coordination with CPD, the Navy, SCE and FPLE; and
(iii) Assist CPD and FPLE in maintaining good community
relations.
(c) COC shall, to the extent contemplated by the Operating Budget
and the Resource Management Plan, provide the following exploration, drilling,
testing and injection services (all of which constitute Drilling Services):
(i) Explore for new well sites, drill new wells, and
complete, test, and make available new wells for tie in to the resource
gathering systems for the Project; and
(ii) Drill, test, workover, repair and make available new
wells to the disposal system; and
(iii) Perform well workovers and related activities; and
(iv) Perform all reservoir and resource management related
services and reservoir engineering and geologic activities with respect to the
field and sub-surface reservoir, including, without limitation, scheduling and
supervising well testing, well surveys, maintaining production data bases,
reservoir modeling, identifying candidates for well workovers, acid jobs,
providing reports on resource availability, declines, production projections,
targeting new wells, providing three dimensional models of the reservoir,
maintaining and distributing maps, scheduling and supervising geologic
geophysical and/or geochemical surveys.
2.2 CPD may by written notification to COC make changes in, additions to,
or deletions from COC's Required Services or Drilling Services. COC shall
thereafter perform its Required Services and Drilling Services in accordance
with such notification, and the Operating Budget pursuant to Article 3 shall be
increased or decreased by the estimated amount of the Direct Costs resulting
from the change.
6
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2.3 If, as a result of an Emergency, COC reasonably believes it necessary
to perform services outside the scope of the Operating Budget then in effect and
for which advance approval by CPD otherwise required under this Agreement would
be impossible or impractical, COC may perform such reasonably necessary services
(except Drilling Services, unless such Drilling Services are needed to control
blow-outs) so long as the Emergency continues. Payment of all costs including
Direct Costs will be made as if the services were part of the Operating Budget
then in effect, except to the extent such Emergency is the result of COC's
failure (by reason of gross negligence or willful misconduct) to perform the
services required hereunder. COC shall provide notice of such Emergency to CPD
and FPLE as soon as is practical, together with a statement (including
appropriate supporting documentation) for its services provided in connection
therewith.
ARTICLE 3
OPERATING BUDGET
3.1 COC shall prepare a proposed annual budget for Required Services and
Drilling Services itemizing separately for services described in Section 2.1 and
more particularly described in the related Resource Management Plan. In
preparing each proposed budget, COC shall take into account the amounts
described in Section 4.2. The budgets shall be in form and substance acceptable
to CPD. Each proposed budget for Drilling Services will be accompanied by a
written report describing drilling, steam gathering and related activities,
recommendations on any actions necessary to maintain the Geothermal Reserve, and
long-term projections on resource availability. The proposed budgets will be
submitted by COC for consideration and approval by CPD in connection with the
approval of CPD's Budget (as defined in the CPD Partnership Agreement) as more
fully described in the CPD Partnership Agreement. COC shall submit each
proposed budget and, in the case of the proposed annual budgets, related
proposed Resource Management Plan, to CPD not later than ninety (90) days prior
to the calendar year to which such budget relates.
3.2 COC shall perform all Required Services and Drilling Services in
accordance with the Operating Budget and related Resource Management Plan
(except for Emergencies under Section 2.3). Should COC determine during the
course of the year that it cannot in good faith perform the Required Services
and Drilling Services within the Operating Budget, COC shall immediately notify
CPD. COC shall prepare a revised Operating Budget, together with any necessary
supplementary materials, setting forth in reasonable detail the reasons for the
inability of COC to perform the services contemplated hereunder within the
Operating Budget and the reasons for omission from such Operating Budget of
expenses, the incurrence of which COC considers necessary and submit them to CPD
within fifteen (15) days after determining the need for the revised Operating
Budget. The proposed revised Operating Budget shall be subject to approval in
the manner described in Section 3.1.
7
<PAGE>
3.3 COC shall report to CPD any variance of the $20,000 or ten percent
(10%) or more between (a) actual expenditures for budgeted line items, and (b)
budgeted expenditures for such line items on a year-to-date basis, within
fifteen (15) days of the end of each calendar quarter and within fifteen (15)
days of the determination by COC during the course of any quarter that such
variance is likely to occur.
3.4 COC shall make available to CPD, at reasonable times, all records
relating to the charges incurred in connection with COC's performance of COC's
obligations under this Agreement.
ARTICLE 4
PAYMENT
4.1 Compensation. Subject to the constraints of the Operating Budget, CPD
------------
shall pay COC, as compensation for Required Services and Drilling Services
performed under this Agreement, all Direct Costs plus the Annual Operating Fee.
4.2 Direct Costs. Direct Costs are the following:
------------
(a) Costs for personnel reasonably assigned to work at the Resource
Area, as well as additional personnel, including home office personnel as may be
required by COC, together with related overhead costs calculated at COC's actual
overhead rate. Personnel costs reimbursable hereunder shall include, but not be
limited to, direct salaries and wages, overtime premiums, employer paid social
security and unemployment insurance costs, insurance coverages required to be
furnished by COC pursuant to Article 9, medical, hospital, dental, eye care,
disability and life insurance coverages, employer retirement savings program
contributions, and vacation, holiday and sick leave in accordance with COC's
standard policies.
(b) All other expenses reasonably incurred by COC at the Resource
Area, including but not limited to materials, supplies, rental equipment and
vehicles, subcontracted services, communication costs and spare parts, and any
other cost or expense not otherwise reimbursed hereunder, including those in
excess of the insurance coverage to be maintained by COC under Article 9 of this
Agreement subject to the Operating Budget; excepting only those costs or
expenses that are (a) due to the negligence or willful misconduct of COC or its
employees, officers or agents or (b) due to replacement of items lost or stolen
as a result of negligence in security, tracking or control by COC. COC may not,
without the approval of CPD, enter into any subcontract for the performance of
the services set forth herein or for the supply of materials therefor having an
aggregate value in excess of $50,000 in any calendar year; provided, however,
that all items in an approved operating Budget indicated as being subcontracted
shall be deemed approved for purposes of this provision up to the amounts
budgeted for such items.
8
<PAGE>
4.3 Annual Operating Fee. CPD shall pay to COC for the Required Services
--------------------
and Drilling Service performed hereunder an annual operating fee (the "Annual
Operating Fee") as follows: (i) $532,000 from the Effective Date through the
first anniversary of the Commencement Date; (ii) $400,000 from the first
anniversary of the Commencement Date through the second anniversary of the
Commencement Date; and (iii) $334,000 for each year after the second anniversary
of the Commencement Date. On or before June 30 and December 31 of each year,
CPD will pay to COC one-half of the Annual Operating Fee in arrears.
4.4 Procedure for Payment. COC shall submit all invoices for services
---------------------
performed under this Agreement to CPD. All invoices for amounts within the
Operating Budget or covered by Section 2.3 hereof shall be paid promptly by CPD.
ARTICLE 5
STANDARD OF CARE
5.1 COC shall perform its obligations under this Agreement in conformance
with applicable industry standards and in a good, workmanlike and commercially
reasonable manner. COC will exercise such care, skill and diligence as a prudent
business entity engaged in the business of managing and operating a geothermal
power project would exercise for the advancement and protection of its own
economic interests.
5.2 All operation and maintenance services shall be performed in a manner
designed to have the least possible adverse effect on the Resource Area and on
the Facility. Maintenance, overhauls and (to the extent possible) repairs or
overhauls required as a result of unexpected events shall be scheduled with CPD
and FPLE so as to minimize interference with the operations of the Facility.
5.3 COC shall at all times keep, or cause to be kept, qualified personnel
on the Project site, and shall pay all wages and benefits required by contract
and by law. COC shall administer all matters relating to labor relations,
working conditions, training, employee benefits, safety and related matters
pertaining to its employees.
5.4 CPD understands that COC's management personnel for operations under
this Agreement shall be assigned to the Facility part-time as is reasonably
necessary to satisfy COC's obligations under this Agreement, but may also be
assigned to work on other projects in which COC or its affiliates are involved
as equity participants and/or in which an affiliate of FPLE may have an
interest. CPD may make requests of COC to replace personnel deemed by CPD to be
inadequately experienced or otherwise unqualified to perform the Required
Services, which request shall not be unreasonably refused.
9
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5.5 COC shall comply with, and cause the Resource Area and all Resource
Area personnel to comply with, any applicable standards required by insurance
policies, all applicable Governmental Requirements (including all requirements
imposed by PURPA and FERC), the Power Purchase Contract, the Navy Contract
pertaining to the Required Services, and the operating manuals for the Units.
5.6 COC shall not, directly or indirectly, create, incur or permit to
exist any lien on the Facility, the Resource Area or any materials, equipment,
services, supplies or other items supplied or procured by COC under this
Agreement except for Permitted Liens.
ARTICLE 6
RESPONSIBILITIES OF OTHERS
AND COOPERATION WITH FPLE
6.1 CPD shall obtain and maintain all permits and licenses necessary to
allow COC to provide all services contemplated by this Agreement.
6.2 CPD grants to COC a limited licence under the Navy Contract and other
rights that CPD has to the Project and the surrounding areas that are reasonable
and necessary to allow COC to perform the services contemplated by this
Agreement.
6.3 CPD shall provide for COC's use in connection with COC's performance
of its duties and obligations under this Agreement permanent furnished office
facilities and a maintenance building.
6.4 Inasmuch as COC must interface directly with parties other than CPD
in the performance of its obligations, CPD shall, when requested by COC, exert
its best efforts to secure the performance of such third parties for COC,
including but not limited to the compliance with warranties, and the furnishing
of information, assistance, or permission. Such third persons shall include, but
are not limited to the Navy, the BLM, SCE, and FPLE. COC shall use its best
efforts to cooperate with such third parties in the performance of its
obligation under this Agreement.
ARTICLE 7
COC WARRANTIES
7.1 Limited Warranty. COC warrants that it will perform the Required
----------------
Services and Drilling Services in a good and workmanlike manner by qualified
personnel in accordance with generally accepted sound operating and engineering
practices for the maintenance of equipment and structures like the Facility.
COC shall assign to CPD all warranties provided by manufacturers, contractors or
vendors of spare parts provided for the Facility, and shall pass on
10
<PAGE>
to CPD copies of any such warranty. THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED,
WHICH EXTEND BEYOND THE DESCRIPTION ON THE FACE HEREOF.
7.2 Warranty Period Remedies. COC's limited warranty described in Section
------------------------
7.1 shall be for a period of twelve (12) months from the date such Required
Services and Drilling Services were performed or such parts were put into
service (the "Warranty Period"). Any claim by CPD under the limited warranty
must be made in writing promptly after such party is informed of the deficient
Required Services and Drilling Services. COC's sole liability for breach of the
limited warranty shall be, in the case of Required Services and Drilling
Services, promptly to perform the defective services correctly free of charge
and/or promptly to replace unfit or unqualified personnel.
7.3 No Implied Warranties. ANY IMPLIED WARRANTIES OF MERCHANTABILITY,
---------------------
QUALITY, SUITABILITY AND FITNESS ARE EXCLUDED. THERE ARE NO WARRANTIES WHICH
EXTEND BEYOND THE DESCRIPTION ON THE FACE HEREOF. COC's limited warranty in
Section 7.1 is exclusive and in lieu of any other warranties.
7.4 No Additional Payments. If work required to be performed pursuant to
----------------------
this Agreement must be performed, or personnel must be replaced due to a breach
of the warranties contained in this Article 7 within the Warranty Period, COC
shall not be entitled to be paid under this Agreement for any and all costs
incurred in performing its limited warranty hereunder.
ARTICLE 8
SUSPENSION OF SERVICES
8.1 CPD may suspend all or a part of the services to be performed by COC
under this Agreement by written notice to COC, for any of the following reasons:
(a) Force majeure causes as set forth in Paragraph 12.1, or any
other reason that causes shutdown of the Facility or Resource Area for a period
of more than 20 consecutive calendar days or for more than 30 days in any 60 day
period.
(b) Inability of the Facility, the Resource Area to properly operate
for any reason including but not limited to unavailability of geothermal
resource in sufficient quality or quantity, malfunction of equipment,
unavailability of materials, equipment, supplies or labor, or structural
defects.
(c) SCE's inability or refusal to accept power from the Facility.
(d) Navy activities or restrictions which prohibit economical
operation of the Facility or the Resource Area.
11
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(e) Failure of COC to perform the Required Services, Drilling
Services or Emergency Services in accordance with the standards set forth in
Article 5 of this Agreement.
8.2 Upon receipt of notice of suspension from CPC, COC shall continue to
perform its non-suspended services under this Agreement at such personnel
staffing and performance levels as are prudently dictated by the circumstances.
COC shall have the right during any such suspension to terminate the employment
of any of its personnel. Any cost of reemployment for the performance of
services under this Agreement shall be payable as a Direct Cost under Section
4.2.
8.3 Except in connection with Section 8.1(e), in the event of suspension,
CPD shall continue to pay COC all compensation in accordance with Article 4,
unless it is determined that such suspension will extend for more than 30
calendar days. In the event such suspension will extend for more than 30
calendar days CPD shall compensate COC for costs associated with winding down
and restarting the operation and maintenance activities to the extent provided
for in the Operating Budget.
8.4 COC may, by giving 30 days written notice to CPD, suspend all or a
part of its services under this Agreement if CPD shall fail to make any payment
when due as required under Article 4, provided that no such suspension shall
occur if the required payment is made within the notice period and except for
any Operating Fees which are not paid on account of the Subordination Agreement.
ARTICLE 9
INSURANCE
9.1 COC shall procure and maintain in force the insurances listed below,
which shall contain waivers of subrogation with respect to loss or damage
resulting from COC's performance under this Agreement;
(a) Comprehensive general liability coverage, including bodily
injury, physical damage, and automobile liability, in the amount of $5,000,000
combined single limit.
(b) California Workers' Compensation coverage in statutory form and
amount.
(c) Such additional insurance as may be reasonably required by CPD
from time to time.
9.2 COC shall provide to CPD such evidence of the required insurance as
CPD may reasonably specify.
12
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9.3 Each of the required policies shall be endorsed to provide that the
party requiring the insurance be given thirty (30) days advance notice of
cancellation or material change.
9.4 Each of the required insurances shall be primary insurance for all
purposes and shall be so endorsed.
ARTICLE 10
TERMINATION
10.1 COC may terminate its performance under this Agreement upon six
months' written notice to CPD. CPD may terminate COC's performance under this
Agreement upon six months' written notice to COC. Should such termination occur,
COC shall be paid for its services to the date of termination in accordance with
Article 4 (including any costs payable under Section 10.3) less any out-of-
pocket costs incurred by CPD in obtaining a replacement operator to perform the
services contemplated by this Agreement.
10.2 If either party commits a material breach of its obligations under
this Agreement, the other party (hereinafter the "Non-Defaulting Party") may
give such party in default (hereinafter the "Defaulting Party") a written notice
describing such breach in reasonable detail and, if the breach is remediable,
demanding that the Defaulting Party cure it. If the breach is not remediable,
the Defaulting Party shall be in default under this Article 10. If the breach
is remediable, and the Defaulting Party does not cure the breach within sixty
(60) days after its receipt of such notice or, if the breach is such that it can
be cured but not within such period of time, does not promptly commence action
which is calculated to cure such breach within a reasonable period of time and
thereafter diligently pursue such action to completion, then the Defaulting
Party shall be deemed to be in default under this Article 10. Upon a default
under this Article 10:
(a) If the Defaulting Party is CPD, then COC shall have the right to
terminate this Agreement by written notice to CPD, without prejudice to any
remedies at law or in equity that are available to COC by reason of CPD's
default. In addition, the costs reasonably incurred by COC in effecting
termination in accordance with the terms of this provision, including severance
pay and relocation costs for any terminated employees, shall be paid to COC.
(b) If the Defaulting Party is COC, then CPD may suspend COC's
Performance under this Agreement and engage a third party to perform the
services COC is obligated to perform under this Agreement until such time as COC
is able to resume performance. If, within 30 days of such suspension, COC
demonstrates to the reasonable satisfaction of CPD that it is able to perform
fully under this Agreement, and to compensate CPD for all costs, losses or
damages incurred which arise from COC's prior incomplete performance or failure
to perform, then COC shall be reinstated under this Agreement with
13
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full powers and rights as it had prior to the suspension. If COC shall not be
reinstated under the Agreement as contemplated in the preceding sentence, then
CPD shall have the right to terminate this Agreement by written notice to COC,
effective immediately upon such notice, without prejudice to any remedies at law
or in equity that are available to CPD by reason of COC's default.
10.3 If a default is not cured as provided in Section 10.2, the Non-
Defaulting Party may elect to suspend performance hereof on a month-by-month
basis rather than terminate the Agreement. If the Non-Defaulting Party suspends
performance, the Defaulting Party may remedy such default during the period of
suspension and pay the Non-Defaulting Party its losses or damages, plus interest
at the rate of 10% per annum. Upon the remedy of such default and payment of
such damages to the Non-Defaulting Party, such default shall cease to exist and
the Non-Defaulting Party may not terminate this Agreement unless the Defaulting
Party commits a separate material breach of this Agreement which permits
termination pursuant to this Article. The remedy provided by this Section 10.3
is in addition to other remedies provided elsewhere in this Agreement.
10.4 Subject to the applicable provisions of other documents entered into
by the parties, either party may terminate this Agreement by written notice to
the other party if the latter party (a) commences a voluntary proceeding under
any federal or state bankruptcy, insolvency or reorganization law, or (b) has
such a proceeding filed against it and fails to have such proceeding stayed or
vacated within 30 days, or (c) upon the end of any such stay, fails to have such
involuntary proceeding vacated within 30 days thereafter, or (d) admits the
material allegations of any petition in bankruptcy filed against it, or (e) is
adjudged bankrupt, or (f) makes a general assignment for the benefit of its
creditors, or if a receiver is appointed for all or a substantial portion of
such party's assets and is not discharged within 30 days after his appointment.
Any termination of this Agreement pursuant to this Section 10.4 shall be
considered to be by reason of anticipatory breach of contract, and such
termination shall be without prejudice to any rights the terminating party may
have by reason of such anticipatory breach.
10.5 If SCE terminates the Power Purchase Contract because of an uncured
default of the Power Purchase Contract that was the result of COC's gross
negligence or willful misconduct, then this Agreement shall be terminated
effective upon termination of the Power Purchase Contract.
10.6 In case of a termination pursuant to this Article 10, CPD and COC
shall arrive at a schedule for a transition period, at the end of which COC
shall be relieved of its obligations under this Agreement. During the
transition period, COC shall cooperate with any party appointed to be
replacement field operator to ensure a smooth transition of service. In
addition, COC shall arrange for the transfer to CPD of any permits and licenses
for the Facility or any resource development activities in connection therewith
held in the name of COC. In case of a termination, COC shall be entitled to the
termination and demobilization payments contemplated
14
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by this Article 10, unless the termination results from a default by COC as
defined in this Article 10, in which case no termination or demobilization
payments shall be due to COC under this Agreement.
10.7 Subject to earlier termination pursuant to the terms of this Article
10, the term of this Agreement shall expire on December 31, 2009.
ARTICLE 11
INDEMNIFICATION
11.1 Each party shall defend, indemnify, and hold harmless the other from
and against all claims, demands, liability, loss, suit, judgment, cost, damage
or expense incurred or suffered by the indemnified party (including the cost of
investigating, analyzing and defending such matters, and including court costs
and reasonable attorneys' fees) relating to, resulting from or arising out of
acts or omissions of the indemnifying party and connected in any way with its
performance under this Agreement, whether or not insured against, except to the
extent caused by the gross negligence of the party otherwise indemnified. The
indemnity granted herein shall include indemnity for damage to property or to
the environment and for injury to or death of any person, including employees of
COC and CPD. "Acts or omissions" of a party shall include acts or omissions of
lower tier subcontractors, suppliers, or others operating within the scope of
authorization of such party.
11.2 Where one party is obligated under this or other Articles to
indemnify another, such obligations shall extend to the partners and affiliates
of the party indemnified, and to directors, officers, agents, and employees of
any of them.
ARTICLE 12
MISCELLANEOUS PROVISIONS
12.1 Any delay or stoppage of work due to any of the following causes
shall constitute a Force Majeure event for such a period as such obligations
cannot be performed: acts of God, fire, flood, earthquake, explosion, riot, war,
sabotage, terrorism, or governmental acts and decrees. However, such delay or
stoppage shall not constitute a Force Majeure event if such event is caused by
the active or passive negligence or the intentional acts or omissions of the
delayed party. The delayed party shall recommence the performance of its
obligations as promptly and expeditiously as possible following any such delay
or stoppage. If any such Force Majeure event continues for 45 days, either party
may terminate this Agreement in accordance with the provisions of Article 10,
including without limitation the provisions regarding payment to COC of
termination and demobilization payments.
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12.2 Any controversy between COC and CPD or claim of either COC or CPD
arising out of or related to this Agreement, or the breach thereof, shall first
be referred to the management of COC and management committee of CPD for
resolution. If agreement cannot be reached, the parties may pursue other means
for resolving the dispute.
12.3 Any notice, demand or request provided for in this Agreement shall be
in writing and shall be deemed properly served, given or made if delivered in
person or upon five days after being dispatched by registered or certified mail,
postage prepaid, to the entities specified below:
If to CPD: Coso Power Developers
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas
New York, New York 10036
Attn.: President
If to COC: Coso Operating Company LLC
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas
New York, New York 10036
Attn.: President
If to FPLE: FPL Energy Operating Services, Inc.
700 Universe Boulevard
Juno Beach, Florida 33408
Attn: Vice President - Operations
Any party may at any time by written notice to all other parties designate
different or additional entities or different addresses for the giving of these
notices.
Further, all consents and approval required by this Agreement shall
be in writing, sent as any notice would be under this Section 12.3; provided,
however, that in case of Emergency, approvals or consents may be made by telefax
or other similar means.
12.4 During the term of this Agreement, COC acting in its capacity under
this Agreement shall act as an independent contractor of CPD, not as a partner
or joint venturer. No party shall be the agent or have a right or power to bind
any other party without its express consent.
12.5 The captions and headings appearing in this Agreement are inserted
merely to facilitate reference and shall have no bearing upon the interpretation
of this Agreement.
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12.6 This Agreement shall be governed by the laws of the State of
California respecting contracts made and to be performed in the State of
California.
12.7 This Agreement shall inure to the benefit of and be binding upon (i)
the parties hereto and (ii) any other persons or entities to which either of
them may assign or transfer their rights and/or obligations hereunder in
accordance herewith (such persons or entities collectively the "Permitted
Assigns"). The parties hereto acknowledge that this Agreement is being entered
into for the benefit of CPD. Neither party may assign its rights or delegate
its obligations under this Agreement, except by prior written approval of the
parties; provided, however, that CPD shall have the right to assign their rights
under this Agreement without consent to any lender or lenders in connection with
any financing secured by the Facility.
12.8 Wherever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
any applicable law in any jurisdiction, such provision shall be ineffective to
the extent of such prohibition or invalidity, without prohibiting or
invalidating the remainder of such provision or the remaining provisions of this
Agreement in such jurisdiction, and without affecting the validity of such
provision or the remaining provisions of this Agreement in any other
jurisdiction.
12.9 No failure to exercise and no delay in exercising, on the part of
either party, any right, power or privilege in this Agreement shall operate as a
waiver of such right, power or privilege. The rights and remedies of this
Agreement are cumulative and not exclusive of any rights or remedies provided by
law.
12.10 This Agreement sets forth the entire Agreement and understanding
between the parties and supersedes and replaces all prior written agreements and
negotiations and oral understandings, if any, with respect to this Agreement,
including the Amended and Restated Field Operation and Maintenance Agreement
(Navy II), dated December 16, 1992, by and between Coso Technology Company and
California Energy Company, Inc., as amended. This Agreement may not be amended
without the written consent of CPD.
12.11 COC agrees that it does not and shall not discriminate against or
segregate any applicant or employee, or group of applicants or employees, on
account of race, color, religion, sex, national origin, disability, or status as
a disabled veteran or veteran of the Vietnam era. Further, unless this Agreement
is exempted by statute, rules, or regulations, the following clauses are
incorporated herein by reference and are binding on COC: (a) "Equal Employment
Opportunity Clause," paragraphs one (1) through seven (7), set forth at Section
202 of Executive Order 11246, as amended by Executive Order 11375, 41 C.F.R. 60-
1.4, (applicable to contract exceeding $10,000); (b) "Affirmative Action for
Disabled Veterans and Veterans of the Vietnam Era Clause," set forth at 41
C.F.R. 60-250.4 (applicable to contracts exceeding $10,000); and (c)
"Affirmative Action for Handicapped Worker Clause," set forth at 41 C.F.R. 60-
741.4 (applicable to contract exceeding $2,500).
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
COSO OPERATING COMPANY LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
----------------------------
Its: Executive Vice President
----------------------------
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EXHIBIT A
REAL PROPERTY DESCRIPTION
All of Section 16, all of Section 17, and the East half of Section 18, all
located in Township 22 South, Range 39 East, Mount Diablo Base and Meridian, in
the County of Inyo, State of California.
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Exhibit 10.60
FIELD OPERATION AND MAINTENANCE AGREEMENT
(BLM)
This Field Operation and Maintenance Agreement ("Agreement") is entered
into as of May 28, 1999 (the "Effective Date"), by and between COSO ENERGY
DEVELOPERS, a California general partnership ("CED"), and COSO OPERATING COMPANY
LLC, a Delaware limited liability company ("COC").
WHEREAS, CED owns a three unit 90 megawatt output power facility and
related geothermal resources (collectively the "Facilities," as further defined
herein) located on lands of the Bureau of Land Management near China Lake,
California designated as the BLM Project; and
WHEREAS, CED and COC wish to provide for the terms and conditions of the
operations and maintenance of the Facilities as more fully provided for herein.
NOW, THEREFORE, the parties hereby agree as follows;
ARTICLE 1
DEFINITIONS
The following capitalized words and phrases used in this Agreement shall
have the meanings specified in this Article 1.
1.1 "Additional Services" means services other than Required Services,
which will be provided by COC at such times and at such costs as approved by
CED.
1.2 "Annual Operating Fee" means the Annual Operating Fee as provided for
in Section 4.3 hereof.
1.3 "BLM" means the Bureau of Land Management of the United States
Department of Interior acting through the Chief of Leasable Minerals Section.
1.4 "BLM Lease": The term "BLM Lease" means (i) that certain Offer to
Lease and Lease for Geothermal Resources between BLM and California Energy
Company, a Delaware corporation ("CalEnergy"), dated April 29, 1985; (ii) that
certain Assignment Affecting Record Title to Geothermal Resources Lease by
CalEnergy to CLC and approved by BLM dated June 24, 1985; (iii) that certain
Assignment of Record Title Interest in a Lease for Oil and Gas or Geothermal
Resources from CLC to CGC dated as of April 15, 1988 and approved by BLM
effective as of May 1, 1988; (iv) that certain Assignment of Record Title
<PAGE>
Interest in a Lease for Oil and Gas or Geothermal Resources from CGC to Borrower
dated as of April 15, 1988 and approved by BLM effective as of May 1, 1988; (v)
that certain Agreement of Transfer and Assignment of Agreements and Rights
Relating to the BLM Project between CLC and CGC dated as of May 3, 1988; and
(vi) that certain Agreement of Transfer and Assignment of Agreements and Rights
Relating to the BLM Project between CGC and CED dated as of May 3, 1988, in each
case as the same may be modified or amended.
1.5 "CCH" means Caithness Coso Holdings, LLC, a Delaware limited liability
company.
1.6 "CED Partnership Agreement" means that certain Amended and Restated
Partnership Agreement of Coso Energy Development, dated as of the Effective
Date.
1.7 "CGC" means Coso Geothermal Company, a California general partnership
organized as a joint venture.
1.8 "CLC" means Coso Land Company, a California general partnership
organized as a joint venture.
1.9 "Commencement Date" means February 25, 1999, the date of the previous
operations and maintenance agreement.
1.10 "Direct Costs" means Direct Costs as defined in Section 4.2 hereof.
1.11 "Resource Management Plan" means the annual written plan for the
management and development of the Resource Area and performance of its other
services hereunder prepared by COC in accordance with Section 2.1(a)(vi) hereof,
as the same may be modified from time to time with the approval of CED.
1.12 "Drilling Services" means Drilling Services as defined in Section
2.1(c) hereof.
1.13 "Emergency" means an event occurring at the Resource Area which poses
actual or imminent risk of serious personal injury, physical damage, violation
of a material Governmental Requirement or loss of material contractual rights of
CED requiring, in the good-faith determination of COC, immediate preventative or
remedial action by COC and for which advance approval by CED otherwise required
under this Agreement would be impossible or impractical and for which there was
no reasonable advance notice to COC of the need for such action.
1.14 "Facilities" means the geothermal power facilities (each a
"Facility"), located on the lands of the BLM, consisting of three Units,
interconnection to the Transmission Line,
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certain common control and support facilities, and any part of the surface of
the real property, fixtures and buildings which are located within the
Fencelines of any of the three Units.
1.15 "Fenceline" means the perimeter described by the fence or fences which
enclose any Unit or Facility.
1.16 "FERC" means the Federal Energy Regulatory Commission.
1.17 "Field Operations" means the well drilling and well workover work
within the Resource Area, and related accounting activities, and management and
engineering of the geothermal resource, but shall exclude the surface steam
gathering system and steam, noncondensable gas and brine disposal systems
connected to the Facilities and well operation and maintenance.
1.18 "Field Operator" means COC.
1.19 "FPLE" means FPL Energy Operating Services, Inc., or such other
operator as may be selected by CED.
1.20 "Geothermal Reserve" means not less than One Hundred Five Percent
(105%) or such lesser percentage as CED may specify in writing of the geothermal
resource available at the wellhead (stabilized and tested in accordance with
generally recognized standards and procedures) sufficient to operate the
Facilities continuously and economically at a capacity reflected from time to
time in the projections included in the Independent Engineer's Report, dated May
20, 1999, attached as an Appendix to the Caithness Coso Funding Corp. Offering
Memorandum, dated May 20, 1999, in compliance with all Governmental
Requirements.
1.21 "Governmental Authority" means the government of any federal, state,
municipal or other political subdivision in which the Facilities are located,
and any other government or political subdivision thereof exercising
jurisdiction over the Resource Area, the Facilities, or CED, including all
agencies and instrumentalities of such governments and political subdivisions
(including, without limitation, the BLM).
1.22 "Governmental Requirements" means all Laws, ordinances, statutes,
codes, rules, regulations, orders and decrees of any Governmental Authority,
including, without limitation, all authorizations, consents, approvals,
registrations, exemptions, permits and licenses with or from any Governmental
Authority, applicable to the Resource Area, the Facilities, or CED.
1.23 "Law" means any constitution or treaty, any law, ordinance, decree,
regulation, order, rule, judicial or arbitral decision and any voluntary
restraint, policy or guideline not having the force of law, with which such
party must reasonably comply, or any of the
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provisions of such Laws binding on or affecting the party referred to in the
context in which the term is used.
1.24 "Operating Budget" means an annual budget approved by CED pursuant to
Section 3.1.
1.25 "Operations" means those operations delineated by Section 2 of the
Operation and Maintenance Agreement.
1.26 "Operations and Maintenance Agreement" means the Operations and
Maintenance Agreement (BLM Project), dated the Effective Date, entered into by
CED, COC and FPLE.
1.27 "Permitted Assigns" means Permitted Assigns as defined in Section
12.7.
1.28 "Permitted Liens" means Liens which are:
(a) liens for taxes, assessments and governmental charges which are
not delinquent and remain payable without penalty or are being contested in good
faith by appropriate proceedings and for which adequate reserves, bonds or other
security has been provided; and
(b) purchase money security interests in real or personal property
when the obligation secured is incurred for the purchase of such property and
does not exceed one hundred per cent (100%) of the lesser of cost or fair market
value thereof at the time of acquisition, and the security interest does not
extend beyond the property involved; and
(c) mechanics', materialmen's and similar liens which do not
individually or in the aggregate materially interfere with the conduct of CED's
business which are being contested in good faith and have not proceeded to
judgment and for which a bond or other security has been posted; and
(d) deposits or pledges to secure statutory obligations or appeals;
release of mechanics' and materialmen's liens and similar attachments, stay of
execution or injunction; performance of bids, tenders, contracts (other than for
the repayment of borrowed money) or leases; or for purposes of like general
nature in the ordinary course of its business; and
(e) any other Liens approved by CED.
1.29 "Power Purchase Contract" means that certain Agreement dated February
1, 1985 between SCE and CGC (as assigned to CED) and that certain Interconnect
Agreement dated as of December 15, 1988, between SCE and CED, in each case as
the same may be modified or amended.
4
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1.30 "Project" means the Facilities, the Resource Area and the associated
rights to geothermal resources.
1.31 "PURPA" means Public Utilities Regulation Policies Act of 1978, as
amended.
1.32 "Required Services" means the services described in Section 2.1
hereof.
1.33 "Resource Area" means all real property described in Exhibit A to this
Agreement, exclusive of the area on which the Facilities are located.
1.34 "SCE" means Southern California Edison Company, a corporation
organized and existing under the laws of the State of California.
1.35 "Subordination Agreement" means the Operating Fee Subordination
Agreement (Navy I) between COC and U.S. Bank Trust, National Association, as
collateral agent of even date herewith.
1.36 "Transmission Line" means that certain 230Kv overhead transmission
line, including associated equipment, connecting the Facilities to SCE's
Inyokern substation.
1.37 "Unit" means any of the three single geothermal turbine generators of
the Facilities.
1.38 "Warranties" means the warranties by the contractor for the
Facilities.
ARTICLE 2
OPERATION AND MAINTENANCE; SUPPORT SERVICE
2.1 Required Services. During the term of this Agreement, commencing on
-----------------
the date of this Agreement, COC shall, to the extent contemplated by the
Operating Budget and the Drilling Program and Resource Management Plan, provide
operation and maintenance services for the Project as described below (all of
which constitute Required Services):
(a) The following testing, permitting, reporting and recordkeeping
services:
(i) Review all testing of geothermal production wells and maintain
all records regarding the geothermal reserves of the Resource Area as may
reasonably be required by CED;
(ii) Review all normal testing and recordkeeping of the Resource
Area as is usual or advisable for maintenance of existing wells and for
determining the necessity of drilling replacement wells, in accordance with
general industry practice;
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(iii) Select one or more individuals to act as liaison with the
BLM, SCE, CED, and FPLE with respect to all services to be rendered by COC under
this Agreement;
(iv) Provide CED and FPLE and any person designated by CED prompt
notice of all events, occurrences, conditions and issues with respect to the
Geothermal Resource of which COC shall become aware and which COC reasonably
believes are material to, or are likely to have a material effect on,
Operations;
(v) Provide to CED analysis of reports, test data, and other
information related to the Resource Area, as reasonably requested by CED from
time to time; and
(vi) Prepare not later than 90 days prior to the end of each
calendar year, in connection with the preparation of the Operating Budget, the
Drilling Program and Resource Management Plan with respect to (i) the management
and development of the Resource Area, (ii) performance of its other services
hereunder in substance and format acceptable to CED, (iii) a schedule of
anticipated tests, including justification as to technical and scientific
requirements and estimated costs of testing, (iv) a review of the actions taken
hereunder during the preceding twelve (12) month period and (v) a forecast of
drilling and maintenance activities, resource operations and required capital
expenditures for the ensuing calendar year.
(b) The following support services:
(i) Maintain, as appropriate, third-party contracts for drilling
geothermal wells;
(ii) Provide adequate safety and security measures for the
Resource Area, in coordination with CED, the BLM, SCE and FPLE; and
(iii) Assist CED and FPLE in maintaining good community relations.
(c) COC shall, to the extent contemplated by the Operating Budget and
the Resource Management Plan, provide the following exploration, drilling,
testing and injection services (all of which constitute Drilling Services):
(i) Explore for new well sites, drill new wells, and complete,
test, and make available new wells for tie in to the resource gathering systems
for the Project; and
(ii) Drill, test, workover, repair and make available new wells
to the disposal system; and
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(iii) Perform well workovers and related activities; and
(iv) Perform all reservoir and resource management related
services and reservoir engineering and geologic activities with respect to the
field and sub-surface reservoir, including, without limitation, scheduling and
supervising well testing, well surveys, maintaining production data bases,
reservoir modeling, identifying candidates for well workovers, acid jobs,
providing reports on resource availability, declines, production projections,
targeting new wells, providing three dimensional models of the reservoir,
maintaining and distributing maps, scheduling and supervising geologic
geophysical and/or geochemical surveys.
2.2 CED may by written notification to COC make changes in, additions to,
or deletions from COC's Required Services or Drilling Services. COC shall
thereafter perform its Required Services and Drilling Services in accordance
with such notification, and the Operating Budget pursuant to Article 3 shall be
increased or decreased by the estimated amount of the Direct Costs resulting
from the change.
2.3 If, as a result of an Emergency, COC reasonably believes it necessary
to perform services outside the scope of the Operating Budget then in effect and
COC is unable to obtain the prior approval of CED for such services, COC may
perform such reasonably necessary services (except Drilling Services, unless
such Drilling Services are needed to control blow-outs) so long as the Emergency
continues. Payment of all costs including Direct Costs will be made as if the
services were part of the Operating Budget then in effect, except to the extent
COC shall provide notice of such Emergency to CED and FPLE as soon as is
practical, together with a statement (including appropriate supporting
documentation) for its services provided in connection therewith.
ARTICLE 3
OPERATING BUDGET
3.1 COC shall prepare a proposed annual budget for Required Services and
Drilling Services itemizing separately for services described in Section 2.1 and
more particularly described in the related Resource Management Plan. In
preparing each proposed budget, COC shall take into account the amounts
described in Section 4.2. The budgets shall be in format and substance
acceptable to CED. Each proposed budget for Drilling Services will be
accompanied by a written report describing drilling, steam gathering and related
activities, recommendations on any actions necessary to maintain the Geothermal
Reserve, and long-term projections on resource availability. The proposed
budgets will be submitted for consideration and approval by CED in connection
with the approval of CED's Budget (as defined in the CED Partnership Agreement)
as more fully described in the CED Partnership Agreement. COC shall submit each
proposed budget and related proposed Resource Management Plan to CED not later
than ninety (90) days prior to the calendar year to which such budget relates.
7
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3.2 COC shall perform all Required Services and Drilling Services in
accordance with the Operating Budget and related Drilling Program and Resource
Management Plan (except for Emergencies under Section 2.3). Should COC
determine during the course of the year that it cannot in good faith perform the
Required Services and Drilling Services within the Operating Budget, COC shall
immediately notify CED. COC shall prepare a revised Operating Budget, together
with any necessary supplementary materials, and submit them to CED within
fifteen (15) days after determining the need for the revised Operating Budget.
The Proposed revised Operating Budget shall be subject to approval in the manner
described in Section 3.1.
3.3 COC shall report to CED any variance of the $20,000 or ten percent
(10%) or more between (a) actual expenditures for budgeted line items, and (b)
budgeted expenditures for such line items on a year-to-date basis, within
fifteen (15) days of the end of each calendar quarter and within fifteen (15)
days of the determination by COC during the course of any quarter that such
variance is likely to occur.
3.4 COC shall make available to CED, at reasonable times, all records
relating to the charges incurred in connection with COC's performance of COC's
obligations under this Agreement.
ARTICLE 4
PAYMENT
4.1 Compensation. Subject to the constraints of the Operating Budget, CED
------------
shall pay COC as compensation for Required Services and Drilling Services
performed under this Agreement, all Direct Costs plus the Annual Operating Fee.
4.2 Direct Costs. Direct Costs are the following:
------------
(a) Costs for personnel reasonably assigned to work at the Resource
Area, as well as additional personnel, including home office personnel as may be
required by COC, together with related overhead costs calculated at COC's actual
overhead rate. Personnel costs reimbursable hereunder shall include, but not be
limited to, direct salaries and wages, overtime premiums, employer paid social
security and unemployment insurance costs, insurance coverages required to be
furnished by COC pursuant to Article 9, medical, hospital, dental, eye care,
disability and life insurance coverages, employer retirement savings program
contributions, and vacation, holiday and sick leave in accordance with COC's
standard policies.
(b) All other expenses reasonably incurred by COC at the Resource
Area, including but not limited to materials, supplies, rental equipment and
vehicles, subcontracted services, communication costs and spare parts, and any
other cost or expense not otherwise
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reimbursed hereunder, including those in excess of the insurance coverage to be
maintained by COC under Article 9 of this Agreement subject to the Operating
Budget; excepting only those costs or expenses that are (a) due to the
negligence or willful misconduct of COC or its employees, officers or agents;
(b) deductible from the insurance coverage to be maintained under Article 9 of
this Agreement; or (c) due to replacement of items lost or stolen as a result of
negligence in security, tracking or control by COC. COC may not, without the
approval of CED, enter into any subcontract for the performance of the services
set forth herein or for the supply of materials therefor having an aggregate
value in excess of $50,000 in any calendar year; provided, however, that all
--------
items in an approved Operating Budget indicated as being subcontracted
shall be deemed approved for purposes of this provision up to the amounts
budgeted for such items.
4.3 Annual Operating Fee. CED shall pay to COC for the Required Services
--------------------
and Drilling Services performed hereunder an annual operating fee (the "Annual
Operating Fee") as follows: (i) $532,000 from the Effective Date through the
first anniversary of the Commencement Date; (ii) $400,000 from the first
anniversary of the Commencement Date through the second anniversary of the
Commencement Date; and (iii) $334,000 for each year after the second anniversary
of the Commencement Date. On or before June 30 and December 31 of each year,
CED will pay to COC one-half of the Annual Operating Fee in arrears.
4.4 Procedure for Payment. COC shall submit all invoices for services
---------------------
performed under this Agreement to CED. All invoices for amounts within the
Operating Budget shall be paid promptly by CED.
ARTICLE 5
STANDARD OF CARE
5.1 COC shall perform its obligations under this Agreement in conformance
with applicable industry standards and in a good, workmanlike and commercially
reasonable manner. COC will exercise such care, skill and diligence as a
prudent business entity engaged in the business of managing and operating a
geothermal power project would exercise for the advancement and protection of
its own economic interests.
5.2 All operation and maintenance services shall be performed in a manner
designed to have the least possible adverse effect on the Resource Area and on
the Facilities. Maintenance, overhauls and (to the extent possible) repairs or
overhauls required as a result of unexpected events shall be scheduled with CED
and FPLE so as to minimize interference with the operations of the Facilities.
5.3 COC shall at all times keep, or cause to be kept, qualified personnel
on the Project site, and shall pay all wages and benefits required by contract
and by law. COC shall
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administer all matters relating to labor relations, working conditions,
training, employee benefits, safety and related matters pertaining to its
employees.
5.4 CED understands that COC's management personnel for operations under
this Agreement shall be assigned to the Facilities part-time as is reasonably
necessary to satisfy COC's obligations under this Agreement, but may also be
assigned to work on other projects in which COC or its affiliates are involved
as equity participants and/or in which an affiliate of FPLE may have an
interest. CED may make requests of COC to replace personnel deemed by CED to be
inadequately experienced or otherwise unqualified to perform the Required
Services, which request shall not be unreasonably refused.
5.5 COC shall comply with, and cause the Resource Area and all Resource
Area personnel to comply with, all applicable Governmental Requirements
(including all requirements imposed by PURPA and FERC), the Power Purchase
Contract, the BLM Lease pertaining to the Required Services, and the operating
manuals provided for the Units.
5.6 COC shall not, directly or indirectly, create, incur or permit to
exist any lien on the Facilities, the Resource Area or any materials, equipment,
services, supplies or other items supplied or procured by COC under this
Agreement except for Permitted Liens.
ARTICLE 6
RESPONSIBILITIES OF OTHERS AND COOPERATION WITH FPLE
6.1 CED shall obtain and maintain all permits and licenses necessary to
allow COC to provide all services contemplated by this Agreement.
6.2 CED grants to COC a limited license of certain rights under the Power
Purchase Contract, the FERC Qualifying Facility Certification, the BLM Lease and
other rights that CED has to the Facilities and the surrounding areas reasonably
necessary to allow COC to perform the services contemplated by this Agreement.
CED grants COC access to the Facilities as is necessary to perform the services
under this Agreement.
6.3 CED shall provide for COC's use in connection with COC's performance
of its duties and obligations under this Agreement permanent furnished office
facilities and a maintenance building.
6.4 Inasmuch as COC must interface directly with parties other than CED in
the performance of its obligations, CED shall, when requested by COC, exert its
best efforts to secure the performance of such third parties for COC, including
but not limited to the compliance with warranties, and the furnishing of
information, assistance, or permission. Such third persons shall include, but
are not limited to, the Navy, the BLM, SCE, and the
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FPLE. COC shall use its best efforts to cooperate with such third parties in the
performance of its obligation under this Agreement.
ARTICLE 7
COC WARRANTIES
7.1 Limited Warranty. COC warrants that it will perform the Required
----------------
Services and Drilling Services in a good and workmanlike manner by qualified
personnel in accordance with generally accepted sound operating and engineering
practices for the maintenance of equipment and structures like the Facilities.
COC shall assign to CED all warranties provided by manufacturers, contractors or
vendors of spare parts provided for the Facilities, and shall pass on to CED
copies of any such warranty. THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED, WHICH
EXTEND BEYOND THE DESCRIPTION ON THE FACE HEREOF.
7.2 Warranty Period Remedies. COC's limited warranty described in Section
------------------------
7.1 shall be for a period of twelve (12) months from the date such Required
Services and Drilling Services were performed or such parts were put into
service (the "Warranty Period"). Any claim by CED under the limited warranty
must be made in writing promptly after such party is informed of the deficient
Required Services and Drilling Services. COC's sole liability for breach of the
limited warranty shall be, in the case of Required Services and Drilling
Services, promptly to perform the defective services correctly free of charge
and/or promptly to replace unfit or unqualified personnel.
7.3 No Implied Warranties. ANY IMPLIED WARRANTIES OF MERCHANTABILITY,
---------------------
QUALITY, SUITABILITY AND FITNESS ARE EXCLUDED. THERE ARE NO WARRANTIES WHICH
EXTEND BEYOND THE DESCRIPTION ON THE FACE HEREOF. COC's limited warranty in
Section 7.1 is exclusive and in lieu of any other warranties, express or
implied.
7.4 No Additional Payments. If work required to be performed pursuant to
----------------------
this Agreement must be performed, or personnel must be replaced due to a breach
of the warranties contained in this Article 7 within the Warranty Period COC
shall not be entitled to be paid under this Agreement for any and all costs
incurred in performing its limited warranty hereunder.
11
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ARTICLE 8
SUSPENSION OF SERVICES
8.1 CED may suspend all or a part of the services to be performed by COC
under this Agreement by written notice to COC, for any of the following reasons:
(a) Force Majeure causes as set forth in Paragraph 12.1, or any other
reason beyond the control and not the fault of COC as Field Operator that causes
shutdown of the Facilities or Resource Area for a period of more than 20
consecutive calendar days or for more than 30 days in any 60 day period.
(b) Inability of the Facility or the Resource Area to properly operate
for any reason including but not limited to unavailability of geothermal
resource in sufficient quality or quantity, malfunction of equipment,
unavailability of materials, equipment, supplies or labor, or structural
defects.
(c) SCE's inability or refusal to accept power from the Facilities.
(d) BLM activities or restrictions which prohibit economical operation
of the Facilities or the Resource Area.
(e) Failure of COC to perform Required Services, Drilling Services or
Emergency Services in accordance with the standards set forth in Article 5 of
this Agreement.
8.2 Upon receipt of notice of suspension from CED, COC shall continue to
perform its non-suspended services under this Agreement at such personnel
staffing and performance levels as are prudently dictated by the circumstances.
COC shall have the right during any such suspension to terminate the employment
of any of its personnel. Any cost of reemployment for the performance of
services under this Agreement shall be payable as a Direct Cost under Section
4.2.
8.3 Except in connection with Section 8.1(e), in the event of suspension,
CED shall continue to pay COC all compensation in accordance with Article 4,
unless it is determined that (a) such suspension will extend for more than 30
calendar days or (b) that such suspension is the result of a default by COC as
described in Article 10. In the event of (a), CED shall compensate COC for
costs associated with winding down and restarting the operation and maintenance
activities to the extent provided for in the Operating Budget.
8.4 COC may, by giving 30 days written notice to CED, suspend all or a
part of its services under this Agreement if CED shall fail to make any payment
when due as required under Article 4, provided that no such suspension shall
occur if the required payment is made
12
<PAGE>
within the notice period and except for any Operating Fees which are not paid on
account of the Subordination Agreement.
ARTICLE 9
INSURANCE
9.1 COC shall procure and maintain in force the insurances listed below,
which shall contain waivers of subrogation with respect to loss or damage
resulting from COC's performance under this Agreement;
(a) Comprehensive general liability coverage, including bodily injury,
physical damage, and automobile liability, in the amount of $5,000,000 combined
single limit.
(b) California Workers' Compensation coverage in statutory form and
amount.
(c) Such additional insurance as may be reasonably required by CED
from time to time.
9.2 COC shall provide to CED such evidence of the required insurance as
CED may reasonably specify.
9.3 Each of the required policies shall be endorsed to provide that the
party requiring the insurance be given thirty (30) days advance notice of
cancellation or material change.
9.4 Each of the required insurances shall be primary insurance for all
purposes and shall be so endorsed.
ARTICLE 10
TERMINATION
10.1 COC may terminate its performance under this Agreement upon six
months' written notice to CED. CED may terminate COC's performance under this
Agreement upon six months' written notice to COC. Should such termination
occur, COC shall be paid for its services to the date of termination in
accordance with Article 4 (including any costs payable under Section 10.3) less
any out-of-pocket costs incurred by CED in obtaining a replacement operator to
perform the services contemplated by this Agreement.
10.2 If either party commits a material breach of its obligations under
this Agreement, the other party (hereinafter the "Non-Defaulting Party") may
give such party in
13
<PAGE>
default (hereinafter the "Defaulting Party") a written notice describing such
breach in reasonable detail and, if the breach is remediable, demanding that the
Defaulting Party cure it. If the breach is not remediable, the Defaulting Party
shall be in default under this Article 10. If the breach is remediable, and the
Defaulting Party does not cure the breach within thirty (30) days after its
receipt of such notice or, if the breach is such that it can be cured but not
within such period of time, does not promptly commence action which is
calculated to cure such breach within a reasonable period of time and thereafter
diligently pursue such action to completion, then the Defaulting Party shall be
deemed to be in default under this Article 10. Upon a default under this Article
10:
(a) If the Defaulting Party is CED, then COC shall have the right to
terminate this Agreement by written notice to CED, without prejudice to any
remedies at law or in equity that are available to COC by reason of CED's
default. In addition, the costs reasonably incurred by COC in effecting
termination in accordance with the terms of this provision, including severance
pay and relocation costs for any terminated employees, shall be paid to COC.
(b) If the Defaulting Party is COC, then CED may suspend COC's
Performance under this Agreement and engage a third party to perform the
services COC is obligated to perform under this Agreement until such time as COC
is able to resume performance. If, within 30 days of such suspension, COC
demonstrates to the reasonable satisfaction of CED that it is able to perform
fully under this Agreement, and to compensate CED for all costs, losses or
damages incurred which arise from COC's prior incomplete performance or failure
to perform, then COC shall be reinstated under this Agreement with full powers
and rights as it had prior to the suspension. If COC shall not be reinstated
under the Agreement as contemplated in the preceding sentence, then CED shall
have the right to terminate this Agreement by written notice to COC, effective
immediately upon such notice, without prejudice to any remedies at law or in
equity that are available to CED by reason of COC's default.
10.3 If a default is not cured as provided in Section 10.2, the Non-
Defaulting Party may elect to suspend performance hereof on a month-by-month
basis rather than terminate the Agreement. If the Non-Defaulting Party suspends
performance, the Defaulting Party may remedy such default during the period of
suspension and pay the Non-Defaulting Party its losses or damages, plus interest
at the rate of 10% per annum. Upon the remedy of such default and payment of
such damages to the Non-Defaulting Party, such default shall cease to exist and
the Non-Defaulting Party may not terminate this Agreement unless the Defaulting
Party commits a separate material breach of this Agreement which permits
termination pursuant to this Article. The remedy provided by this Section 10.3
is in addition to other remedies provided elsewhere in this Agreement.
10.4 Subject to the applicable provisions of other documents entered into
by the parties, either party may terminate this Agreement by written notice to
the other party if the
14
<PAGE>
latter party (a) commences a voluntary proceeding under any federal or state
bankruptcy, insolvency or reorganization law, or (b) has such a proceeding filed
against it and fails to have such proceeding stayed or vacated within 30 days,
or (c) upon the end of any such stay, fails to have such involuntary proceeding
vacated within 30 days thereafter, or (d) admits the material allegations of any
petition in bankruptcy filed against it, or (e) is adjudged bankrupt, or (f)
makes a general assignment for the benefit of its creditors, or if a receiver is
appointed for all or a substantial portion of such party's assets and is not
discharged within 30 days after his appointment. Any termination of this
Agreement pursuant to this Section 10.4 shall be considered to be by reason of
anticipatory breach of contract, and such termination shall be without prejudice
to any rights the terminating party may have by reason of such anticipatory
breach.
10.5 If SCE terminates the Power Purchase Contract because of an uncured
default of the Power Purchase Contract that was the result of COC's gross
negligence or willful misconduct, then this Agreement shall be terminated
effective upon termination of the Power Purchase Contract.
10.6 In case of a termination pursuant to this Article 10, CED and COC
shall arrive at a schedule for a transition period, at the end of which COC
shall be relieved of its obligations under this Agreement. During the
transition period, COC shall cooperate with any party appointed to be
replacement field operator to ensure a smooth transition of service. In
addition, COC shall arrange for the transfer to CED of any permits and licenses
for the Facility or any resource development activities in connection therewith
held in the name of COC. In case of a termination, COC shall be entitled to the
termination and demobilization payments contemplated by this Article 10, unless
the termination results from a default by COC as defined in this Article 10, in
which case no termination or demobilization payments shall be due to COC under
this Agreement.
10.7 Subject to earlier termination pursuant to the terms of this Article
10, the term of this Agreement shall expire on December 31, 2009.
ARTICLE 11
INDEMNIFICATION
11.1 Each party shall defend, indemnify, and hold harmless the other from
and against all claims, demands, liability, loss, suit, judgment, cost, damage
or expense incurred or suffered by the indemnified party (including the cost of
investigating, analyzing and defending such matters, and including court costs
and reasonable attorneys' fees) relating to, resulting from or arising out of
acts or omissions of the indemnifying party and connected in any way with its
performance under this Agreement, whether or not insured against, except to the
extent caused by the gross negligence of the party otherwise indemnified. The
gross indemnity granted herein shall include indemnity for damage to property or
to the environment
15
<PAGE>
and for injury to or death of any person, including employees of COC or CED.
"Acts or omissions" of a party shall include acts or omissions of lower tier
subcontractors, suppliers, or others operating within the scope of authorization
of such party.
11.2 Where one party is obligated under this or other Articles to indemnify
another, such obligations shall extend to the partners and affiliates of the
party indemnified, and to directors, officers, agents, and employees of any of
them.
ARTICLE 12
MISCELLANEOUS PROVISIONS
12.1 Any delay or stoppage of work due to any of the following causes shall
constitute a Force Majeure event for such a period as such obligations cannot be
performed: acts of God, fire, flood, earthquake, explosion, riot, war, sabotage,
terrorism, or governmental acts and decrees. However, such delay or stoppage
shall not constitute a Force Majeure event if such event is caused by the active
or passive negligence or the intentional acts or omissions of the delayed party.
The delayed party shall recommence the performance of its obligations as
promptly and expeditiously as possible following any such delay or stoppage. If
any such Force Majeure event continues for 45 days, either party may terminate
this Agreement in accordance with the provisions of Article 10, including
without limitation the provisions regarding payment to COC of termination and
demobilization payments.
12.2 Any controversy between COC and CED or claim of either COC or CED
arising out of or related to this Agreement, or the breach thereof, shall first
be referred to the management of COC and management committee of CED for
resolution. If agreement cannot be reached, the parties may pursue other means
for resolving the dispute.
12.3 Any notice, demand or request provided for in this Agreement shall be
in writing and shall be deemed properly served, given or made if delivered in
person or upon five days after being dispatched by registered or certified mail,
postage prepaid, to the entities specified below:
If to CED: Caithness Energy Developers
c/o Caithness Coso Holdings, LLC
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas
New York, New York 10036
Attn: President
16
<PAGE>
If to COC: Caithness Operating Company LLC
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas
New York, New York 10036
Attn: President
If to FPLE: FPL Energy Operating Services, Inc.
700 Universe Boulevard
Juno Beach, Florida 33408
Attn: Vice President - Operations
Any party may at any time by written notice to all other parties designate
different or additional entities or different addresses for the giving of these
notices.
Further, all consents and approval required by this Agreement shall be in
writing, sent as any notice would be under this section 12.3; provided, however,
that in case of Emergency, approvals or consents may be made by telefax or other
similar means.
12.4 During the term of this Agreement, COC acting in its capacity under
this Agreement shall act as an independent contractor of CED, not as a partner
or joint venturer. No party shall be the agent or have a right or power to bind
any other party without its express consent.
12.5 The captions and headings appearing in this Agreement are inserted
merely to facilitate reference and shall have no bearing upon the interpretation
of this Agreement.
12.6 This Agreement shall be governed by the laws of the State of
California respecting contracts made and to be performed in the State of
California.
12.7 This Agreement shall inure to the benefit of and be binding upon the
parties hereto and any other persons or entities to which either of them may
assign or transfer their rights and/or obligations hereunder in accordance
herewith (such persons or entities collectively the "Permitted Assigns").
Neither party may assign its rights or delegate its obligations under this
Agreement, except by prior written approval of the parties; provided, however,
that CED shall have the right to assign its rights under this Agreement without
consent to any lender or lenders in connection with any financing secured by the
Facilities.
12.8 Wherever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
any applicable law in any jurisdiction, such provision shall be ineffective to
the extent of such prohibition or invalidity, without prohibiting or
invalidating the remainder of such provision or the remaining provisions of this
Agreement
17
<PAGE>
in such jurisdiction, and without affecting the validity of such
provision or the remaining provisions of this Agreement in any other
jurisdiction.
12.9 No failure to exercise and no delay in exercising, on the part of
either party, any right, power or privilege in this Agreement shall operate as a
waiver of such right, power or privilege. The rights and remedies of this
Agreement are cumulative and not exclusive of any rights or remedies provided by
law.
12.10 This Agreement sets forth the entire Agreement and understanding
between the parties and supersedes and replaces all prior written agreements and
negotiations and oral understandings, if any, with respect to this Agreement,
including, without limitation, that certain Amended and Restated Field Operation
and Maintenance Agreement (BLM), dated December 16, 1992, by and between Coso
Hotsprings Intermountain Power, Inc., and California Energy Company, Inc., as
amended. This Agreement may not be amended without the written consent of CED.
12.11 COC agrees that it does not and shall not discriminate against or
segregate any applicant or employee, or group of applicants or employees, on
account of race, color, religion, sex, national origin, disability, or status as
a disabled veteran or veteran of the Vietnam era. Further, unless this
Agreement is exempted by statute, rules, or regulations, the following clauses
are incorporated herein by reference and are binding on COC: (a) "Equal
Employment Opportunity Clause," paragraphs one (1) through seven (7), set forth
at Section 202 of Executive Order 11246, as amended by Executive Order 11375, 41
C.F.R. 60-1.4, (applicable to contract exceeding $10,000); (b) "Affirmative
Action for Disabled Veterans and Veterans of the Vietnam Era Clause," set forth
at 41 C.F.R. 60-250.4 (applicable to contracts exceeding $10,000); and (c)
"Affirmative Action for Handicapped Worker Clause," set forth at 41 C.F.R. 60-
741.4 (applicable to contract exceeding $2,500).
END OF PAGE
18
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
---------------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
---------------------------------
Christopher T. McCallion
Executive Vice President
COSO OPERATING COMPANY LLC,
a Delaware limited liability company
By:/s/ Christopher T. McCallion
----------------------------------------
Its: Executive Vice President
---------------------------------------
19
<PAGE>
EXHIBIT A
REAL PROPERTY DESCRIPTION
Lots 1 through 4 inclusive of Section 19; and the East half of Section 19; and
the East half of the West half of Section 19; all of Sections 20 and 29; Lots 1
through 4 inclusive of Section 30; and the East half of Section 30; and the East
half of the West half of Section 30, all in Township 22 South, range 39 East,
M.D.M., in the County of Inyo, State of California according to the official
plat thereof.
20
<PAGE>
Exhibit 10.61
PURCHASE AGREEMENT
------------------
This Purchase Agreement (this "Agreement"), dated as of January 16, 1999, is
entered into between Caithness Energy L.L.C., a Delaware limited liability
company, Caithness Acquisition Company, LLC, a Delaware limited liability
company ("CAC"), (collectively, "Buyer"), and CalEnergy Company, Inc., a
Delaware corporation ("Seller").
RECITALS
--------
A. Seller owns (a) the shares of common stock described in Exhibit A
attached hereto, constituting all of the outstanding capital stock or membership
interests, as applicable (the "Stock"), of Coso Operating Company LLC, a
Delaware limited liability company, Coso Hotsprings Intermountain Power, Inc.,
China Lake Operating Company, Coso Technology Corporation, China Lake Geothermal
Management Company, China Lake Plant Services, Inc., a California corporation,
Coso Hotsprings Overland Power, Inc., Rose Valley Properties, Inc., each a
Delaware corporation (except as indicated) (individually, a "Company" and
collectively, the "Companies") and (b) the following partnership or joint
venture interests: 50% of China Lake Joint Venture, 50% of Coso Land Company and
approximately 16% of Coso Geothermal Company (each a "Partnership Interest" and
collectively, the "Partnership Interests"). The Companies own the partnership
interests set forth in Exhibit B attached hereto, constituting an interest in,
each of the following partnerships (i) Coso Energy Developers, a California
general partnership, (ii) Coso Finance Partners, a California general
partnership, (iii) Coso Power Developers, a California general partnership, and
(iv) Coso Finance Partners II, a California general partnership (individually, a
"Partnership" and collectively, the "Partnerships"), which own the geothermal
power generation facilities commonly known as the Navy I, Navy II and BLM
projects located at China Lake, California (the "Projects") and collectively
100% of the stock of Coso Funding Corp., a Delaware corporation. In addition,
Coso Energy Developers and Coso Power Developers together own 100% of Coso
Transmission Line Partners, a California general partnership.
B. Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, all of the Stock and Partnership Interests subject to the terms and
conditions of this Agreement.
AGREEMENT
---------
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
<PAGE>
1.1 Defined Terms. As used herein, the terms below shall have the
-------------
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
"Action" shall mean any action, order, writ, injunction, judgment or
------
decree of any court or governmental or regulatory entity or any claim, suit,
litigation, proceeding, labor dispute, arbitral action, governmental or
regulatory audit or investigation.
"Affiliate" shall have the meaning set forth in the Securities
---------
Exchange Act of 1934, as amended, and the rules and regulations thereunder.
"Books and Records" shall mean, with respect to a company, records of
-----------------
the company pertaining to the company's business, properties or assets and
books, ledgers, files, reports, documents and other customary corporate records
(including drilling records and computer records and other forms of electronic
data storage) relating thereto maintained by the company or by Representatives
on its behalf, and for the Partnerships shall include copies of audited
financial statements and any tax returns of the Partnerships in Seller's
possession.
"Budget" shall mean the 1999 operating and capital budgets for the
------
Partnerships (other than Coso Finance Partners II) proposed by Seller and
approved by Sandwell Engineering, Inc.
"Closing" shall have the meaning set forth in Section 3.1 hereof.
-------
"Closing Date" shall mean February 25, 1999 or such other date as
------------
provided in Section 6.10
"Consents" shall mean all licenses, permits, franchises, approvals,
--------
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, or any other person,
necessary or required for the present or anticipated conduct of, or relating to
the operation of, the Companies' or Partnerships' businesses or for the
consummation of the transactions contemplated hereby.
"Corporate Partners" shall mean China Lake Operating Company, Coso
------------------
Hotsprings Intermountain Power, Inc. and Coso Technology Corporation.
"Encumbrance" shall mean any claim, lien, pledge, option, warrant,
-----------
put, call, security interest, deed of trust, mortgage, right of way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
retention agreement or lease in the nature thereof.
"Operation and Maintenance Agreement" shall mean the separate Plant,
-----------------------------------
2
<PAGE>
Field and Transmission Line operating agreements between the Seller, as the
operator on the one hand, and the Companies and Coso Transmission Line Partners,
on the other hand, with respect to the Projects.
"Projects" shall have the meaning as set forth in Recital A hereof.
--------
"Purchase Price" shall have the meaning set forth in Section 2.2
--------------
hereof.
"Released Claims" shall have the meaning set forth in Section 6.4
---------------
hereof.
"Representative" shall mean any officer, director, principal,
--------------
attorney, accountant, agent, employee or other representative.
"SCE Litigation" shall mean the action in the Superior Court for Inyo
--------------
County entitled Southern California Edison Company, Plaintiff, v. Coso Finance
Partners, Coso Power Developers, Coso Energy Developers, China Lake Operating
Company, Coso Technology Corporation, Coso Hotsprings Intermountain Power, Inc.,
CalEnergy Company, Inc. and Does 1 through 100, defendants (Master Case No.
22784), and the Related Cross Action in the Superior Court for Inyo County
entitled Coso Finance Partners, Coso Power Developers, Coso Energy Developers,
China Lake Operating Company, Coso Technology Corporation, Coso Hotsprings
Intermountain Power, Inc., CalEnergy Company, Inc. and Roes 1 through 100,
Cross-Complainants, v. Southern California Edison Company, Edison
International, The Mission Group, Mission Power Engineering Company, and Roes 1
through 100, Cross-Defendants (Case No. 22718), and including any litigation or
claims that may arise or be initiated subsequently as a result of the
allegations made or to be made in the foregoing proceedings or in any way
relating to any of the facts, transactions, events, occurrences or acts alleged
or underlying the foregoing proceedings.
"Tax" or "Taxes" shall mean any federal, state, local, foreign or
--- -----
other tax, levy, impost, fee, assessment or other government charge, including
without limitation income, estimated income, business, occupation, franchise,
property, payroll, personal property, sales, transfer, use, employment,
commercial rent, occupancy, license, gross receipts, ad valorem, excise or
withholding taxes, and any premium, including without limitation interest,
penalties, fines and additional sums to be paid in connection therewith.
"Tax Return" means any return, report, information return, audit,
----------
investigation or other proceeding response or other document (including any
related or supporting information and, where applicable, profit and loss
accounts and balance sheets) with respect to Taxes.
"Termination Rights" shall mean the rights granted for Seller's
------------------
benefit to secure Buyer's performance obligations in the event Seller terminates
this Agreement pursuant to Section 11.1(a) (iii).
ARTICLE II
3
<PAGE>
PURCHASE AND SALE OF STOCK
--------------------------
2.1 Transfer of Stock and Partnership Interests. Upon the terms and
-------------------------------------------
subject to the conditions contained herein, at the Closing, Seller will sell,
convey, transfer, assign and deliver to Buyer, and Buyer will acquire from
Seller, all shares of the Stock and all of the Partnership Interests.
2.2 Consideration for Stock. Upon the terms and subject to the conditions
-----------------------
contained herein, as consideration for the purchase of all shares of the Stock
and Partnership Interests, Buyer shall pay to Seller as follows: Five Million
U.S. Dollars (US$5,000,000) shall be paid to Seller in immediately available
funds on or before January 22, 1999 as a deposit (the "Deposit"), Two Hundred
and Five Million U.S. Dollars ($205,000,000) (less the Deposit and any interest
accrued on the Deposit at the rate of 5% per annum) which shall be paid to
Seller at the Closing in immediately available funds, and the balance of which
shall be paid by delivery to Seller at Closing the Agreement concerning
Consideration executed by Buyer for the payment of additional Consideration of
up to US$5,000,000 as set forth in Exhibit D hereto (collectively the "Purchase
Price").
ARTICLE III
CLOSING
-------
3.1 Closing. The closing of the transactions contemplated herein (the
-------
"Closing") shall be held on the Closing Date at 9:00 a.m. local time at the
offices of Seller, unless the parties hereto otherwise agree in writing to an
extension of such date or location. In the event that the consents required in
Sections 7.2 and 8.2 hereunder have not been obtained by February 23, 1999 (and
Buyer is not in breach of any of its obligations under this Agreement including,
without limitation, its best efforts obligations under Section 6.10), the
Closing shall be extended until two (2) business days after such consents are
obtained, subject to Section 11.1(a)(ii).
3.2 Documents to be Delivered. To effect the transfer referred to in
-------------------------
Section 2.1 hereof and the delivery of the consideration described in Section
2.2 hereof, Seller and Buyer shall, on the Closing Date, deliver the following:
(a) Seller shall deliver to CAC or its designee(s) (provided such
designee(s) first become parties to this Agreement and agree to be bound by the
terms of this Agreement to the same extent as the Buyer), certificates or stock
powers evidencing all shares of the Stock of the Companies, free and clear of
all Encumbrances (other than Encumbrances related to the Coso Funding Corp. and
Partnership financing arrangements, Project agreements and permits and the SCE
Litigation), duly endorsed in blank for transfer.
4
<PAGE>
(b) Seller shall convey to CAC the Partnership Interests, free and
clear of all Encumbrances (other than Encumbrances related to the Coso Funding
Corp. and Partnership financing arrangements, Project agreements and permits and
the SCE Litigation).
(c) Seller and Buyer each shall deliver all documents required to be
delivered pursuant to Articles VII and VIII hereof.
(d) Buyer shall deliver to Seller Two Hundred and Five Million U.S.
Dollars (US$205,000,000) (less the Deposit and any interest accrued on the
Deposit at the rate of 5% per annum) in immediately available funds .
(e) Seller shall deliver to CAC all Books and Records of the
Companies, the Seller's Books and Records solely in its capacity as operator of
the Project or solely as owner of the Companies and written resignations of the
Companies' nominees to the Partnerships' management committees and of all
directors and officers of the Companies, it being agreed that Seller may retain
copies of the Books and Records for bona fide business purposes, subject to the
confidentiality and use restrictions contained herein.
(f) Buyer shall deliver to Seller a fully executed Agreement
concerning Consideration and Future Revenue Agreement in the forms attached as
Exhibits D and F.
(g) Seller and Buyer shall deliver a certificate duly executed by an
authorized officer to the effect that each of the representations and warranties
made by it in this Agreement are accurate in all material respects as of the
Closing Date as if made on the Closing Date.
(h) Seller and Buyer shall deliver opinions of counsel in form and
substance customary for transactions of this type and reasonably satisfactory to
the Seller and Buyer, dated the Closing Date, as to the authorization, validity
and enforceability of this Agreement, the Acknowledgment and Agreement-Release,
Acknowledgment and Agreement-Indemnity, the Agreement concerning Consideration,
the Contingent Payment Agreement, Escrow Agreement and any release or indemnity
required by this Agreement, provided, that such counsel may reasonably rely on
local counsel as to matters of local law. Buyer shall be responsible for
obtaining opinions of counsel with respect to the Caithness Affiliates.
(i) Seller shall deliver a quitclaim, "as is" and without any
representation or warranty, for all of its interest in assets within the Coso
KGRA which are owned by the Partnerships or have been paid for by the
Partnerships or are primarily used at or in connection with the Projects subject
to Seller's retention of Retained Operations.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
------------------------------------------
5
<PAGE>
OF SELLER AND THE COMPANIES
---------------------------
Seller hereby agrees with and represents and warrants to Buyer as follows,
which representations and warranties are, as of the date hereof true and
correct:
4.1 Organization. Each of Seller and the Companies is a corporation or
------------
limited liability company, as the case may be, duly organized, validly existing
and in good standing under the laws of the state of its incorporation.
4.2 Authorization. Seller has all requisite power and authority, and has
-------------
taken all corporate action necessary, to execute and deliver this Agreement, to
consummate the transactions contemplated hereby and to perform its obligations
hereunder. This Agreement has been duly executed and delivered by Seller and is
a legal, valid and binding obligation of Seller enforceable against Seller in
accordance with its terms.
4.3 Capitalization and Partnership Interests. Seller owns all the
----------------------------------------
outstanding shares of Stock set forth in Exhibit A hereto and such shares
constitute the entire outstanding capital stock of the Companies as set forth in
Exhibit C attached hereto; and there are no other outstanding debt or equity
securities or similar instruments or interests in respect of the Companies
(except for each Company's proportionate share of the debt obligations of the
Partnerships, if any, set forth on the balance sheets referred to in Section
4.5). Upon transfer to Buyer of the shares of Stock and the Partnership
Interests, Seller shall have indirectly transferred to Buyer all of the
partnership interests set forth in Exhibit B, which include all of Seller's and
the Companies' right, title and interest in and to the Partnerships of any kind
whatsoever, including, without limitation, any interest in any proceeds in
respect of Partnership litigation or other Partnership claims against third
parties.
4.4 No Encumbrances. (a) Seller owns as of the date hereof, and will own
---------------
as of the Closing Date, all of the outstanding and authorized capital stock of
the Companies free and clear of all Encumbrances except for those Encumbrances
related to the Coso Funding Corp. and Partnership financing arrangements,
Project agreements and permits and the SCE Litigation.
(b) Seller owns as of the date hereof, and will own as of the Closing
Date, the Partnership Interests, free and clear of all Encumbrances except for
those Encumbrances related to the Coso Funding Corp. and Partnership financing
arrangements, Project agreements and permits and the SCE Litigation.
4.5 December 31, 1998 Balance Sheets. Seller shall deliver to Buyer at or
--------------------------------
before Closing or such earlier time as they become available, balance sheets for
each of the Companies as of December 31, 1998 prepared by Seller in accordance
with generally accepted accounting principles ("GAAP") and financial statements
of the Partnerships as of December 31, 1998 audited by PriceWaterhouseCoopers
LLP; provided that it is understood that Seller makes no representation or
warranty in respect of the balance sheets of the Partnerships or other entities
in which it holds Partnership Interests
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4.6 No Brokers, Etc. Neither Seller nor the Companies nor any of their
----------------
respective Representatives, shareholders or Affiliates has employed or made any
agreement with any Representative, broker, finder or similar agent or any other
person or firm which will result in the obligation of Buyer, any Company or any
of their respective Affiliates to pay any finder's fee, brokerage fee,
consulting fee, severance fee, services fee, commission or similar payment or
expense in connection with the transactions contemplated hereby. Seller will
pay all of its own expenses in connection with this Agreement, as provided in
Section 11.7 hereof.
4.7 Books and Records. Seller represents and warrants to Buyer that the
-----------------
Books and Records delivered to Buyer at the closing are originals or true copies
of the actual Books and Records of the Companies and the Seller's Books and
Records solely in its capacity as operator of the Projects or solely as owner of
the Stock.
4.8 Access to Information. Seller represents and warrants that it has and
----------------------
will provide Buyer with access to all reasonably requested information in
connection with Buyer's due diligence regarding the SCE Litigation and other
Partnership matters.
4.9 Litigation. To the best of Seller's knowledge, set forth on Schedule
----------
4.9 is a list of certain pending litigation matters involving the Companies and
the Partnerships and no other material Action is pending, or currently
threatened, at law or in equity, against or affecting, the Companies or
Partnerships or their material properties or rights before any state or federal
court, arbitrator, administrative agency, regulatory body, tribunal or
government instrumentality.
4.10 Material Contracts. Except as may be alleged in any matter
------------------
referenced in Schedule 4.10, to the best of Seller's knowledge, the ISO4
contracts between Southern California Edison Company and the Partnerships, the
United States of America through Naval Facilities Engineering command and China
Lake Joint Venture (the "Navy Contract") and the BLM geothermal leases No. CA
11402 and 11384 are in full force and effect.
4.11 Activities. The Corporate Partners are special purpose entities
----------
formed for the purpose of managing or serving as the managing general partners
of Coso Finance Partners, Coso Energy Developers and Coso Power Developers, and
to Seller's knowledge, the Corporate Partners have undertaken no material
activities except in connection with such purpose.
4.12 Conflicts. This Agreement and Seller's performance hereunder shall
---------
not materially conflict with any applicable covenants, agreements or laws
applicable to Seller.
4.13 Assets. Upon consummation of this transaction at Closing, to
------
Seller's knowledge, it shall have transferred all of its material rights
necessary for the operation of the Projects.
7
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ARTICLE V
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF BUYER
---------------------------------------------------
Buyer agrees with and hereby represents and warrants to Seller as follows,
which representations and warranties are, as of the date hereof, and will be, as
of the Closing Date, true and correct:
5.1 Organization. Buyer is a corporation or limited liability company, as
------------
applicable, duly organized, validly existing and in good standing under the laws
of Delaware except with respect to CAC which will be warranted as of January 22,
1999 and the Closing Date.
5.2 Authorization. Buyer has all requisite power and authority, and has
-------------
taken all action necessary, to execute and deliver this Agreement, to consummate
the transactions contemplated hereby and to perform its obligations hereunder.
This Agreement has been duly executed and delivered by Buyer and is a legal,
valid and binding obligation of Buyer enforceable against Buyer in accordance
with its terms except with respect to CAC which will be warranted as of January
22, 1999 and the Closing Date.
5.3 No Brokers, Etc. Neither Buyer nor any of its Representatives,
----------------
shareholders or affiliates has employed or made any agreement with any
Representative, broker, finder or similar agent or any other person or firm
which will result in the obligation of Seller, any Company, or any of Seller's
affiliates to pay any finder's fee, brokerage fee, consulting fee, severance
fee, services fee, or commission or similar payment or expense in connection
with the transactions contemplated hereby. Buyer will pay all of its own
expenses in connection with this Agreement, as provided in Section 11.7 hereof.
5.4 Financing. Buyer has and will at Closing have access to the
---------
immediately available funds required to pay the Purchase Price and expressly
agrees that obtaining financing is not a condition to performing its obligations
hereunder and acknowledges that Seller is expressly relying on such
representation.
5.5 Due Diligence. Buyer acknowledges and agrees that it has detailed
-------------
knowledge regarding the Projects as a result of its many years of management
committee participation and that it further has been provided the full
opportunity to conduct due diligence regarding the SCE Litigation and other
Partnership matters and has requested and has been provided with full access to
all reasonably requested Partnership information necessary to make an informed
investment decision.
5.6 Conflicts. This Agreement and Buyer's performance hereunder shall not
---------
materially conflict with any applicable covenants, agreements or laws applicable
to Buyer except for third party consents (other than those consents specifically
referenced in 8.2) which will be obtained by Buyer prior to Closing and will not
be a condition to Buyer's
8
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obligation to close.
ARTICLE VI
COVENANTS OF BUYER, SELLER AND THE COMPANIES
--------------------------------------------
Buyer and Seller each covenant with the other as follows:
6.1 Actions to Consummate Closing; Further Assurances. Each of the
-------------------------------------------------
parties hereto agrees, both before and after the Closing, (a) to use all efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to remove or satisfy Closing conditions
which are within such party's control and otherwise to consummate and make
effective the transactions contemplated by this Agreement, (b) to execute any
documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the transactions contemplated
hereunder, and (c) to cooperate with each other in connection with the
foregoing; provided that Seller has sought and shall use commercially reasonable
efforts to obtain the consents required under the Coso Funding Corp. financing
arrangements and Buyer shall cooperate with such consent solicitation; provided,
further, that any payments required to be made and any costs or expenses
incurred in connection with reaffirming ratings or obtaining any consents,
agreements not to object or similar arrangements sought from the bondholders or
trustee or letter of credit bank group under the Coso Funding Corp. financing
arrangements in order to close as promptly as practical following the date
hereof shall be shared equally by Buyer (or the Partnerships) and Seller. In
addition, upon Closing, Buyer agrees to use its best efforts to cause the
Partnerships to execute and become a party to the Agreement concerning
Consideration and Future Revenue Agreement in the forms attached as Exhibits D
and E and cause the Partnerships to be bound by the terms thereof to the same
extent as Buyer.
6.2 Conduct of Business. From the date hereof through the Closing or
-------------------
earlier termination of this Agreement, the Companies shall, except as consented
to by Buyer in writing, continue to operate solely in the ordinary course of
business and substantially in accordance with past practice and will not take
any action inconsistent with this Agreement or with the consummation of the
Closing; provided, however, that, except in situations where action is required
promptly, and if within Seller's control, Seller shall not, without CAC's
written consent, intentionally cause the Partnerships to incur obligations not
provided in the Budget prior to Closing. In addition, from the date hereof
through the Closing or earlier termination of this Agreement, Buyer and Seller
shall agree to all major strategic or planning issues concerning drilling or
operations.
6.3 Tax Elections. Seller and Buyer each represent and warrant that they
-------------
have all right and authority to and shall cause a Section 338(h)(10) election to
be made in connection with the Companies (and related Section 754 elections to
be made with respect to the Partnerships). Within 10 days prior to the Closing,
Buyer will deliver to Seller its proposed allocation of the purchase price under
Section 338(h)(10) and Buyer
9
<PAGE>
and Seller shall endeavor to agree to a reasonable allocation prior to Closing.
6.4 General Release. Each of the Buyers for themselves and on behalf of
---------------
each of their respective Representatives, partners, members, Affiliates, heirs,
executors, successors and assigns including, without limitation, their
Affiliates which are executing the Acknowledgment and Agreement-Release set
forth below (the "Caithness Releasing Parties"), for good and sufficient
consideration, the receipt and adequacy of which is hereby acknowledged, hereby
releases, remises, forgives and forever discharges Seller and its partners,
affiliates, insurers, subsidiaries and each of their respective present and
former Representatives, servants, partners and shareholders (collectively the
"Releasees"), from any and all claims, demands, debts, losses, obligations,
liabilities, costs, expenses, sums of money, accounts, reckonings, suits, rights
of action and causes of action of any kind or character whatsoever, from the
beginning of time, whether known or unknown, suspected or unsuspected, which,
against Releasees, the Caithness Releasing Parties ever had, now have or
hereafter can, shall or may have, or, upon, for or with respect to any matter,
cause or anything whatsoever, from the beginning of time, including, without
limitation, those which are based upon the claims asserted in the SCE Litigation
or relate in any way thereto ("Released Claims"). Released Claims include,
without limitation, all losses, costs, claims, issues, obligations or
liabilities, arising out of or related to (i) any alleged breach of the
Partnerships' partnership agreements, (ii) any alleged breach of the Operation
and Maintenance Agreements, (iii) the direct or indirect ownership of the
Partnerships or Partnership Interests, (iv) fees or overhead charges to the
Partnerships or Partnership Interests or the partners thereof, (v) alleged
ownership or operation of the Projects (including operations after the Closing
Date pursuant to Section 6.6 hereof) or any activities or permits or consents or
regulatory matters related thereto, including the Transition Services (as
hereinafter defined) and (vi) any cooperation, advice, testimony or any other
services provided in the future in connection with the SCE Litigation including,
without limitation, cooperation provided by Seller or its Representatives
pursuant to the last sentence of Section 6.11; but shall not include liabilities
solely for an intentional and material breach of the express representations
made in Article IV. Buyer acknowledges and agrees that this is a general release
of all claims it has or may have against Seller, except with respect to an
intentional and material breach of the express representations made by Seller in
Article IV. The term of this release shall be unlimited; provided, however, that
this release will be ineffective only if and only to the extent that all of the
following have occurred and are continuing: (a) Buyer is not in breach of the
terms of this Agreement (b) Buyer has provided Seller notice of a material
breach of this Agreement and an opportunity to cure, (c) Buyer properly
terminated this Agreement pursuant to Section 11.1 (a) (iv), and (d) Buyer has
obtained a final nonappealable judgment that Seller is in material breach of
this Agreement.
As to all matters that are to become released pursuant to this Agreement,
the Caithness Releasing Parties hereby expressly waive any right or benefit
available to them in any capacity under the provisions of Section 1542 of the
Civil Code of California, which provides:
10
<PAGE>
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor."
The Caithness Releasing Parties expressly waive any such right or benefit
available to it in any capacity under the comparable provisions of any other
state or federal law.
Buyer shall cause any transferee of Buyer's (or the Affiliates' who are
executing the Acknowledgment and Agreement-Release set forth below) direct or
indirect interests in the Partnerships or Projects to independently so release
Seller by delivering a written release in the form set forth above. Further
Buyer shall further use its best efforts to cause its other Affiliates and the
Partnerships to independently so release Seller by delivering a written release
in the form set forth above.
6.5 Indemnity. Buyer (and each of the Affiliates who are executing the
---------
Acknowledgment and Agreement-Indemnity set forth below) hereby agrees to
indemnify and defend, and shall use its best efforts to cause its other
Affiliates, the Companies and Partnerships to indemnify and defend, Seller for,
from and against all losses, costs (including attorneys' fees), claims, expenses
and liabilities incurred in connection with the SCE Litigation, or the Released
Claims or in connection with claims made by any Representative, partner,
subsidiary or affiliate of Buyer or any shareholder, member or Representative
thereof, as a result of Seller remaining a named party in the SCE Litigation or
otherwise. The term of this indemnity shall be unlimited; provided, however,
that this indemnity will be ineffective only if and only to the extent that all
of the following have occurred and are continuing: (a) Buyer is not in breach
of the terms of this Agreement (b) Buyer has provided Seller notice of a
material breach of this Agreement and an opportunity to cure, (c) Buyer properly
terminated this Agreement pursuant to Section 11.1 (a) (iv), and (d) Buyer has
obtained a final nonappealable judgment that Seller is in material breach of
this Agreement. Buyer shall cause any transferee of Buyer's (or the Affiliates'
who are executing the Acknowledgment and Agreement-Indemnity set forth below)
direct or indirect interests in the Partnerships or Projects) to independently
so indemnify Seller by delivering a written indemnity in the form and substance
set forth herein. Buyer agrees not to settle and to not permit the other
parties to the SCE Litigation to settle the SCE Litigation in whole or in part
without obtaining a dismissal with prejudice and a general release of Seller and
its Affiliates and Representatives, including a waiver of (S)1542 of the Civil
Code of California.
6.6 Operations. Seller is in the process of transferring all of its
-----------
operating employees, agreements and permits related to the operation of the
Projects to Coso Operating Company, except for certain employees and resource
data and computer systems which it will, prior to Closing, determine to retain
for its other California geothermal facilities ("Retained Operations"). Seller
shall provide Buyer a schedule specifying employees, resource data or computer
systems which are to be deemed Retained Operations on or before the Closing
Date, which shall be reasonably acceptable to Buyer. Seller and Buyer agree to
cooperate fully with each other to
11
<PAGE>
ensure that all rights and obligations with respect to such operating employees,
agreements and permits are transferred or otherwise assumed by Coso Operating
Company prior to the Closing or as soon as possible thereafter. To the extent
any portion of such employees, agreements or permits are not transferred to or
otherwise assumed by Coso Operating Company prior to the Closing Date, Seller
shall, for a reasonable period thereafter, perform, at Buyer's expense, such
transition services as are required to permit the continued right of the
Projects to operate the Projects under the existing agreements and permits, and
if Coso Operating Company continues to be managed by Seller after Closing or
Seller is required to directly provide management or operations oversight for
the Projects after the Closing Date, Buyer shall cause the Partnerships to make
monthly payments to the Seller of the fee and overhead amount as set forth in
the Budget (or a subsequent budget if greater) until such management or
oversight is no longer provided ("Transition Services"). Seller and Buyer also
agree to cooperate with respect to the Retained Operations and any related
transition services to be provided by Buyer to Seller which related services
will be at Seller's cost.
6.7 Bonds and Other Security. Buyer shall use its best efforts to, on or
------------------------
before the Closing Date, assume or replace all bonds, letters of credit,
guarantees or other security, and provide the release of Seller and its
affiliates, with respect to all agreements, permits, licenses, and approvals
provided by Seller or its affiliates related to the Partnership, Partnership
Interests or Projects including, without limitation, the CIAC tax indemnity and
guarantee agreements with Southern California Edison Company and other
obligations listed on Schedule 6.7. To the extent Buyer has not provided such
replacements, assumptions and releases by the Closing Date, Buyer shall do so as
soon as possible following Closing and Buyer and the Affiliates executing the
Acknowledgment and Agreement-Indemnity set forth below shall fully indemnify
Seller and its Affiliates from all liabilities, costs and expenses in connection
therewith.
6.8 FERC Recertification. In connection with this Agreement, Buyer agree
--------------------
to recertify the facility utilizing the self-certification procedure at its own
cost and expense and agrees that such recertification shall not be a condition
to Closing.
6.9 Termination Rights. If Seller becomes entitled to the Termination
------------------
Rights pursuant to Section 11 (b) (ii), (w) Buyer shall forfeit all rights
hereunder including its rights to the Deposit, or if the Deposit has not been
delivered, forfeit its rights hereunder and pay over to Seller the sum of
$5,000,000 in immediately available funds, (x) Buyer shall immediately pay to
Seller Five Million U.S. Dollars (US$5,000,000) in immediately payable funds
into such account as directed by the Seller as liquidated damages and (y) Seller
or its designee shall be entitled to receive a monthly payment equal to the
monthly operator fees and overheads and all of its current management committee
fees as currently set forth in the Budget (including the Base Fee therein) and
such payment shall escalate from year to year on January 1 of each year (with
the first adjustment effective January 1, 2000) based on the change in the
Consumer Price Index, and (z) Seller shall cause its Affiliates to waive any
right of first refusal it may claim to have with respect to Seller's interests
in the Partnerships and shall provide any consent reasonably required to
facilitate the transfer of Seller's direct or indirect interests in the
Partnerships (which
12
<PAGE>
waiver and agreement to consent shall not be assignable and shall expire one
year from the date of this Agreement). Buyer shall cause the respective
Partnership management committees to take such actions as are required to
approve the Budget; provided, however, that if the release provided in Section
6.4 and the indemnity provided in Section 6.5 are ineffective pursuant to the
express provisions thereof, such action shall be null and void.
6.10 Commitment to Close. Buyer shall close on the acquisition of the
-------------------
Stock and Partnership Interests on or before February 25, 1999, unless any
consents required under the Coso Funding Corp. financing arrangements have not
been received or any approval, notice or passage of time required by the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, has not been
received; provided, however, that in order for Seller to permit Buyer to obtain
any extension of the Closing Date, Buyer must use its best efforts to obtain all
consents required and close as promptly as possible (pursuant to a schedule
mutually agreed to by January 22, 1999 which has an end date of February 25,
1999), including retaining, or partnering with, an operator acceptable to any
rating agencies or Coso Funding Corp. note or bond holders or letter of credit
bank group, if required to obtain such consents in which case the Closing Date
may be extended by Seller day for day from February 25, 1999 until two business
days after such consents or approvals are received, but in no event shall the
Closing Date be extended beyond May 31, 1999.
6.11 Litigation Obligations. Buyer shall use its best efforts to obtain
----------------------
the exclusion or dismissal with prejudice of Seller or its Representatives from
any dispute, action or litigation, pending or threatened, related in any way to
the Companies, Partnerships or Projects, including obtaining the dismissal with
prejudice of Seller from the SCE Litigation and agree that it will not permit
the SCE Litigation to be settled in whole or in part without the full and
complete release of Seller and its Affiliates and Representatives. Further
Seller agrees that Buyer shall be consulted as to all significant decisions
regarding the SCE Litigation prior to Closing and such decisions shall be
mutual. Seller shall include Buyer's designated litigation counsel in an update
status discussion concerning the SCE litigation on a weekly or such other basis
as the parties hereto may agree. Seller shall provide reasonable cooperation to
Buyer in connection with the SCE Litigation and the defense thereof, including,
without limitation, if not otherwise prohibited or restricted by a protective
order or otherwise by law, the following: providing to Buyer or Buyer's
Representatives reasonable access to originals or copies of any and all
documents in Seller's possession relating to the SCE Litigation and Seller's
defense thereof which are non-privileged or if privileged, constitute documents
created by or for counsel as part of counsel's representation of the
Partnerships; providing Buyer or Buyer's Representatives reasonable access to
all witnesses or other persons under Seller's control that have knowledge of any
matter which is the subject of the SCE Litigation or the defense thereof;
providing to Buyer or Buyer's Representatives reasonable opportunity to discuss,
consult or otherwise communicate with such of Seller's Representatives under
Seller's control that have knowledge pertaining to the SCE Litigation and
Buyer's defense thereof, and otherwise reasonably consult, meet and provide
reasonable assistance in the defense of the SCE Litigation. Buyer agrees to pay
all of Seller's out of pocket and third party costs
13
<PAGE>
in connection with Seller providing such cooperation. Buyer agrees to keep
Seller reasonably informed of significant issues in the litigation and any
decisions which could reasonably be expected to result in indemnity of Seller
hereunder.
6.12 Post 1998 Partnership Distributions; Pay Over Assurance. Seller and
-------------------------------------------------------
Buyer acknowledge and agree that all partnership distributions in respect of the
Stock and Partnership Interests and all Partnership assets and liabilities
(except any intercompany balances between Seller and its affiliates which shall
be extinguished) for the period commencing after December 31, 1998 are
transferred to Buyer according to the terms of this Agreement, and accordingly,
Seller and Buyer agree that if any monies, properties, securities, proceeds or
any other benefits in respect of the interests of the Partnerships or the
Partnership Interests (for the period commencing after December 31, 1998) are
received by Seller or its affiliates, that Seller will immediately notify and
pay over the same to Buyer or to Buyer's nominee, and that if Seller incurs or
pays any costs or liabilities in respect of the Stock, Partnerships, Partnership
Interests or Projects after December 31, 1998, on receipt of notice thereof
Buyer shall promptly pay or reimburse Seller in full. Notwithstanding the
foregoing, the parties expressly agree that all management fees, operating fees,
allocations of overhead and similar costs, expenses and reimbursements made in
accordance with the Budget and or, payable or accrued prior to Closing and not
otherwise paid or reimbursed in the ordinary course shall be paid to Seller by
the Companies and Partnerships at the Closing or within 30 days after Closing if
amounts are not determinable at Closing.
6.13 Taxes. All Taxes which are or may become due in respect of the
-----
Companies or their respective operations and assets, as reflected on Tax Returns
to be filed by the Seller for tax periods ending prior to January 1, 1999 will
be fully paid and discharged by Seller; provided, that it is understood that
Seller makes no representation or warranty in respect of Tax Returns or Taxes
due and payable by the Partnerships or entities in which it holds a partnership
interest and shall have no liability hereunder for any inaccuracy of such Tax
Returns or any failure of the Partnerships to pay such Taxes, and provided
further that, (i) Seller shall not be obligated to pay and discharge the
Companies' or Seller's allocable share of Taxes (including any adjustment to tax
credits or depletion allowance), arising in respect of the Partnerships or
Partnership Interests for tax periods ending prior to January 1, 1999, resulting
from any adjustments to Taxes arising from tax audits or similar proceedings and
the Companies' or Seller's allocable share of costs and expenses in connection
therewith, and (ii) Seller shall not be obligated to pay and discharge the
Companies' or Seller's allocable share of Taxes (including any adjustment to tax
credits or depletion allowance), arising in respect of the Partnerships or
Partnership Interests for any short period ending on or before the date of the
Closing and to the extent such Taxes under clause (i) or (ii) above are incurred
by Seller, Buyer shall immediately reimburse Seller for any costs for or related
to such Taxes which are in excess of the amount of Taxes which would have arisen
from the transactions contemplated herein that Seller would have paid if such
Taxes were not so incurred and (b) to the extent such Taxes under clause (i) and
(ii) result in a reduction in the amount of Taxes arising from the transactions
contemplated herein that Seller would have paid if such Taxes were not so
incurred, Seller shall immediately reimburse Buyer for any such Taxes. If Seller
14
<PAGE>
receives a refund of any Taxes of the Companies for any tax period ending on or
prior to the Closing, then Seller shall immediately pay such refunded Taxes to
Buyer reduced by the amount of any increase in the amount of Taxes arising from
the transaction contemplated herein that Seller will have paid because of such
refunded Taxes. In no event shall Buyer amend any prior year tax return without
Seller's written consent. Upon Closing, Buyer shall be responsible to prepare
and file all Tax Returns and make tax elections with respect to the Companies,
Partnership Interests and Partnerships for tax periods commencing on or ending
after December 31, 1998 (except for any such return that must be filed as part
of Sellers consolidated return), but shall cooperate with and obtain Seller's
prior concurrence for any Tax Returns to be filed with respect to any period
commencing prior to Closing.
6.14 Exclusivity. Following execution hereof and prior to Closing or
-----------
notice of termination of this Agreement, Seller agrees not to negotiate with any
third parties regarding acquisition of an interest in the Projects.
6.15 Limited Release of Buyer. Seller for itself and on behalf of its
------------------------
Representatives, Affiliates, successors and assigns, for good and sufficient
consideration, the receipt and adequacy of which is hereby acknowledged, hereby
releases, remises, forgives and forever discharges Buyer and its Affiliates and
Representatives from any and all claims, demands, debts, losses, obligations,
liabilities, costs, expenses, sums of money, accounts, reckonings, suits, rights
of action and causes of action which Seller has against Buyer and its
Representatives and Affiliates with respect to Buyer and its Representatives and
Affiliates actions in their capacity as members of the respective management
committees of the Partnerships; provided, however, that notwithstanding the
foregoing, nothing in this Section 6.15 shall restrict, impair, diminish,
reduce, affect, or otherwise modify the general release of the Releasees set
forth in Section 6.4 of this Agreement or the indemnification provided Seller
pursuant to Sections 6.5, 6.7 or 9.3 and all provisions in this Agreement with
respect to such releases and indemnification shall be deemed to supersede and
modify this Section 6.15 to the extent of any conflict.
ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS
----------------------------------
The obligations of Seller to consummate the transactions provided for
hereby are subject to the satisfaction, on or prior to the Closing Date, of each
of the following conditions, any of which may be waived by Buyer:
7.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Buyer contained in this Agreement shall be materially true and
correct at and as of the date of this Agreement and at and as of the Closing
Date as if made thereon, and Buyer shall have performed and satisfied all
agreements and covenants required hereby to be performed by it on or prior to
the Closing Date, including, without limitation, having delivered to Seller the
Deposit on or before January 22, 1999 and Buyer being prepared to close Closing
Date.
15
<PAGE>
7.2 Consents. All Consents and waivers necessary to the consummation of
--------
the transactions contemplated hereby shall have been obtained, including without
limitation any notice and approval required pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and any other third party
consents (to the extent not waived), including, without limitation, all rating
agency reaffirmations and consents as may be required under the Coso Funding
Corp. and Partnership financing arrangements including the consent of the letter
of credit bank group, if applicable.
7.3 No Proceedings or Litigation. No Action by any governmental authority
----------------------------
or other person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected to (a) materially affect the right or ability of Buyer to
own, possess or transfer the Stock after the Closing, or (b) materially damage
Seller if the transactions contemplated hereunder are consummated. There shall
not be any statute, rule or regulation that makes the purchase and sale of the
Stock contemplated hereby illegal or otherwise prohibited.
7.4 Documents. Buyer has delivered all documents required by Section 3.2
---------
of this Agreement.
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
---------------------------------
The obligations of Buyer to consummate the transactions provided for hereby
are subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions, any of which may be waived by Buyer:
8.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Seller and the Companies contained in this Agreement shall be
materially true and correct at and as of the date of this Agreement and at and
as of the Closing Date, as if made thereon, and Seller and the Companies shall
have performed and satisfied all agreements and covenants required hereby to be
performed by them on or prior to the Closing Date.
8.2 Consents. Any notice and approval required pursuant to the
--------
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (provided
Buyer is not in breach of its obligation under Section 6.10 hereof) any rating
agency reaffirmations and any consent and waiver required under the Coso Funding
Corp. and Partnership financing arrangements, including the consent of the
letter of credit bank group, if applicable shall have been obtained. No other
third party consents shall be a condition to Buyer's performance hereunder.
8.3 Exhibits; Books and Records. Seller shall have delivered to Buyer the
---------------------------
Books and Records referenced in Section 3.2(e).
16
<PAGE>
8.4 Documents. Seller shall have delivered all documents required by
---------
Section 3.2 of this Agreement.
ARTICLE IX
ACTIONS BY BUYER, SELLER AND THE COMPANIES AFTER THE CLOSING
------------------------------------------------------------
9.1 Books and Records; Tax Matters:
------------------------------
(a) Books and Records. Each party agrees that it will cooperate with
-----------------
and make available to the other party, during normal business hours, all Books
and Records and other information retained and remaining in existence after the
Closing which are necessary or useful in connection with any tax inquiry, audit,
investigation or dispute, any litigation or investigation or any other matter
requiring such Books and Records and information for any reasonable business
purpose. The party requesting any such Books and Records and information shall
bear all of the out-of-pocket costs and expenses reasonably incurred in
connection with providing such Books and Records and information. All
information received pursuant to this Section 9.1 shall be subject to the
confidentiality and general release provisions of this Agreement.
(b) Cooperation and Records Retention. Buyer, Seller and the
---------------------------------
Companies shall (i) each provide the others with such assistance as may
reasonably be requested by any of them in connection with the preparation of any
return, audit, or other examination by any taxing authority or judicial or
administrative proceedings relating to liability for Taxes, (ii) each retain and
provide the others with any records or other information that may be reasonably
requested in connection with such return, audit or examination, proceeding or
determination, and (iii) each provide the others with any final determination of
any such audit or examination, proceeding, or determination that affects any
amount required to be shown on any tax return of the others for any period.
Without limiting the generality of the foregoing, Buyer and Seller shall each
retain, until the applicable statutes of limitations have expired, copies of all
Company tax returns, supporting work schedules, and other records or information
that may be relevant to such returns for all tax periods or portions thereof
ending on or before January 1, 1999 and shall not destroy or otherwise dispose
of any such records without first providing the others with a reasonable
opportunity to review and copy the same.
9.2 Survival of Representations, Etc. All statements contained in any
---------------------------------
certificate, document, exhibit or instrument or conveyance delivered by or on
behalf of the parties pursuant to this Agreement or in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the parties hereunder. The representations, warranties, covenants
and agreements (including the indemnity provisions set forth in Section 6.7 and
9.3 hereof) of Buyer and Seller contained herein shall survive the consummation
of the transactions contemplated hereby and the Closing Date for a period of
five years following the Closing Date unless otherwise specified herein.
17
<PAGE>
9.3 Indemnification.
---------------
Each of Buyer and Seller hereby agree to fully indemnify, defend and
hold harmless the other against and in respect of any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, recoveries and
deficiencies, including interest, penalties and reasonable attorneys' fees and
costs of investigation (as the same are incurred), that such other party shall
incur or suffer, which arise, result from, or relate to any inaccuracy in or
breach of, or failure by the indemnifying party to perform any of its
representations, warranties, covenants or promises in this Agreement; provided,
however such indemnity shall not apply to any sum so incurred or suffered to the
extent caused by the indemnified party's breach of such representations,
warranties, covenants or promises. The party to be indemnified shall promptly
notify the other party of the existence of any claim, demand or other matter to
which the other party's indemnification obligations would apply, and shall give
it a reasonable opportunity to defend and control the defense of the same at its
own expense and with counsel of its own selection; provided that the party to be
indemnified shall at all times also have the right to participate fully in the
defense at its own expense. Each party hereto agrees that, to the extent that it
is an indemnified party hereunder, it shall, at no cost to the indemnified party
other than out of pocket costs, provide prior reasonable cooperation to the
indemnifying party in connection with the indemnifying party's defense of any
indemnified matter, including, without limitation, providing such party with
access to any and all reasonably applicable non-privileged documents and
employee witnesses or other persons having knowledge of such indemnified matter
within the indemnified party's control, and providing to the indemnifying party
the reasonable opportunity to discuss, consult or otherwise communicate with any
of the indemnified party's Representatives under its control about the
indemnified matter, provided such communication is made in the presence of the
indemnified party. If a party shall, within a reasonable time after such notice,
fail to defend, the party to be indemnified shall have the right, but not the
obligation, to undertake the defense of, and to compromise or settle (exercising
reasonable business judgment), the claim or other matter on behalf, for the
account, and at the expense and risk of the other party. The indemnifying party
shall not settle any matter for which the indemnified party seeks indemnity
hereunder without the consent of the indemnified party unless such settlement
provides for a reasonably satisfactory release of the indemnified party. Buyer
shall cause any transferee of Buyer's (or the Affiliates' who are executing the
Acknowledgment and Agreement-Indemnity set forth below) direct or indirect
interests in the Partnerships or Projects to independently so release Seller by
delivering a written indemnity in the form set forth above. Further Buyer shall
further use its best efforts to cause its other Affiliates and the Partnerships
to independently so indemnify Seller by delivering a written indemnity in the
form set forth above.
ARTICLE X
SECURITIES LAW
--------------
10.1 Acquisition for Investment. Buyer hereby acknowledges that the
--------------------------
shares of
18
<PAGE>
Stock to be purchased pursuant to the terms of this Agreement shall be acquired
in good faith for investment for its own account and not with a view to a
distribution or resale of any such Stock.
10.2 Legend. Each certificate representing shares of Stock sold pursuant
------
to the provisions hereof, if deemed advisable by the Companies, shall bear the
following legends:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF EXEMPTION THEREFROM UNDER SAID ACT OR THE RULES AND
REGULATIONS PROMULGATED THEREUNDER."
and
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
ARTICLE XI
MISCELLANEOUS
-------------
11.1 Termination and Remedies.
------------------------
(a) Termination. This Agreement may be terminated at any time prior
-----------
to the Closing:
(i) By mutual written consent of Buyer and Seller;
(ii) By Buyer or Seller if the Closing shall not have occurred
on or prior to May 31, 1999; provided, however, that this provision may be
-------- -------
extended by mutual agreement in writing by Buyer and Seller, and provided,
further, that this provision shall not be available to Buyer if Seller has the
right to terminate this Agreement under Subsection (iii) of this Section
11.1(a);
(iii) By Seller, at its option, if there is (x) a material
breach of any representation or warranty set forth herein (including the failure
to deliver the Deposit to Seller on or before January 22, 1999) or of any
covenant or agreement to be complied with or performed by Buyer pursuant to the
terms of this Agreement (including, without limitation, the failure to be ready
to close by the Closing Date) or (y) the failure of a condition set forth in
Article VII to be satisfied (and such condition is not waived in writing by
Seller) on or prior to the Closing Date, or (z) the occurrence of any event
which results
19
<PAGE>
or would result in the failure of a condition set forth in Article VII to be
satisfied on or prior to the Closing Date;
(iv) By Buyer, if there is a material breach by Seller of
(S)3.2(a)(b)(c), 6.2 or 6.14 of this Agreement.
(b) In the Event of Termination. In the event of termination of this
---------------------------
Agreement as permitted by Subsection (a) of this Section 11.1:
(i) The confidentiality and release provisions of this Agreement
and the provisions of Sections 11 and 6.9 shall continue in full force and
effect;
(ii) In the event of a termination by Seller pursuant to Subsection
(iii) (x), (y) or (z) of Section 11.1(a), (and provided that in the case of a
termination pursuant to Subsection (iii)(y) or (z), such termination shall
result from events referenced in Section 7.1), Buyer shall immediately upon
written notice by Seller forfeit its Deposit and pay Seller $5 million as
liquidated damages and Seller shall be entitled to the Termination Rights set
forth in Section 6.9 and Buyer agrees not dispute such payment;
(iii) In, and only in, the event of a termination by Seller solely
for reasons other than a termination that results from a breach of this
Agreement by Buyer, Seller shall refund the Deposit with interest thereon at the
rate of 5 percent per annum to the Buyer; and
(iv) The parties expressly agree that specific performance or other
injunctive relief is not available hereunder and that damages will be the sole
remedy available to a party hereunder.
11.2 Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by any party without the prior written
consent of the other parties; provided, however, that Buyer may, at its
election, direct Seller to transfer all or a portion of the Stock or Partnership
Interests to one or more designees who are affiliates of Buyer rather than to
Buyer in connection with the Closing (but no such transfer shall relieve Buyer
of any of its obligations hereunder). Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, and no other person shall have any
right, benefit or obligation under this Agreement as a third party beneficiary
or otherwise. Buyer shall not transfer any of its interests in the Partnerships
or any interest in the Projects or the assets thereof without causing such
transferee to assume its obligations hereunder, provided, however, that Buyer
may assign its rights acquired pursuant hereto to a lender providing debt
financing necessary for the consummation of the transaction contemplated herein
without such lender assuming Buyer's obligations provided all Buyer's
obligations to Seller and the obligations to Seller of Buyer's Affiliates
executing the Acknowledgment and Release remain in effect.
11.3 Notices. All notices, requests, demands and other communications
-------
which
20
<PAGE>
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by facsimile; the day after it is sent, if sent for
next day delivery to a domestic address by a recognized overnight delivery
service (e.g., Federal Express); and upon receipt, if sent by certified or
----
registered mail, return receipt requested. In each case notice shall be sent
to:
If to Seller addressed to:
CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
Attention: General Counsel
Fax No.: (402) 231-1658
If to Buyer addressed to:
Caithness Energy LLC
41/st/ Floor
1114 Avenue of the Americas
New York, NY 10036-7790
Attention: President
Fax No.: 212-921-9239
with a copy to:
Thomas Harnsberger
Riordan & McKinzie
300 South Grand Ave., 29th Floor
Los Angeles, CA 90071
and to such other places and with such other copies as either party may
designate as to itself by written notice to the others.
11.4 Choice of Law. This Agreement shall be construed, interpreted and
-------------
the rights of the parties determined in accordance with the laws of the State of
California, except with respect to matters of law concerning the internal
corporate affairs of any corporate entity which is a party to or the subject of
this Agreement, and as to those matters the law of the jurisdiction under which
the respective entity derives its powers shall govern.
11.5 Amendments and Waivers. This Agreement may not be amended except by
----------------------
an instrument in writing signed on behalf of each of the parties hereto. No
amendment, supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other
21
<PAGE>
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
11.6 Multiple Counterparts. This Agreement may be executed in one or more
---------------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.7 Expenses. Each of Seller and Buyer shall pay their own legal,
--------
accounting, out-of-pocket and other expenses incident to this Agreement and to
any action taken by or on behalf of such party in preparation for carrying this
Agreement into effect unless expressly provided otherwise herein.
11.8 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
11.9 Captions. The titles, captions or headings of the Articles and
--------
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
11.10 Public Statements and Press Releases. The parties hereto
------------------------------------
covenant and agree that, if either party plans to issue a press release or other
public announcement disclosing the execution of this agreement ("Initial
Release"), it shall provide a copy of such Initial Release to the other party
for review and comment in advance of issuance, provided, that neither party
hereto nor their respective Affiliates shall issue any Initial Release prior to
Buyer's deposit of $5,000,000 on or before January 22, 1999. Following such
Initial Release, Buyer agrees that any future public announcements by it with
respect to the Companies or the business of the Partnerships shall be consistent
with its Initial Release, except as otherwise required by law, and Seller agrees
that Seller's future public announcements will be consistent with its
obligations as a public company.
11.11 Confidential Information. The parties each acknowledge that
------------------------
the Representatives of the parties are aware of and the Books and Records of the
Companies and Partnerships contain confidential and proprietary information
regarding the Companies and Partnerships and the business of the parties and
accordingly, the parties agree that they shall not, on or after the date hereof,
directly or indirectly, make disclosure of such confidential and proprietary
information to any third party except if compelled to do so by subpoena, court
order or similar binding legal process (issued or initiated by an unaffiliated
third party) in which case each party agrees to give the other party adequate
notice in order for such party to seek a protective order or similar protection
and, in connection therewith, each party agrees to reasonably cooperate with the
other party. The parties each agree that, in the event of a breach or
threatened breach of this Section, the other party shall be entitled to
equitable relief, including injunction and specific performance, in addition to
all other remedies available at law or at
22
<PAGE>
equity. For purposes of this Section, confidential and proprietary information
shall not include information which is or becomes generally available to the
public other than through a breach of this Agreement.
11.12 Cumulative Remedies. All rights and remedies of either party
-------------------
hereto are cumulative of each other and of every other right or remedy such
party may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
11.13 Entire Agreement. This Agreement and any other agreements or
----------------
minutes executed pursuant to the terms hereof including, without limitation,
agreements in the form attached as Exhibits hereto, constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof.
11.14 Survival. The covenants contained in Article VI of this Agreement
--------
shall survive Closing and the covenants contained in Sections 6.4, 6.9 and 11.1
shall survive termination of this Agreement and shall be enforceable by the
Buyer and Seller.
[Signatures appear on the following pages]
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalf, by their respective officers thereunto
duly authorized, all as of the day and year first above written.
SELLER: BUYER:
CALENERGY COMPANY, INC., CAITHNESS ENERGY L.L.C.
a Delaware corporation a Delaware limited liability company
BY: /s/ Steven A. McArthur BY: /s/ James D. Bishop Jr.
---------------------------- --------------------------------
Title: Executive Vice President Title:
------------------------- -----------------------------
CAITHNESS ACQUISITION COMPANY,
LLC
a Delaware limited liability company
BY: /s/ James D. Bishop Jr.
--------------------------------
BY: ____________________________
Title: _________________________
24
<PAGE>
Acknowledgment and Agreement - Release
--------------------------------------
The undersigned hereby acknowledge and agree to be bound by the terms of
Sections 6.4 and 11.13 of the foregoing Purchase Agreement to the same extent as
the Buyer including, without limitation, (i) the general release, (ii) the
waiver of Section 1542 of the Civil Code of California and hereby covenant to
take any and all actions and execute any further documents reasonably requested
by Seller to implement and enforce such Sections.
CAITHNESS RESOURCES, INC. CAITHNESS CORPORATION
a Delaware corporation a Delaware corporation
BY: /s/ James D Bishop Jr. BY: /s/ James D Bishop Jr.
------------------------------ ----------------------------
Title: Title:
--------------------------- -------------------------
CAITHNESS POWER L.L.C.
a Delaware limited liability company
BY: /s/ James D Bishop Jr.
------------------------------
Title: /s/ James D Bishop Sr.
--------------------------- -------------------------------
JAMES BISHOP, SR.,
25
<PAGE>
/s/ James Bishop, Jr.
--------------------------
JAMES BISHOP, JR.
CAITHNESS CEA GEOTHERMAL. L.P.,
a Delaware limited partnership,
a general partner
By: CAITHNESS POWER, L.L.C.,
a Delaware limited liability company,
a general partner
By: CAITHNESS ENERGY, L.L.C.
a Delaware limited liability company,
its managing member
BY: /s/ James D. Bishop, Jr.
----------------------------------
Name: James D. Bishop, Jr.
Title:
26
<PAGE>
Acknowledgment and Agreement - Indemnity
----------------------------------------
The undersigned hereby acknowledge and agree to be bound by the terms of
Sections 2.2, 6.4, 6.5, 6.9, 6.11 and 11.13 of the foregoing Purchase Agreement
to the same extent as the Buyer including, without limitation, (i) the general
release, (ii) the waiver of Section 1542 of the Civil Code of California and
(iii) indemnity obligations and hereby covenant to take any and all actions and
execute any further documents reasonably requested by Seller to implement and
enforce such Section.
BUYER:
CAITHNESS RESOURCES, INC. CAITHNESS CORPORATION
a Delaware corporation a Delaware corporation
BY: /s/James D. Bishop Jr. BY: /s/ James D. Bishop Jr.
---------------------------- ----------------------------
Title: _________________________ Title: _________________________
CAITHNESS POWER L.L.C.
a Delaware limited liability company
BY: /s/ James D. Bishop Jr.
----------------------------
Title: _________________________
CHINA LAKE OPERATING COMPANY COSO HOTSPRINGS INTERMOUNTAIN
a Delaware corporation POWER, INC.
a Delaware corporation
BY: /s/ Steven A. McArthur BY: Steven A. McArthur
---------------------------- ----------------------------
Title: Executive V.P. Title: Executive V.P.
------------------------- -------------------------
COSO TECHNOLOGY CORPORATION
a Delaware corporation
BY: /s/ Steven A. McArthur
----------------------------
Title: Executive V.P.
-------------------------
27
<PAGE>
CAITHNESS CEA GEOTHERMAL. L.P.,
a Delaware limited partnership,
a general partner
By: CAITHNESS POWER, L.L.C.,
a Delaware limited liability company,
a general partner
By: CAITHNESS ENERGY, L.L.C.
a Delaware limited liability company,
its managing member
BY: /s/ James D. Bishop, Jr.
--------------------------------
Name: James D. Bishop Jr.
Title:
28
<PAGE>
Exhibit 10.62
AGREEMENT CONCERNING CONSIDERATION
This Agreement concerning Consideration is made by and among Caithness
Energy LLC, Caithness Acquisition Company (collectively the "Buyer Obligors"),
on the one hand, and CalEnergy Company, Inc. ("CalEnergy"), on the other hand.
Where as, the Buyer Obligors and CalEnergy are parties to that certain
Purchase Agreement of even date herewith ("Purchase Agreement").
Now therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Payment. Upon the earlier the settlement, final judgment or other
-------
dismissal of the SCE Litigation, the Buyer Obligors shall pay CalEnergy an
amount (the "Payment Amount") as calculated herein.
2. Payment Amount. The Payment Amount shall be calculated as follows:
--------------
Payment Amount = $5 million X Payment Factor
An amount equal to the Net Damages
Payment Factor = 1 - (but not in excess of $10 million).
----------------------------------
$10 million
; but in no event shall the Payment Factor exceed 1 or be less than 0.
3. Net Damages. Net Damages shall be equal to the amount owing by the
-----------
Buyer Obligors, Companies, Partnerships or their Affiliates and partners to
Southern California Edison Company ("Edison") pursuant to an adverse final,
nonappealable judgment or settlement pursuant to the SCE Litigation net of all
payments and the fair value of all other benefits received or to be received by
the Buyer Obligors, the Companies, the Partnerships or their Affiliates and
partners arising out of or related in any way to the SCE Litigation. For
purposes of the forgoing, payments received by the Partnerships from Edison
solely for the Partnerships claims related to the escalation of the fixed price
energy payment schedule for 1999 and 2000 from 14.6 cents per kWh to 15.6 cents
per kWh shall be excluded from the benefits received up to, but not in excess
of, $5,700,000.
4. Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by any party without the prior written
consent of the other parties. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, and no other person shall have any right,
benefit or obligation under this Agreement as a third party beneficiary or
otherwise. Buyer shall not transfer any of its interests in the
1
<PAGE>
Partnerships without causing such transferee to assume its obligations
hereunder.
5. Notices. All notices, requests, demands and other communications which
-------
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by facsimile; the day after it is sent, if sent for
next day delivery to a domestic address by a recognized overnight delivery
service (e.g., Federal Express); and upon receipt, if sent by certified or
----
registered mail, return receipt requested. In each case notice shall be sent
to:
If to CalEnergy addressed to:
CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
Attention: General Counsel
Fax No.: (402) 231-1658
If to Buyer Obligors addressed to:
Caithness Energy LLC
41st Floor
1114 Avenue of the Americas
New York, NY 10036-7790
Attention: President
Fax No.: 212-921-9239
with copy to:
Thomas Harnsberger, Esq.
Riordan & McKinzie
300 South Grand Avenue
29th Floor
Los Angeles, CA 90071
Fax No.: 213-229-8550
and to such other places and with such other copies as either party may
designate as to itself by written notice to the others.
6. Choice of Law. This Agreement shall be construed, interpreted and the
-------------
rights of the parties determined in accordance with the laws of the State of
California, except with respect to matters of law concerning the internal
corporate affairs of any corporate entity which is a party to or the subject of
this Agreement, and as to those matters the law of the jurisdiction under which
the respective entity derives its powers shall govern.
2
<PAGE>
7. Amendments and Waivers. This Agreement may not be amended except by an
----------------------
instrument in writing signed on behalf of each of the parties hereto. No
amendment, supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any
of the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
8. Multiple Counterparts. This Agreement may be executed in one or more
---------------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9. Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
10. Captions. The titles, captions or headings of the Articles and
--------
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
11. Cumulative Remedies. All rights and remedies of either party
-------------------
hereto are cumulative of each other and of every other right or remedy such
party may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
12. Entire Agreement. This Agreement, Purchase Agreement and any
----------------
other agreements or minutes executed pursuant to the terms of the Purchase
Agreement including, without limitation, agreements in the form attached as
Exhibits to the Purchase Agreement, constitute the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof.
13. Survival. The covenants contained in this Agreement shall survive
--------
Closing and shall be enforceable by the Buyer Obligors and CalEnergy.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalf, by their respective officers thereunto
duly authorized, all as of the day and year first above written.
CalEnergy
CALENERGY COMPANY, INC.,
a Delaware corporation
BY: /s/ Steven A. McArthur
-----------------------------
Title: Executive Vice President
--------------------------
Buyer Obligors
CAITHNESS ENERGY L.L.C.
a Delaware limited liability company
BY: /s/ Christopher T. McCallion
-----------------------------
Title: _________________________
CAITHNESS ACQUISITION COMPANY,
LLC
a Delaware limited liability company
BY: /s/ Christopher T. McCallion
-----------------------------
Title: _________________________
4
<PAGE>
Exhibit 10.63
FUTURE REVENUE AGREEMENT
This Future Revenue Agreement ("Agreement") is made by and between
Caithness Energy LLC, Caithness Acquisition Company, (collectively "Caithness
Parties") and CalEnergy Company, Inc. ("CalEnergy").
Whereas, Caithness Parties and CalEnergy have entered into a Purchase
Agreement of even date herewith ("Purchase Agreement"); and
Whereas, there are certain potential opportunities for energy sales to
the U.S. Government related to the Projects, as defined in the Purchase
Agreement.
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Caithness Parties and CalEnergy
agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein shall
-----------
have the meaning set forth in the Purchase Agreement; provided, however, that as
used herein, the Phrase "Projects or expansions thereof" include, without
limitation, any facilities related to in any way to the geothermal resources
currently or in the future held by or for the benefit of the Partnerships or
Partnership Interests.
2. Contingent Payments. Buyer agrees that to the extent it, directly
-------------------
or indirectly, in respect of the Projects or expansions thereof, at any time in
the future enters into a power sales, steam exchange, energy conversion,
geothermal lease, or similar agreement or arrangement extracting economic value
from the Projects or expansions thereof or the related geothermal resources
(whether alone or with partners or third party participation) with the U.S.
Government or any agency or department thereof (including, without limitation,
the Department of the Navy (collectively, the "Government")) in any way related
to the generation, consumption or sale of electricity sold to, in conjunction
with, for the benefit of or through the Government other than an extension,
amendment, renewal or replacement of Contract No. N62474-79-C-5382 dated
December 6, 1979, as amended and assigned, between China Lake Joint Venture and
the United States Department of Navy ("Navy Contract") or Geothermal Resources
Lease No. CA-11402 with the United States of America, acting through the
Department of the Interior ("BLM Lease") provided the electricity is not sold
to, in conjunction with, for the benefit of or through the Government (referred
to herein as the "New Navy Contract"); then Buyer shall pay or cause the
Companies or the Partnerships to pay to Seller a share of revenue in cash equal
to one-seventh of the gross revenues paid by (or other value attributable to any
such agreement with) the U.S. Government or any agency or department thereof in
connection with such agreement or arrangement.
3. Noncompete. CalEnergy agrees that neither it nor its Affiliates
----------
will solicit, other than through public tenders for energy sales, agreements for
the sale in California of electricity (i) to the U.S. Government through the
Department of the Navy for a period
1
<PAGE>
of 5 years after the date hereof from geothermal resources, or (ii) to any
person from geothermal resources produced from the Coso KGRA for a period of
five (5) years after the date hereof.
4. Term. This Agreement shall expire on the date five years after
----
the Closing Date; provided, however, that if a New Navy Contract has been
entered into by the Caithness Parties, the Partnerships or their Affiliates,
this Agreement shall automatically extend until the expiration of the term of
any New Navy Contract or any renewal, extension or replacement thereof.
5. Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by any party without the prior written
consent of the other parties. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, and no other person shall have any right,
benefit or obligation under this Agreement as a third party beneficiary or
otherwise. Buyer shall not transfer any of its direct or indirect interests in
the Partnerships without causing such transferee to assume its obligations
hereunder.
6. Notices. All notices, requests, demands and other communications
-------
which are required or may be given under this Agreement shall be in
writing and shall be deemed to have been duly given when received if personally
delivered; when transmitted if transmitted by facsimile; the day after it is
sent, if sent for next day delivery to a domestic address by a recognized
overnight delivery service (e.g., Federal Express); and upon receipt, if sent by
---
certified or registered mail, return receipt requested. In each case notice
shall be sent to:
If to CalEnergy addressed to:
CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
Attention: General Counsel
Fax No.: (402) 231-1658
If to the Caithness Parties addressed to:
Caithness Energy LLC
41st Floor
1114 Avenue of the Americas
New York, NY 10036-7790
Attention: President
Fax No.: 212-921-9239
with copy to:
2
<PAGE>
Thomas Harnsberger, Esq.
Riordan & McKinzie
300 South Grand Avenue
29th Floor
Los Angeles, CA 90071
Fax No.: 213-229-8550
and to such other places and with such other copies as either party may
designate as to itself by written notice to the others.
7. Choice of Law. This Agreement shall be construed, interpreted and
-------------
the rights of the parties determined in accordance with the laws of the State of
California, except with respect to matters of law concerning the internal
corporate affairs of any corporate entity which is a party to or the subject of
this Agreement, and as to those matters the law of the jurisdiction under which
the respective entity derives its powers shall govern.
8. Amendments and Waivers. This Agreement may not be amended except
----------------------
by an instrument in writing signed on behalf of each of the parties hereto. No
amendment, supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
9. Multiple Counterparts. This Agreement may be executed in one or
---------------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10. Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
11. Captions. The titles, captions or headings of the Articles and
--------
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
12. Cumulative Remedies. All rights and remedies of either party
-------------------
hereto are cumulative of each other and of every other right or remedy such
party may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
13. Entire Agreement. This Agreement, the Purchase Agreement and
----------------
any other agreements or minutes executed pursuant to the terms of the Purchase
Agreement
3
<PAGE>
including, without limitation, agreements in the form attached as Exhibits to
the Purchase Agreement, constitute the entire agreement and understanding of the
parties hereto with respect to the subject matter hereof.
14. Survival. The covenants contained in this Agreement shall survive
--------
Closing and shall be enforceable by the Caithness Parties and CalEnergy.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed on their respective behalf, by their respective officers
thereunto duly authorized, all as of the day and year first above written.
CALENERGY
CALENERGY COMPANY, INC.,
a Delaware corporation
BY: /s/ Steven A. McArthur
------------------------------
Title: Executive V.P.
---------------------------
CAITHNESS PARTIES
CAITHNESS ENERGY L.L.C.
a Delaware limited liability company
BY: /s/ Christopher T. McCallion
------------------------------
Title: __________________________
CAITHNESS ACQUISITION COMPANY,
LLC
a Delaware limited liability company
BY: /s/ Christopher T. McCallion
------------------------------
Title: __________________________
4
<PAGE>
Exhibit 10.65
Acknowledgment and Agreement -- Indemnity
-----------------------------------------
The undersigned hereby acknowledge and agree to be bound by the terms of
Sections 2.2, 6.4, 6.5, 6.9, 6.11 and 11.13 of the Purchase Agreement, dated
January 16, 1999 by and among Caithness Energy, L.L.C., Caithness Acquisition
Company, LLC, and CalEnergy Company, Inc., to the same extent as the Buyer named
therein including, without limitation, (i) the general release, (ii) the waiver
of Section 1542 of the Civil Code of California and hereby covenant to take any
and all actions and execute any further documents reasonably requested by Seller
named therein to implement and enforce such Sections.
Dated May 28, 1999 COSO FINANCE PARTNERS,
a California general partners
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partnership
By: /s/ Christopher T. McCallion
---------------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
--------------------------------
Christopher T. McCallion
Executive Vice President
New CLOC Company, LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
-------------------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
ESCA, LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
-------------------------------------
Christopher T. McCallion
Executive Vice President
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
---------------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
--------------------------------
Christopher T. McCallion
Executive Vice President
New CHIP Company, LLC,
A Delaware limited liability company
By: /s/ Christopher T. McCallion
-------------------------------------
Christopher T. McCallion
Executive Vice President
Caithness Coso Holdings, LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
-------------------------------------
Christopher T. McCallion
Executive Vice President
2
<PAGE>
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
--------------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
--------------------------------
Christopher T. McCallion
Executive Vice President
New CTC Company, LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
-------------------------------------
Christopher T. McCallion
Executive Vice President
Caithness Navy II Group, LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
-------------------------------------
Christopher T. McCallion
Executive Vice President
3
<PAGE>
Exhibit 10.66
Acknowledgment and Agreement -- Release
---------------------------------------
The undersigned hereby acknowledge and agree to be bound by the terms of
Sections 6.4 and 11.13 of the Purchase Agreement, dated January 16, 1999 by and
among Caithness Energy, L.L.C., Caithness Acquisition Company, LLC, and
CalEnergy Company, Inc., to the same extent as the Buyer named therein
including, without limitation, (i) the general release, (ii) the waiver of
Section 1542 of the Civil Code of California and hereby covenant to take any and
all actions and execute any further documents reasonably requested by Seller
named therein to implement and enforce such Sections.
Dated May 28, 1999 COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
New CLOC Company, LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
<PAGE>
ESCA, LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
New CHIP Company, LLC,
A Delaware limited liability company
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
Caithness Coso Holdings, LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
2
<PAGE>
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
New CTC Company, LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
Caithness Navy II Group, LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
3
<PAGE>
Exhibit 10.68
SCE STANDARD CONTRACT
LONG TERM POWER PURCHASE
POWER PURCHASE CONTRACT
BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY
AND
CHINA LAKE JOINT VENTURE
DOCUMENT NO.: 2126C
EFFECTIVE DATE: September 7, 1983
REVISED: May 4, 1984
<PAGE>
1. Project Summary
This Contract is entered into between Southern California Edison Company
("Edison") and China Lake Joint Venture, A Joint Venture between California
Energy Company, Inc. and Caithness Geothermal 1980, Ltd. ("Seller"). Seller is
willing to construct, own, and operate a Qualifying Facility and sell electric
power to Edison and Edison is willing to purchase electric power delivered by
Seller to Edison at the Point of Interconnection pursuant to the terms and
conditions set forth as follows:
1.1 All Notices shall be sent to Seller at the following address:
California Energy Company, Inc.
3333 Mendocino Avenue, Suite 100
Santa Rosa, CA 95401
1.2 Seller's Generating Facility:
a. Nameplate Rating: 79,500 kW.
b. Location: Naval Weapons Center-China Lake, CA
c. Type (Check One):
__Cogeneration Facility
X Small Power Production Facility
d. Delivery of power to Edison at a nominal 115,000 volts.
e. Seller shall commence construction of the Generating Facility by August 1,
1984.
1.3 Edison Customer service District: Ridgecrest District
510 S. China Lake Blvd.
Ridgecrest, CA 93555
Phone: (714) 375-1552
1.4 Location of Edison operating Switching Center:
Lugo Substation
6655 Escondido Street
Hesperia, CA
1.5 Contract Capacity: Phase 1 29,000 kW
Phase 2 23,000 kW
<PAGE>
Phase 3 23,000 kW
TOTAL 75,000 kW
1.5.1 Estimated as-available capacity: 0 kW.
1.6 Expected annual production: 591,300,000 kWh.
1.7 Expected Firm Operation for each phase:
Phase 1 01-1-86
Phase 2 06-30-86
Phase 3 12-31-86
1.8 Contract Term: 24 years
1.9 operating options pursuant to Section 5: (Check One)
__Operating Option I. Entire Generator output dedicated to Edison. No electric
--
service or standby service required.
X Operating option II, Entire Generator output dedicated to Edison with separate
- -
electric service required.
a. Electric service Tariff Schedule No. TOU-8 pursuant to Section 10.2.
b. Contract demand 0 kW.
-
___Operating Option III. Excess generator output dedicated to Edison with Seller
serving own load.
a. Electric service Tariff Schedule No.__ pursuant to Section 10.2.
b. Contract demand _____ kW.
c. Standby Demand ______________ kW pursuant to Section 10.2.
d. Maximum electrical requirements expected __kW.
e. Standby electric service Tariff Schedule No._____ pursuant to Section 10.2.
f. Minimum monthly charge for standby service ___.
<PAGE>
1.10 Interconnection Facilities Agreement pursuant to Section 6 shall be: (Check
One)
____ - Added Facilities Basis (Appendix A.1)
- -___ Capital Contribution Basis (Appendix A.2)
-X Seller Owned and Operated Basis (Appendix A.3)
- -----
1.11 The Capacity Payment Option selected by Seller pursuant to Section 9.1
shall be: (Check one)
____ Option A - As-available capacity based upon:
____ Standard Offer No. 1 Capacity Payment Schedule, or
____ Forecast of Annual As-Available Capacity Payment Schedule. The as-available
capacity price (first year): $ kW-yr.
X Option B - Firm Capacity (check one)
- -
X Standard offer No. 2 Capacity Payment Schedule in effect at time of Contract
- -
execution,
Standard Offer No. 2 Capacity Payment Schedule in effect at time of Firm
operation of first generating unit. Contract Capacity Price: $150.20/kW-yr.
(Firm capacity).
1.12 The Energy Payment Option selected by Seller pursuant to Section 9.2 shall
be: (Check One)
X Option 1 - Forecast of Annual Marginal Cost of Energy in effect at date
- -----
of execution of this Contract. (Appendix B)
____ Option 2 - Levelized Forecast of Marginal Cost of Energy in effect at date
of execution of this Contract. Levelized Forecast for expected date of Firm
Operation is ___ (c)/kWh. If Seller's Generating Facility is an oil/natural gas
fueled cogenerator, Seller may' not select Option 2.
For the energy payment refund pursuant to Section 9.5 under Option 2, Edison's
Incremental Cost of Capital is ____%. Seller may change once between Options 1
and 2, provided Seller delivers written notice of such change at least 90 days
prior to the date of Firm Operation.
For Option 1 or 2, Seller elects to receive the following percentages in 20%
increments, the total of which shall equal 100%:
100 Percent of Forecast of Marginal Cost of Energy (Annual or Levelized), not
- ----
to exceed 20% of the annual forecast for oil/natural gas fueled cogenerators,
and
<PAGE>
_____ Percent of Edison's published avoided cost of energy based on Edison's
full avoided operating costs as updated periodically and accepted by the
Commission.
1.13 Metering Location (Check one)
Seller elects metering location pursuant to Section 8 as follows:
_____ Edison's side of the Interconnection Facilities
X Seller's side, of the Interconnection Facilities. Loss compensation
- ------
factor is equal to (to be determined), pursuant to Section 8.3.
July 8, 1987 Wayne Petzer indicated no transformer to be used, project to be
directly connected to 115 kV system, therefore no transformer losses associated
with this project. --June Sutherland
General Terms & Conditions
2. Definitions
When used with initial capitalizations, whether in the singular or in the
plural, the following terms shall have the following meanings:
2.1 Adjusted Capacity Price: The $/kW-yr capacity purchase price based on the
Capacity Payment Schedule in effect at time of Contract execution for the time
period beginning on the date of Firm operation for the first generating unit and
ending on the date of termination or reduction of Contract Capacity under
Capacity Payment Option B.
2.2 Appendix A.l: Interconnection Facilities Agreement -- Added Facilities Basis
2.3 Appendix A.2: Interconnection Facilities Agreement
Capital Contribution Basis
2.4 Appendix A.3: Interconnection Facilities Agreement -- Seller Owned and
Operated Basis
2.5 Appendix B: Forecast of Annual Marginal Cost of Energy
2.6 Capacity Payment Schedule(s): Published capacity payment schedules as
authorized by the Commission for as-available or firm capacity.
2.7 Cogeneration Facility: The facility and equipment which sequentially
generate thermal and electrical energy as defined in Title 18, Code of Federal
Regulations, Section 292.202.
2.8 Commission: The Public Utilities Commission of the State of California.
<PAGE>
2.9 Contract: This document and Appendices, as amended from time to time.
2.10 Contract Capacity: The electric power producing capability of the
Generating Facility which is committed to Edison.
2.11 Contract Capacity Price: The capacity purchase price from the Capacity
Payment Schedule approved by the Commission for Capacity Payment Option D.
2.12 Contract Term : Period in years commencing with date of Firm Operation for
the first generating unit(s) during which Edison shall purchase electric power
from Seller.
2.13 Current Capacity Price: The $/KW-yr capacity price provided in the Capacity
Payment Schedule determined by the year of termination or reduction of Contract
Capacity and the number of years from such termination or reduction to the
expiration of the Contract Term for Capacity Payment Option B.
2.14 Edison: The Southern California Edison Company.
2.15 Edison Electric System Integrity: The state of operation of Edison's
electric system in a manner which is deemed to minimize the risk of injury to
persons and/or property and enables Edison to provide adequate and reliable
electric service to its customers.
2.16 Emergency: A condition or situation which in Edison's sole judgment affects
Edison Electric System Integrity.
2.17 Energy: Kilowatthours generated by the Generating Facility which are
purchased by Edison at the Point of Interconnection.
2.18 Firm Operation: The date agreed on by the Parties on which each generating
unit(s) of the Generating Facility is determined to be a reliable source of
generation and on which such unit can be reasonably expected to operate
continuously at its effective rating (expressed in KW).
2.19 First Period: The period of the Contract Term specified in Section 3.1.
2.20 Forced Outage: Any outage other than a scheduled outage of the Generating
Facility that fully or partially curtails its electrical output.
2.21 Generating Facility: All of Seller's generators, together with all
protective and other associated equipment and improvements, necessary to produce
electrical power at Seller's Facility excluding associated land, land rights,
and interests in land.
2.22 Generator: The generators and associated prime mover(s), which are a part
of the Generating Facility.
<PAGE>
2.23 Interconnection Facilities: Those protection, metering, electric line(s),
and other facilities required in Edison's sole judgment to permit an electrical
interface between Edison's system and the Generating Facility in accordance with
Edison's Tariff Rule No. 21 titled Cogeneration and Small Power Production
Interconnection Standards filed with the Commission.
2.24 Interconnection Facilities Agreement: That document which is specified in
Section 1.10 and is attached hereto.
2.25 KVAR: Reactive kilovolt-ampere, a unit of measure of reactive power.
2.26 Operate: To provide the engineering, purchasing, repair, supervision,
training, inspection, testing, protection, operation, use, management,
replacement, retirement, reconstruction, and maintenance of and for the
Generating Facility in accordance with applicable California utility standards
and good engineering practices.
2.27 Operating Representatives: Individuals appointed by each Party for the
purpose of securing effective cooperation and interchange of information between
the Parties in connection with administration and technical matters related to
this Contract.
2.28 Parties: Edison and Seller.
2.29 Party: Edison or Seller.
2.30 Peak Months: Those months which the Edison annual system peak demand could
occur. Currently, but subject to change with notice, the peak months for the
Edison system are June, July, August, and September.
2.31 Point of Interconnection: The point where the transfer of electrical energy
between Edison and Seller takes place.
2.32 Project: The Generating Facility and Interconnection Facilities required to
permit operation of Seller's Generator in parallel with Edison's electric
system.
2.33 Protective Apparatus: That equipment and apparatus installed by Seller
and/or Edison pursuant to Section-4.2.
2.34 Qualifying Facility: cogeneration or Small Power Production Facility which
meets the criteria as defined in Title 18, Code of Federal Regulations, Section
292.201 through 292.207.
2.35 Second Period: The period of the Contract Term specified in Section 3.2.
2.36 Seller: The Party identified in Section 1.0.
2.37 Seller's Facility: The premises and equipment of Seller located as
specified in Section 1.2.
<PAGE>
2.38 Small Power Production Facility: The facilities and equipment which use
biomass, waste, or Renewable Resources, including wind, solar, geothermal, and
water, to produce electrical energy as defined in Title 18, Code of Federal
Regulations, Section 292.201 through 292.207.
2.39 Standby Demand: Seller's electrical load requirement that Edison is
expected to serve when Seller's Generating Facility is not available.
2.40 Summer Period: Defined in Edison's Tariff Schedule No. TOU-8 as now in
effect or as may hereafter be authorized by the Commission.
2.41 Tariff Schedule No. TOU-8: Edison's time-of-use energy tariff for electric
service exceeding 500 kW, as now in effect or as may hereafter be authorized by
the Commission.
2.42 Uncontrollable Forces: Any occurrence beyond the control of a Party which
causes that Party to be unable to perform its obligations hereunder and which a
Party has been unable to overcome by the exercise of due diligence, including
but not limited to flood, drought, earthquake, storm, fire, pestilence,
lightning and other natural catastrophes, epidemic, war, riot, civil disturbance
or disobedience, strike, labor dispute, action or inaction of legislative,
judicial, or regulatory, agencies, or other proper authority, which may conflict
with the terms of this Contract, or failure, threat of failure or sabotage of
facilities which have been maintained in accordance with good engineering and
operating practices in California.
2.43 Winter Period: Defined in Edison's Tariff Schedule No. TOU-8 as now in
effect or as may hereafter be authorized by the Commission.
3. Term
This Contract shall be effective upon execution by the Parties and shall remain
effective until either Party gives 90 days prior written notice of termination
to the, other Party, except that such notice of termination shall not be
effective to terminate this Contract prior to expiration of the Contract Term
specified in Section 1.8.
3.1 The First Period of the Contract Term shall commence upon date of Firm
Operation but not later than 5 years from the date of execution of this
Contract.
a. If the Contract Term specified in Section 1.8 is 15 years, the First Period
of the Contract Term shall be for 5 years.
b. If the Contract Term specified in Section 1.8 is 20 years or greater, the
First Period of the Contract Term shall be for 10 years.
3.2 The Second Period of the Contract Term shall commence upon expiration of the
First Period and shall continue for the remainder of the Contract Terri.
<PAGE>
4. Generating Facility
4.1 Ownership
4.1.1 The Generating Facility shall be owned by Seller.
4.1.2 Seller warrants that it has the right to enter into this Agreement and to
sell the energy generated by the Project to Edison under the terms of this
Agreement.
4.2 Design
4.2.1 Seller, at no cost to Edison, shall:
a. Design the Generating Facility.
b. Acquire all permits and other approvals necessary for the construction,
operation, and maintenance of the Generating Facility.
c. Complete all environmental impact studies necessary for the construction,
operation, and maintenance of the Generating Facility.
d. Furnish and install the relays, meters, power circuit breakers, synchronizer,
and other control and Protective Apparatus as shall be agreed to by the Parties
as being necessary for proper and safe operation of the Project in parallel with
Edison's electric system.
4.2.2 Edison shall have the right to:
a. Review the design of the Generating Facility's electrical system and the
Seller's Interconnection Facilities. Such review may include, but not be limited
to, the Generator, governor, excitation system, synchronizing equipment,
protective relays, and neutral grounding. The Seller shall be notified in
writing of the outcome of the Edison review within 30 days of the receipt of all
specifications for both the Generating Facility and the Interconnection
Facilities. Any flaws perceived by Edison in the design shall be described in
Edison's written notice.
b. Request modifications to the design of. the Generating Facility's electrical
system and the Seller's Interconnection Facilities. Such modifications shall be
required if necessary to maintain Edison Electric System Integrity when in
parallel with the Edison electric system.
4.2.3 If Seller's Generating Facility includes an induction-type generators,
Seller shall provide individual power factor correction capacitors for each such
generator. Such capacitors shall be switched on and off simultaneously with each
of the associated', induction-type generators of the Generating Facility. The
KVAR rating of such capacitors shall be the highest standard value which will
not exceed such generators no-load KVAR requirement. Seller shall not install
power factor correction in excess of that required by this Section unless agreed
to in writing by the Parties.
<PAGE>
4.2.4 Seller shall not locate any part of a wind-driven generating unit of the
Generating Facility within a distance 1.25 times the height of a wind turbine
structure of an existing electric utility 33 kV, 66 kV, or 115 kV transmission
line right of way or within three rotor blade diameters of an existing electric
utility 220 kV or 500 kV transmission line right of way or any proposed
transmission line right of way of which Edison is pursuing regulatory approval
for construction.
4.2.5 If Seller's Generating Facility is a small hydro project, the Contract
Capacity in Section 1.5 shall be based on the average of the 5 lowest years of
stream flow taken from a study covering a minimum 50 years of continuous data.
The Parties may agree upon a shorter period if data for a 50-year period is not
obtainable.
4.3 Construction
Edison shall have the right to review, consult with, and make recommendations
regarding Seller's construction schedule and to monitor the construction and
start-up of the Project. Seller shall notify Edison, at least one year prior to
Firm Operation, of changes in Seller's Construction Schedule which may affect
the date of Firm Operation.
4.4 Operation
4.4.1 The Generating Facility and Seller's Protective Apparatus shall be
operated and maintained in accordance with applicable California utility
industry standards and good engineering practices with respect to synchronizing,
voltage and reactive power control. Edison shall have the right to monitor
operation of the Project and may require changes in Seller's method of operation
if such changes are necessary, in Edison's sole judgment, to maintain Edison
Electric System Integrity.
4.4.2 Seller shall notify in writing Edison's Operating Representative at least
14 days prior to:,
(a) the initial testing of Seller's Protective Apparatus; and
(b) the initial parallel operation of Seller's Generators with Edison's
electrical system.
Edison shall have the right to have a representative present at each event.
4.4.3 Edison shall have the right to require Seller to disconnect the Generator
from the Edison electric system or to reduce the electrical output from the
Generator into the Edison electric system, whenever Edison determines, in its
sole judgement, that such a disconnection is necessary to facilitate maintenance
of Edison's facilities, or to maintain Edison Electric System Integrity. If
Edison requires Seller to disconnect the Generator from the Edison electric
system pursuant to this Section 4.4.3, Seller shall have the right to continue
to serve its total electrical requirements provided Seller has elected Operating
Option III. Each Party shall endeavor to correct, within a reasonable period,
the condition on its system which necessitates the disconnection' or the
reduction of electrical output. The duration of the disconnection or the
reduction in electrical output shall be limited to the period of tine such a
condition exists.
<PAGE>
4.4.4 The Generating Facility shall be operated with all of Seller's Protective
Apparatus in service whenever the Generator is connected to or is operated in
parallel with the Edison electric system. Any deviation for brief periods of
emergency or maintenance shall only be by agreement of the Parties.
4.4.5 Each Party shall keep the other Party's Operating Representative informed
as to the operating schedule of their respective facilities affecting each
other's operation hereunder, including any reduction in Contract Capacity
availability. In addition, Seller shall provide Edison with reasonable advance
notice regarding its scheduled outages including any reduction in Contract
Capacity availability. Reasonable advance notice is as follows:
SCHEDULED OUTAGE ADVANCE NOTICE
EXPECTED DURATION TO EDISON
Less than one day 24 Hours
One day or more
(except major overhauls) 1 Week
Major overhaul 6 months
4.4.6 Notification by each Party's Operating Representative of outage date and
duration should be directed to the other Party's Operating Representative by
telephone.
4.4.7 Seller shall not schedule major overhauls during Peak Months.
4.4.8 Seller shall maintain an operating log at Seller's Facility with records
of: real and reactive power production; changes in operating status, outages,
Protective Apparatus operations; and any unusual conditions found during
inspections. Changes in setting shall also be logged for Generators which are
"block-loaded" to a specific kW capacity. In addition, Seller shall maintain
records applicable to the Generating Facility, including the electrical
characteristics of the Generator and settings or adjustments of the Generator
control equipment and protective devices. Information maintained pursuant to
this Section 4.4.8 shall be provided to Edison, within 30 days of Edison's
request.
4.4.9 If, at any time, Edison doubts the integrity of any of Seller's Protective
Apparatus and, believes that such loss of integrity would impair the Edison
Electric System Integrity, Seller shall demonstrate, to Edison's satisfaction,
the correct calibration and operation of the equipment in question.
4.4.10 Seller shall test all protective devices specified in Section 4.2 with
qualified Edison personnel present at intervals not to exceed four years.
4.4.11 Seller shall, to the extent possible, provide reactive power for its own
requirements, and where applicable, the reactive power losses of interfacing
transformers. Seller shall not deliver excess reactive power to Edison unless
otherwise agreed upon between the Parties.
<PAGE>
4.4.12 The Seller warrants that the Generating Facility meets the requirements
of a Qualifying Facility as of the date of Firm Operation and will continue to
meet such requirements through the Contract Tern.
4.4.13 The Seller warrants that the Generating Facility shall at all times
conform to all applicable laws and regulations. Seller shall obtain and maintain
any governmental authorizations and permits for the continued operation of the
Generating Facility. If at any time Seller does not hold such authorizations and
permits, Seller agrees to reimburse Edison for any loss which Edison incurs as a
result of the Seller's failure to maintain governmental authorization and
permits.
4.4.14 At Edison's request, Seller shall make all reasonable effort to deliver
power at an average rate of delivery at least equal to the Contract Capacity
during periods of Emergency. In the event that the Seller has previously
scheduled an outage coincident with an Emergency, Seller shall make all
reasonable efforts to reschedule the outage. The notification periods listed in
Section 4.4.5 shall be waived by Edison if Seller reschedules the outage.
4.4.15 Seller shall demonstrate the ability to provide Edison the specified
Contract Capacity within 30 days of the date of Firm Operation. Thereafter, at
least once per year at Edison's request, Seller shall demonstrate the ability to
provide Contract Capacity for a reasonable period of time as, required by
Edison. Seller's demonstration of Contract Capacity shall be at Seller's expense
and conducted at a time and pursuant to procedures mutually agreed upon by the
Parties. If Seller fails to demonstrate the ability to provide the Contract
Capacity, the Contract Capacity shall be reduced by agreement of the Parties
pursuant to Section 9.1.2.6.
4.5 Maintenance
4.5.1 Seller shall maintain the Generating Facility in accordance with
applicable California utility industry standards and good engineering and
operating practices. Edison shall have the right to monitor such maintenance of
the Generating Facility. Seller shall maintain and deliver a maintenance record
of the Generating Facility to Edison's Operating Representatives upon request.
4.5.2 Seller shall make a reasonable effort to schedule routine maintenance
during Off-Peak Months. Outages for scheduled maintenance shall not exceed a
total of 30 peak hours for the Peak Months.
4.5.3 The allowance for scheduled maintenance is as follows:
a. Outage periods for scheduled maintenance shall not exceed 840 hours (35 days)
in any 12-month period. This allowance may be used in increments of an hour or
longer on a consecutive or nonconsecutive basis.
<PAGE>
b. Seller may accumulate unused maintenance hours on a year-to-year basis up to
a maximum of 1,080 hours (45 days). This accrued time must be used consecutively
and only for major overhauls.
4.6 Any review by Edison of the design, construction, operation, or maintenance
of the Project is solely for the information of Edison. By making such review,
Edison makes no representation as to the economic and technical feasibility,
operational capability, or reliability of the Project. Seller shall in no way
represent to any third party that any such review by Edison of the Project,
including but not limited to, any review of the design, construction, operation,
or maintenance of the Project by Edison is a representation by Edison as to the
economic and technical feasibility, operational capability, or reliability of
said facilities. Seller is solely responsible for economic and technical
feasibility, operational capability, or reliability thereof.
5. Operating Options
5.1 Seller shall elect in Section 1.9 to Operate its Generating Facility in
parallel with Edison's electric system pursuant to one of the following options:
a. Operating Option I: Seller dedicates the entire Generator output to Edison
with no electrical service required from Edison.
b. Operating Option II: Seller dedicates the .entire Generator output to Edison
with electrical service required from Edison.
c. Operating Option III: Seller dedicates to Edison only that portion of the
Generator output in excess of Seller's electrical service requirements. As much
as practicable, Seller intends to serve its electrical requirements from the
Generator output and will require electrical standby from Edison as designated
in Section 1.9.
5.2 After expiration of the First Period of the Contract Term, Seller may change
the Operating Option, but not more than once per year upon at least 90 days
prior written notice to Edison. A reduction in Contract Capacity as a result of
a change in operating options shall be subject to Section 9.1.2.6. Edison shall
not be required to remove or reserve capacity of Interconnection Facilities made
idle by a change in operating options. Edison may dedicate any such idle
Interconnection Facilities at any time to serve other customers or to
interconnect with other electric power sources. Edison shall process requests
for changes of operating option in the chronological order received.
5.2.1 When the Seller wishes to reserve Interconnection Facilities paid for by
the Seller but idled by a change in operation option, Edison shall impose a
special facilities charge related to the operation and maintenance of the
Interconnection Facility. When the Seller no longer needs said facilities for
which it has paid, the Seller shall receive credit for the net salvage value of
the Interconnection Facilities dedicated to Edison's use. If Edison is able to
make use of these facilities to serve other customers, the Seller shall receive
the fair market value of the facilities
<PAGE>
determined as of the date the Seller either decides no longer to use said
facilities or fails to pay the required maintenance fee.
6. Interconnection Facilities
6.1 The Parties shall execute an Interconnection Facilities Agreement selected
by Seller in Section 1.10, covering the design, installation, operation and
maintenance of the Interconnection Facilities required in Edison's sole
judgment, to permit an electrical interface between the Parties pursuant to
Edison's Tariff Rule No. 21.
6.2 The cost for the Interconnection Facilities set forth in the appendices
specified in Section 1.10, are estimates only for Seller's information and will
be adjusted to reflect recorded costs after installation is complete; except
that, upon Seller's written request to Edison, Edison shall provide a binding
estimate which shall be the basis for the Interconnection Facilities cost in the
Interconnection Facilities Agreement executed by the Parties.
6.3 The nature of the Interconnection Facilities and the Point of
Interconnection shall be set forth either by equipment lists or appropriate one-
line diagrams and shall be attached to the appropriate appendix specified in
Section 1.10.
6.4 The design, installation,.-operation, maintenance, and modifications of the
Interconnection Facilities' shall be at Seller's expense.
6.5 Seller shall not commence parallel operation of the Generating Facility
until written approval for operation of the Interconnection Facilities has been
received from Edison. The Seller shall notify Edison at least forty-five days
prior to the initial energizing of the Point of Interconnection. Edison shall
have the right to inspect the Interconnection Facilities within thirty days of
receipt of such notice. If the facilities do not pass Edison's inspection,
Edison shall provide in writing the reasons for this failure within five days of
the inspection.
6.6 Seller, at no cost to Edison, shall acquire all permits and approvals and
complete all environmental impact studies necessary for the design,
installation, operation, and maintenance of the Interconnection Facilities.
7. Electric Lines And Associated Easements
7.1 Edison shall, as it deems necessary or desirable, build electric lines,
facilities and other equipment, both overhead and underground, on and off
Seller's Facility, for the purpose of effecting the agreements contained in this
Contract. The physical location of such electric lines, facilities and other
equipment on Seller's Facility shall be determined by agreement of the Parties.
<PAGE>
7.2 Seller shall reimburse Edison for the cost of acquiring property rights off
Seller's Facility required by -Edison to meet its obligations under this
Contract.
7.3 Seller shall grant, or cause to be granted, to Edison, without cost to
Edison, and by an instrument of conveyance, acceptable to Edison, rights of way/
easements and other property interests necessary to construct, reconstruct, use,
maintain, alter, add to, enlarge, repair, replace, inspect and remove, at any
time, the electric lines, facilities or other equipment, both overhead and
underground, which are required by Edison to effect the agreements contained in
the Contract and the rights of ingress and egress at all reasonable times
necessary for Edison to perform the activities contemplated in the Contract.
7.4 The electric lines, facilities, or other equipment referred to in this
Section 7 installed by Edison on or off Seller's Facility shall be and remain
the property of Edison.
7.5 Edison shall have no obligation to Seller for any delay or cancellation due
to inability to acquire a satisfactory right of way, easements, or other
property interests.
8. Metering
8.1 All meters and equipment used for the measurement of electric power for
determining Edison's payments to Seller pursuant to this Contract shall be
provided, owned, and maintained by Edison at Seller's expense in accordance with
Edison's Tariff Rule No. 21.
8.2 All meters and equipment used for billing Seller for electric service
provided to Seller by Edison under Operating Options II or III shall be
provided, owned, and maintained by Edison at Edison's expense in accordance with
Edison's Tariff Rule No. 16.
8.3 The meters and equipment used for measuring the Energy sold to Edison-shall
be located on the side of the Interconnection Facilities as specified by Seller
in Section 1.13. If the metering equipment is located on Seller's side of the
Interconnection Facilities, then a loss compensation factor agreed upon by the
Parties shall be applied. At the written request of the Seller, and at Seller's
sole expense, Edison shall measure actual transformer losses. If the actual
measured value differs from the agreed-upon loss compensation factor, the actual
value shall be applied prospectively. If the meters are placed on Edison's side
of the Interconnection Facilities, service shall be provided at the available
transformer high-side voltage.
8.4 For purposes of monitoring the Generator operation and the determination of
standby charges, Edison shall have the right to require, at Seller's expense,
the installation of generation metering. Edison may also require the
installation of telemetering equipment at Seller's expense for Generating
Facilities equal to or greater than 10 MW. Edison may require the installation
of telemetering equipment at Edison's expense for Generating Facilities less
than 10 MW.
<PAGE>
8.5 Edison's meters shall be sealed and the seals shall be broken only when the
meters are to be inspected, tested,-or adjusted by Edison. Seller shall be given
reasonable notice of testing and have the right to have its Operating
Representative present on such occasions.
8.6 Edison's meters installed pursuant to this Contract shall be tested by
Edison, at Edison's expense, at least once each year and at any reasonable time
upon request by either Party, at the requesting Party's expense. If Seller makes
such request, Seller shall reimburse said expense to Edison within thirty days
after presentation of a bill therefore.
8.7 Metering equipment found to be inaccurate shall be repaired, adjusted, or
replaced by Edison such that the metering accuracy of said equipment shall be
within two percent. If metering equipment inaccuracy exceeds two percent, the
correct amount of Energy and Contract Capacity delivered during the period of
said inaccuracy shall be estimated by Edison and agreed upon by the Parties.
9. Power Purchase Provisions
Prior to the date of Firm Operation, Seller shall be paid for Energy only
pursuant to Edison's published avoided cost of energy based on Edison's full
avoided operating cost as periodically updated and accepted by the Commission.
If at any time Energy can be delivered to Edison and Seller is contesting the
claimed jurisdiction of any entity which has not issued a license or other
approval for the Project, Seller, in its sole discretion and risk, may deliver
Energy to Edison and for any Energy purchased by Edison Seller-shall receive
payment from Edison for (i) Energy pursuant to this Section, and (ii) as-
available capacity based on a capacity price from the Standard Offer No. 1
Capacity Payment Schedule as approved by the Commission. Unless and until all
required licenses and approvals have been obtained, Seller may discontinue
deliveries at any time.
9.1 Capacity Payments
Seller shall sell to Edison and Edison shall purchase from Seller capacity
pursuant to the Capacity Payment Option selected by Seller in Section 1.11. The
Capacity Payment Schedules will be based on Edison's full avoided operating
costs as approved by the Commission throughout the life of this Contract. Data
used to derive Edison's full avoided costs will be made available to the Seller,
to the extent specified by Seller upon request.
9.1.1 Capacity Payment Option A -- [Intentionally Deleted]
9.1.2 Capacity Payment Option B -- Firm Capacity Purchase
If Seller selects Capacity Payment Option B, Seller shall provide to Edison for
the Contract Term the Contract Capacity specified in Section 1.5, or as adjusted
pursuant to Section 9.1.2.7, and Seller shall be paid as follows:
<PAGE>
9.1.2.1 If Seller meets the performance requirements set forth in Section
9.1.2.2, Seller shall be paid a Monthly Capacity Payment, beginning from the
date of Firm Operation equal to the sum of the on-peak, mid-peak, and off-peak
Capacity Period Payments. Each Capacity Period Payment is calculated pursuant to
the following formula:
MONTHLY PERIOD CAPACITY PAYMENT A x B x C x D
Where A = Contract Capacity Price specified in Section 1.11 based on the
Standard Offer No. 2 Capacity Payment Schedule as approved by the Commission and
in effect on the date of the execution of this Contract.
B = Conversion factors to convert annual capacity prices to monthly payments by
time of delivery as specified in Standard Offer No. 2 Capacity Payment Schedule
and subject to periodic modifications as approved by the Commission.
C = Contract Capacity specified in Section 1.5.
D = Period Performance Factor, not to exceed 1.0, calculated as follows:
Period kWh purchased by Edison limited by the level of Contract Capacity
-------------------------------------------------------------------------
0.8 x Contract Capacity x (Period Hours minus Maintenance Hours Allowed in
Section 4.5.)
9.1.2.2 Performance Requirements
To receive the Monthly Capacity Payment in Section 9.1.2.1, Seller shall provide
the Contract Capacity in each Peak Month for all on-peak hours as such peak
hours are defined in Edison's Tariff Schedule No. TOU-8 on file with the
Commission, except that Seller is entitled to a 20% allowance for Forced Outages
for each Peak Month. Seller shall not be subject to such performance
requirements for the remaining hours of the year.
a. If Seller fails to meet the requirements specified in Section 9.1.2.2, Edison
may, in Edison's sole discretion, place Seller on probation for a period not to
exceed 15 months. if Seller fails to meet the requirements specified in Section
9.1.2.2 during the probationary period, Edison may derate the Contract Capacity
to the greater of the capacity actually delivered during the probationary
period, or the capacity at which Seller can reasonably meet such requirements. A
reduction in Contract Capacity as a result of this Section 9.1.2.2 shall be
subject to Section 9.1.2.6.
b. If Seller fails to meet the requirements set forth in Section 9.1.2.2 due to
a Forced Outage on the Edison system or a request to reduce or curtail delivery
under Section 9.4, Edison shall continue monthly Capacity Payments pursuant to
Capacity Payment Option B. The Contract Capacity curtailed shall be treated the
sane as scheduled maintenance outages in the Calculation of the Monthly Capacity
Payment.
<PAGE>
9.1.2.3 If Seller is unable to provide Contract Capacity due to Uncontrollable
Forces, Edison shall continue Monthly Capacity Payments for 90 days from the
occurrence of the Uncontrollable Force. Monthly Capacity Payments payable during
a period of interruption or reduction by reason of an Uncontrollable Force shall
be treated the same as scheduled maintenance outages.
9.1.2.4 - [Intentionally Deleted]
9.1.2.5 Capacity Bonus Payment
For Capacity Payment Option B, Seller nay receive a Capacity Bonus Payment as
follows:
a. Bonus During Peak Months -- For a Peak Month, Seller shall receive a Capacity
Bonus Payment if (i) the requirements set forth in Section 9.1.2.2 have been
met, and (ii) the on-peak capacity factor exceeds 85%.
b. Bonus During Non-Peak Months -- For a non-peak month, Seller shall receive a
Capacity Bonus Payment if (i) the requirements set forth in Section 9.1.2.2 have
been met, (ii) the on-peak capacity factor for each Peak Month during the year
was at least 85%, and (iii) the on-peak capacity factor for the non-peak month
exceeds 85%.
c. For any eligible month, the Capacity Bonus Payment shall be calculated as
follows:
CAPACITY B0NUS PAYMENT = A x D x C x D
Where A = (1.2 x On-Peak Capacity Factor) - 1.02
Where the On-Peak Capacity Factor, not to exceed 1.0, is calculated as follows:
Period kWh purchased by Edison limited by the level of Contract Capacity
-------------------------------------------------------------------------
(Contract Capacity) x (Period Hours minus Maintenance Hours Allowed in Section
4.5)
B = Contract Capacity Price specified in Section 1.11 for Capacity Payment
Option B
C = 1/12
D = Contract Capacity specified in Section 1.5
d. When Seller is entitled to receive a Capacity Bonus Payment, the Monthly
Capacity Payment shall be the sum of the Monthly Capacity Payment pursuant to
Section 9.1.2.1 and' the Monthly Capacity Bonus Payment pursuant to this
Section.
e. For Capacity Payment Option B, Seller shall be paid for capacity in excess of
Contract Capacity based on the as-available capacity price in Standard Offer No.
1 Capacity Payment Schedule, as updated and approved by the Commission. Seller
shall not receive any as-available
<PAGE>
capacity payment in excess of Contract Capacity if Seller's Generating Facility
is a small hydro project.
9.1.2.6 Capacity Reduction
a. Seller may reduce the Contract Capacity specified in Section 1.5, provided
that Seller gives Edison prior written notice for a period determined by the
amount of Contract Capacity reduced as follows:
Amount of Contract Length of
Capacity Reduced Notice Required
-------------------------------------
25,000 kW or under 12 months
25,001 - 50,000 kW 36 months
50,001 - 100,000 kW 48 months
over 100,000 kW 60 months
b. Subject to Section 10.4, Seller shall refund to Edison with interest at the
current published Federal Reserve Board three months prime commercial paper rate
an amount equal to the difference between (i) the accumulated Monthly Capacity
Payments paid by Edison pursuant to Capacity Payment Option B up to the time the
reduction notice is received by Edison, and (ii) the total capacity payments
which Edison would have paid if based on the Adjusted Capacity Price.
c. From the date the reduction notice is received to the date of actual capacity
reduction, Edison shall make capacity payments based on the Adjusted Capacity
Price for the amount of Contract Capacity being reduced.
d. Seller may reduce Contract Capacity without the notice prescribed in Section
9.1.2.6(a), provided that Seller shall refund to Edison the amount specified in
Section 9.1.2.6(b) and an amount equal to: (i) the amount of Contract Capacity
being reduced, times (ii) the difference between the Current Capacity Price and
the Contract Capacity Price, times (iii) the number of years and fractions
thereof (not less than one year) by which the Seller has been deficient in
giving prescribed notice. If the Current Capacity Price is less than the
Contract Capacity Price, only payment under Section 9.1.2.6(b) shall be due to
Edison.
9.1.2.7 Adjustment to Contract Capacity The Parties may agree in writing at any
time to adjust the Contract Capacity. Seller may reduce the Contract Capacity
pursuant to Section 9.1.2.6. Seller may increase the Contract Capacity with
Edison's approval and thereafter receive payment for the increased capacity in
accordance with the Contract Capacity Price for the Capacity Payment Option
selected by Seller for the remaining Contract Term.
9.2 Energy Payments --First Period
<PAGE>
During the First Period of the Contract Term, Seller shall be paid a Monthly
Energy Payment for the Energy delivered by the Seller to Edison at the Point of
Interconnection pursuant to the Energy Payment Option selected by Seller in
Section 1.12, as follows. (Data used to derive Edison's Energy payments for the
First Period will be made available to the Seller, to the extent specified by
Seller, upon request.)
9.2.1 Energy Payment Option 1 -- Forecast of Annual Marginal Cost of Energy.
If Seller selects Energy Payment Option 1, then during the First Period of the
Contract Term, Seller shall be paid a Monthly Energy Payment for Energy
delivered by Seller and purchased by Edison during each month in the First
Period of the Contract Term pursuant to the following formula:
MONTHLY ENERGY PAYMENT (A x D) + (B x D) + (C x D)
Where A = kWh purchased by Edison during on-peak periods defined in Edison's
Tariff Schedule No. TOU-8.
B = kWh purchased by Edison during mid-peak periods defined in Edison's Tariff
Schedule No. TOU-8.
C = kWh purchased by Edison during off-peak periods defined in Edison's Tariff
Schedule No. TOU-8.
D = The sum of: (i) the appropriate time differentiated energy price from the
Forecast of Annual Marginal Cost of Energy, multiplied by the decimal equivalent
of the percentage of the forecast specified in Section 1.12, and (ii) the
appropriate time differentiated energy price from Edison's published avoided
cost of energy multiplied by the decimal equivalent of the percentage of the
published energy price specified in Section 1.12.
9.2.2 Energy Payment Option 2 -- Levelized Forecast of Marginal Cost of Energy.
If Seller selects Energy Payment Option 2, then during the First Period of the
Contract Term, Seller shall be paid a Monthly Energy Payment for Energy
delivered by Seller and purchased by Edison each month during the First Period
of the Contract Term pursuant to the following formula:
MONTHLY ENERGY PAYMENT = (A x D) + (B x D) + (C x D)
Where A = kWh purchased by Edison during on-peak periods defined in Edison's
Tariff Schedule No. TOU-8.
B = kWh purchased by Edison during mid-peak periods defined in Edison's Tariff
Schedule No. TCU-8.
C = kWh purchased by Edison during off-peak periods defined in Edison's Tariff
Schedule No. TOU-8.
D = The sum of:
<PAGE>
(i) the appropriate time differentiated energy price from the Levelized Forecast
of Marginal Cost of Energy, for the First Period of the Contract Term multiplied
by the decimal equivalent of the percentage of the levelized forecast specified
in Section 1.12, and (ii) the appropriate time differentiated energy price from
Edison's published avoided cost of energy multiplied by the decimal equivalent
of the percentage of the published energy price specified in Section 1.12.
9.2.2.1 Performance Requirement for Energy Payment Option 2
During the First Period when the annual forecast referred to in Section 9.2.1 is
greater than the levelized forecast referred to in Section 9.2.2, Seller shall
deliver to Edison at least 70 percent of the average annual kWh delivered to
Edison during those previous periods when the levelized forecast referred to in
Section 9.2.2 is greater than the annual forecast referred to in Section 9.2.1
as resource conditions permit for solar, wind, and hydro Generating Facilities
and excluding uncontrollable forces. If Seller does not meet the performance
requirements of this Section 9.2.2.1, Seller shall be subject to Section 9.5.
9.3 Energy Payments - Second Period
During the Second Period of the Contract Term, Seller shall be paid a Monthly
Energy Payment for Energy delivered by Seller and purchased by Edison at a rate
equal to 100% of Edison's published avoided cost of energy based on Edison's
full avoided operating cost as updated periodically and accepted by the
Commission, pursuant to the following formula:
MONTHLY ENERGY PAYMENT = kWh purchased by Edison for each on-peak, mid-peak, and
off-peak time period defined in Edison's Tariff Schedule No. TOU-8
X Edison's published avoided cost of energy by time of delivery for
- ----------
each time period. Data used to derive Edison's full avoided costs will be made
available to the Seller, to the extent specified by Seller, upon request.
9.4 Edison shall not be obligated to accept or pay for Energy, and may request
Seller whose Generating Facility is one (1) till or greater to discontinue or
reduce delivery of Energy, for not more than 300 hours annually during off-peak
hours when (i) purchases would result in costs greater than those which Edison
would incur if it did not purchase Energy from Seller but instead utilized an
equivalent amount of Energy generated from another Edison source, or (ii) the
Edison Electric System demand would require that Edison hydro-energy be spilled
to reduce generation.
9.5 Energy Payment Refund
If Seller elects Energy Payment Option 2, Seller shall be subject to the
following:
If Seller fails to perform the Contract obligations for any reason during the
First Period of the Contract Term, or fails to meet the performance requirements
set forth, in Section 9.2.2.1, and at the time of such failure to-perform, the
net present value of the cumulative Energy payments received by Seller pursuant
to Energy Payment Option 2 exceeds the net present value of what
<PAGE>
Seller would have been paid pursuant to Energy Payment Option 1, Seller shall
make an energy payment refund equal to the difference in such net present values
in the year in which the refund is due. The present value calculation shall be
based upon the rate of Edison's incremental cost of capital specified in Section
1.12.
9.5.2 Not less than 90 days prior to the date Energy is first delivered to the
Point of Interconnection, Seller shall provide and maintain a performance bond,
surety bond, performance insurance, corporate guarantee, or bank letter of
credit, satisfactory to Edison, which shall insure payment to Edison of the
Energy Payment Refund at any time during the First Period. Edison may, in its
sole discretion accept another form of security except that in such instance a
1-1/2 percent reduction shall then apply to the levelized forecast referred to
in Section 9.2.2 in computing payments for Energy. Edison shall be provided with
certificates evidencing Seller's compliance with the security requirements in
this Section which shall also include the requirement that Edison be given 90
days prior written notice of the expiration of such security.
9.5.3 If Seller fails to provide replacement security not less than 60 days
prior to the date of expiration of existing security, the Energy Payment Refund
provided in Section 9.5 shall be payable forthwith. Thereafter, payments for
Energy shall be 100 percent of the Monthly Energy Payment provided in Section
9.2.1.
9.5.4 If Edison at any time determines the security to be otherwise inadequate,
and so notifies Seller, payments thereafter for Energy shall be 100 percent of
the Monthly Energy Payment provided in Section 9.2.1. If within 30 days of the
date Edison gives notice of such inadequacies, Seller satisfies Edison's
security requirements, Energy Payment Option 2 shall be reinstated. If Seller
fails to satisfy Edison's security requirements within the 30-day period, the
Energy Payment Refund provided in Section 9.5 shall be payable forthwith.
10. Payment And Billing Provisions
10.1 For Energy and capacity purchased by Edison:
10.1.1 Edison shall mail to Seller not later than thirty days after the end of
each monthly billing period (1) a statement showing the Energy and Contract
Capacity delivered to Edison during the on-peak, mid-peak, and off-peak periods,
as those periods are specified in Edison's Tariff Schedule No. TOU-8 for that
monthly billing period, (2) Edison's computation of the amount due Seller, and
(3) Edison's check in payment of said amount.
10.1.2 If the monthly payment period involves portions of two different
published Energy payment schedule periods, the monthly Energy payment shall be
prorated on the basis of the percentage of days at each price.
10.1.3 If the payment period is less than 27 days or greater than 33 days, the
capacity payment shall be prorated on the basis of the average days per month
per year.
<PAGE>
10.1.4 If within thirty days of receipt of the statement Seller does not make a
report in writing to Edison of an error, Seller shall be deemed to have waived
any error in Edison's statement, computation, and payment, and they shall be
considered correct and complete.
10.2 For electric service provided by Edison:
10.2.1 Under Operating Option III pursuant to Section 5.1, standby electric
service shall be provided under terms and conditions of Edison's tariff schedule
indicated below as now in effect, or as may hereafter be authorized by the
Commission to be revised. The applicable tariff schedules are:
STANDBY TARIFF ELECTRIC SERVICE TARIFF
SCHEDULE NO.
SCG-l TOU-8 or GS-2
SCG-2 TOU-8
SCG-3 TOU-8
10.2.1.1 (Applicable to SCG-1 only) The Standby Demand for calculation of the
standby charge in SCG-1 as specified in Section 1.9. Edison reserves the right
to adjust the Standby Demand based on recorded demand during periods standby
power is required.
10.2.1.2 (Applicable to SCG-1 only) The capacity rating for determination of
standby waiver qualifications shall be Contract Capacity plus the maximum
electric load served by the Generating Facility during the on-peak time period
recorded during the preceding 12-month tine period.
10.2.1.3 A minimum monthly charge may be established for standby electric
service as provided in the tariff schedule elected in Section 1.9. Said minimum
monthly charge shall be specified in Section 1.9.
10.2.2 Under Operating Options II and III pursuant to Section 5.1, electric
service shall be provided under terms, conditions, and rates of Edison's tariff
schedule indicated below as now in effect or as may hereafter be authorized by
the Commission to be revised.
The applicable tariff schedule is: TOU-8,
The contract demand for calculation of the minimum demand charge in the
applicable tariff schedules is specified in Sect-ion 1.9.
10.2.3 Edison shall commence billing Seller for electric service rendered
pursuant to the applicable tariff schedule on the date that the Point of
Interconnection is energized.
<PAGE>
10.3 Monthly charges associated with Interconnection Facilities shall be billed
pursuant to the Interconnection Facilities Agreement contained in the Appendix
specified in Section 1.10.
10.4 Payments due to Contract Capacity Reduction
10.4.1 The Parties agree that the refund and payments provided in Section
09.1.2.6 represent a fair compensation for the reasonable losses that would
result from such reduction of Contract Capacity.
10.4.2 In the event of a reduction in Contract Capacity, the quantity, in kW, by
which the Contract Capacity is reduced shall be used to calculate the refunds
and payments due Edison in accordance with Section 9.1.2.6, as applicable.
10.4.3 Edison shall provide invoices to Seller for all refunds and payments due
Edison under this section which shall be due within 60 days.
10.4.4 If Seller does not make payments as required in Section 10.4.3, Edison
shall have the right to offset any amounts due it against any present or future
payments due Seller and may pursue any other remedies available to Edison as a
result of Seller's failure to perform.
10.5 Energy Payment Refund
Energy Payment Refund is immediately due and payable upon Seller's failure to
perform the contract obligations as specified in Section 9.5.
11. Taxes
11.1 Seller shall pay ad valorem taxes and other taxes properly attributable to
the Project. If such taxes are assessed or levied against Edison, Seller shall
pay Edison for such assessment or levy.
11.2 Seller shall pay ad valorem taxes and other taxes properly attributed to
land, land rights, or interest in land for the Project. If such taxes are
assessed or levied against Edison, Seller shall pay Edison for such assessment
or levy.
11.3 If the Interconnection Facilities are owned by Edison, Edison shall pay ad
valorem taxes and other taxes property attributed to said facilities. If such
taxes are assessed or levied against Seller, Edison shall pay Seller for such
assessment or levy.
11.4 Seller or Edison shall provide information concerning the Project to any
requesting taxing authority.
12. Termination
<PAGE>
12.1 This Contract shall terminate if Firm Operation does not occur within 5
years of the date of Contract execution.
13. Liability
13.1 Each Party (First Party) releases the other Party (second Party), its
directors, officers, employees and agents from any loss, damage, claim, cost,
charge, or expense of any kind or nature (including any direct, indirect or
consequential loss, damage, claim, cost, charge, or expense), including
attorney's fees and other costs of litigation incurred by the First Party in
connection with damage to property of the First Party caused by or arising out
of the Second Party's construction, engineering, repair, supervision,
inspection, testing, protection, operation, maintenance, replacement,
reconstruction, use or ownership of its facilities, to the extent that such
loss, damage, claim, cost, charge, or expense is caused by the negligence of
Second Party, its directors, officers, employees, agents, or any person or
entity whose negligence would be imputed to Second Party.
13.2 Each Party shall indemnify and hold harmless the other Party, its
directors, officers, and employees or agents from and against any loss, damage,
claim, cost, charge, (including direct, indirect or consequential loss, damage,
claim, cost charge, or expense), including attorney's fees and other costs of
litigation incurred by the other Party in connection with the injury to or death
of any person or damage to property of a third party arising out of the
indemnifying Party's construction, engineering, repair, supervision, inspection,
testing, protection, operation, maintenance, replacement, reconstruction, use,
or ownership of its facilities, to the extent that such loss, damage, claim,
cost, charge, or expense is caused by the negligence of the indemnifying Party,
its directors, officers, employees, agents, or any person or entity whose
negligence would be imputed to the indemnifying Party; provided, however, that
each Party shall be solely responsible for and shall bear all cost of claims
brought by its contractors or its own employees and shall indemnify and hold
harmless the other Party for any such costs including costs arising out of any
workers compensation law. Seller releases and shall defend, and indemnify Edison
from, any claim, cost, loss, damage, or liability arising from any contrary
representation concerning the effect of Edison's review of the design,
construction, operation, or maintenance of the Project.
13.3 The provisions of this Section 13 shall not be construed so as to relieve
any insurer of its obligations to pay any insurance claims in accordance with
the provisions of any valid insurance policy.
13.4 Neither Party shall be indemnified under this section 13 for its liability
or loss resulting from its sole negligence or willful misconduct.
14. Insurance
<PAGE>
14.1 Until Contract is terminated, Seller shall obtain and maintain in force as
hereinafter provided comprehensive general liability insurance, including
contractual liability coverage, with a combined single limit of (i) not less
than $1,000,000 each occurrence for Generating Facilities 100 kW or greater;
(ii) not less than $500,000 for each occurrence for Generating Facilities
between 20 kW and 100 kW; and (iii) not less than $100,000 for each occurrence
for Generating Facilities less than 20 kW. The insurance carrier or carriers and
form of policy shall be subject to review and approval by Edison.
14.2 Prior to the date Seller's Generating Facility is first operated in
parallel with Edison's electric system, Seller shall (i) furnish certificate of
insurance to Edison, which certificate shall provide that such insurance shall
not be terminated nor expire except on thirty days prior written notice to
Edison, (ii) maintain such insurance in effect for so long as Seller's
Generating Facility is operated in parallel with Edison's electric system, and
(iii) furnish to Edison an additional insured endorsement with respect to such
insurance in substantially the following form:
"In consideration of the premium charged, Southern California Edison company
(Edison) is named as additional insured with respect to all liabilities arising
out of Seller's use and ownership of Seller's Generating Facility." "The
inclusion of more than one insured under this policy shall not operate to impair
the rights of one insured against another insured and the coverages afforded by
this policy will apply as though separate policies had been issued to each
insured. The inclusion of more than one insured will not" however, operate to
increase the limit of the carrier's liability., Edison will not, by reason of
its inclusion under this policy, incur liability to the insurance carrier for
payment of premium for this policy."
"Any other insurance carried by Edison which may be applicable shall be deemed
excess insurance and Seller's insurance primary for all purposes despite any
conflicting provisions in Seller's policy to the contrary." If the requirement
of Section 14.2(iii) prevents Seller from obtaining the insurance required in
Section 14.1 then upon written notification by Seller to Edison, Section
14.2(iii) shall be waived.
14.3 The requirements of this Section 14 shall not apply to Seller who is a
self-insured governmental agency with established record of self-insurance.
14.4 If Seller fails to comply with the provisions of this Section 14, Seller
shall, at its own cost, defend, indemnify, and hold harmless Edison, its
directors, officers, employees, agents, assigns. and successors in interest from
and against any and all loss, damage, claim, cost, charge, or expense of any
kind of nature (including direct, indirect or consequential loss, damage, claim,
cost, charge, or expense., including attorney's fees and other costs of
litigation) resulting from the death or injury to any person or damage to any
property, including the personnel and property of Edison, to the extent that
Edison would have been protected had Seller complied with all of the provisions
of this Section 14.
15. Uncontrollable Forces
<PAGE>
15.1 Neither Party shall be considered to be in-default in the performance of
any of the agreements contained in this Contract, except for obligations to pay
money, when and to the extent failure of performance shall be caused by an
Uncontrollable Force.
15.2 If either Party because of an Uncontrollable Force is rendered wholly or
partly unable to perform its obligations under this Contract, the Party shall be
excused from whatever performance is affected by the Uncontrollable Force to the
extent so affected provided that:
(1) the nonperforming Party, within two weeks after the occurrence of the
Uncontrollable Force, gives the other Party written notice describing the
particulars of the occurrence,
(2) the suspension of performance is of no greater scope and of no longer
duration than is required by the Uncontrollable Force,
(3) the nonperforming Party uses its best efforts to remedy its inability to
perform (this subsection shall not require the settlement of any strike,
walkout, lockout or other labor dispute on terms which, in the sole judgment of
the Party involved in the dispute, are contrary to its interest. It is
understood and agreed that the settlement of strikes, walkouts, lockouts or
other labor disputes shall be at the sole discretion of the Party having the
difficulty),
(4) when the nonperforming Party is able to resume performance of its
obligations under this Contract, that Party shall give the other Party written
notice to that effect, and
(5) capacity payments during such periods of Uncontrollable Force on Seller's
part shall be governed by Section 9.1.1.3.
15.3 In the event that either Party's ability to perform cannot be corrected
when the Uncontrollable Force is caused by the actions or inactions of
legislative, judicial or regulatory agencies or other proper authority, this
Contract may be amended to comply with the legal or regulatory change which
caused the nonperformance.
If a loss of Qualifying Facility status occurs due to an Uncontrollable Force
and Seller fails to make the changes necessary to maintain its Qualifying
Facility status, the Seller shall compensate Edison for any economic detriment
incurred by Edison as a result of such failure.
16. Nondedication Of Facilities
Neither Party, by this Contract, dedicates any part of its facilities involved
in this Project to the public or to the service provided under the Contract, and
such service shall cease upon termination of the Contract.
17. Priority Of Documents
<PAGE>
If there is a conflict between this document and any Appendix, the provisions of
this document shall govern. Each Party shall notify the other immediately upon
the determination of the existence of any such conflict.
18. Notices And Correspondence
All notices and correspondence pertaining to this Contract shall be in writing
and shall be sufficient if delivered in person or sent by certified mail,
postage prepaid, return receipt requested, to Seller as specified in Section
1.1, or to Edison as follows:
Southern California Edison Company Post Office Box 800
Rosemead, California 91770
Attention: Secretary
All notices sent pursuant to this Section 18 shall be effective when received,
and each Party shall be entitled to specify as its proper address any other
address in the United States upon written notice to the other Party.
19. Previous Communications
This Contract contains the entire agreement and understanding between the
Parties, their agents, and employees as to the subject matter of this contract,
and merges and supersedes all prior agreements, commitments, representations,
and discussions between the Parties. No Party shall be bound to any other
obligations, conditions, or representations with respect to the subject matter
of this Contract.
20. Nonwaiver
None of the provisions of the Contract shall be considered waived by either
Party except when such waiver is given in writing. The failure of either Edison
or Seller to insist on any one or more instances upon strict performance of any
of the provisions of the Contract or to take advantage of any of its rights
hereunder shall not be construed as a waiver of any such provisions or the
relinquishment of any such rights for the future, but the sane shall continue to
remain in full force and effect.
21. Successors And Assigns
Neither Party shall voluntarily assign its rights nor delegate its duties under
this Contract, or any part of such rights or duties, without the written consent
of the other Party, except in connection with the sale or merger of a
substantial portion of its properties. Any such assignment or
<PAGE>
delegation made without such written consent shall be null and void. Consent for
assignment shall not be withheld unreasonably. Such assignment shall include,
unless otherwise specified therein, all of Seller's rights to any refunds which
might become due under this Contract.
22. Effect Of Section Headings
Section headings appearing in this Agreement are inserted for convenience only,
and shall not be construed as interpretations of text.
23. Governing Law
This Contract shall be interpreted, governed, and construed under the laws of
the State of California as if executed and to be performed wholly within the
State of California.
24. Multiple Originals
This Contract is executed in two counterparts, each of which shall be deemed an
original.
SIGNATURES
IN WITNESS WHEREOF, the Parties hereto have executed this Contract this 4th day
of June, 1984.
SOUTHERN CALIFORNIA EDISON COMPANY
By: /s/ Edward A. Myers, Jr.
--------------------------
Edward A. Myers, Jr.
Vice President
CHINA LAKE JOINT VENTURE
By CALIFORNIA ENERGY COMPANY,INC.
By: /s/ David L. Ludvigson
------------------------
David L. Ludvigson
Executive Vice President
<PAGE>
1. Parties
This Amendment No. 1 to the Power Purchase Contract between Southern California
Edison Company and China Lake Joint Venture ("Contract") is entered into between
Southern California Edison Company ("Edison") and China Lake Joint Venture, a
Joint Venture between California Energy Company, Inc., and Caithness Geothermal
1980, Ltd. ("Seller"); individually, "Party," and collectively, "Parties."
2. Recitals
This Amendment No. 1 to the Contract is made with reference to the following
facts, among others:
2.1 The Parties executed the Contract as of the 4th day of June, 1984.
2.2 The Contract did not specify which of the methods of providing
interconnection facilities for the project set forth in Appendix A of the
Contract would be utilized.
2.3 Seller wishes to provide the interconnection facilities on a "Seller Owned
and operated Basis."
3. Agreement
3.1 The Parties hereby agree to amend the Contract as follows:
3.1.1 Section 1.2.a is amended to substitute "79,500 kW" for "75,000 kW".
3.1.2 Delete Section 1.5 entirely and insert:
"1.5 Contract Capacity: Phase 1 - 29,000 kW
Phase 2 - 23,000 kW
Phase 3 - 23,000 kW
TOTAL 75,000 kW`
3.1.3 Section 1.6 is amended to substitute "622,000,000" for "591,300,000".
3.1.4 Section 1.10 is amended to insert a check mark in the blank preceding
"Seller Owned and Operated Basis."
30
<PAGE>
3.1.5 Appendices A.1, A.2, and A.3 are deleted and replaced by the attached
Appendix A.
4. Other Contract Terms And Conditions
Except as expressly amended, the terms and conditions of the original Contract
shall remain in full force and effect.
5. Effective Date
This Amendment No. 1 shall become effective when it has been duly executed by
the Parties.
6. Signature Clause
The signatories hereto represent that they have been appropriately authorized to
enter into this Amendment No. I to the Contract on behalf of the Party for whom
they sign. This Amendment No. 1 is hereby executed as of this 29th day of May,
1985.
SOUTHERN CALIFORNIA EDSION COMPANY
By /s/ EDWARD A. MYERS JR.
------------------------
EDWARD A. MYERS JR.
Vice President
CHINA LAKE JOINT VENTURE
By CALIFORNIA ENERGY COMPANY, INC.
By /s/ DAVID L. LUDVIGSON
-----------------------
Name: DAVID L. LUDVIGSON
Title: Executive Vice President
31
<PAGE>
Exhibit 10.69
SCE STANDARD CONTRACT
LONG TERM POWER PURCHASE
POWER PURCHASE CONTRACT
BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY
AND
COSO GEOTHERMAL COMPANY
DOCUMENT NO.: 2126C
EFFECTIVE DATE: September 7, 1983
REVISED: May 4, 1983
<PAGE>
1. Project Summary
This Contract is entered into between Southern California Edison Company
("Edison") Coso Geothermal Company, a Clifornia joint venture between
California Energy Company, Inc. and Caithness Corporation, and others
("Seller"). Seller is willing to construct, own, and operate a Qualifying
Facility and sell electric power to Edison and Edison is willing to purchase
electric power delivered by Seller to Edison at the Point of Interconnection
pursuant to the terms and conditions set forth as follows:
1.1 All Notices shall be sent to Seller at the following address;
California Energy Company, Inc. 3333 Mendocino Avenue, Suite 100 Santa Rosa,
CA 95401
1.2 Seller's Generating Facility:
a. Nameplate Rating: 75,000 KW
b. Location: Coso Nora-China Lake, CA
c. Type (check One):
___Cogeneration Facility
X Small Power Production Facility
---
d. Delivery of power to Edison at a nominal 115,000 volts.
e. Seller shall (Commerce constitution of the Generating Facility by October
1, 1987
1.3 Edison Customer Service District: Ridgecrest District
510 S. China Lake Blvd.
Ridgecrest, CA 93555,
Phone: (714) 375-1552
1.4 Location of Edison Operating Switching Center:
Lugo Substation,
6655 Escondido Street,
Hesperia, CA
1.5 Contract Capacity: Phase I 22,500 KW
Phase II 22,500 KW
<PAGE>
Phase III 22,500 KW
---------
TOTAL 67,500 KW
1. 5.1 Estimated as-available capacity: 0 kW
1.6 Expected annual production: 591,300,000 kWh.
1.7 Expected Firm Operation for each phase:
.Phase I 04/1/89,
Phase II 07/1/89
Phase III 10/1/89
1.8 Contract Term: 20 years,
1.9 Operating options pursuant to Section 5: (Check One)
__Operating Option I. Entire Generator output dedicated to Edison. No electric
service or standby service required.
X Operating option II. Entire Generator output dedicated to Edison with
---
separate electric service required.
a. Electric service Tariff Schedule No. TOU-8 pursuant t on 10.2.
b. Contract demand 0 kW. operating
__Option III Excess generator output dedicated to Edison with Seller serving
own load.
a. Electric service Tariff Schedule No. pursuant to Section 10.2.
b. Contract demand kW
c. Standby Demand kW pursuant to Section 10.2.
d. Maximum electrical requirements expected kW.
e. Standby electric service Tariff Schedule No. - pursuant to Section 10.2.
f. minimum monthly charge for standby service
<PAGE>
1.10 Interconnection Facilities Agreement pursuant to Section 6 shall be:
(Check One)
__Added Facilities Basis (Appendix A.1)
__Capital Contribution Basis (Appendix A.2)
__Seller Owned and Operated Basis (Appendix A.3)
1.11 The Capacity Payment Option selected by Seller pursuant to Section 9.1
shall be: (Check One)
__Option A - As-available capacity based upon.:
__Standard Offer No. 1 Capacity Payment Schedule, or
__Forecast of Annual As-Available Capacity Payment Schedule. The as-available
capacity price (first year): $___ kW-year.
X Option B - Firm Capacity (check one)
---
X Standard Offer No. 2 Capacity Payment Schedule in effect at tine of
---
Contract execution.
__Standard offer No. 2 Capacity Payment Schedule in effect at tine of Firm
operation of firm Operation of first generating unit.
Contract Capacity Price: $175.00 c /KW-YR (Firm Capacity).
1.12 The Energy Payment Option selected by Seller pursuant to Section 9.2
shall be: (Check One)
X Option 1 Forecast of Annual Marginal Cost of Energy in effect at (late of
---
(execution of this Contract. (Appendix B)
__Option 2 Levelized Forecast of Marginal Cost of Energy in effect at date of
execution of this Contract. Levelized Forecast for expected date of Firm
Operation is___c/kWh. If' Seller's Generating Facility is an oil/natural gas
fueled cogenerator, Seller may' not select Option 2.
For the energy payment refund pursuant to Section 9.5 under option 2, Edison's
Incremental Cost of Capital is___%. Seller may change once between Options 1
and 2, provided Seller delivers written notice of such change at least 90 days
prior to the date of Firm Operation. For Option 1 or 2, Seller elects to
receive the following percentages in 20% increments the total of which shall
equal 100%:
<PAGE>
100 Percent of Forecast of marginal Cost of Energy (Annual or Levelized), not
---
to exceed 20% of the annual forecast for oil/natural gas fueled cogenerators,
and
___Percent of Edison's published avoided cost of energy based on Edison's full
avoided operating costs as updated periodically and accepted by the
Commission.
1.13 Metering Location (Check one)
Seller elects metering location pursuant to Section 8 as follows:
___Edison's side of the Interconnection Facilities
X Seller's side, of the Interconnection Facilities. Loss compensation factor
---
is equal to (to be determined), pursuant to Section 8.3.
General Terms & Conditions
2. Definitions
When used with initial capitalizations, whether in the singular or in the
plural, the following terms shall have the following meanings-:
2.1 Adjusted Capacity Price: The $/kW-yr capacity purchase price based on the
Capacity Payment Schedule in effect at time of Contract execution for the time
period beginning on the date of Firm operation for the first generating unit
and ending on the date of termination or reduction of Contract Capacity under
Capacity Payment Option B.
2.2 Appendix A.l: Interconnection Facilities Agreement -- Added Facilities
Basis
2.3 Appendix A.2: Interconnection Facilities. Agreement -- Capital
Contribution Basis
2.4 Appendix A.3: Interconnection Facilities Agreement -- Seller Owned and
Operated Basis
2.5 Appendix B: Forecast of Annual Marginal Cost of Energy
2.6 Capacity Payment Schedule(s): Published capacity payment schedules as
authorized by the commission for as-available or firm capacity.
2.7 Cogeneration Facility: The facility and equipment which sequentially
generate thermal and electrical energy as defined in Title 18, Code of Federal
Regulations, Section 292.202.
2.8 Commission: The Public Utilities Commission of the State of California.
<PAGE>
2.9 Contract: This document and Appendices, as amended from time to time.
2.10 Contract Capacity: The electric power producing capability of the
Generating Facility which is committed to Edison.
2.11 Contract Capacity Price: The capacity purchase price from the Capacity
Payment Schedule approved by the Commission for Capacity Payment Option B.
2.12 Contract Term: Period in years commencing with date of Firm Operation for
the first generating unit(s) during which Edison shall purchase electric power
from Seller.
2.13 Current Capacity Price: The $/kW-yr capacity price provided in the
Capacity Payment Schedule determined by the year of termination or reduction
of Contract Capacity and the number of years from such termination or
reduction to the expiration of the Contract Term for Capacity Payment Option
B.
2.14 Edison: The Southern California Edison Company.
2.15 Edison Electric System integrity: The state of operation of Edison's
electric system in a manner which is deemed to minimize the risk of injury to
persons and/or property and enables Edison to provide adequate and reliable
electric service to its customers.
2.16 Emergency: A condition or situation which in Edison's sole judgment
affects Edison Electric System Integrity.
2.17 Energy: Kilowatthours generated by the Generating Facility which are
purchased by Edison at the Point of Interconnection.
2.18 Firm Operation: The date agreed on by the Parties on which each
generating unit(s) of the Generating Facility is determined to be a reliable
source of generation and on which such unit can be reasonably expected to
operate continuously at its effective rating (expressed in kW).
2.19 First Period: The period of the Contract Term specified in Section 3.1.
2.20 Forced Outage: Any outage other than a scheduled outage of the Generating
Facility that fully or partially curtails its electrical output.
2.21 Generating Facility: A11 of Seller's generators, together with all
protective and other associated equipment and improvements necessary to
produce electrical power at Seller's Facility excluding associated land, land
rights, and interests in land.
2.22 Generator: The generators and associated prime mover(s), which are a part
of the Generating Facility.
<PAGE>
2.23 Interconnection Facilities: Those protection, metering, electric line(s),
and other facilities required in Edison's sole judgment to permit an
electrical interface between Edison's system and the Generating Facility in
accordance with Edison's Tariff Rule No. 21 titled Cogeneration and Small
Power Production Interconnection Standards filed with the Commission.
2.24 Interconnection Facilities Agreement: That document which is specified in
Section 1.10 and is attached hereto.
2.25 KVAR: Reactive kilovolt-ampere, a unit of measure of reactive power.
2.26 Operate: To provide the engineering, purchasing, repair, supervision,
training, inspection, testing, protection, operation, use, management,
replacement, retirement, reconstruction, and maintenance of and for the-
,Generating Facility in accordance with applicable California utility
standards and good engineering practices .
2.27 Operating Representatives: Individuals appointed by each Party for the
purpose of securing effective cooperation and interchange of information
between the Parties in connection with administration and technical matters
related to this Contract.
2.28 Parties: Edison and Seller.
2.29 Party: Edison or Seller.
2.30 Peak Months: Those months which the Edison annual system peak demand
could occur. Currently, but subject to change with notice, the peak months for
the Edison system are June, July, August, and September.
2.31 Point of Interconnection: The point where the transfer of electrical
energy between Edison and Seller takes place.
2.32 Project: The Generating Facility and Interconnection Facilities required
to permit operation of Seller's Generator in parallel with Edison's electric
system.
2.33 Protective Apparatus: That equipment and apparatus installed by Seller
and/or Edison pursuant to Section A.2.
2.34 Qualifying Facility: Cogeneration or Small Power Production Facility
which meets the criteria as defined in Title 18, Code of Federal Regulations,
Section 292.201 through 292.207.
2.35 Second Period: The period of the Contract Term specified in Section 3.2.
2.36 Seller: The Party identified in Section 1.0.
<PAGE>
2.37 Seller's Facility: The premises and equipment of Seller located as
specified in Section 1.2.
2.38 Small Power Production Facility: The facilities and equipment which use
biomass, waste, or Renewable Resources, including wind, solar, geothermal, and
water, to produce electrical energy as defined in Title 18, Code of Federal
Regulations, Section 292.201 through 292.207.
2.39 Standby Demand: Seller's electrical load requirement that Edison is
expected to serve when Seller's Generating Facility is not available.
2.40 Summer Period: Defined in Edison's Tariff Schedule No. TOU-8 as now in
effect or as nay 'hereafter be authorized by the Commission.
2.41 Tariff Schedule No. TOU-8: Edison's time-of-use energy tariff for
electric service exceeding 500 kW, as now 'in effect or as may hereafter be
authorized by the Commission.
2.42 Uncontrollable Forces: Any occurrence beyond the control of a Party which
causes that Party to be unable to perform its obligations hereunder and which
a Party has been unable to overcome by the exercise of due diligence,
including but not limited to flood, drought, earthquake, storm, fire,
pestilence, lightning and other natural catastrophes, epidemic, war, riot,
civil disturbance or disobedience, strike, labor dispute, action or inaction
of legislative, judicial, or regulatory agencies, or other proper authority,
which may conflict with the terms of this Contract, or failure, threat of
failure or sabotage of facilities which have been maintained in accordance
with good engineering and operating practices in California.
2.43 Winter Period: Defined in Edison's Tariff Schedule No. TOU-8 as now in
effect or as may hereafter be authorized by the Commission.
3. Term
This Contract shall be effective upon execution by the Parties and shall
remain effective until either Party gives 90 days prior written notice of
termination to the other Party, except that such notice of termination shall
not be effective to terminate this Contract prior to expiration of the
Contract Term specified in Section 1.8.
3.1 The First Period of the Contract Term shall commence upon date of Firm
Operation but not later than 5 years from the date of execution of this
Contract.
a. If the Contract Term specified in Section 1.8 is 15 years, the First Period
of the Contract Term shall be for 5 years.
<PAGE>
b. If the Contract Term specified in Section 1.8 is 20 years or greater, the
First Period of the Contract Term shall be for 10 years.
3.2 The Second Period of the Contract Term shall commence upon expiration of
the First Period and shall continue for the remainder of the Contract Term.
4. Generating Facility
4.1 Ownership
4.1.1 The Generating Facility shall be owned by Seller.
4.1.2 Seller Warrants that it has the right to enter into this Agreement and
to sell the energy generated by the Project to-Edison under the terms of this
Agreement.
4.2 Design
4.2.1 Seller, at no cost to Edison, shall:
a. Design the Generating Facility.
b. Acquire all permits and other approvals necessary for the construction,
operation, and maintenance of the Generating Facility.
c. Complete all environmental impact studies, necessary for the construction,
operation, and maintenance of the Generating Facility.
d. Furnish and install the relays, meters, power circuit breakers,
synchronizer, and other control and Protective Apparatus as shall be agreed to
by the Parties as being necessary for proper and safe operation of the Project
in parallel with Edison's electric system.
4.2.2 Edison shall have the right to:
a. review the design of the Generating Facility's electrical system and the
Seller's Interconnection Facilities. Such review may include, but not be
limited to, the Generator, governor, excitation system, synchronizing
equipment, protective relays, and neutral grounding. The Seller shall be
notified in writing of the outcome of the Edison review within 30 days of the
receipt of all specifications for both the Generating Facility and the
Interconnection Facilities. Any flaws perceived by Edison in the design shall
be described in Edison's written notice.
b. Request modifications to the design of the Generating Facility's electrical
system and the Seller's Interconnection Facilities. Such modifications shall
be required if necessary to
<PAGE>
maintain Edison Electric System Integrity when in parallel with the Edison
electric system.
4.2.3 if Seller's Generating Facility includes an induction-type generators,
Seller shall provide individual power factor correction capacitors for each
such generator. Such capacitors shall be switched on and off simultaneously
with each of the associated induction'-type generator(s) of the Generating
Facility.. The KVAR rating of such capacitors shall be the highest standard
value which will not exceed such generators no-load KVAR requirement. Seller
shall not install power factor correction in excess of that required by this
Section unless agreed to in writing by the Parties.
4.2.4 Seller shall not locate any part of a wind-driven generating unit of the
Generating Facility within a distance 1.25 times the height of a wind turbine
structure of an existing electric utility 33 kV, 66 kV, or 115 kV transmission
line right of way or within three rotor blade diameters of an existing
electric utility 220 kV or 500 kV transmission line right of way or any
proposed transmission line right of way of which Edison is pursuing regulatory
approval for construction.
4.2.5 If Seller's Generating Facility is a small hydro project, the Contract
Capacity in Section 1.5 shall be based on the average of the 5 lowest years of
stream flow taken from a study covering a minimum 50 years of continuous data.
The Parties may agree upon a shorter period if data for a 50-year period is
not obtainable.
4.3 Construction
Edison shall have the right to review, consult with, and make recommendations
regarding Seller's construction schedule and to monitor the construction and
start-up of the Project. Seller shall notify Edison, at least one year prior
to Firm Operation, of changes in Seller's Construction Schedule which may
affect the date of Firm Operation.
4.4 Operation
4.4.1 The Generating Facility and Seller's Protective Apparatus shall be
operated and maintained in accordance with applicable California utility
industry standards and good engineering practices with respect to
synchronizing, voltage and reactive power control. Edison shall have the right
to monitor operation of the Project and may require changes in Seller's method
of operation if such changes are necessary, in Edison's sole judgment, to
maintain Edison Electric System Integrity.
4.4.2 ,Seller shall notify in writing Edison's Operating Representative at
least 14 days prior to:
(a) the initial testing of Seller's Protective Apparatus; and
<PAGE>
(b) the initial parallel operation of Seller's Generators with Edison's
electrical system. Edison shall have the right to have a representative
present at each event.
4.4.3 Edison shall have the right to require Seller to disconnect the
Generator from the Edison electric system or to reduce the electrical output
from the Generator into the Edison electric system, whenever Edison
determines, in its sole judgement, that such a disconnection is necessary to
facilitate maintenance of Edison's facilities, or to maintain Edison Electric
System Integrity. If Edison requires Seller to disconnect the Generator from
the Edison electric system pursuant to this Section 4-4.3, Seller shall leave
the right to continue to serve its total electrical requirements provided
Seller has elected Operating Option III. Each Party shall endeavor to correct,
within a reasonable period, the condition on its system which necessitates the
disconnection' or the retraction of electrical output. The duration of the
disconnection or the reduction in electrical output shall be limited to the
period of time such a condition exists.
4.4.4 The Generating Facility shall be operated with all of Seller's
Protective Apparatus in service whenever the Generator is connected to or is
operated in parallel with the Edison electric system. Any deviation for brief
periods of emergency or maintenance shall only be by agreement of the Parties.
4.4.5 Each Party shall keep the other Party's Operating Representative
informed as to the operating schedule of their respective facilities affecting
each other's operation hero under, including-any reduction in Contract
Capacity availability. In addition, Seller shall provide Edison with
reasonable advance notice regarding its scheduled outages including any
reduction in Contract Capacity availability. Reasonable advance notice is as
follows:
SCHEDULED OUTAGE ADVANCE NOTICE
EXPECTED DURATION TO EDISON
Less than one day 24 Hours
One day or more
(except major overhauls) 1 Week
Major overhaul 6 Months
4.4.6 Notification by each Party's Operating Representative of outage date and
duration should be directed to the other Party's Operating Representative by
telephone..
4.4.7 Seller shall not schedule major overhauls during Peak Months.
4.4.8 Seller shall maintain an operating log at Seller's Facility with records
of: real and reactive power production; changes in operating status, outages,
Protective Apparatus operations; and any unusual conditions found during
inspections. Changes in setting shall also be logged for Generators which are
"block-loaded" to a specific kW capacity. In addition, Seller shall maintain
records applicable to the Generating Facility, including the electrical
characteristics of the Generator and settings or adjustments of the Generator
<PAGE>
control equipment and protective devices. Information maintained pursuant to
this Section 4.4.8 shall be provided to Edison, within 30 days of Edison's
request.
4.4.9 ,If, at any time, Edison doubts the integrity of any of Seller's
Protective Apparatus and believes 'that such loss of integrity would impair
the Edison Electric System Integrity, Seller shall demonstrate, to Edison's
satisfaction, the correct calibration and operation of the equipment in
question.
4.4.10 Seller shall test all protective devices specified in Section 4.2 with
qualified Edison personnel present at intervals not to exceed four years.
4-4.11 Seller shall, to the extent possible, provide reactive power for its
own requirements, and where applicable, the reactive power losses of
interfacing transformers. Seller shall not deliver excess reactive power to
Edison unless otherwise agreed upon between the Parties.
4.4.12 The Seller warrants that the Generating Facility meets the requirements
of a Qualifying Facility as of the date of Firm Operation and will continue to
meet such, requirements through the Contract Term
4.4.13 The Seller warrants that the Generating Facility shall at all tines
conform to all applicable laws and regulations. Seller shall obtain and
maintain any governmental authorizations and permits for the continued
operation of the Generating Facility. If at any time Seller does not hold such
authorizations and permits, Seller agrees to reimburse Edison for any loss
which Edison incurs as a result of the Seller's failure to maintain
governmental authorization and permits.
4.4.14 At Edison's request, Seller shall make all reasonable effort to -
deliver power at an average rate of delivery at least equal to the Contract
Capacity during periods of Emergency. In the event that the Seller has
previously scheduled an outage coincident with an Emergency, Seller shall make
all reasonable efforts to reschedule the outage. The notification periods
listed in Section 4.4.5 shall be waived by Edison if Seller reschedules the
outage.
4.4.15 Seller shall demonstrate the ability to provide Edison the specified
Contract capacity within 30 days of the (late of Firm Operation. Thereafter,
at least once per year at Edison's request, Seller shall ,,demonstrate the
ability to provide Contract Capacity for a reasonable period of tine as
required by Edison. Seller's demonstration of Contract Capacity shall be at
Seller's expense and conducted at a time and pursuant to procedures mutually
agreed upon by the Parties. If Seller fails to demonstrate the ability to
provide the Contract Capacity, the Contract Capacity shall be reduced by
agreement of the Parties pursuant to Section 9.1.2.6.
4.5 Maintenance
<PAGE>
4.5.1 Seller shall maintain the Generating Facility in accordance with
applicable California utility industry standards and good engineering and
operating practices. Edison shall have the right to monitor such maintenance
of the Generating Facility. Seller shall maintain and deliver a maintenance'
record of the Generating Facility to Edison's Operating Representatives upon
request.
4.5.2 Seller shall make a reasonable effort to schedule routine maintenance
during off-Peak Months Outages for scheduled maintenance shall not exceed a
total of 30 peak 'hours for the Peak Months.
4.5.3 The allowance for scheduled maintenance is as follows:
a. Outage periods for scheduled maintenance shall not exceed 840 hours (35
days) in any 12-month period. This allowance may be used in increments of an
'hour or longer on a consecutive or nonconsecutive basis.
b. Seller may accumulate unused maintenance 'hours on a year-to-year basis up
to a maximum of 1,080 hours (45 days). This accrued time must be used
consecutively and only for major overhauls.
4.6 Any review by Edison of the design, construction, operation, or
maintenance of the Project is solely for the information of Edison. By making
such review, Edison makes no representation as to the economic and technical
feasibility, operational capability, or reliability of the Project. Seller
shall in no way represent to any third party that any such review by Edison of
the Project, including but not limited to, any review of the design,
construction, operation, or maintenance of the Project by Edison is a
representation by Edison as to the economic and technical feasibility,
operational capability, or reliability of said facilities. Seller is solely
responsible for economic and technical feasibility, operational capability, or
reliability thereof.
5. Operating Options
5.1 Seller shall elect in Section 1.9 to operate its Generating Facility in
parallel with Edison's electric system pursuant to one of the following
options:
a. Operating Option I: Seller dedicates the entire Generator output to Edison
with no electrical service required from Edison.
b. Operating Option II: Seller dedicates the entire Generator output to
Edison with electrical service required from Edison.
c. Operating Option III: Seller dedicates to Edison only that portion of the
Generator output in excess of Seller's electrical service requirements. As
much as practicable, Seller
<PAGE>
intends to serve-its electrical requirements from the Generator output and
will require electrical standby from Edison as designated in Section 1.9.
5.2 After expiration of the First Period of the Contract Term, Seller may
change the Operating Option, but not more than once per year upon at least 90
days prior written notice to Edison. A reduction in Contract Capacity as a
result of a change in operating options shall be subject to Section 9.1.2.6.:
Edison shall not be required to remove or reserve capacity of Interconnection
Facilities made idle by a change in operating options. Edison may dedicate any
such idle Interconnection Facilities at any time to serve other customers or
to interconnect with other electric power sources. Edison shall process
requests for changes of operating option in the chronological order received.
5.2.1 When the Seller wishes to reserve Interconnection Facilities paid for by
the Seller but idled by a change in operation option, Edison shall impose a
special facilities charge related to the operation and maintenance of the
Interconnection Facility. When the Seller no longer needs said facilities for
which it has paid, the Seller shall receive credit for the net salvage value
of the Interconnection Facilities dedicated to Edison's use. if Edison is able
to make use of these facilities to serve other customers, the Seller shall
receive the fair market value of the facilities determined as of the date the
Seller either decides no longer to use said facilities or fails to pay the
required maintenance fee.
6. Interconnection Facilities
6.1 The Parties shall execute an Interconnection Facilities Agreement selected
by Seller in Section 1.10, covering the design, installation, operation and
maintenance of the Interconnection Facilities required in Edison's sole
judgment, to permit an electrical interface between the Parties pursuant to
Edison's Tariff Rule No. 21.
6.2 The cost for the Interconnection Facilities set forth in the appendices
specified in Section 1.10, are estimates only for Seller's information and
will be adjusted to reflect recorded costs after installation is complete;
except that, upon Seller's written request to Edison, Edison shall provide a
binding estimate which shall be the basis for the Interconnection Facilities
cost in the Interconnection Facilities Agreement executed by the Parties.
6.3 The nature of the Interconnection Facilities and the Point of
Interconnection shall be set forth either by equipment lists or appropriate
on-line diagrams and shall be attached to the appropriate appendix specified
in Section 1.10.
6.4 The design, installation, operation, maintenance, and modifications of the
Interconnection Facilities shall be at Seller's expense.
6.5 Seller shall not commence parallel operation of the Generating Facility
until written approval for operation of the Interconnection Facilities 'has
been received from Edison.
<PAGE>
The Seller shall notify Edison at least forty-five days prior to the initial
energizing of the Point of Interconnection. Edison shall have the right to
inspect the Interconnection Facilities within thirty days of receipt of such
notice. If the facilities do not pass Edison's inspection, Edison shall
provide in writing the reasons for this failure within five days of the
inspection.
6.6 Seller, at no cost to Edison, shall acquire all permits and approvals and
complete all environmental impact studies necessary for the design,
installation, operation, and maintenance of the Interconnection Facilities.
7. Electric Lines And Associated
7.1 Edison shall, as it deems necessary or desirable, build electric lines,
facilities and other equipment, both overhead and underground, on and off
Seller's Facility, for the purpose of effecting the agreements contained in
this Contract. The physical location of such electric lines,- facilities and
other equipment on Seller's Facility shall be determined by agreement of the
Parties.
7.2 Seller shall reimburse Edison for the cost of acquiring property rights
off Seller's Facility required by Edison to meet its obligations under this
Contract.
7.3 Seller shall grant, or cause to be granted, to Edison, without cost to
Edison, and by an instrument of conveyance, acceptable to Edison, rights of
way'. easements and other property interests necessary to construct,
reconstruct, use, maintain, alter, add to, enlarge, repair, replace, inspect
and remove, at any time, the electric lines, facilities or other equipment,
both overhead and underground, which are required by Edison to effect the
agreements contained in the Contract and the rights of ingress and egress at
all reasonable times necessary for Edison to perform the activities
contemplated in the Contract.
7.4 The electric lines, facilities, or other equipment referred to in this
Section 7 installed by Edison on or off Seller's Facility shall be and remain
the property of Edison.
7.5 Edison shall have no obligation to Seller for any delay or "cancellation
due to inability to acquire a satisfactory right of way, easements, or other
property interests.
8. Metering
8.1 All meters and equipment used for the measurement of electric power for
determining Edison's payments to Seller pursuant to this Contract shall be
provided, owned, and maintained by Edison at Seller's expense in accordance
with Edison's Tariff Rule No. 21.
<PAGE>
8.2 All meters and equipment used for billing Seller for electric service
provided to Seller by Edison under Operating Options 11 or III shall be
provided, owned, and maintained by Edison at Edison's expense in accordance
with Edison's Tariff Rule No. 16.
8.3 The meters and equipment used for measuring the Energy sold to Edison
shall be located on the side of the Interconnection Facilities as specified by
Seller in Section 1.13. If the metering equipment is located on Seller's side
of the Interconnection Facilities', then a loss compensation factor agreed
upon by the Parties shall be applied. At the written request of the Seller,
and at Seller's sole expense, Edison shall measure actual transformer losses.
if the actual measured value differs from the agreed-upon loss compensation
factor, the actual value shall be applied prospectively. If the meters are
placed on Edison's side of the Interconnection Facilities, service shall be
provided at the available transformer high-side voltage.
8.4 For purposes of monitoring the Generator operation and the determination
of standby charges, Edison shall have the right to require, at Seller's
expense, the installation of generation metering. Edison may also require the
installation of telemetering equipment at Seller's expense for Generating
Facilities equal to or greater than 10 fill. Edison may require the
installation of telemetering equipment at Edison's expense for Generating
Facilities less than 10 fill.
8.5 Edison's meters shall be sealed and the seals shall be broken only when
the meters are to be inspected, tested, or adjusted by Edison. Seller shall be
given reasonable notice of testing and have the right to 'nave its Operating
Representative present on such occasions.
8.6 Edison's meters installed pursuant to this Contract shall be tested by
Edison, at Edison's expense, at least once each year and at any reasonable
time upon request by either Party, at the requesting Party's expense. If
Seller makes such request, Seller shall reimburse said expense to Edison
within thirty days after presentation of a bill therefore.
8. 7 Metering equipment found to be inaccurate shall be repaired, adjusted, or
replaced by Edison such that the metering accuracy of said equipment shall be
within two percent. If metering equipment inaccuracy exceeds two percent, the
correct amount of Energy and Contract Capacity delivered during the period of
said inaccuracy shall be estimated by Edison and agreed upon by the Parties.
9. Power Purchase Provisions
Prior to the date of Firm Operation, Seller shall be paid for Energy only
pursuant to Edison's published avoided cost of energy based on Edison's full
avoided operating cost as periodically updated and accepted by the Commission.
If at any time Energy can be delivered to Edison and Seller is contesting the
claimed jurisdiction of any entity which 'has not issued a license or other
approval for the Project, Seller, in its sole discretion and risk, may deliver
Energy to Edison and for any Energy purchased by Edison Seller shall
<PAGE>
receive payment from Edison for (i) Energy pursuant to this Section, and (ii)
as-available capacity based on a capacity price from the Standard Offer No. I
Capacity Payment Schedule as approved by the Commission. Unless and until all
required licenses and approvals have been obtained, Seller may discontinue
deliveries at any time.
9.1 Capacity Payments
Seller shall sell to Edison and Edison shall purchase from Seller capacity
pursuant to the Capacity Payment Option selected by Seller in Section 1.11.
The Capacity Payment Schedules will be based on Edison's full avoided
operating costs as approved by the Commission throughout the life of this
Contract. Data used to derive Edison's full avoided costs will be made
available to the Seller, to the extent specified by Seller upon request.
9.1.1 Capacity Payment Option A -- [Intentionally deleted]
9.1.2 ,Capacity Payment Option B -- Firm Capacity Purchase
If Seller selects Capacity Payment Option B, Seller shall provide to Edison
for the Contract Term the Contract Capacity specified in Section 1.5, or as
adjusted pursuant to Section 9.1.2.7, and Seller shall be paid as follows:
9.1.2.1 If Seller meets the performance requirements set forth in Section
9.1.2.2, Seller shall be paid a Monthly Capacity Payment, beginning from the
date of Firm Operation equal to the sum of the on-peak, mid-peak, and off-peak
Capacity Period Payments. Each Capacity Period Payment is calculated pursuant
to the following formula:
MONTHLY PERIOD CAPACITY PAYMENT A x B x C x D
Where A = Contract Capacity Price specified in Section 1.11 based on the
Standard offer No. 2 Capacity Payment Schedule as approved by the Commission
and in effect on the date of the execution of this Contract.
B = Conversion factors to convert annual capacity prices to monthly payments
by time of delivery as specified in Standard Offer No. 2 Capacity Payment
Schedule and subject to periodic modifications as approved by the Commission.'
C = Contract Capacity specified in Section 1.5.
D = Period Performance Factor, not to exceed 1.0, calculated as follows:
Period kWh purchased by Edison limited by the level of Contract Capacity 0.8 x
Contract Capacity x (period Hours minus Maintenance Hours Allowed in Section
4.5.)
9.1.2.2 Performance Requirements
<PAGE>
To receive the Monthly Capacity Payment in Section 9.1.2.1, Seller shall
provide the Contract Capacity in each Peak Month for all on-peak hours as such
peak hours are defined in Edison's Tariff Schedule No. TOU-8 on file with the
Commission, except that Seller is entitled to a 20% allowance for Forced
Outages for each Peak month. Seller shall not be subject to such performance
requirements for the remaining hours of the year.
a. If Seller fails to meet the requirements specified in Section 9.1.2.2,
Edison may., in Edison's sole discretion, place Seller on probation for a
period not to exceed 15 months. if Seller fails to meet the requirements
specified in
9.1.2.2 during the probationary period, Edison may derate the Contract
Capacity to the greater of the capacity actually delivered during the
probationary period, or the capacity at which Seller can reasonably meet such
requirements. A reduction in contract Capacity as a result of this Section
9.1.2.2 shall be subject to Section 9.1.2.6.
b. If Seller fails to meet the requirements set forth in Section 9.1.2.2 due
to a Forced Outage on the Edison-system or a request to reduce or curtail
delivery under Section 9.4, Edison shall continue Monthly Capacity Payments
pursuant to Capacity Payment Option S. The Contract Capacity curtailed shall
be treated the same as scheduled maintenance outages in the Calculation of the
Monthly Capacity Payment.
9.1.2.3 If Seller is unable to provide Contract Capacity due to Uncontrollable
Forces, Edison shall continue Monthly Capacity Payments for 90 days from the
occurrence of the Uncontrollable Force. Monthly Capacity Payments payable
during a period of interruption or reduction by reason of an Uncontrollable
Force shall be treated the same as scheduled maintenance outages.
9.1.2.4 Hydroelectric facilities which 'have their Contract Capacity based on
the dry-year average, shall not have their Contract Capacity derated when
failure to meet the requirements set forth in Section 9.1.2.2 is due solely-
to the occurrence of. a dry year which -is drier than the five dry-year
average.
9.1.2.5 Capacity Bonus Payment For Capacity Payment Option B, Seller may
receive a Capacity Bonus Payment as follows:
a. Bonus During Peak months -- For a Peak month, Seller shall receive a
Capacity Bonus Payment if (i) the requirements set forth in Section 9.1.2.2
have been met, and (ii) the on-peak capacity factor exceeds 85%.
b. Bonus During lion-Peak Months -- For a non-peak month, Seller shall receive
a Capacity Bonus Payment if (i) the requirements set forth in Section 9.1.2.2
'have been met, (ii) the on-peak capacity factor for each Peak Month during
the year was at least 85%, and (iii) the on-peak capacity factor for the non-
peak month exceeds 85%.
c. For any eligible month, the' Capacity Bonus Payment shall be calculated as
follows:
<PAGE>
CAPACITY BONUS PAYMENT = A x B x C x D
Where A = (1.2 x On-Peak Capacity Factor) -1.02 Where the On-Peak Capacity
Factor, not to exceed 1.0, is calculated as follows:
Period kWh purchased by Edison limited by the level of Contract Capacity
-------------------------------------------------------------------------
(Contract Capacity) x (Period Hours minus Maintenance Hours Allowed in
Section 4.5)
B = Contract Capacity Price specified in Section 1.11 for Capacity Payment
Option B
C = 1/12
D = Contract Capacity specified in Section 1.5
d. When Seller is entitled to receive a Capacity Bonus Payment, the Monthly
Capacity Payment shall be the sum of the Monthly Capacity Payment pursuant to
Section 9.1.2.1 and' the Monthly Capacity Bonus Payment pursuant to this
Section.
e. For Capacity Payment Option B, Seller shall be paid for capacity in excess
of Contract Capacity based on the as-available capacity price in Standard
Offer No. 1 Capacity Payment Schedule, as updated and approved by the
Commission. Seller shall not receive any as-available capacity payment in
excess of Contract Capacity if Seller's Generating Facility is a small hydro
project.
9.1.2.6 Capacity Reduction
a. Seller may reduce the Contract Capacity specified in Section 1.5, provided
that Seller gives Edison prior written notice for a period determined by the
amount of Contract Capacity reduced as follows:
Amount of Contract Length of
Capacity Reduced Notice Required
25,000 kW or under 12 months
25,001 - 50,000 kW 36 months
50,001 - 100,000 kW 48 months
over 100,000 kW 60 months
b. Subject to Section 10.4, Seller shall refund to Edison with interest at the
current published Federal Reserve Board three months prime commercial paper
rate an amount equal to the difference between (i) the accumulated Monthly
Capacity Payments paid by Edison pursuant to Capacity Payment Option B up to
the time the reduction notice is received by Edison, and (ii) the total
capacity payments which Edison would have paid if based on the Adjusted
Capacity Price.
<PAGE>
c. From the date the reduction notice is received to the date of actual
capacity reduction, Edison shall make capacity payments based on the Adjusted
Capacity Price for the amount of Contract Capacity being reduced.
d. Seller may reduce Contract Capacity without the notice prescribed in
Section 9.1.2.6(a), provided that Seller shall refund to Edison the amount
specified in Section 9.1.2.6(b) and an amount equal to: (i) the amount of
Contract Capacity being reduced, times (ii) the difference between the Current
Capacity Price and the Contract Capacity Price, times (iii) the number of
years and fractions thereof (not less than one year) by which the Seller has
been deficient in giving prescribed notice. If the Current Capacity Price is
less than the Contract Capacity Price, only payment under Section 9.1.2.6(b)
shall be due to Edison.
9.1.2.7 Adjustment to Contract Capacity The Parties may agree in writing at
any time to adjust the Contract Capacity. Seller may reduce the Contract
Capacity pursuant to Section 9.1.2.6. Seller may increase e Contract Capacity
with Edison's approval and thereafter receive payment for the increased
capacity in accordance with the Contract Capacity Price for the Capacity
Payment option selected by Seller for the remaining Contract Term.
9.2 Energy Payments - First Period During the First Period of the Contract
Term, Seller shall be paid a Monthly Energy Payment for the Energy delivered
by the Seller to Edison at the Point of Interconnection pursuant to the Energy
Payment Option selected by Seller in Section 1.12, as follows. (Data used to
derive Edison's Energy payments for the First Period will be made available to
the Seller, to the extent specified by Seller, upon request.)
9.2.1 Energy Agreement Purchase Forecast of Annual marginal Cost of Energy. If
Seller selects Energy Payment Option 1, then during the First Period of the
Contract Term, Seller shall be paid a Monthly Energy Payment for Energy
delivered by Seller and purchased by Edison during each month in the % First
Period of the Contract Term pursuant to the following formula:
MONTHLY ENERGY PAYMENT (A x D) + (B x D) + (C x D)
Where A = kWh purchased by Edison during on-peak periods defined in Edison's
Tariff Schedule No. TOU-8.
B = kWh purchased by Edison during mid-peak periods defined in Edison's
Tariff Schedule No. TOU-8.
C = kWh purchased by Edison during off-peak periods defined in Edison's
Tariff Schedule No. TOU-8.
D = The sum of: (i) the appropriate time differentiated energy price from
the Forecast of Annual Marginal Cost of Energy, multiplied by the decimal
equivalent of the percentage of the forecast specified in Section 1.12, and
(ii) the appropriate time
<PAGE>
differentiated energy price from Edison's published avoided cost of energy
multiplied by the decimal equivalent of the percentage of the published energy
price specified in Section 1.12.
9.2.2 Energy Payment Option 2 -- Levelized Forecast of Marginal Cost of
Energy. If Seller selects Energy Payment Option 2, then during the First
Period of the Contract Term, Seller shall be paid a Monthly Energy Payment for
Energy delivered by Seller and purchased by Edison each month during the First
Period of the Contract Term pursuant to the following formula:
MONTHLY ENERGY PAYMENT = (A x D) + (B x D) + (C x D)
Where A = kWh purchased by Edison during on-peak periods defined in Edison's
Tariff Schedule No. TOU-8.
B = kWh purchased by Edison during mid-peak periods defined in Edison's Tariff
Schedule No. TOU-8.
C = kWh purchased by Edison during off-peak periods defined in Edison's Tariff
Schedule No. TOU-8.
D = The sum of: (i) the appropriate time differentiated energy price from the
Levelized Forecast of Marginal Cost of Energy, for the First Period of the
Contract Term multiplied by the decimal equivalent of the percentage of the
levelized forecast specified in Section 1.12, and (ii) the appropriate time
differentiated energy price from Edison's published avoided cost of energy
multiplied by the decimal equivalent of the percentage of the published energy
price specified in Section 1.12.
9.2.2.1 Performance Requirement for Energy Payment Option 2
During the First Period when the annual forecast referred to in Section 9.2.1
is greater than the levelized forecast referred to in Section 9.2.2, Seller
shall deliver to Edison at least 70 percent of the average annual kWh
delivered to Edison during those previous periods when the levelized forecast
referred to in Section 9.2.2 is greater than the annual forecast referred to
in Section 9.2.1 as resource conditions permit for solar, wind, and hydro
Generating Facilities and excluding uncontrollable forces. If Seller does not
meet the Performance requirements of this Section 9.2.2.1, Seller shall be
subject to Section 9.5. 9.3 Energy Payments - Second Period During the Second
Period of the Contract Term, Seller shall be paid a Monthly Energy Payment for
Energy delivered by Seller and purchased by Edison at a rate equal to 100% of
Edison's published avoided cost of energy based on Edison's full avoided
operating cost as updated periodically and accepted by the Commission,
pursuant to the following formula:
MONTHLY ENERGY PAYMENT =
<PAGE>
kWh purchased by Edison for each on-peak, mid-peak, and off-peak time period
defined in Edison's Tariff Schedule No. TOU-8 X Edison's published avoided
cost of energy by time of delivery for each time period.
Data used to derive Edison's full avoided costs will be made available to the
Seller, to the extent specified by Seller, upon request.
9.4 Edison shall not be obligated to accept or Pay for Energy, and may request
Seller whose Generating Facility is one (1) MWh or greater to discontinue or
reduce delivery of Energy, for not more than 300 hours annually during off-
peak hours when (i) purchases would result in costs greater than those which
Edison" would incur if it did not purchase Energy from Seller but instead
utilized an equivalent amount of Energy generated from another Edison source,
or (ii) the Edison Electric System demand would require that Edison hydro-
energy be spilled to reduce generation.
9.5 Energy Payment Refund If Seller elects Energy Payment Option 2, Seller
shall be subject to the following:
9.5.1 If Seller fails to perform the Contract obligations for any reason
during the First ..Period of the Contract Term, or fails to meet the
performance requirements set forth, in Section 9.2.2.1, and at the time of
such failure to perform, the net present value of the cumulative Energy
payments received by Seller pursuant to Energy Payment Option 2 exceeds the
net present value of what Seller would have been paid pursuant to Energy,
Payment Option 1, Seller shall make an energy payment refund equal to the
difference in such net present values in the year in which the refund is due.
The present value calculation shall be based upon the rate of Edison's
incremental cost of capital specified in Section 1.12.
9.5.2 Not less than 90 days prior to the date Energy is first delivered to the
Point of Interconnection, Seller shall provide and maintain a performance
bond, surety bond, performance insurance, corporate guarantee, or bank letter
of credit, satisfactory to Edison, which shall insure payment to Edison of the
Energy Payment Refund at any time during the First Period. Edison may, in its
sole discretion accept another form of security except that in such instance a
1-1/2 percent reduction shall then apply to the levelized forecast referred to
in Section 9.2.2 in computing payments for Energy. Edison shall be provided
with certificates evidencing Seller's compliance with the security
requirements in this Section which shall also include the requirement that
Edison be given 90 days. prior written notice of the expiration of such
security.
9.5.3 If Seller fails to provide replacement security not less than 60 days
prior to the date of expiration of existing security, the Energy Payment
Refund provided in Section 9.5 shall be payable forthwith. Thereafter,
payments for Energy shall be 100 percent of the Monthly Energy Payment
provided in Section 9.2.1.
<PAGE>
9.5.4 If Edison at any time determines the security to be otherwise
inadequate, and so notifies Seller, payments thereafter for Energy shall be
100 percent of the Monthly Energy Payment provided in section 9.2.1. If within
30 days of the date Edison gives notice of such inadequacies, Seller satisfies
Edison's security requirements, Energy Payment Option 2 shall be reinstated.
If Seller fails to satisfy Edison's .'security requirements within the 30-day
period, the Energy Payment Refund provided in Section 9.5 shall be payable
forthwith.
10. Payment And Billing Provisions
10.1 For Energy and capacity purchased by Edison:
10.1.1 Edison shall mail to Seller not later' than thirty days after the end
of each monthly billing period (1) a statement showing the Energy and Contract
Capacity delivered to Edison during the on-peak, mid-peak, and off-peak
periods, as those periods are specified in Edison's Tariff Schedule No. TOU-8
for that monthly billing period, (2) Edison's computation of the amount due
Seller, and (3) Edison's check in payment of said amount.
10.1.2 If the monthly payment period involves portions of two different
published Energy payment schedule periods, the monthly Energy payment shall be
prorated on the basis of the percentage of days at each price.
10.1.3 If the payment period is less than 27 days or greater than 33 days, the
capacity ..,payment shall be prorated on the basis of the average days per
month per year.
10.1.4 If within' thirty days of receipt of the statement Seller does not make
a report in writing to Edison of an error, Seller shall be deemed to have
waived any error in Edison's statement, computation, and payment, and they
shall be considered correct and complete.
10.2 For electric service provided by Edison:
10.2.1 Under Operating Option III pursuant to Section 5.1, standby electric
service shall be provided under terms and conditions of Edison's tariff
schedule indicated below as now in effect or as may hereafter be authorized by
the Commission to be revised. The applicable tariff schedules are:
STANDBY TARIFF SCHEDULE NO ELECTRIC SERVICE TARIFF
SCG-1 TOU-8 or GS-2
SCG-2 TOU-8
SCG-3 TOU-8
10.2.1.1 (Applicable to SCG-1 only) The Standby Demand for calculation of the
standby charge in SCG-1 as specified in Section 1.9. Edison reserves the right
to adjust the Standby Demand based on recorded demand during periods standby
power is required.
<PAGE>
10.2.1. 2 (Applicable to SCG-1 only) The capacity rating for determination of
standby waiver qualifications shall be Contract Capacity plus the maximum
electric load served by the Generating Facility during the on-peak time period
recorded during the preceding 12-month time period.
10.2.1.3 A minimum monthly charge may be established for standby electric
service as provided in the tariff schedule elected in Section 1.9. Said
minimum monthly charge shall be specified in section 1.9.
10.2.2 Under Operating Options II and III pursuant to Section 5.1, electric
service shall be provided under terms, conditions, and rates of Edison's
tariff schedule indicated below as now in effect or as may hereafter be
authorized by the Commission to be revised.
The applicable tariff schedule is:
TOU-8,
The contract demand for calculation of the minimum demand charge in the
applicable tariff schedules is specified in Section 1.9.
10.2.3 Edison shall commence billing Seller for electric service rendered
pursuant to the applicable tariff schedule on the date that the Point of
Interconnection is energized.
10.3 Monthly charges associated with Interconnection Facilities shall be
billed pursuant to the Interconnection Facilities Agreement contained in the
Appendix specified in Section 1.10.
10.4 Payments due to contract Capacity Reduction
10.4.1 The Parties agree that the refund and payments provided in Section
9.1.2.6 represent a fair compensation for the reasonable losses that would
result from such reduction of Contract Capacity.
10.4.2 In the event of a reduction in Contract Capacity, the quantity, in kW,
by which the Contract Capacity is reduced shall be used to calculate the
refunds and payments due Edison in accordance with Section 9.1.2.6, as
applicable.
10.4.3 Edison shall provide invoices to Seller for all refunds and payments
due Edison under this section which shall. be due within 60 days.
10.4.4 If Seller does not make payments as required in Section 10.4.3, Edison
shall 'have the right to offset any amounts due it against any present or
future payments due Seller and may pursue any other remedies available to
Edison as a result of Seller's failure to perform.
<PAGE>
10.5 Energy Payment Refund Energy Payment Refund is immediately due and
payable upon Seller's failure to perform the contract obligations as specified
in Section 9.5.
11. Taxes
11.1 Seller shall pay ad valorem taxes and other taxes properly attributable
to the Project. If such taxes are assessed or levied against Edison, Seller
shall pay Edison for such assessment or levy.
11.2 Seller shall pay ad valorem taxes and other taxes properly attributed to
land, land rights, or interest in land for the Project. If such taxes are
assessed or levied against Edison, Seller shall pay Edison for such assessment
or levy.
11.3 If the Interconnection Facilities are owned by Edison, Edison shall pay
ad valorem taxes and other taxes properly attributed to said facilities. If
such taxes are assessed or levied against Seller, Edison shall pay :Seller for
such assessment or levy.
11.4 Seller or Edison shall provide information concerning the Project to any
requesting taxing authority.
12. Termination
12.1 This Contract shall terminate if Firm Operation does not occur within 5
years of the date of Contract execution.
13. Liability
13.1 Each Party (First Party) releases the other Party (Second Party), its
directors, officers, employees and agents from any loss, damage, claim, cost,
charge, or expense of any kind or nature (including any direct, indirect or
consequential loss, damage, claim, cost, charge, or expense), including
attorney's fees and other costs of litigation incurred by the First Party in
connection with damage to property of the First Party caused by or arising out
of the Second Party's construction, engineering, repair, supervision,
inspection, testing, protection, operation, maintenance, replacement,
reconstruction, use or ownership of its facilities, to the extent that such
loss, damage, claim, cost, charge, or expense is caused by the negligence of
Second Party, its directors, officers, employees, agents, or any person or
entity whose negligence would be imputed to Second Party.
13.2 Each Party shall indemnify and 'hold harmless the other Party, its
directors, officers, and employees or agents from and against any loss,
damage, claim, cost, charge, (including direct, indirect or consequential
loss, damage, claim, cost charge, or expense), including attorney's fees and
other costs of litigation incurred by the other Party in
<PAGE>
connection with the injury to or death of any person or damage to property of
a third party arising out of the indemnifying Party's construction,
engineering, repair, supervision, inspection, testing, protection, operation,
maintenance, replacement, reconstruction, use, or ownership of its facilities,
to the extent that such loss, damage, claim, cost, charge, or expense is
caused by the negligence of the indemnifying Party, its directors, officers-,
employees, agents, or any person or entity whose negligence would be imputed
to the indemnifying Party, provided, however, that each Party shall be solely
responsible for and shall bear all cost of claims brought by its contractors
or its own employees and shall indemnify and 'hold harmless the other Party
for any such costs including costs arising out of any workers compensation
law. Seller releases and shall defend, and indemnify Edison from, any claim,
cost, loss, damage, or liability arising from any contrary representation
concerning the effect of Edison's review of the design, construction,
operation, or maintenance of the Project.
13.3 The provisions of this Sect-ion 13 shall not be construed so as to
relieve any insurer of its obligations to pay any insurance claims in
accordance with the provisions of any valid insurance policy.
13.4 Neither Party shall be indemnified under this Section 13 for its
liability or loss resulting from its sole negligence or willful misconduct.
14. Insurance
14.1 Until Contract is terminated, Seller shall obtain and maintain in force
as hereinafter provided comprehensive general liability insurance, including
contractual liability coverage, with a combined single limit of (i) not less
than $1,000,000 each occurrence for Generating Facilities 100 kW or greater;
(ii) not less than $500,000 for each occurrence for Generating Facilities
between 20 kW and 100 kW; and (iii) not less than $100,000 for each occurrence
for Generating Facilities less than 20 kW. The insurance carrier or carriers
and form of policy shall be subject to review and approval by Edison.
14.2 Prior to the date Seller's Generating Facility is first operated in
parallel with Edison's electric system, Seller shall (i) furnish certificate
of insurance to Edison, which certificate shall provide that such insurance
shall not be terminated nor. expire except on thirty days prior written notice
to Edison, (ii) maintain such insurance in effect for so long as Seller's
Generating Facility is operated in parallel with Edison's electric system, and
(iii) furnish to Edison an additional insured endorsement with respect to such
insurance in substantially the following form: "In consideration of the
premium charged, Southern California Edison Company (Edison) is named as
additional insured with respect to all liabilities arising out of Seller's use
and ownership of Seller's Generating Facility." "The inclusion of more than
one insured under this policy shall not operate to impair the rights of one
insured against another insured and the coverages afforded by this policy will
apply as though separate policies had been issued to each insured. The
inclusion of more than one insured will not, however, operate to increase the
limit of the carrier's liability.
<PAGE>
Edison will not, by reason of its inclusion under this policy, incur liability
to the insurance carrier for payment of premium for this policy.' Any other
insurance carried by Edison which may be applicable shall be deemed excess
insurance and Seller's insurance primary for all purposes despite any
conflicting provisions in Seller's policy to the contrary." If the requirement
of Section 14.2(iii) prevents Seller from obtaining the insurance required in
Section 14.1 then upon written notification by Seller to Edison, Section
14.2(iii) shall be waived.
14.3 The requirements of this Section 14 shall not apply to Seller who is a
self-insured governmental agency with established record of self-insurance.
14.4 If Seller fails to comply with the provisions of this Section 14, Seller
shall, at its own cost, defend, indemnify, and hold harmless Edison, its
directors, officers, employees, agents, assigns, and successors in interest
from and against any and all loss, damage, claim, cost, charge, or expense of
any kind of nature (including direct, indirect or consequential loss, damage,
claim, cost, charge, or expense, including attorney's fees and other costs of
litigation) resulting from the death or injury to any person or damage to any
property, including the personnel and property of Edison, to the extent that
Edison would have been protected 'had Seller complied with all of the
provisions of this section 14.
15. Uncontrollable Forces
15.1 Neither Party shall be considered to be in default in the performance of
any of the agreements contained in this Contract, except for obligations to
pay money, when and to the extent failure of performance shall be caused by an
Uncontrollable Force.
15.2 If either Party because of an Uncontrollable Force is rendered wholly or
partly unable to perform its obligations under this Contract, the Party shall
be excused from whatever performance is affected by the Uncontrollable Force
to the extent so affected provided that:
(1) the nonperforming Party, within two weeks after the occurrence of the
Uncontrollable Force, gives the other Party written notice describing the
particulars of the occurrence,
(2) the suspension of performance is of no greater scope and of no longer
duration than is required by the Uncontrollable Force,
(3) the nonperforming Party uses its best efforts to remedy its inability to
perform (this subsection shall not require the settlement of any strike,
walkout, lockout or other labor dispute on terms which, in the sole judgment
of the Party involved in the dispute, are contrary to its interest. It is
understood and agreed that the settlement of strikes, walkouts, lockouts or
other labor disputes shall be at the sole discretion of the Party having the
difficulty),
<PAGE>
(4) when the nonperforming Party is able to resume performance of its
obligations under this Contract, that Party shall give the other Party written
notice to that effect, and
(5) capacity payments during such periods of Uncontrollable Force on Seller's
part shall be governed by Section 9.1.1.3.
15.3 In the event that either Party's ability to perform cannot be corrected
when the Uncontrollable Force is caused by the actions or inactions of
legislative, judicial or regulatory agencies or other proper authority, this
Contract may be amended to comply with the legal or regulatory change which
caused the nonperformance. If a loss of Qualifying Facility. status occurs due
to an Uncontrollable Force and Seller fails not to make the changes. necessary
to maintain its Qualifying Facility status, the Seller shall compensate Edison
for any economic detriment incurred by Edison as a result of such failure.
16. Nondedication Of Facilities
Neither Party, by this Contract, dedicates any part of its facilities involved
in this Project to the public or to the service provided under the Contract,
and such service shall cease upon termination of the Contract.
17. Priority Of Documents
If there is a conflict between this document and any Appendix, the provisions
of this document shall govern. Each Party shall notify the other immediately
upon the determination of the existence of any such conflict.
18. Notices And Correspondence
All notices and correspondence pertaining to this Contract shall be in writing
and shall be sufficient if delivered in person or sent by certified mail,
postage prepaid, return receipt requested to Seller as specified in Section
1.1, or to Edison as follows:
Southern California Edison Company,
Post Office Box,
Rosemead, California 91770,
Attention: Secretary
All notices sent pursuant to this Section 18 shall be effective when received,
and each Party shall be entitled to specify as its proper address any other
address in the 'United States upon written notice to the 'other Party.
<PAGE>
19. Previous Communications
This Contract contains the entire agreement and understanding between the
Parties, their agents, and employees as to the subject matter of this
contract, and merges and supersedes all prior agreements, commitments,
representations, and discussions between the Parties. No Party shall be bound
to any other obligations, conditions, or representations with respect to the
subject matter of this Contract.
20. Nonwaiver
None of the provisions of the Contract shall be considered waived by either
Party except when such waiver is given in writing. The failure of either
Edison or Seller to insist on any one or more instances upon strict
performance of any of the provisions of the Contract or to take advantage of
any of its rights hereunder shall not be construed as a waiver of any such
provisions or the relinquishment of any such rights for the future, but the
same shall continue to remain in full force and effect.
21. Successors And Assigns
Neither Party shall voluntarily assign its rights nor delegate its duties
under this Contract, or any part of such rights or duties, without the written
consent of the other Party, except in connection with the sale or merger of a
substantial portion of its properties. Any such assignment or delegation made
without such written consent shall be null and void. Consent for assignment
shall not be withheld unreasonably. Such assignment shall include, unless
otherwise specified therein, all of Seller's rights to any refunds which might
become due under this Contract.
22. Effect Of Section Headings
Section headings appearing in this Agreement are inserted for convenience
only, and shall not be construed as interpretations of text.
23. Governing Law
This Contract shall be interpreted, governed, and construed under the laws of
the State of California as if executed and to be performed wholly within the
State of California.
24. Multiple Originals
This Contract is executed in two counterparts, each of which shall be deemed
an original.
<PAGE>
Signatures
IN WITNESS WHEREOF, the Parties hereto have executed this Contract this 1st of
February ,1985
SOUTHERN CALIFONIA EDISON COMPANY
By: /s/ Edward A. Myers
---------------------
Edward A. Myers
Vice President
CHINA LAKE JOINT VENTURE
By CALIFORNIA ENERGY COMPANY,INC.
By: /s/ David L. Ludvigson
------------------------
David L. Ludvigson
Executive Vice President
<PAGE>
$/NOFOLIO
Exhibit 10.70
SCE STANDARD CONTRACT
LONG TERM POWER PURCHASE
POWER PURCHASE CONTRACT
BETWEEN
SOUTHERN CALIFORNIA EDISON COMPANY
AND
CHINA LAKE JOINT VENTURE
DOCUMENT NO.: 2126C
EFFECTIVE DATE: September 7, 1983
REVISED: May 4, 1983
<PAGE>
1. Project Summary
This Contract is entered into between Southern California Edison Company
("Edison") and China Lake Joint Venture, A joint Venture between California
Energy Company, Inc. and Caithness Geothermal 1980, Ltd. ("Seller'). Seller is
willing to construct, own, and operate a Qualifying Facility and sell electric
power to Edison and Edison is willing to purchase electric power delivered by
Seller to Edison at the Point of Interconnection pursuant to the terms and
conditions set forth as follows:
1.1 All Notices shall be sent to Seller at the following address:
California Energy Company, Inc.
3333 Mendocino Avenue,
Suite 100 Santa Rosa, CA 95401
1.2 Seller's Generating Facility:
a. Nameplate Rating: 75,000 kW
b. Location: Naval Weapons Center-China Lake, CA
c. Type (check one):
cogeneration Facility...
- ---
X Small Power Production Facility
- ---
d. Delivery of power to Edison at a nominal 115,000 volts.
e. Seller shall commence construction of the Generating Facility by, July 1,
1987
1.3 Edison Customer Service District: Ridgecrest District
510 S. China Lake Blvd. Ridgecrest, CA 93555
Phone: (714) 375-1552
1.4 Location of Edison Operating Switching Center: Lugo Substation 6655
Escondido Street
Hesperia, CA
1.5 Contract Capacity: Phase I 22,500 KW
Phase II 22,500 KW
<PAGE>
Phase III 22,500 KW
-------------------
TOTAL 67,500 KW
1.5.1 Estimated as-available capacity: 0 kW.
1.6 Expected annual production: 591,300,000 kWh.
1.7 Expected Firm Operation for each phase:
Phase I 01/ 01/ 89
Phase II 04/1/89
Phase III 07/1/89
1.8 Contract Term: 20 years
1.9 Operating Options pursuant to Section 5: (Check One)
operating option I. Entire Generator output dedicated to Edison. No electric
- ---
service or standby service required.
X Operating Option II. Entire Generator output dedicated to Edison with
- ---
separate electric service required.
a. Electric service Tariff Schedule No. TOU-8 pursuant to Section 10.2.
b. Contract demand 0 kW. operating Option III. Excess generator output dedicated
to Edison with Seller serving own load.
Operating Option III. Excess generator output dedicated to Edison with Seller
serving own load
a. Electric service Tariff Schedule No. pursuant to Section 10.2.
b. Contract demand kW.
c. Standby Demand ____________kW pursuant to Section 10.2.
d. Maximum electrical requirements expected ___________ kW.
e. Standby electric service Tariff Schedule No.______________ pursuant to
Section 10.2.
f. Minimum monthly charge for standby service
<PAGE>
1.10 Interconnection Facilities Agreement pursuant to Section 6 shall be:(Check
One)
- -_____ Added Facilities Basis (Appendix A.1)
- -_____ Capital Contribution Basis (Appendix A.2)
- -_____ Seller Owned and Operated Basis (Appendix A.3)
1.11 The Capacity Payment Option selected by Seller pursuant to Section 9.1
shall be: (Check one)
_____Option A - As-available capacity based upon:
_____Standard Offer No. 1 Capacity Payment Schedule, or
_____Forecast of Annual As-Available Capacity Payment Schedule. The as-available
capacity price (first year): $______ kW-yr.
X option B - Firm Capacity (check one)
- ----
X Standard offer No. 2 Capacity Payment Schedule in effect at time of Contract
- ----
execution.
Standard Offer No. 2 Capacity Payment Schedule in effect at time of Firm
- --
operation of first generating unit.
Contract Capacity Price: $164.00 KW-YR (Firm Capacity).
1.12 The Energy Payment Option selected by Seller pursuant to Section 9.2 shall
be: (Check One)
X Option I Forecast of Annual Marginal Cost of Energy in effect at date of
- ----
execution of this Contract. (Appendix B)
Option 2 Levelized Forecast of Marginal Cost of Energy in effect at date of
- --
execution of this Contract. Levelized Forecast for expected date of Firm
Operation is ___c/kWh. If Seller's Generating Facility is an oil/natural gas
fueled cogenerator, Seller may' not select Option 2.
For the energy payment refund pursuant to Section 9.5 under Option 2, Edison's
Incremental Cost of Capital is Seller may change once between Options 1 and 2,
provided Seller delivers written notice of such change at least 90 days prior to
the date of Firm Operation.
<PAGE>
For Option 1 or 2, Seller elects to receive the following percentages in 20%
increments, the total of which shall equal 100%:
100 Percent of Forecast of Marginal Cost of Energy (Annual or Levelized), not to
- ---
exceed 20% of the annual forecast for oil/natural gas fueled cogenerators, and
___Percent of Edison's published avoided cost of energy based on Edison's full
avoided operating costs as updated periodically and accepted by the Commission.
1.13 Metering Location (Check one)
Seller elects metering location pursuant to Section 8 as follows:
___Edison's side of the Interconnection Facilities'
X Seller's side, Of the Interconnection Facilities. Loss compensation factor is
- ---
equal to (to be determined), pursuant to Section 8.3.
General Terms & Conditions
2. Definitions
When used with initial capitalizations, whether in the singular or in the
plural, the following terms shall have the following meanings,:
2.1 Adjusted Capacity 'Price: The $/kW-yr capacity purchase price based on the
Capacity Payment Schedule in effect at time of Contract execution for the time
period beginning on the date of Firm operation for the first generating unit and
ending on the date of termination or reduction of Contract Capacity under
Capacity Payment Option B.
2.2 Appendix A.l: Interconnection Facilities Agreement -- Added Facilities Basis
2.3 Appendix A.2: Interconnection Facilities Agreement -- Capital Contribution
Basis
2.4 Appendix A.3: Interconnection Facilities Agreement -- Seller Owned and
Operated Basis
2.5 Appendix B: Forecast of Annual Marginal Cost of Energy
2.6 Capacity Payment' Schedule(s): Published capacity payment schedules as
authorized by the commission for as-available or firm capacity.
<PAGE>
2.7 Cogeneration Facility: The facility and equipment which sequentially
generate thermal and electrical energy as defined in Title 18, Code of Federal
Regulations, Section 292.202.
2.8 Commission: The Public Utilities Commission of the State of California.
2.9 Contract: This document and Appendices, as amended from time to time.
2.10 Contract Capacity: The electric power producing capability of the
Generating Facility which is committed to Edison.
2.11 Contract Capacity Price: The capacity purchase price from the Capacity
Payment Schedule approved by the commission for Capacity Payment Option B-
2.12 Contract Term: Period in years commencing with date of Firm Operation for
the first generating unit(s) during which Edison shall purchase electric power
from Seller.
2.13 Current Capacity Price: The $/kW-yr capacity price provided in the Capacity
Payment Schedule determined by the year of termination or reduction of Contract
Capacity and the number of years from such termination or reduction to the
expiration of the Contract Term for Capacity Payment Option B.
2.14 Edison: The Southern California Edison Company.
2.15 Edison Electric System Integrity: The. state of operation of Edison's
electric system in a manner which is deemed to minimize the risk of injury to
persons and/or property and enables Edison to provide adequate and reliable
electric service to its customers.
2.16 Emergency: A condition or situation which in Edison's sole judgment affects
Edison Electric System Integrity.
2.17 Energy: Kilowatthours generated by the Generating Facility which are
purchased by Edison at the Point of Interconnection.
2.18 Firm Operation: The date agreed on by the Parties on which each generating
unit(s) of the Generating Facility is determined to be a reliable source of
generation and on which such unit can be reasonably expected to operate
continuously at its effective rating (expressed in kW).
2.19 First Period: The period of the Contract Term specified in Section 3.1.
2.20 Forced Outage: Any outage other than a scheduled outage of the Generating
Facility that fully or partially curtails its electrical output.
<PAGE>
2.21 Generating Facility: All of Seller's generators, together with all
protective and other associated equipment and improvements, necessary to produce
electrical power at Seller's Facility excluding associated-land, land rights,
and interests in land.
2.22 Generator: The generators and associated prime mover(s), which are a part
of the Generating Facility.
2.23 Interconnection Facilities: Those protection, metering, electric line(s),
and other facilities required in Edison's sole judgment to permit an electrical
interface between Edison's system and the Generating Facility in accordance with
Edison's Tariff Rule No. 21 titled Cogeneration and Small Power Production
Interconnection Standards filed with the Commission.
2.24 Interconnection Facilities Agreement: That document which is specified in
Section 1.10 and is attached hereto.
2.25 KVAR: Reactive kilovolt-ampere, a unit of measure of reactive power.
2.26 Operate: To provide the engineering, purchasing,. repair, supervision,
training, inspection, testing, protection, operation, use, management,
replacement, retirement, reconstruction, and maintenance of and for the
Generating Facility in accordance with applicable California utility standards
and good engineering practices.
2.27 Operating Representatives: Individual(s) appointed by each Party for the
purpose of securing effective cooperation and interchange of information between
the Parties in connection with administration and technical matters related to
this Contract.
2.28 Parties: Edison and Seller.
2.29 Party: Edison or Seller.
2.30 Peak Months: Those months which the Edison annual system peak demand could
occur. Currently, but subject to change with notice, the peak months for the
Edison system are June, July, August, and September.
2.31 Point of Interconnection: The point where the transfer of electrical energy
between Edison and Seller takes place.
2.32 Project: The Generating Facility and Interconnection Facilities required to
permit operation of Seller's Generator in parallel with Edison's electric
system.
2.33 Protective Apparatus: That equipment and apparatus installed by Seller
and/or Edison pursuant to Section 4.2.
<PAGE>
2.34 Qualifying Facility: Cogeneration or Small Power Production Facile which
meets the criteria as defined in Title 18, Code of Federal Regulations, Section
292.201 through 292.207.
2.35 Second Period: The period of the Contract Term specified in Section 3.2.
2.36 Seller: The Party identified in Section 1.0.
2.37 Seller's Facility: The premises and equipment of Seller located as
specified in Section 1.2.
2.38 Small Power Production Facility: The facilities and equipment which use
biomass, waste, or Renewable Resources, including wind, solar, geothermal, and
water, to produce electrical energy as defined in Title 18, Code of Federal
Regulations, Section 292.201 through 292.207.
2.39 Standby Demand: Seller's electrical load requirement that Edison is
expected to serve when Sellers Generating Facility is not available.
2.40 Summer Period: Defined in Edison's Tariff Schedule No. TOU-8 -as now in
effect or as may hereafter be authorized by the Commission.
2.41 Tariff Schedule No. TOU-8: Edison's time-of-use energy tariff for electric
service exceeding 500 kW, as now 'in effect or as may hereafter be authorized by
the Commission.
2.42 Uncontrollable Forces: Any occurrence beyond the control of a Party which
causes that Party to be unable to perform its obligations hereunder and which a
Party has been unable to overcome by the exercise of due diligence, including
but not limited to flood, drought, earthquake, storm, fire, pestilence,
lightning and other natural catastrophes, epidemic, war, riot, civil disturbance
or disobedience, strike, labor dispute, action or inaction of legislative,
judicial, or regulatory agencies, or other proper authority, which may conflict
with the terms of this Contract, or failure, threat of failure or sabotage of
facilities which have been maintained in accordance with good engineering and
operating practices in California.
2.43 Winter Period: Defined in Edison's Tariff Schedule No. TOU-8 as now in
effect or as may hereafter be authorized by the Commission.
3. Term
This Contract shall be effective upon execution by the Parties and shall remain
effective until either Party gives 90 days prior written notice of termination
to the, other Party,
<PAGE>
except that such notice of termination shall not be effective to terminate this
Contract prior to expiration of the Contract Term specified in Section 1.8.
3.1 The First Period of the Contract Term shall commence upon date of Firm
Operation but not later than 5 years from the date of execution of this
Contract.
a. If the Contract Term specified in Section 1.8 is 15 years, the First Period
of the Contract Term shall be for 5 years.
b. If the Contract Term specified in Section 1.8 is 20 years or greater, the
First Period of the. Contract Term shall be for 10 years.
3.2 The Second Period of the Contract Term shall commence upon expiration of the
First Period and shall continue for the remainder of the Contract Term.
4. Generating Facility
4.1 Ownership
4.1.1 The Generating Facility shall be owned by Seller.
4.1.2 Seller warrants that it has the right to enter into this Agreement and to
sell the energy generated by the Project to-Edison under the terms of this
Agreement.
4.2 Design
4.2.1 Seller, at no cost to Edison, shall:
a. Design the Generating Facility.
b. Acquire all permits and other approvals necessary for the construction,
operation, and maintenance of the Generating Facility.
c. Complete all environmental impact studies necessary for the construction,
operation, and maintenance of the Generating Facility.
d. Furnish and install the relays, meters, power circuit breakers, synchronizer,
and other control and Protective Apparatus as shall be agreed to by the Parties
as being necessary. for proper and safe operation of the Project in parallel
with Edison's electric system.
4. 2. 2 Edison shall have the right to:
a. Review the design of the Generating Facility's electrical system and the
Seller's Interconnection Facilities. Such review may include, but not be limited
to, the Generator,
<PAGE>
governor, excitation system, synchronizing equipment, protective relays, and
neutral grounding. The Seller shall be notified in writing of the outcome of the
Edison review within 30 days of the receipt of all specifications for both the
Generating Facility and the Interconnection Facilities. Any flaws perceived by
Edison in the design shall be described in Edison's written notice.
b. Request modifications to the design of the Generating Facility's electrical
system and the Seller's Interconnection Facilities. Such modifications shall be
required if necessary to maintain Edison Electric System Integrity when in
parallel with the Edison electric system.
4.2.3 If Seller's Generating Facility includes an induction-type generators,
Seller shall provide individual power factor correction capacitors for each such
generator. Such capacitors shall be switched on and off simultaneously with each
of the associated induction'-type generators of the Generating Facility. The
KVAR rating of such capacitors shall be the highest standard value which will
not exceed such generators no-load KVAR requirement. Seller shall not install
power factor correction in excess of that required by this Section unless agreed
to in writing by the Parties.
4.2.4 Seller shall not locate any part of a wind-driven generating unit of the
Generating Facility within a distance 1.25 tines the height of a wind turbine
structure of an existing electric utility 33 kV, 66 kV, or 115 kV transmission
line right of way or within three rotor blade diameters of an existing electric
utility 220 kV or 500 kV transmission line right of way or any proposed
transmission line right of way of which Edison is pursuing regulatory approval
for construction.
4.2.5 If Seller's Generating Facility is a small hydro project, the Contract
Capacity in Section 1.5 shall be based on the average of the 5 lowest years of
stream flow taken from a study covering a minimum 50 years of continuous data.
The Parties may agree upon a shorter period if data for a 50-year period is not
obtainable.
4.3 Construction Edison shall have the right to review, consult with, and make
recommendations regarding Seller's construction schedule and to monitor the
construction and start-up of the Project. Seller shall notify Edison, at least
one year prior to Firm Operation, of changes in Seller's Construction Schedule
which may affect the date of Firm Operation.
4.4 Operation
4.4.1 The Generating Facility and Seller's Protective Apparatus shall be
operated and maintained in accordance with applicable California utility
industry standards and good engineering practices with respect to synchronizing,
voltage and reactive power control. Edison shall have the right to monitor
operation of the Project and may require changes in Seller's method of operation
if such changes are necessary, in Edison's sole judgment, to maintain Edison
Electric System Integrity.
<PAGE>
4.4.2 Seller shall notify in writing Edison's Operating Representative at least
14 days prior to:
(a) the initial testing of Seller's Protective Apparatus; and
(b) the initial parallel operation of Seller's Generators with Edison's
electrical system. Edison shall have the right to have a representative present
at each event.
4.4.3 Edison shall have the right to require Seller to disconnect the Generator
from the Edison electric system or to reduce the electrical output from the
Generator into the Edison electric system, whenever Edison determines, in its
sole judgement, that such a disconnection is necessary to facilitate maintenance
of Edison's facilities, or to maintain Edison Electric System Integrity. If
Edison requires Seller to disconnect the Generator from the Edison electric
system pursuant to this Section 4.4.3, Seller shall have the right to continue
to serve its total electrical requirements provided Seller has elected Operating
Option III. Each Party shall endeavor to correct, within a reasonable period,
the condition on its system which necessitates the disconnection' or the
reduction of electrical output. The duration of the disconnection or-the
reduction in electrical output shall be limited to the period of time such a
condition exists.
4.4.4 The Generating Facility shall be operated with all of Seller's Protective
Apparatus in service whenever the Generator is connected to or is operated in
parallel with the Edison electric system. Any deviation for brief periods of
emergency or maintenance shall only be by agreement of the Parties.
4.4.5 Each Party shall keep the other Party's Operating Representative informed
as to the operating schedule of their respective facilities affecting each
other's operation hereunder, including any reduction in Contract Capacity
availability. In addition, Seller shall provide Edison with reasonable advance
notice regarding its scheduled outages including any reduction in
Contract Capacity availability. Reasonable advance notice is as follows:
SCHEDULED OUTAGE ADVANCE NOTICE
EXPECTED DURATION TO EDISON
Less than one day 24 Hours
One day or more
(except major overhauls) 1 Week
Major overhaul 6 Months
4.4.6 Notification by each Party's Operating Representative of outage date and
duration should be directed to the other Party's Operating Representative by
telephone.
<PAGE>
4.4.7 Seller shall not schedule major overhauls during Peak Months.
4.4.8 Seller shall maintain an operating log at Seller's Facility with records
of: real and reactive power production; changes in operating status, outages,
Protective Apparatus operations; and any unusual conditions found during
inspections. Changes in setting shall also be logged for Generators which are
"block-loaded" to a specific kW capacity. In addition, Seller shall maintain
records applicable to the Generating Facility, including the electrical
characteristics of the Generator and settings or adjustments of the Generator
control equipment and protective devices. Information maintained pursuant to
this Section 4.4.8 shall be provided to Edison, within 30 days of Edison's
request.
4.4.9 ,If, at any time, Edison doubts the integrity of any of Seller's
Protective Apparatus and believes that such loss of integrity would impair the
Edison Electric System Integrity, Seller shall demonstrate, to Edison's
satisfaction, the correct calibration and operation of the equipment in
question.
4.4.10 Seller shall test all protective devices specified in Section 4.2 with
qualified Edison personnel present at intervals not to exceed four years.
4.4.11 Seller shall, to the extent possible, provide reactive power for its own
requirements, and where applicable, the reactive power losses of interfacing
transformers. Seller shall not deliver excess reactive power to Edison unless
otherwise agreed upon between the Parties.
4.4.12 The Seller warrants that the Generating Facility meets the requirements
of a Qualifying Facility as of the date of Firm Operation and will continue to
meet such requirements through the Contract Term.
4.4.13 The Seller warrants that the Generating Facility shall at all times
conform to all applicable laws and regulations. Seller shall obtain and maintain
any governmental authorizations and permits for the continued operation of the
Generating Facility. If at any tine Seller does not hold such authorizations and
permits, Seller agrees to reimburse Edison for any loss which Edison incurs as a
result of the Seller's failure to maintain governmental authorization and
permits.
4.4.14 At Edison's request, Seller shall make all reasonable effort to deliver
power at an average rate of delivery at least equal to the Contract Capacity
during periods of Emergency. In the event that the Seller has previously
scheduled an outage coincident with an Emergency, Seller shall make all
reasonable efforts to reschedule the outage. The notification periods listed in
Section 4.4.5 shall be waived by Edison if Seller reschedules the outage.
4.4.15 Seller shall demonstrate the ability to provide Edison the specified
Contract Capacity within 30 days of the date of Firm Operation. Thereafter, at
least once per year at Edison's request, Seller shall demonstrate the ability to
provide Contract Capacity for a
<PAGE>
reasonable period of tine as, required by Edison. Seller's demonstration of
Contract Capacity shall be at Seller's expense and conducted at a time and
pursuant to procedures mutually agreed upon by the Parties. If Seller fails to
demonstrate the ability to provide the Contract Capacity, the Contract Capacity
shall be reduced by agreement of the Parties pursuant to Section 9.1.2.6.
4.5 Maintenance
4.5.1 Seller shall maintain the Generating Facility in accordance with
applicable California utility industry standards and good engineering and
operating practices. Edison shall have the right to monitor such maintenance of
the Generating Facility. Seller shall maintain and deliver a maintenance record
of the Generating Facility to Edison's Operating Representatives upon request.
4.5.2 Seller shall make a reasonable effort to schedule routine maintenance
during off-Peak
Months. Outages for scheduled maintenance shall not exceed a total of 30 peak
'hours for the Peak Months.
4.5.3 The allowance for scheduled maintenance is as follows:
a. Outage periods for scheduled maintenance shall not exceed 840 hours (35 days)
in any 12-month period. This allowance may be used in increments of an hour or
longer on a consecutive or nonconsecutive basis.
b. Seller may accumulate unused maintenance hours on a year-to-year basis up to
a maximum of 1,080 hours (45 days). This accrued tine must be used consecutively
and only for major overhauls.
4.6 Any review by Edison of the design, construction, operation, or maintenance
of the Project is solely for the information of Edison. By making such review,
Edison makes no representation as to the economic and technical feasibility,
operational capability, or reliability of the Project. Seller shall in no way
represent to any third party that any such review by Edison of the Project,
including but not limited to, any review of the design, construction, operation,
or maintenance of the Project by Edison is a representation by Edison as to the
economic and technical feasibility, operational capability, or reliability of
said facilities. Seller is solely responsible for economic and technical
feasibility, operational capability, or reliability thereof.
5. Operating Options
5.1 Seller shall elect in Section 1.9 to Operate its Generating Facility in
parallel with Edison's electric system pursuant to one of the following options:
<PAGE>
a. Operating Option I: Seller dedicates the entire Generator output to Edison
with no electrical service required from Edison.
b. Operating Option II: Seller dedicates the entire Generator output to Edison
with electrical service required from Edison.
c. Operating Option III: Seller dedicates to Edison only that portion of the
Generator output in excess of Seller's electrical service requirements. As much
as practicable, Seller intends to serve-its electrical requirements from the
Generator output and will require electrical standby from Edison as designated
in Section 1.9.
5.2 After expiration of the First Period of the Contract Term, Seller may change
the Operating Option, but not more than once per year upon at least 90 days
prior written notice to Edison. A reduction in Contract Capacity as a result of
a change in operating options shall be subject to Section 9.1.2.6. Edison shall
not be required to remove or reserve capacity of Interconnection Facilities made
idle by a change in operating options. Edison may dedicate any such idle
Interconnection Facilities at any time to serve other customers or to
interconnect with other electric power sources. Edison shall process requests
for changes of operating option in the chronological order received.
5.2.1 When the Seller wishes to reserve Interconnection Facilities paid for by
the Seller but idled by a change in operation option, Edison shall impose a
special facilities charge related to the operation and maintenance of the
Interconnection Facility. When the Seller no longer needs said facilities for
which it has paid, the Seller shall receive credit for the net salvage value of
the Interconnection Facilities dedicated to Edison's use. If Edison is able to
make use of these facilities to serve other customers, the Seller shall receive
the fair market value of the facilities determined as of the date the Seller
either decides no longer to use said facilities or fails to pay the required
maintenance fee.
6. Interconnection Facilities
6.1 The Parties shall execute an Interconnection Facilities Agreement selected
by Seller in Section 1.10, covering the design, installation, operation and
maintenance of the Interconnection Facilities required in Edison's sole
judgment, to permit an electrical interface between the Parties pursuant to
Edison's Tariff Rule No. 21.
6.2 The cost for the Interconnection Facilities set forth in the appendices
specified in Section 1.10, are estimates only for Seller's information and will
be adjusted to reflect recorded costs after installation is complete; except
that, upon Seller's written request to Edison, Edison shall provide a binding
estimate which shall be the basis for the Interconnection Facilities cost in the
Interconnection Facilities Agreement executed by the Parties.
<PAGE>
6.3 The nature of the Interconnection Facilities and the Point of
Interconnection shall be set forth either by equipment lists or appropriate one-
line diagrams and shall be attached to the appropriate appendix specified in
Section 1.10.
6.4 The design, installation, operation, maintenance, and modifications of the
Interconnection Facilities' shall be at Seller's expense.
6.5 Seller shall not commence parallel operation of the Generating Facility
until written approval for operation of the Interconnection Facilities has been
received from Edison. The Seller shall notify Edison at least forty-five days
prior to the initial energizing of the Point of Interconnection. Edison shall
have the right to inspect the Interconnection Facilities within thirty days of
receipt of such notice. If the facilities do not pass Edison's inspection,
Edison shall provide in writing the reasons for this failure within five days of
the inspection.
6.6 Seller, at no cost to Edison, shall acquire all permits and approvals and
complete all environmental impact studies necessary for the design,
installation, operation, and maintenance of the Interconnection Facilities.
7. Electric Lines And Associated Easements
7.1 Edison shall, as it deems necessary or desirable, build electric lines,
facilities and other equipment, both overhead and underground, on and off
Seller's Facility, for the purpose of effecting the agreements contained in this
Contract. The physical location of such electric lines,- facilities and other
equipment on Seller's Facility shall be determined by agreement of the Parties.
7.2 Seller shall reimburse Edison for the cost of acquiring property rights off
Seller's Facility required by Edison to meet its obligations under this
Contract.
7.3 Seller shall grant, or cause to be granted, to Edison, without cost to
Edison, and by an instrument of conveyance, acceptable to Edison, rights of way,
easements and other property interests necessary to construct, reconstruct, use,
maintain, alter, add to, enlarge, repair, replace, inspect and. remove, at any
time, the electric lines, facilities or other equipment, both overhead and
underground, which are required by Edison to effect the agreements contained in
the Contract and the rights of ingress and egress at all reasonable times
necessary for Edison to perform the activities contemplated in the Contract.
7.4 The electric lines, facilities, or other equipment referred to in this
Section 7 installed by Edison on or off Seller's Facility shall be and remain
the property of Edison.
7.5 Edison shall have no obligation to Seller for any delay or Cancellation due
to inability to acquire a satisfactory right of way, easements, or other
property interests.
<PAGE>
8. Metering
8.1 All meters and equipment used for the measurement of electric power for
determining Edison's payments to Seller pursuant to this Contract shall be
provided, owned, and maintained by Edison at Seller's expense in accordance with
Edison's Tariff Rule No. 21.
8.2 All meters and equipment used for billing Seller for electric service
provided to Seller by Edison under Operating Options II or III shall be
provided, owned, and maintained by Edison at Edison's expense in accordance with
Edison's Tariff Rule No. 16.
8.3 The meters and equipment used for measuring the Energy sold to Edison shall
be located on the side of the Interconnection Facilities as specified by Seller
in Section 1.13. If the metering equipment is located on Seller's side of the
Interconnection Facilities, then a loss compensation factor agreed upon by the
Parties shall be applied. At the written request of the Seller, and at Seller's
sole expense, Edison shall measure actual transformer losses. If the actual
measured value differs from the agreed-upon loss compensation factor-, the
actual value shall be applied prospectively. If the meters are placed on
Edison's side of the Interconnection Facilities, service shall be provided at
the available transformer high-side voltage.
8.4 For purposes of monitoring the Generator operation and the determination of
standby charges, Edison shall have the right to require, at Seller's expense,
the installation of generation metering. Edison may also require the
installation of telemetering equipment at Seller's expense for Generating
Facilities equal to or greater than 10 till. Edison may require the installation
of telemetering equipment at Edison's expense for Generating Facilities less
than 10 MW.
8.5 Edison's meters shall be sealed and the seals shall be broken only when the
meters are to be inspected, tested, or adjusted by Edison. Seller shall be given
reasonable notice of testing and have the right to have its operating
Representative present on such occasions.
8.6 Edison's meters installed pursuant to this Contract shall be tested by
Edison, at Edison's. expense, at least once each year and at any reasonable time
upon request by either Party, at the requesting Party's expense. If Seller makes
such request, Seller shall reimburse said expense to Edison within thirty days
after presentation of a bill therefore.
8.7 Metering equipment found to be inaccurate shall be repaired, adjusted, or
replaced by Edison such that the metering accuracy of said equipment shall be
within two percent. If metering equipment inaccuracy exceeds two percent, the
correct amount of Energy and Contract Capacity delivered during the period of
said inaccuracy shall be estimated by Edison and agreed upon by the Parties.
9. Power Purchase Provisions
<PAGE>
Prior to the date of Firm Operation, Seller shall be paid for Energy only
pursuant to Edison's published avoided cost of energy based on Edison's full
avoided operating cost as periodically updated and accepted by the Commission.
If at any time Energy can be delivered to Edison and Seller is contesting the
claimed jurisdiction of any entity which has not issued a license or other
approval for the Project, Seller, in its sole discretion and risk, may deliver
Energy to Edison and for any Energy purchased by Edison Seller-shall receive
payment from Edison for (i) Energy pursuant to this Section, and (ii) as-
available capacity based on a capacity price from the Standard Offer No. 1
Capacity Payment Schedule as approved by the Commission. Unless and until all
required licenses and approvals 'nave been obtained, Seller may discontinue
deliveries at any tine.
9.1 Capacity Payments
Seller shall sell to Edison and Edison shall purchase from Seller capacity
pursuant to the Capacity Payment Option selected by Seller in Section 1.11. The
Capacity Payment Schedules will be based on Edison's full avoided operating
costs as approved by the Commission throughout the life of this Contract. Data
used to derive Edison's full avoided costs will be made available to the Seller,
to the extent specified by Seller upon request.
9.1.1 Capacity Payment Option A -- As Available Capacity. If Seller selects
Capacity Payment Option A, Seller shall be paid a Monthly Capacity Payment
calculated pursuant to the following
formula:
MONTHLY CAPACITY PAYMENT = (A x D)+(B x D)+(C x D)
Where A = kWh purchased by Edison during on-peak periods defined in
Edison's Tariff Schedule No. TOU-8.
B = kWh purchased by Edison during mid-peak periods defined in Edison's Tariff
Schedule
No. TOU-8.
C = kWh purchased by Edison during off-peak periods defined in Edison's Tariff
Schedule
No. TOU-8.
D = The appropriate time differentiated capacity price from either the Standard
offer No. 1 Capacity payment Schedule or Forecast of Annual As-Available
Capacity Payment Schedule as specified by Seller
in Section 1.11.
9.1.1.1 If Seller specifies the Standard Offer No. 1 Capacity Payment Schedule
in Section 1.11, then the formula set forth in Section 9.1.1 shall be computed
with D equal
<PAGE>
to the appropriate time differentiated capacity price from the Standard offer
No. 1 Capacity Payment Schedule for the Contract Term.
9.1.1.2 If Seller specifies the Forecast of Annual As-Available Capacity Payment
Schedule in Section 1.11, the
formula set forth in Section 9.1.1 shall be computed as follows:
a. During the First Period of the Contract Term D shall equal the, appropriate
time differentiated capacity price from the Forecast of Annual As-Available
Capacity Payment Schedule.
b. During the Second Period of the Contract Term, the formula shall be computed
with D equal to the appropriate time differentiated capacity price from Standard
Offer No. 1 Capacity Payment Schedule, but not less than the greater of (i) the
appropriate time differentiated capacity price from the Forecast of Annual As-
Available Capacity Payment Schedule for the last year of the First Period, or
(ii) the appropriate time differentiated capacity price from the Standard Offer
No. 1 Capacity Payment Schedule for the first year of the Second Period.
9.1.2, Capacity Payment Option B -- Firm Capacity Purchase If Seller selects
Capacity Payment Option B, Seller shall provide to Edison for the Contract Term
the Contract Capacity specified in Section 1.5, or as adjusted pursuant to
Section 9.1.2.7, and Seller shall be paid as follows:
9.1.2.1 If Seller meets the performance requirements set forth in Section
9.1.2.2, Seller shall be paid a Monthly Capacity Payment, beginning from the
date of Firm Operation equal to the sum of the on-peak, mid-peak, and off-peak
Capacity Period Payments. Each Capacity Period Payment is calculated pursuant to
the following formula:
M0NTHLY PERIOD CAPACITY PAYMENT A x B x C x D
Where A = Contract Capacity Price specified in Section 1.11 based on the
Standard offer No. 2 Capacity Payment Schedule as approved by the Commission and
in effect on the date of the execution of this Contract.
B = Conversion factors to convert annual capacity prices to monthly payments by
time of delivery as specified in Standard offer No. 2 Capacity Payment Schedule
and subject to periodic modifications as
approved by the Commission.'
C = Contract Capacity specified in Section 1.5.
D = Period Performance Factor, not to exceed 1.0, calculated as follows:
Period kWh purchased by Edison limited by the level of Contract
- -----------------------------------------------------------------
<PAGE>
Capacity 0.8 x Contract Capacity x (Period Hours minus Maintenance hours Allowed
in Section 4.5.)
9.1.2.2 Performance Requirements To receive the Monthly Capacity Payment in
Section 9.1.2.1, Seller shall provide the Contract Capacity in each Peak Month
for all on-peak hours as such peak hours are defined in Edison's Tariff Schedule
No. TOU-8 on file with the Commission, except that Seller is entitled to a 20%
allowance for Forced Outages for each Peak Month. Seller shall not be subject to
such performance requirements for the remaining hours of the year.
a. If Seller fails to meet the requirements specified in Section 9.1.2.2, Edison
may, in Edison's sole discretion, place Seller on probation for a period not to
exceed 15 months. if Seller fails to meet the requirements specified in Section
9.1.2.2 during the probationary period, Edison may derate the Contract Capacity
to the greater of the capacity actually delivered during the probationary
period, or the capacity at which Seller can reasonably meet such requirements. A
reduction in Contract Capacity as a result of this Section 9.1.2.2 shall be
subject to Section 9.1.2.6.
b. If Seller fails to meet the requirements set forth in Section 9.1.2.2 due to
a Forced Outage on the Edison-system or a request to reduce or curtail delivery
under Section 9.4, Edison shall continue Monthly Capacity Payments pursuant to
Capacity Payment Option B. The Contract Capacity curtailed shall be treated the
same as scheduled maintenance outages in the Calculation of the Monthly Capacity
Payment.
9.1.2.3 If Seller is unable to provide Contract Capacity due to Uncontrollable
Forces, Edison shall continue Monthly Capacity Payments for 90 days from the
occurrence of the Uncontrollable Force. Monthly Capacity Payments payable during
a period of interruption or reduction by reason of an Uncontrollable Force shall
be treated the same as scheduled maintenance outages.
9.1.2.4 Hydroelectric facilities which have their Contract Capacity based on the
five dry-year average, shall not have their Contract Capacity derated when
failure to meet the requirements set forth in Section 9.1.2.2 is due solely-to
the occurrence of a dry year which is drier than the five dry-year average.
9.1.2.5 Capacity Bonus Payment For Capacity Payment Option B, Seller may receive
a Capacity Bonus Payment as follows:
a. Bonus During Peak Months -- For a Peak Month, Seller shall receive a Capacity
Bonus Payment if (i) the requirements set forth in Section 9.1.2.2 have been
met, and (ii) the on-peak capacity factor exceeds 85%.
b. Bonus During Non-Peak Months -- For a non-peak month, Seller shall receive a
Capacity Bonus Payment if-(i)_ the requirements set forth in Section 9.1.2.2
have been
<PAGE>
met, (ii) the on-peak capacity factor for each Peak Month during the year was at
least 85%, and (iii) the on-peak capacity factor for the non-peak month exceeds
85%.
c. For any eligible month, the' Capacity Bonus Payment shall be calculated as
follows:
CAPACITY BONUS PAYMENT = A x B x C x D
Where A = (1.2 x On-Peak Capacity Factor) - 1.02
Where the On-Peak Capacity Factor, not to exceed 1.0, is calculated as follows:
Period kWh purchased by Edison limited by the level of Contract Capacity
- -------------------------------------------------------------------------
(Contract Capacity) x (Period Hours minus Maintenance Hours Allowed in Section
4.5)
B = Contract Capacity Price specified in Section 1.11 for Capacity Payment
Option B
C = 1/12
D = Contract Capacity specified in Section 1.5
d. When Seller is entitled to receive a Capacity Bonus Payment, the Monthly
Capacity Payment shall be the sum of the Monthly Capacity Payment pursuant to
Section 9.1.2.1 and, the Monthly Capacity Bonus Payment pursuant to this
Section.
e. For Capacity Payment Option B, Seller shall be paid for capacity in excess of
Contract Capacity based on the as-available capacity price in Standard offer No.
I Capacity Payment Schedule, as updated and approved by the Commission. Seller
shall not receive any as-available capacity payment in excess of Contract
Capacity if Seller's Generating Facility is a small hydro project.
9.1.2.6 Capacity Reduction
a. Seller may reduce the Contract Capacity specified in Section 1.5, provided
that Seller gives Edison prior written notice for a period determined by the
amount of Contract Capacity reduced as follows:
Amount of Contract Length of
Capacity Reduced Notice Required
25,000 kW or under 12 months
25,001 - 50,000 kW 36 months
50,001 - 100,000 kW 48 months
over 100,000 kW 60 months
b. Subject to Section 10.4, Seller shall refund to Edison with interest at the
current published Federal Reserve Board three months prime commercial paper rate
an amount
<PAGE>
equal to the difference between (i) the accumulated Monthly Capacity Payments
paid by Edison pursuant to Capacity Payment Option B up to the time the
reduction notice is received by Edison, and (ii) the total capacity payments
which Edison would 'have paid if based on the Adjusted Capacity Price.
c. From the date the reduction notice is received to the date of actual capacity
reduction, Edison shall make capacity payments based on the Adjusted Capacity
Price for the amount of Contract Capacity being reduced.
d. Seller may reduce Contract Capacity without the notice prescribed in Section
9.1.2.6(a), provided that Seller shall refund to Edison the amount specified in
Section 9.1.2.6(b) and an amount equal to: (i) the amount of Contract Capacity
being reduced, times (ii) the difference between the Current Capacity Price and
the Contract Capacity Price, times (iii) the number of years and fractions
thereof (not less than one year) by which the Seller has been deficient in
giving prescribed notice. If the Current Capacity Price is less than the
Contract Capacity Price, only payment under Section 9.1.2.6(b) shall be due to
Edison.
9.1.2.7 Adjustment to Contract Capacity The Parties may agree in writing at any
time to adjust the Contract Capacity. Seller may reduce the Contract Capacity
pursuant to Section 9.1.2.6. Seller may increase e Contract Capacity with
Edison's approval and thereafter receive payment for the increased capacity in
accordance with the Contract Capacity Price for the Capacity Payment Option
selected by Seller for the remaining Contract Term.
9.2 Energy Payments - First Period During the First Period of the Contract Term,
Seller shall be paid a Monthly Energy Payment for the Energy delivered by the
Seller to Edison at the Point of Interconnection pursuant to the Energy Payment
Option selected by Seller in Section 1.12, as follows. (Data used to derive
Edison's Energy payments for the First Period will be made available to the
Seller, to the extent specified by Seller, upon request.)
9.2.1 Energy Payment Option 1 -- Forecast of Annual Marginal Cost of Energy. If
Seller selects Energy Payment option 1, then during the First Period of the
Contract Term, Seller shall be paid a Monthly Energy Payment for Energy
delivered by Seller and purchased by Edison during each month in the First
Period of the Contract Term pursuant to the following formula:
MONTHLY ENERGY PAYMENT (A x D) + (B x D) + (C x D)
Where A = kWh purchased by Edison during on-peak periods defined in Edison's
Tariff Schedule
No. TOU-8.
B = kWh purchased by Edison during mid-peak periods defined in Edison's Tariff
Schedule No. TOU-8.
<PAGE>
C = kWh purchased by Edison during off-peak periods defined in Edison's Tariff
Schedule No. TOU-8.
D = The sum of: (i) the appropriate time differentiated energy price from a the
Forecast of Annual Marginal
Cost of Energy, multiplied by the decimal equivalent of the percentage of the
forecast specified in Section 12, and (ii) the appropriate time differentiated
energy price from Edison's published avoided cost of energy multiplied by the
decimal equivalent of the percentage of the published energy price specified in
Section 1.12.
9.2.2 Energy Payment option 2 -- Levelized Forecast of Marginal Cost of Energy.
If Seller selects Energy Payment Option 2, then during the First Period of the
Contract Term, Seller shall be paid a Monthly Energy Payment for Energy
delivered by Seller and purchased by Edison each month during the First Period
of the Contract Term pursuant to the following formula:
MONTHLY ENERGY PAYMENT = (A x D) + (B x D) + (C x D)
Where A = kWh purchased by Edison during on-peak periods defined in Edison's
Tariff Schedule No. TOU-8.
B = kWh purchased by Edison during mid-peak periods defined in Edison's Tariff
Schedule No. TOU-8.
C = kWh purchased by Edison during off-peak periods defined in Edison's Tariff
Schedule No. TOU-8.
D = The sum of: (i) the appropriate time differentiated energy price from the
Levelized Forecast of Marginal Cost of Energy, for the First Period of the
Contract Term multiplied by the decimal equivalent of the percentage of the
levelized forecast specified in Section 1.12, and (ii) the appropriate time
differentiated energy price from Edison's published avoided cost of energy
multiplied by the decimal equivalent of the percentage of the published energy
price specified in Section 1.12.
9.2.2.1 Performance Requirement for Energy Payment Option 2
During the First Period when the annual forecast referred to in Section 9.2.1 is
greater than the levelized forecast referred to in Section 9.2.2, Seller shall
deliver to Edison at least 70 percent of the average annual kWh delivered to
Edison during those previous periods when the levelized forecast referred to in
Section 9.2.2 is greater than the annual forecast referred to in Section 9.2.1
as resource conditions permit for solar, wind, and hydro Generating Facilities
and excluding uncontrollable forces. If Seller doe not meet the performance
requirements of this Section 9.2.2.1, Seller shall be subject to Section 9.5.
<PAGE>
9.3 Energy Payments - Second Period During the Second Period of the Contract
Term, Seller shall be paid a Monthly Energy Payment for Energy delivered by
Seller and purchased by Edison at a rate equal to 100% of Edison's published
avoided cost of energy based on Edison's full avoided operating cost as updated
periodically and accepted by the Commission, pursuant to the following formula:
MONTHLY ENERGY PAYMENT =
kWh purchased by Edison for each on-peak, mid-peak, and off-peak time period
defined in Edison's Tariff Schedule No. TOU-8 x Edison's published avoided cost
of energy by time of delivery for each time period.
Data used to derive Edison's full avoided costs will be made available to the
Seller, to the extent specified by Seller, upon request.
9.4 Edison shall not be obligated to accept or pay for Energy., and may request
Seller whose Generating Facility is one (1) MW or greater to discontinue or
reduce delivery of Energy, for not more than 300 hours annually during off-peak
hours when (i) purchases would result in costs greater than those which Edison
would incur if it did not purchase Energy from Seller but instead utilized an
equivalent amount of Energy generated from another Edison source, or (ii) the
Edison Electric System demand would require that Edison hydro-energy be spilled
to reduce generation.
9.5 Energy Payment Refund If Seller elects Energy Payment Option 2, Seller shall
be subject to the following:
9.5.1 If Seller fails to perform the Contract obligations for any reason during
the First Period of the Contract Term, or fails to meet the performance
requirements set forth, in Section 9.2.2.1, and at the time of such failure to
perform, the net present value of the cumulative Energy payments received by
Seller pursuant to Energy Payment Option 2 exceeds the net present value of what
Seller would have been paid pursuant to Energy Payment Option 1, Seller shall
make an energy payment refund equal to the difference in such net present values
in the year in which the refund is due. The present value calculation shall be
based upon the rate of Edison's incremental cost of capital specified in Section
1.12.
9.5.2 Not less than 90 days prior to the date Energy is first delivered to the
Point of Interconnection, Seller shall provide and maintain a performance bond,
surety bond, performance insurance, corporate guarantee., or bank letter of
credit, satisfactory to Edison, which shall insure payment to Edison of the
Energy Payment Refund at any time during the First Period. Edison-may, in its
sole discretion accept another form of security except that in such instance a
1-1/2 percent reduction shall then apply to the levelized forecast referred to
in Section 9.2.2 in computing payments for Energy. Edison shall be provided with
certificates evidencing Seller's compliance with the security requirements
<PAGE>
in this Section which shall also include the requirement that Edison be given 90
days prior written notice of the expiration of such security.
9.5.3 If Seller fails to provide replacement security not less than 60 days
prior to the date of expiration of existing security, the Energy Payment Refund
provided in Section 9.5 shall be payable forthwith. Thereafter, payments for
Energy shall be 100 percent of the Monthly Energy Payment provided in Section
9.2.1.
9.5.4 If Edison at any time determines the security to be otherwise inadequate,
and so notifies Seller, payments thereafter for Energy shall be 100 percent of
the Monthly Energy Payment provided in Section 9.2.1. If within 30 days of the
date Edison gives notice of such inadequacies, Seller satisfies Edison's
security requirements, Energy Payment Option 2 shall be reinstated. If Seller
fails to satisfy Edison's security requirements within the 30-day period., the
Energy Payment Refund provided in Section 9.5 shall be payable forthwith.
10. Payment And Billing Provisions
10.1 For Energy and capacity purchased by Edison:
10.1.1 Edison shall mail to Seller not later than thirty days after the end of
each monthly billing period (1) a statement showing the Energy and Contract
Capacity delivered to Edison during the on-peak, mid-peak, and off-peak periods,
as those periods are specified in Edison's Tariff Schedule No. TOU-8 for that
monthly billing period, (2) Edison's computation of the amount due Seller, and
(3) Edison's check in payment of said amount.
10.1.2 If the monthly payment period involves portions of two different
published Energy payment schedule periods, the monthly Energy payment shall be
prorated on the basis of the percentage of days at each price.
10.1.3 If the payment period is less than 27 days or greater than 33 days, the
capacity payment shall be prorated on the basis of the average days per month
per year.
10.1.4 If within thirty days of receipt of the statement Seller does not make a
report in writing to Edison of an error, Seller shall be deemed to have waived
any error in Edison's statement, computation, and payment, and they shall be
considered correct and complete.
10.2 For electric service provided by Edison:
10.2.1 Under Operating Option III pursuant to Section 5.1, standby electric
service shall be provided under terms and conditions of Edison's tariff schedule
indicated below as now in effect or as may hereafter be authorized by the
Commission to be revised. The applicable tariff schedules are:
<PAGE>
<TABLE>
<CAPTION>
STANDBY TARIFF ELECTRIC SERVICE
TARIFF
SCHEDULE NO.
<S> <C>
SCG-1 TOU-8 or GS-2
SCG-2 TOU-8
SCG-3 TOU-8
</TABLE>
10.2.1.1 (Applicable to SCG-1 only) The Standby Demand for calculation of the
standby charge in SCG-1 as specified in Section 17.9. Edison reserves the right
to adjust the Standby Demand based on recorded demand during periods standby
power is required.
10.2.1.2: (Applicable to SCG-l only) The capacity rating for determination of
standby waiver qualifications shall be Contract Capacity plus the maximum
electric load served by the Generating Facility during the on-peak time period
recorded during the preceding 12-month time period.
10.2.1.3 A minimum monthly charge may be established for standby electric
service as provided in the tariff schedule elected in Section 1.9. Said minimum
monthly charge shall be specified in Section 1.9.
10.2.2 Under Operating Options II and III pursuant to Section 5.1, electric
service shall be provided under terms, conditions, and rates of Edison's tariff
schedule indicated below as now in effect or as may hereafter be authorized by
the Commission to be revised.
The applicable tariff schedule is:
TOU-8,
The contract demand for calculation of the minimum demand charge in the
applicable tariff schedules is specified in Section 1.9.
10.2.3 Edison shall commence billing Seller for electric service rendered
pursuant to the applicable tariff schedule on the date that the Point of
Interconnection is energized.
10.3 Monthly charges associated with Interconnection Facilities shall be billed
pursuant to the Interconnection Facilities Agreement contained in the Appendix
specified in Section 1.10.
10.4 Payments due to Contract Capacity Reduction
<PAGE>
10.4.1 The Parties agree that the refund and payments provided in Section
9.1.2.6 represent a fair compensation for the reasonable losses that would
result from such reduction of Contract Capacity.
10.4.2 In the event of a reduction in Contract Capacity, the quantity, in kW, by
which the Contract Capacity is reduced shall be used to calculate the refunds
and payments due Edison in accordance with Section 9.1.2.6, as applicable.
10.4.3 Edison shall provide invoices to Seller for all refunds and payments due
Edison under this section which shall be due within 60 days.
10.4.4 If Seller does not make payments as required in Section 10.4.3, Edison
shall have the right to offset any amounts due it against any present or future
payments due Seller and may pursue any other remedies available to Edison as a
result of Seller's failure to perform.
10.5 Energy Payment Refund Energy Payment Refund is immediately due and payable
upon Seller's failure to perform the contract obligations as specified in
Section 9.5.
11. Taxes
11.1 Seller shall pay ad valorem taxes and other taxes properly attributable to
the Project. If such taxes are assessed or levied against Edison, Seller shall
pay Edison for such assessment or levy.
11.2 Seller shall pay ad valorem taxes and other taxes properly attributed to
land, land rights, or interest in land for the Project. If such taxes are
assessed or levied against Edison, Seller shall pay Edison for such assessment
or levy.
11.3 If the Interconnection Facilities, are owned by Edison, Edison shall pay ad
valorem taxes and other taxes property attributed to said facilities. If such
taxes are assessed or levied against Seller, Edison shall pay. Seller for such
assessment or levy.
11.4 Seller or Edison shall provide information concerning the Project to any
requesting taxing authority.
12. Termination
12.1 This Contract shall terminate if Firm Operation does not occur within 5
years of the date of Contract execution.
<PAGE>
13. Liability
13.1 Each Party (First Party) releases the other Party (Second Party), its
directors, officers, employees and agents from any loss, damage, claim, cost,
charge, or expense of any kind or nature (including any direct, indirect or
consequential loss, damage, claim, cost, charge, or expense), including
attorney's fees and other costs of litigation incurred by the First Party in
connection with damage to property 'of the First Party caused by or arising out
of the Second Party's construction, engineering, repair, supervision,
inspection, testing, protection, operation" maintenance, replacement,
reconstruction, use or ownership of its facilities, to the extent that such
loss, damage, claim, cost, charge, or expense is caused by the negligence of
Second Party, its directors, officers, employees, agents, or any person or
entity whose negligence would be imputed to Second Party.
13.2 Each Party shall indemnify and hold harmless the other Party, its
directors, officers, and employees or agents from and against any loss, damage,
claim, cost, charge, (including direct, indirect or consequential loss, damage,
claim, cost charge, or expense), including attorney's fees and other costs of
litigation incurred by the other Party in connection with the injury to or death
of any person or damage to property of a third party arising out of the
indemnifying Party's construction, engineering, repair, supervision, inspection,
testing, protection, operation, maintenance, replacement, reconstruction, use,
or ownership of its facilities, to the extent that such loss, damage, claim,
cost, charge, or expense is caused by the negligence of the-indemnifying Party,
its directors, officers', employees, agents, or any person or entity whose
negligence would be imputed to the indemnifying Party; provided, however, that
each Party shall be solely responsible for and shall. bear all cost of claims
brought by its contractors or its own employees and shall indemnify and hold
harmless the other Party for any such costs including costs arising out of any
workers compensation law. Seller releases and shall defend and indemnify Edison
from, any claim, cost, loss, damage, or liability arising from any contrary
representation concerning the effect of Edison's review of the design,
construction, operation, or maintenance of the Project.
13.3 The provisions of this Section 13 shall not be construed so as to relieve
any insurer of its obligations to pay any insurance claims in accordance with
the provisions of any valid insurance policy.
13.4 Neither Party shall be indemnified under this Section 13 for its liability
or loss resulting from its sole negligence or willful misconduct.
14. Insurance
14.1 Until Contract is terminated, Seller shall obtain and maintain in force as
hereinafter provided comprehensive general liability insurance, including
contractual liability coverage, with a combined single limit of (i) not less
than $1,000,000 each occurrence for Generating Facilities 100 kW or greater;
(ii) not less than $500,000 for each occurrence
<PAGE>
for Generating Facilities between 20 kW and 100 kW; and (iii) not less than
$100,000 for each occurrence for Generating Facilities less than 2 0 kW. The
insurance carrier or carriers and form of policy shall be subject to review and
approval by Edison.
14.2 Prior to the date Seller's Generating Facility is first operated in
parallel with Edison's electric system, Seller shall (i) furnish certificate of
insurance to Edison, which certificate shall provide that such insurance shall
not be terminated nor expire except on thirty days prior written notice to
Edison, (ii) maintain such insurance in effect for so long as Seller's
Generating Facility is operated in parallel with Edison's electric system, and
(iii) furnish to Edison an additional insured Endorsement with respect to such
insurance in substantially the following form: "In consideration of the premium
charged, Southern California Edison Company (Edison) is named as additional
insured with respect to all liabilities arising out of Seller's use and
ownership of Seller's Generating Facility." "The inclusion of more than one
insured under this policy shall not operate to impair the rights of one insured
against another insured and the coverages afforded by this policy will apply as
though separate policies had been issued to each insured. The inclusion of more
than one insured will not, however, operate to increase the limit of the
carrier's liability. Edison will: not, by reason of its inclusion under this
policy, incur liability to the insurance carrier for payment of premium for this
policy." "Any other insurance carried by Edison which may be applicable shall be
deemed excess insurance and Seller's insurance primary for all purposes despite
any conflicting provisions in Seller's policy to the contrary." If the
requirement of Section 14.2(iii) prevents Seller from obtaining the insurance
required in Section 14.1 then upon written notification by Seller to Edison,
Section 14.2(iii) shall be waived.
14.3 The requirements of this Section 14 shall not apply to Seller who is a
self-insured governmental agency with established record of self-insurance.
14.4 If Seller fails to comply with the provisions of this Section 14, Seller
shall, at its own cost, defend, indemnify, and hold harmless Edison, its
directors, officers, employees, agents, assigns, and successors in interest from
and against any and all loss, damage, claim, cost, charge, or expense of any
kind of nature (including direct, indirect or consequential loss, damage, claim,
cost, charge, or expense, including attorney's fees and other costs of
litigation) resulting from the death or injury to any person or damage to any
property, including the personnel and property of Edison, to the extent that
Edison would have been protected 'had Seller complied with all of the provisions
of this Section 14.
15. Uncontrollable Forces
15.1 Neither Party shall be considered to be in default in the performance of
any of the agreements contained in this Contract, except for obligations to pay
money, when and to the extent failure of performance shall be caused by an
Uncontrollable Force.
<PAGE>
15.2 If either Party because of an Uncontrollable Force -is rendered wholly or
partly unable to perform its obligations under this Contract, the Party shall be
excused from whatever performance is affected by the Uncontrollable Force to the
extent so affected provided that:
(1) the nonperforming Party, within two weeks after the occurrence of the
Uncontrollable Force, gives the other Party written notice describing the
particulars of the occurrence,
(2) the suspension of performance is of no greater scope and of no longer
duration than is required by the Uncontrollable Force,
(3) the nonperforming Party uses its best efforts to remedy its inability to
perform (this subsection shall not require the settlement of any strike,
walkout, lockout or other labor dispute on terms which, in the sole judgment of
the Party involved in the dispute, are contrary to its interest. It is
understood and agreed that the settlement of strikes, walkouts, lockouts or
other labor disputes shall be at the sole discretion of the Party having the
difficulty),
(4) when the nonperforming Party is able to resume performance of its
obligations under this Contract, that Party shall give the other Party written
notice to that effect, and
(5) capacity payments during such periods of Uncontrollable Force on Seller's
part shall be governed by Section 9.1.1.3.
15.3 In the event that either Party's ability to perform cannot be corrected
when the Uncontrollable Force is caused by the actions or inactions of
legislative, judicial or regulatory agencies or other proper authority, this
Contract may be amended to comply with the legal or regulatory change which
caused the nonperformance. If a loss of Qualifying Facility status occurs due to
an Uncontrollable Force and Seller fails to make the changes ;necessary to
maintain its Qualifying Facility status, the Seller shall compensate Edison for
any economic detriment incurred by Edison as a result of such failure.
16. Nondedication Of Facilities
Neither Party, by this Contract, dedicates any part of its facilities involved
in this Project to the public or to the service provided under the Contract, and
such service shall cease upon termination of the Contract.
17. Priority Of Documents
<PAGE>
If there is a conflict between this document and any Appendix, the provisions of
this document shall govern. Each Party shall notify the other immediately upon
the determination of the existence of any such conflict.
18. Notices And Correspondence
All notices and correspondence pertaining to this Contract shall be in writing
and shall be sufficient if delivered in person or sent by certified mail,
postage prepaid, return receipt requested, to Seller as specified in Section
1.1, or to Edison as follows:
Southern California Edison Company Post office Box 800,
Rosemead, California 91770,
Attention: Secretary
All notices lent pursuant to this Section 18 shall be effective when received,
and each Party shall be entitled to specify as its proper address any other
address in the United States upon written notice to the other Party.
19. Previous Communications
This Contract contains the entire agreement and understanding between the
Parties, their agents, and employees as to the subject matter of this contract,
and merges and supersedes all prior agreements, commitments, representations,
and discussions between the Parties. No Party shall be bound to any other
obligations, conditions, or representations with respect to the subject matter
of this Contract.
20. Nonwaiver
None of the provisions of the Contract shall be considered waived by either
Party except when such waiver is given in writing. The failure of either Edison
or Seller to insist on any one or more instances upon strict performance of any
of the provisions of the Contract or to take advantage of any of its rights
hereunder shall not be construed as a waiver of any such provisions or the
relinquishment of any such rights for the future, but the same shall continue to
remain in full force and effect.
21. Successors And Assigns
Neither Party shall voluntarily assign its rights nor delegate its duties under
this Contract, or any part of such rights or duties, without the written consent
of the other Party, except in connection with the sale or merger of a
substantial portion of its properties. Any such
<PAGE>
assignment or delegation made without such written consent shall be null and
void. Consent for assignment shall not be withheld unreasonably. Such assignment
shall include, unless otherwise specified therein, all of Seller's rights to any
refunds which might become due under this Contract.
22. Effect Of Section Headings
Section headings appearing in this Agreement are inserted for convenience only,
and shall not be construed as interpretations of text.
23. Governing Law
This Contract shall be interpreted, governed, and construed under the laws of
the State of California as if executed and to be performed wholly within the
State of California.
24. Multiple Originals
This Contract is executed in two counterparts, each of which shall be deemed an
original.
Signatures
IN WITNESS WHEREOF, the Parties 'hereto' have executed this Contract this 1st of
February, 1985
SOUTHERN CALIFORNIA EDISON COMPANY
BY: /s/ Edward A. Myers, Jr.
--------------------------
Edward A. Myers, Jr.
Vice President
CHINA LAKE JOINT VENTURE
By CALIFORNIA ENERGY COMPANY,INC.
By: /s/ David L. Ludvigson
-------------------------
David L. Ludvigson
Executive Vice President
<PAGE>
EXHIBIT 10.72
Interconnection & Integration Facilities
Agreement Between
Southern California Edison Company and Coso Energy Developers
BLM Project - QFID No. 3030
1. Parties:
This Interconnection and Integration Facilities Agreement ("Agreement") is
entered into by Coso Energy Developers ("Seller") and Southern California Edison
Company, a California corporation ("Edison"), individually "Party", collectively
"Parties".
2. Recitals:
This Agreement is made with reference to the following facts, among others:
2.1 Coso Geothermal Company executed the Power Purchase Contract between
Southern California Edison Company and Coso Geothermal Company on February 1,
1985 ("BLM Contract") for a 75 MW nameplate project ("BLM Project").
2.2 In accordance with Decision 85-06-163 and Decision 88-10-032 of the
California Public Utilities Commission ("CPUC") the effective date of the
Contract is June 28, 1985.
2.3 Effective April 29, 1988, the BLM Contract was assigned to Coso Energy
Developers.
2.4 The BLM Contract was executed subsequent to January 16, 1985 and, therefore,
is governed by the provisions of the Qualifying Facility Milestone Procedure
("QFMP") which is attached hereto and made a part hereof as Attachment C.
2.5 Edison's Rule 21, in effect at the time the Contract was signed, ordered
appended to the Contract by CPUC Decision 83-10-093 and Rule 2, are attached
hereto and made a part hereof as Attachment B.
2.6 An Interconnection Facilities Agreement has not previously been executed for
the Project.
2.7 Edison has identified certain Interconnection and Integration Facilities,
consisting of substation, subtransmission, and transmission facilities, which it
believes are required to be constructed to permit Edison to accept and integrate
into its electric system the 75 MW of Nameplate Capacity represented by the
Project, along with 455 MW to be produced by six other qualifying facility
projects having equal transmission priority with Seller ("Other QF Projects").
Such other QF Projects are planned to be developed by China Lake Joint Venture
and Luz Partnership Management ("Other QF Developers"). The Interconnection and
Integration Facilities Are described in Attachment A which is attached hereto
and made a part hereof.
<PAGE>
2.8 Seller desires to temporarily interconnect the BLM Project to Edison's
electric system using the interconnection facilities previously installed for,
another project developed by Seller's affiliate ("Navy 1 Project"). Seller
desires such interconnection until the Interim Facilities are completed.
2.9 Edison is willing to allow Seller to temporarily interconnect the BLM
Project to Edison's electric system using the interconnection facilities
installed for the Navy 1 Project under the terms specified in Attachment A.
2.10 Edison has determined that the Interconnection and Integration Facilities
include the 220 kV transmission line from the project site to a point near
Edison's Inyokern Substation, the Inyokern-Kramer Circuit, facilities at Kramer
Substation necessary to permit interconnection and integration, Permanent 220 kV
Facilities and Interim Facilities. Edison has determined that the Interim
Facilities are necessary to provide for integration of the Project's 75 MW of
Nameplate Capacity into the Edison system until the Permanent 220 kV Facilities
can be completed. Edison has informed Seller that timely construction of the
Interim Facilities is the only viable method of accommodating Seller's
generation schedule.
2.11 Seller has executed letters dated July 15, July 27, and August 10, 1988
indicating its agreement, under protest, to the provisions described in Sections
2.7 and 2.10.
2.12 The Interconnection and Integration Facilities identified in this Agreement
will permit the interconnection and integration of the Project with Edison's
electrical system.
2.13 The Interconnection and Integration Facilities for the Project shall be
installed and owned by Seller and Edison, respectively, as outlined in
Attachment A hereto.
2.14 Seller and Edison are in disagreement over several matters regarding the
method of interconnecting and integrating the Project with Edison's electric
system. Specifically, Seller and Edison are in disagreement on the following
points:
2.14.1 The allocation of cost between Seller and Edison for the Interim 115 kV
Facilities.
2.14.2 The allocation of cost between Seller and Edison for the Permanent 220 kV
Facilities.
2.14.3 The point at which Seller shall deliver its power to Edison.
2.14.4 The allocation of transmission line losses between Seller and Edison for
the Interim 115 kV Facilities.
2.15 As stated in Section 2.14.2 above, Seller and Edison disagree on the
allocation of costs between Seller and Edison for the Permanent 220 kV
Facilities. Seller believes that the full cost of the Permanent 220 kV
Facilities should be allocated. to Edison's ratepayers in accordance with CPUC
rules and decisions, including Decisions 84-08-031, 85-09-058, and 87-05-060.
Edison
<PAGE>
does not believe the CPUC intends that Edison's ratepayers should bear the cost
of facilities required to interconnect and integrate QF power into the utility
system.
3. Definitions:
The following terms, when used herein with initial capitalization, whether in
the singular or in the plural, shall have the following meanings:
3.1. Added Facilities: Those portions of the Edison owned Interconnection and
Integration Facilities which will be owned and financed by Edison for the
benefit of the Project and to be paid for by Seller in accordance with the
attached Application and Contract for Interconnection and Integration Facilities
plus Operation and Maintenance (Attachment A) and Rule 2. The Interim 115 kV
facilities are not Added Facilities.
3.2 Contract: The BLM Contract.
3.3 CPUC Charges: Those expenses of the CPUC for performance of its
certification and environmental review activities for which Edison provides
reimbursement.
3.4 Generating Facilities: All of Seller's generators, together with all
protective and other associated equipment and improvements, necessary to produce
electrical power at the Project, excluding associated land, land rights, and
interests in land.
3.5 Interconnection and Integration Facilities: Those protection, metering,
electric line(s), and other facilities described in pages 8 through 10 of
Attachment A which Edison has determined to be necessary to permit the efficient
integration of power produced at Seller's Generating Facilities, along with that
power produced by the Other QF Projects into Edison's electric system.
3.6 Interim 115 kV Facilities: The removal, rebuild, and upgrade of Edison's
existing double-circuit Kramer-Victor 115 kV transmission line and related
termination facilities. The Interim 115 kV Facilities are a part of the Interim
Interconnection Facilities.
3.7 Interim Interconnection Facilities: Those Interconnection and Integration
Facilities which Edison has determined to be necessary to accommodate Seller's
scheduled operation date and to permit operation of Seller's Generating
Facilities in parallel with the Edison electric system pending construction of
all of the Permanent 220 kV Facilities. These facilities include, but are not
limited to, the Inyokern-Kramer Circuit, the Interim 115 kV Facilities, upgrades
at Kramer, Victor, and Lugo Substations, and all protection necessary in
Edison's sole judgment to effect the interconnection and integration of Seller's
Project.
3.8 Inyokern-Kramer Circuit: The 220 kV transmission circuit beginning near
Inyokern Substation and ending at Kramer Substation to be installed on the
vacant side of Edison's existing Inyokern-Kramer 220 kV tower line.
<PAGE>
3.9 Nameplate Capacity: That rating specified in Section 1.2 of the Contract.
3.10 Permanent 220 kV Facilities: Those Interconnection and Integration
Facilities to be owned and operated by Edison which Edison has determined are
required for the permanent interconnection and integration of the Generating
Facilities and the Other QF Projects. These facilities include, but are not
limited to, the Inyokern-Kramer Circuit, the necessary substation upgrades at
Kramer, Victor, and Lugo Substations, a new double circuit 220 kV transmission
line from Kramer Substation to Victor Substation and all protection necessary in
Edison's sole judgment to effect the interconnection.
3.11 Project: The BLM Project.
4. Agreement:
In consideration of the premises and the mutual covenants and promises contained
herein, Edison and Seller agree that the Interconnection and Integration.
Facilities shall be installed by Seller and Edison, respectively, as outlined in
Attachment A hereto for the purpose of interconnecting and integrating the
Generating Facilities to Edison's electrical system. The Parties further agree
as follows:
4.1 Interconnection and Integration Facilities:
4.1.1 Seller acknowledges that Seller has read Edison's Tariff Rule No. 21 and
the QFMP and understands Seller's obligations and the consequences to Seller, as
set forth in the QFMP, for failure to satisfy any of the milestones in the QFMP.
4.1.2 Seller, at its sole expense, shall design, purchase the required
equipment, construct, operate and maintain Seller-owned Interconnection and
Integration Facilities as outlined in page 8 of Attachment A. Edison shall
review the design of these facilities as to the adequacy of the protective
apparatus provided. Any additions or modifications required by Edison shall be
incorporated by Seller.
4.1.3 Seller, at its own expense, shall temporarily interconnect the BLM Project
at 115 kV by connecting the Seller-owned 220 kV transmission line to an existing
115 kV transmission line owned by Seller's affiliate at a point near Inyokern
Substation. All equipment required to complete said temporary 115 kV
interconnection shall be procured and installed by Seller. All facilities
installed to complete this connection must be constructed to Edison
specifications. Seller shall operate both of the above-mentioned Seller-owned
transmission lines at 115 kV until such time as the connection is removed.
Seller shall transfer ownership of Seller's existing 115 kV transmission line
from the point where the two Seller-owned lines connect to Calgen Substation to
Edison in a manner acceptable to Edison prior to operation of the BLM Project.
Seller shall pay applicable tax on such transfer of ownership as determined by
Edison. Such facilities shall be free and clear of liens and encumbrances.
Seller shall have the right to continue the temporary interconnection of the BLM
Project in this manner until notified by Edison that
<PAGE>
due to unavailability of transmission capacity, the Project must cease using the
temporary 115 kV interconnection facilities. Edison shall provide such
notification a minimum of 45 days in advance of the date Seller must cease use
of such facilities. However, Edison shall not require Seller to cease use of the
facilities before December 31, 1989. If Seller does not cease use of the
temporary 115 kV interconnection as directed by Edison, Edison shall have the
right to disconnect the temporary 115 kV interconnection.
4.1.4 Seller, at its own initial expense, shall procure equipment for and
construct, to Edison specifications, the Inyokern-Kramer Circuit, as described
in Attachment A hereto. Within thirty days after completion of said facilities
and before said facilities are placed in service, Seller shall transfer
ownership of the Inyokern-Kramer Circuit to Edison in a manner acceptable to
Edison. The facilities shall be free and clear of liens and encumbrances. To the
extent that the CPUC determines, pursuant to Section 4.1.6, that Seller is cost
responsible for all or a portion of the cost of the Inyokern-Kramer Circuit,
Seller shall pay applicable Contribution in Aid of Construction ("CIAC") tax on
this transfer upon demand of Edison.
4.1.5 Edison shall design, purchase, construct, own, operate, and maintain the
Added Facilities and the Interim 115 kV Facilities. The cost of these facilities
shall be paid pursuant to the terms of this Agreement. Edison shall own,
operate, and maintain the Inyokern-Kramer circuit. Edison shall use its best
efforts to obtain a Certificate of Public Convenience and Necessity ("CPCN")
from the CPUC for a new double circuit 220 kV transmission line from Kramer
Substation to Victor Substation and shall obtain other necessary permits for the
Edison-installed Interconnection and Integration Facilities as outlined on pages
8 and 9 of Attachment A.
4.1.6 Seller has informed Edison that it is imperative that a decision be
reached on the issue recited in Sections 2.14.2 and 2.15 at the earliest
opportunity in order to ensure that Seller can meet its financing deadlines,
obtain certain tax credits and satisfy other obligations. The Parties shall use
their best efforts and cooperate fully with each other in an effort to file a
pleading presenting the issue of cost allocation set forth in Sections 2.14.2
and 2.15 to the CPUC by January 11, 1989 in order to obtain a CPUC decision on
or before April 3, 1989. After such pleading has been filed with the CPUC:
. If a CPUC decision is not obtained by that April 3, 1989, the Parties are
released from any further obligation to pursue the issue before the CPUC; or,
. Should it become apparent that it will not be possible to obtain a decision by
April 3, 1989, Seller may elect to be released from any further obligation to
pursue the issue before the CPUC by (1) giving Edison 15 days written notice of
its intent to no longer pursue the issue before the CPUC and (2) specifying in
such notice the reason(s) for providing such notice.
4.1.7 Cost Responsibility
4.1.7.1 Prior to the CPUC determination referenced in Section 4.1.6 above, cost
responsibility for the Permanent 220 kV Facilities shall be as follows:
<PAGE>
a. All of Edison's costs related to the Inyokern-Kramer Circuit, including
engineering, design, and line terminations, shall be shared equally between
Edison and Seller.
b. All costs of the Permanent 220 kV Facilities installed by Edison, except
those referred to in (a.) above, shall be shared between Seller, Edison and
Other QF Developers.
c. Seller shall pay its portion of the cost of the Permanent 220 kV Facilities
specified in Sections 4.1.7.1(a) and, (b) on the Added Facilities basis pursuant
to Section 1 of Attachment A. Seller agrees to post Added Facilities security
for its share of the cost in accordance with page A-12, Attachment A. Seller, at
its option and risk, may post additional Added Facilities security and request
Edison to accelerate engineering and procurement for the Permanent 220 kV
Facilities. In the event a CPCN is not granted, Seller shall forfeit the amount
of Added Facilities security which covers Edison's costs.
d. Upon completion of the Inyokern-Kramer Circuit and its transfer of ownership
pursuant to Section 4.1.4, the Inyokern-Kramer Circuit shall be considered as
Added Facilities. However, in consideration of Seller having paid the cost of
installing the Inyokern-Kramer Circuit, Edison will not require Seller to post
additional added facilities security for this facility. Additionally, Edison
shall not initially include the value of the Inyokern-Kramer Circuit in the
added investment base for determining Added Facilities charges pursuant to
Section 1 of Attachment A. Rather, Edison shall subtract the equivalent of a
monthly Added Facilities charge for the Inyokern-Kramer Circuit from the value
of the circuit, as determined by its installation cost, until the installation
cost balance is zero. At that time, the value of the Inyokern-Kramer Circuit
shall be added to the added investment base and Seller shall begin payment of a
monthly added facilities charge for this circuit pursuant to Section 1 of
Appendix A.
e. If the Other QF Developers refuse to or fail to fund their share of the cost
of the Permanent 220 kV Facilities to be installed by Edison prior to the CPUC
determination referenced in Section 4.1.6, Edison will review the scope of the
Permanent 220 kV Facilities. In the absence of development by Other QF
Developers, the scope of the Edison-installed Interconnection and Integration
Facilities and estimated costs as specified in Attachment A herein may be
modified by mutual agreement of the Parties.
4.1.7.2 Following CPUC determination referenced in Section 4.1.6 above or the
decision of the California Supreme Court or the United States Supreme Court on
appeal, costs for the Permanent 220 kV Facilities which are so determined to be
Seller's responsibility shall be borne and paid for by Seller.
4.1.7.3 Following CPUC determination referenced in Section 4.1.6 above or the
decision of the California Supreme Court or the United States Supreme Court on
appeal, costs for the Permanent 220 kV Facilities which are so determined to be
Edison's responsibility shall be borne and paid for by Edison.
4.1.7.4 Adjustments in the amount of. required Added Facilities security for the
Permanent 220 kV Facilities as a result of the CPUC determination referenced in
Section 4.1.6 shall be made in
<PAGE>
accordance with the provisions of Section 4 of Attachment A.
4.1.8 Costs of the Interim 115 kV Facilities, which are being installed at the
request of Seller and Other QF Developers to avoid curtailment beyond that
provided for in the Contract, are intended to be shared between Seller and Other
QF Developers. Based on Seller's pro-rated share of transmission capacity on
these facilities, Seller shall be responsible for 24.2% of the cost of said
facilities. Seller shall pay applicable CIAC tax on this payment upon demand of
Edison.
4.1.9 Seller shall pay to Edison quarterly payments in the amount and according
to the schedule specified on page A-11 of Attachment A for Seller's share of the
estimated cost of the Interim 115 kV Facilities.
4.1.10 Upon issuance of a final order by the CPUC determining the cost
responsibility of the Parties and the exhaustion of any appeals of that
decision, Edison shall determine the final amount of Added Facilities security
required in accordance with Attachment A. Edison, as appropriate, shall invoice
Seller for any additional Added Facilities security required or release any
excess security. The additional Added Facilities security shall be provided
within sixty days following the date of said invoice. If Edison determines that
the amount of Added Facilities security required is less than the amount
previously posted by Seller, Seller may reduce the amount of Added Facilities
security accordingly.
4.1.10.1 Following determination of cost responsibility for the Permanent 220 kV
Facilities by the CPUC and the exhaustion of any appeals of that decision, if
Seller elects to amend this Agreement to provide for a capital contribution for
the facilities instead of continuing on an Added Facilities basis, Edison shall
determine the amount of capital contribution due and invoice Seller. Payment
shall be due 60 days following the date of said invoice. Seller may authorize
Edison to collect on the Added Facilities security and credit it as payment
toward the capital contribution. Any Added Facilities security which is not
applied toward said capital contribution shall be refunded by Edison within 60
days following Seller's payment of the entire capital contribution.
4.1.10.2 If Seller chooses to pay a capital contribution for the facilities for
which costs are allocated to Seller, rather than pay on the Added Facilities
basis, Seller shall pay applicable CIAC tax as determined by Edison on its
contribution.
4.1.11 In addition to the payments and security specified in Sections
4.1.7.1(c), 4.1.9 and 4.1.10 above, Seller shall establish and provide to Edison
security which shall cover the period of time the existing Kramer-Victor 115 kV
transmission line is being removed and engineering and construction are in
progress on the rebuild of the new Kramer-Victor 115 kV transmission line. The
security shall be in a form acceptable to Edison and shall be of an amount
sufficient to cover 24.2% the total cost of rebuilding the existing Kramer-
Victor 115 kV transmission line. The amount shall be determined by Edison.
Alternatively, Seller may elect to advance the quarterly payments specified in
the Payment Schedule (Interim 115 kV Facilities) in Attachment A-11 of
Attachment A to cover the cost of rebuilding the existing Kramer-Victor 115 kV
transmission line before removal of the existing 115 kV facilities is begun.
<PAGE>
4.1.12 Notwithstanding the provisions of Section 13 of the Contract, Seller,
having elected to own, operate, and maintain a portion of the Interconnection
and Integration Facilities, shall accept all liability and release Edison from
and indemnify Edison against any liability for faults or damage to the Seller-
owned Interconnection and Integration Facilities, the Edison electric system and
the public as a result of the operation of Seller's Generating Facilities or the
Seller-owned Interconnection and Integration Facilities.
4.1.13 Operation and maintenance of the Permanent 220 kV Facilities shall be
paid pursuant to the Attachment A.
4.1.14 Edison shall review any changes in the design of the Seller-installed
Interconnection and Integration Facilities and may require modifications to the
design as it deems necessary for proper protection and safe operation of the
Generating Facilities when in parallel with the Edison electric system. Seller
shall be notified of the results of such review by Edison, in writing, within 30
days of the receipt of all specifications related to the proposed design
changes. Any comments by Edison regarding the proposed design changes shall be
described in the written notice.
4.1.15 Upon completion of the Interim Interconnection Facilities, Seller may
interconnect 75 MW of Nameplate Capacity to Edison's electric system at the
connection point of the Seller-owned 220 kV transmission line and the Inyokern-
Kramer Circuit near Inyokern Substation. During the period preceding the
completion of the Permanent 220 kV Facilities, Seller shall be responsible for
its share of transmission losses on the Interim Interconnection Facilities in
excess of normal Edison transmission losses. A loss compensation factor shall be
calculated by Edison, reviewed with Seller, and applied to Seller's meter
readings at Kramer Substation to cover losses to Victor Substation.
4.1.16 Upon the completion of the Interconnection and Integration Facilities
covered by this Agreement, Seller shall be entitled to interconnect the 75 MW of
Nameplate Capacity specified by the Contract to Edison's electrical system at
the connection point of the Seller-owned 220 kV transmission line and the
Inyokern-Kramer Circuit near Inyokern Substation.
4.1.17 The capacity and associated energy purchased under the Contract and that
of one of the Other QF Projects (China Lake Joint Venture's Navy 2 Project)
shall be metered at 220 kV at Kramer Substation for all kWh's received and
purchased by Edison. The Project and the Navy 2 Project shall also be
individually metered at their project sites. Payment for capacity and associated
energy shall be based upon the Kramer Substation meter and said payment shall be
prorated to the Contract and the contract of the Navy 2 Project based upon the
project site meters.
4.1.18 To the extent that Edison deems it necessary to effect the arrangements
contemplated by this Agreement, Edison may, from time to time, design, install,
operate, maintain, modify, replace, repair, or remove any or all of the
Interconnection and Integration Facilities. Any additions, modifications, or
replacement of equipment shall be treated as Interconnection and Integration
Facilities. If Edison modifies the Permanent 220 kV Facilities in accordance
with the foregoing prior to issuance of a final CPUC order on cost
responsibility or exhaustion of the
<PAGE>
rights of the Parties to appeal, the cost of such change shall be shared by
Edison, Seller, and the Other QF Projects and shall be included in Seller's and
Edison's joint application to the CPUC. If Edison modifies the Permanent 220 kV
Facilities following a final CPUC order on cost responsibility or exhaustion of
the rights of the Parties to appeal, such costs will be paid by Seller
consistent with said CPUC order or appeal. If changes involve the Interim 115 kV
Facilities prior to the completion of the Permanent 220 kV Facilities, the cost
of such additions, modifications, and replacements shall be paid by Seller on a
one-time basis and the material and equipment costs added to this Agreement by
amendment.
4.1.19 Equipment and/or protective apparatus which, in the opinion of Edison, is
no longer required shall be deleted from this Agreement and any Added Facilities
or operation and maintenance costs attributable to Seller shall be reduced
accordingly.
4.2 The Parties agree that nothing in this Agreement should be construed as a
waiver of Seller's rights to seek a CPUC or other judicial determination with
regard to the areas of disagreement stated in Sections 2.14.1, 2.14.3, 2.14.4 or
to appeal such determination to the appropriate appellate forum. If Seller seeks
such a determination and the determination differs from the arrangements
provided for in this Agreement, the Parties agree to amend this Agreement to
reflect such CPUC or judicial determination and make such payment and/or billing
adjustments as required. Should Seller choose to appeal a CPUC or judicial
determination, the Parties agree to amend this Agreement to reflect the results
of such appeal.
4.3 Upon its effective date, this Agreement shall become a part of the Contract.
Certain provisions of this Agreement are inconsistent with provisions of the
Contract. Where inconsistencies occur, the Parties agree that the provisions of
this Agreement shall control.
4.4 This Agreement contemplates that an Interconnection and Integration
Facilities Agreement will be entered into between Edison and the Other QF
Developers. In the event the Other QF Developers do not execute Agreements which
contain substantially the same agreement regarding cost and payment
responsibility for the Interim 115 kV Facilities and Permanent 220 kV Facilities
as contained in this Agreement prior to or within 15 days after the execution of
this Agreement or Edison determines that one or more of the Other QF Developers
has failed to make a payment under its Agreement with Edison, then, Edison and
Seller shall amend this Agreement to: (1) grant Seller and those Other QF
Projects that have signed Interconnection and Integration Facilities Agreements
and made required payments to Edison, the exclusive use, other than use by
Edison occurring incidentally when the line is not loaded with Seller's power
and power generated by those Other QF Projects, of the Interim 115 kV
Facilities. Such grant of exclusive use shall be for the contractually specified
nameplate capacity and for the full term of this Agreement; (2) increase
Seller's share of the cost of the Interim 115 kV Facilities to 50% and (3)
revise the terms of this Agreement as necessary to reflect the change in
facilities and cost including possible elimination of the need for the Permanent
220 kV Facilities.
5. Effective Date:
<PAGE>
This Agreement shall become effective when it has been duly executed by the
Parties.
6. Termination:
Seller may terminate this Agreement at any time by providing Edison with written
notice. Such notice shall be sufficient if delivered in person or sent by
certified mail, postage prepaid, return receipt requested, to Edison as follows:
Southern California Edison Company Post Office Box 800,
Rosemead, CA 91770
Attention: Secretary
In the event of such termination, Seller shall, pursuant to Sections 3 and 6 of
Attachment A, reimburse Edison for any expenses incurred.
7. Multiple Originals:
This Agreement is executed in two counterparts, each of which shall be deemed an
original.
8. Previous Communications
This Agreement contains the entire agreement and understanding between the
Parties, their agents, and employees as to the subject matter of this Agreement,
and merges and supersedes all prior agreements, commitments, representations,
and discussions between the Parties specifically including, but not limited to,
the letters from Seller to Edison dated July 15, July 27 and August 10, 1988
referenced in Section 2.11 herein. No Party shall be bound to any other
obligations, conditions, or representations with respect to the subject matter
of this Agreement.
9. Nonwaiver
None of the provisions of the Agreement shall be considered waived by either
Party except when such waiver is given in writing. The failure of either Edison
or Seller to insist on any one or more instances upon strict performance of any
of the provision of the Agreement or to take advantage of any of its rights
hereunder shall not be construed as a waiver of any such provisions or the
relinquishment of any such rights for the future, but the same shall continue to
remain in full force and effect.
10. Governing Law
<PAGE>
This Agreement shall be interpreted, governed, and construed under the laws of
the State of California as if executed and to be performed wholly within the
State of California.
11. Signature
In witness whereof, the Parties hereto have executed this Agreement this 15th
day of December 1988.
SOUTHERN CALIFORNIA EDISON COMPANY
By: /s/ Glenn J. Bjorklund
----------------------
Name: Glenn J. Bjorklund
Title: Vice President
COSO ENERGY DEVELOPERS
By COSO HOT SPRINGS INTERMOUNTAIN POWER, As
General Partner
By: : /s/ David L. Ludvigson
Name: David L. Ludvigson
Title: Exec. Vice President
Attachment A - Application And Contract For Interconnection Facilities Plus
Operation And Maintenance Added Facilities Basis
("Application and Contract")
Seller hereby requests Edison to provide the Added Facilities described on pages
A-8 and A-9 hereof. Added Facilities shall be provided in accordance with the
applicable Tariff Schedules of Edison.
In consideration of Edison's acceptance of this Application and Contract, Seller
hereby agrees to the following:
1. Seller shall pay a monthly charge for the Added Facilities in the amount of
.9% of the added investment as determined by Edison and as entered by Edison on
page A-10. The monthly charge does not include an operation and maintenance
expense. The monthly charge shall be adjusted periodically in accordance with
future CPUC determination pursuant to Rule 2. The monthly charge shall commence
on the date the Added Facilities are available for use, and may be based upon
estimated costs of the Added Facilities. when the recorded book cost of the
Added Facilities has been determined by Edison, the charges shall be adjusted
retroactively to the date when such facilities were first available for use.
Additional charges resulting from such
<PAGE>
adjustment shall, unless otherwise mutually agreed, be payable within thirty
(30) days from the date of presentation of a bill therefor. Any credits
resulting from such adjustment shall, unless otherwise mutually agreed, be
refunded within thirty (30) days following demand of Seller.
2. If the decision of the CPUC or California Supreme Court or United States
Supreme Court on appeal regarding cost responsibility pursuant to Section 4.1.6
of the Agreement directs that Seller is responsible for operation and
maintenance costs of some or all of the Permanent 220 kV Facilities, Seller
shall pay a monthly charge for such facilities' operation and maintenance in the
amount of 0.8% of that portion of the added investment for which Seller has so
been determined to be cost-responsible. The monthly operation and maintenance
charge shall be adjusted periodically in accordance with the pro-rated operation
and maintenance charges for added facilities pursuant to Tariff Rule No. 2. The
monthly charge may be based upon estimated costs of the facilities as entered on
page A-10 herein and when the recorded book cost of such facilities has been
determined by Edison, the charges shall be adjusted retroactively to the date
when such facilities were first available for use. Additional charges resulting
from such adjustment shall, unless other terms are mutually agreed upon, be
payable within thirty (30) days from the date of presentation of a bill
therefor. Any credits resulting from such adjustment shall, unless other terms
are mutually agreed upon, be refunded with thirty (30) days from presentation of
request by Seller.
3. In the event Seller abandons its plans for installation of the Project, for
any reason whatsoever, including failure to obtain any required permits, Seller
shall reimburse Edison upon receipt of supporting documentation for any and all
expenses incurred by Edison pursuant to this Application and Contract within
thirty (30) days after presentation of a bill therefor.
4. Whenever a change is made in the Added Facilities which results in changes in
the added investment, the monthly charges pursuant to Sections 1 and 2 and
security posted pursuant to Section 7 of this Application and Contract shall be
adjusted on the basis of the revised added investment. The description of the
Added Facilities shall be amended by Edison to reflect any changes in equipment,
installation and removal cost, amount of added investment, and monthly charge
resulting from any such change in the Added Facilities or adjustment as
aforesaid.
5. All monthly charges payable hereunder shall commence upon the date when said
Added Facilities are available for use and shall first be payable fifteen (15)
days after Edison submits the first bill therefor and shall continue until the
termination of the Contract or the abandonment of the Project.
6. If the Interconnection and Integration Facilities are abandoned by
termination of service or otherwise, prior to five (5) years from the date said
facilities are available for use, Seller shall pay to Edison the estimated cost
of equipment installation plus the cost of removing the Added Facilities less
the estimated salvage value, within thirty (30) days after presentation of a
bill therefor. Alternatively, Seller may pay to Edison, as a single payment, the
sum of the monthly charges from Sections 1, 2, and 4 hereof for the period
beginning on the date on which said facilities are to be removed and ending on a
date five (5) years from the date on which monthly charges commenced pursuant to
provisions of Sections 1 and 2 hereof. Such alternative payment
<PAGE>
shall be made within thirty (30) days of Seller's receipt of a bill from Edison.
If the Added Facilities have been only partially constructed prior to such
abandonment, Seller agrees to pay to Edison the amount expended by Edison (not
exceeding the estimated installation and removal cost) for installing and
removing the partially constructed Added Facilities within thirty (30) days
after presentation of a bill therefor. if the Added Facilities are abandoned
solely by Edison, as of the date of abandonment, Seller's obligation to pay
monthly charges, pursuant to Sections 1, 2 and 4 hereof, shall terminate and
Seller shall not have any obligation to pay the charges described in this
Section 6. Seller may apply the value of Seller's Added Facilities security
pursuant to Section 7 hereof, to the foregoing payments.
7. Seller shall provide evidence, to Edison's satisfaction, of Seller's ability
to perform its obligations pursuant to Section 6 above. Seller shall provide to
Edison said evidence by means of a performance bond, Letter of Credit, an escrow
account, or other evidence as agreed to by both Parties. Seller may post Added
Facilities security in quarterly increments identified on page A-12 of this
Attachment A. Seller shall post security in the amount indicated on page A-12 to
bring the payments current within fifteen (15) days following execution of this
Application and Contract.
8. Seller agrees to utilize the Added Facilities in accordance with good
operating practice and to reimburse Edison for damage to said facilities
occasioned or caused by the Seller or any of his agents, employees or licensees.
Failure so to exercise due diligence in the utilization of said Added Facilities
shall give Edison the right to terminate this Application and Contract, to
remove said facilities and to demand immediate reimbursement for the equipment
installation and removal costs, less the estimated salvage value if the
facilities are removed within five (5) years from the date of this Application
and Contract.
9. Edison's performance under this Application and Contract is subject to the
receipt of permits, including but not limited to a Certificate of Public
Convenience and Necessity for the Permanent 220 kV facilities, the availability
of materials required to provide the Interconnection and Integration Facilities
provided for herein and to all applicable Tariff Schedules of Edison.
10. The Parties also understand and agree that due to equipment acquisition lead
time and construction time requirements, Edison requires a minimum of 24 months
from the execution of this Application and Contract to construct the Interim
Facilities and place them in operation and a minimum of 54 months from the time
of authorization to construct the Permanent 220 kV facilities and place them in
operation. Edison shall have no obligation to Seller with regard to any target
date established by Seller which is less than these 24 and 54 months,
respectively, from the date this Application and Contract is executed. However,
Edison shall exercise its best effort to meet Seller's target operation dates.
Edison's preliminary evaluation of equipment procurement lead times indicates
that Edison will not be able to complete the Interim Facilities until September
30, 1990, or the Permanent 220 kV Facilities until December 31, 1992.
11. This Application and Contract shall to the extent provided by law at all
times be subject to such changes or modifications by the Public Utilities
Commission of the State of California as said Commission may, from time to time,
direct in the exercise of its jurisdiction.
<PAGE>
DATED: December 15, 1988
COSO ENERGY DEVELOPERS
By COSO HOT SPRINGS INTERMOUNTAIN
POWER, as General Partner
BY: : /s/ David L. Ludvigson
-----------------------
Name: David L. Ludvigson
Title: Exec. Vice President
Approved and Accepted for
SOUTHERN CALIFORNIA EDISON COMPANY
By: /s/ Glenn J. Bjorklund
----------------------
Name: Glenn J. Bjorklund
Title: Vice President
INTERCONNECTION AND INTEGRATION FACILITIES DESCRIPTION
PROJECT LOCATION: BLM 2 Project
China Lake Naval Weapons Center,
Ridgecrest, California
TARGET DATES APPLICANT DESIRES INTERCONNECTION AND INTEGRATION
FACILITIES AVAILABLE:
Interim Interconnection Facilities: 12/89
Permanent 220 kV Facilities: 12/91
DATE APPLICANT BEGAN CONSTRUCTION OF THE GENERATING FACILITIES:
BLM: April, 1986
DESCRIPTION OF INTERCONNECTION AND INTEGRATION FACILITIES:
Seller-owned Interconnection and Integration Facilities:
* 220 kV H-frame wood pole transmission line from BLM project site to connection
point with Inyokern-Kramer Circuit near In
*Seller shall construct Seller-owned 220 kV transmission line to a point
designated by Edison near the southeast corner of Inyokern Substation.
<PAGE>
*Seller shall provide proper voltage and VAR controlling equipment to maintain
unity power factor at Kramer Substation as determined by Edison.
*220 kV transformer at project site.
*Protection and relaying equipment
Seller-installed Interconnection and Integration Facilities (Inyokern-Kramer
Circuit) to be transferred to Edison:
* Procure and construct Inyokern-Kramer Circuit, including interconnection tower
south of Inyokern
Edison-installed Interconnection and Integration Facilities:
Added Facilities
*Engineer Inyokern-Kramer Circuit
*Kramer Substation: engineer and construct 220 kV line position for Inyokern-
Kramer Circuit including transmission termination facilities.
*Telecommunications, Telemetering, Metering: Install telecommunication,
telemetering, and TOU metering equipment at Kramer Substation and project site,
provide voice channel equipment.
*Kramer Substation: engineer and construct 220 kV operating bus; remove and
relocate existing equipment.
*Kramer and Victor Substations: Install 220 kV and 115 kV capacitor banks.
*Protection schemes as necessary to protect the integrity of Edison's electric
system.
*Relocate existing 33 kV and 115 kV transmission facilities as required to
construct new facilities.
*Lugo Substation: Engineer and construct capacity increase of "AA" transformers;
replace ten 220 kV circuit breakers.
*Conduct appropriate environmental reviews; provide appropriate mitigation..
*Acquire regulatory approvals, permits, licenses as necessary.
*Kramer Substation: Engineer and construct two 220 kV line positions for new
double circuit 220 kV Kramer-Victor line.
<PAGE>
*Acquire right-of-way for new double circuit Kramer-Victor 220 kV line.
*Engineer and construct approximately 38 miles of 220 kV double-circuit tower
line between Kramer and Victor Substations. (Line length based on CPUC approval
of Edison's preferred route.)
*Victor Substation: Engineer and construct 220 kV switchrack, line and bank
positions.
*Electrical/mechanical equipment room construction at Victor and Kramer
Substations.
Interim 115 kV Facilities
*Engineer, design, and construct the Interim 115 kV Facilities.
ESTIMATED COST OF EDISON-INSTALLED INTERCONNECTION FACILITIES*:
Added Investment: 12,642,500**
----------
Capital Contribution: 3,387,500**
---------
Total Cost 16,030,000**
----------
Installation and Removal: 15,575,000**
----------
In addition, the tax contribution component based upon final costs paid by
Seller as a capital contribution to Edison will be based on 28% CIAC tax.
DATE SERVICE FIRST RENDERED BY MEANS OF THE INTERCONNECTION FACILITIES:
Interim Interconnection Facilities_______________
Permanent 220 kV Facilities________________
* Costs shown represent that portion of Edison's estimated expense to be
initially funded by Seller either by capital contribution or on an Added
Facilities basis.
** Costs stated are estimates only and are not binding.
Final cost will be adjusted based on actual cost.
PAYMENT SCHEDULE
(INTERIM 115 kV FACILITIES)
<PAGE>
<TABLE>
<S> <C> <C>
Payment Due Date Payment Due
11-01-88 $ 375,000
01-01-89 $ 850,000
04-01-89 $1,000,000
07-01-89 $1,000,000
10-01-89 $ 162,500
----------
TOTAL $3,387,500
SECURITY POSTING SCHEDULE
(PERMANENT 220 kV FACILITIES)
Security Due Date Security Total
Date Increment Date Security Posted
11-01-88 $ 300,000 $ 300,000
01-01-89 $ 500,000 $ 800,000
04-01-89 $ 500,000 $1,300,000
07-01-89 $ 500,000 $1,800,000
10-01-89 $ 500,000 2,300,000
01-01-90 $ 900,000 $3,200,000
04-01-90 $ 900,000 $4,100,000
07-01-90 $ 900,000 $5,000,000
10-01-90 $ 900,000 $5,900,000
01-01-91 $ 900,000 $6,800,000
</TABLE>
Security shall remain in place in the amount of $6,800,000 until such time as
the Permanent 220 Facilities are placed in service. At that time, the amount of
security required shall be reduced quarterly by the amount of previous paid
monthly Added Facilities payments.
Map - See Image Page 44 - 47
<PAGE>
Amendment No. 1 To The Interconnection And Integration Facilities Agreement
This Amendment No. 1 ("Amendment") to the Interconnection and Integration
Facilities Agreement ("IIFA") between Southern California Edison Company and
China Lake Joint Venture (BLM Project - QFID No. 3030) is made by and between
Southern California Edison Company, a California corporation ("Edison"), and
Coso Energy Developers, a California general partnership ("Coso Energy").
Recitals
A. Coso Energy is the owner of a geothermal power production facility located at
China Lake, California commonly known as the BLM Facility (the "Facility").
B. Edison and Coso Energy are parties to the IIFA which provides for the
interconnection of the Facility to Edison's transmission system in order for
Coso Energy to deliver a-rid Edison to purchase the output of the Facility
pursuant to a power purchase agreement.
C. Edison and Coso Energy have agreed to amend the IIFA to reflect the
settlement and release of certain claims pursuant to a certain Transmission
Agreement and Release dated April 30, 1993 (the "Agreement and Release") between
Edison, California Energy Company, Inc., a Delaware corporation ("Cal Energy"),
Coso Power Developers ("Coso Power"), a California general partnership, Coso
Energy Developers, a California general partnership ("Coso Energy") and Coso
Finance Partners, a California general partnership ("Coso Finance")
(collectively the "California Energy Parties").
Now, therefore, for the mutual promises set forth in the Agreement and Release
and for other good and valuable consideration, the receipt of which is hereby
acknowledged, Edison and Coso Energy agree to amend the IIFA as follows:
1. Existing Facilities.
The currently existing interconnection facilities shall become the permanent
facilities and method for interconnection of the Facility to Edison's
transmission system and any reference in the IIFA or related documents to the
"Permanent 220 kV Facilities" or "Interconnection and Integration Facility"
shall be deemed to refer to such currently existing interconnection facility.
2. Line Loss Compensation
<PAGE>
Coso Energy shall not hereafter be responsible for any portion of transmission
losses and-Edison may not withhold any sums otherwise due or charge Coso Energy
with respect to any alleged or actual line losses. Section 4.1.15 of the IIFA
shall be deleted and Section 4.1.14 of the IIFA shall be amended and restated to
read in its entirety as follows:
4.1.14 Seller may interconnect the Facility to Edison's electric system at the
connection point of the Seller-owned 220 kV transmission line and the Inyokern-
Kramer Circuit near Inyokern Substation. Seller shall not be responsible for any
portion of transmission losses on the Interim Interconnection Facilities.
3. Metering.
Immediately upon completion of upgrade of Inyokern Substation to a 220 kV
substation, Edison shall relocate the meter for the Facility to the Inyokern-
Substation and measure all future capacity and associated energy from the
Facility at the Inyokern Substation for all kWh's received and purchased by
Edison. Edison shall impose no-additional charge for moving the meter to
Inyokern Substation or reconnecting the Facility at Inyokern Substation. Edison
makes no warranty that Inyokern will ever be upgraded to 220 kV. If the Inyokern
Substation is upgraded to a 220 kV substation, Section 4.1.16 of the IIFA shall
be amended and restated in its entirety to read as follows:
4.1.16 The capacity and associated energy purchased under the Contract and that
of one of the Other QF Projects (Coso Power Developers' Navy 2 Project) shall be
metered at 220 kV at Inyokern Substation for all kWh's received and purchased by
Edison. The Project and the Navy 2 Project shall also be individually metered at
their project sites. Payment for capacity and associated energy shall be based
upon the Inyokern Substation meter and said payment shall be prorated to the
Contract and the contract of the Navy 2 Project based upon the project site
meters.
4. Escrow.
All references and requirements in the IIFA (including Attachment A thereto)
with respect to any escrow provisions or security are hereby deleted in their
entirety and any funds held in escrow shall be immediately distributed to Coso
Energy on the date hereof.
5. Charges.
A new Section 4.5 shall be added to the IIFA to read as follows:
"4.5 Notwithstanding anything to the contrary contained in this Agreement, no
costs, charges, expenses or capital contributions shall be imposed upon or
required from Coso Energy or the Facility by Edison pursuant to the IIFA or
otherwise, and the IIFA may not be further amended to
<PAGE>
impose such additional cost, charges, expenses or capital contributions on Coso
Energy except as follows:
4.5.1 Coso Energy agrees to pay an amount equal to one half of the aggregate of
a 1.7% per month Edison-financed-added facilities charge on the $2,367,572
capital cost base of interconnection facilities at Kramer from May 1, 1993
through the life of the Interconnection Agreements. Coso Energy agrees to pay
one half of the aggregate added facilities charges on the $6,036,157 of the
Inyokern-Kramer transmission line facilities in accordance with Section 4.5.3,
below. The added facilities charges noted above,. both Edison-financed (1.7%)
and customer-financed (0.8%), are as currently set forth in Rule 2 of Edison's
tariffs, as such tariffs may be modified from time to time by the CPUC, and Coso
Energy agrees to pay according to said modifications provided such modifications
are made uniformly with respect to all QFs having interconnection agreements
with Edison. The California Energy Parties do not waive any right to challenge
any such modification.
4.5.2 Coso Energy and Coso Power have been paying in the aggregate added
facilities charges on-Edison financed facilities at the rate of 0.9% per month
in connection with the Kramer termination facilities (with a capital cost base
of $2,367,572), the engineering and permitting work performed by Edison in
connection with the Inyokern-Kramer circuit (with a capital cost base, of
$794,265) and the Lugo substation (with a capital cost base of $4,716,900).
Edison will retain added facilities amounts heretofore paid by Coso Energy and
in addition, if not previously withheld, will withhold amounts payable for the
months of March 1993 and April 1993 in the amount of $31,860 a month for Coso
Energy. On and after May 1, 1993, no other charge of -any kind whatsoever
whether for added facilities charges under the IIFA, whether Edison financed or
customer financed or otherwise will be assessed against Coso Energy or Coso
Power or in respect of the Facility.
4.5.3 Coso Energy agrees to pay an aggregate amount equal to one half of a 0.8%
per month customer-financed added facilities charge on the $5,241,892 of
customer financed Inyokern-Kramer transmission line facilities and a 1.7% per
month Edison-financed added facilities charge on the $794,265 of Edison-financed
Inyokern Kramer transmission line facilities from May 1, 1993 'through April 30,
2001. After April 30, 2001, no added facilities charges, whether Edison-financed
or customer financed, will be applied to interconnection and transmission line
facilities for the Facility and the Navy 2 Facility. If Inyokern becomes a 220
kV substation prior to April 30, 2001, Edison will continue charging the added
facilities charges on the $6,036,157 of Inyokern Kramer transmission line
facilities through April 30, 2001. Edison agrees to irrevocably waive any claims
to a 0.8% customer-financed added facilities charge with respect to the
approximately $8.4 million of interconnection facilities and Inyokern-Kramer
transmission line facilities from the in-service date of those facilities
through May 1, 1993.
4.5.4 -Effective May 1, 1993, except for the amounts referenced in Sections
4.5.1 through 4.5.3 above, all of which are set forth in the following table, no
charges of any kind, whether for-added facilities charges under the IIFA or
otherwise shall be assessed against the California Energy Parties in respect of
the Facility and except as specifically set forth in Section 4.5.2 above for
<PAGE>
Coso Energy and Coso Power, no charges in respect of the Facilities shall be
assessed on Coso Energy or Coso Power for periods prior to May 1, 1993:
Added Facilities Charges, Capital Cost Base and Time Period Table Coso Energy
Section Calculation
4.5.1 .5 x $2,367,572 x 1.7% a month from May 1, 1993 until end of
IIFA
4.5.2 .5 x $794,265 x 1.7% a month from May 1, 1993 until April 30,
2001
4.5.3 .5 x $5,241,892 x .8% a month from May 1, 1993 until April 30,
2001
The amounts in the above table are with respect to Coso Energy only.
6. Definitions.
Capitalized terms not otherwise defined herein shall have the meaning set forth
in the IIFA.
7. Other Terms.
If the terms of this Amendment conflict with the terms of the IIFA, the terms of
this Amendment control. Except as modified by this Amendment, the terms and
conditions of the IIFA shall remain in full force and effect.
8. Effective Date.
This Amendment shall be effective as of April 30, 1993.
"EDISON"
SOUTHERN CALIFORNIA EDISON COMPANY
By: /s/ Vikram Budhraja
Title: Vice President
"Coso Energy"
COSO ENERGY DEVELOPERS
<PAGE>
By: Coso Hotsprings Intermountain Power,
Inc. its managing general partner
By: /s/ Steven McArthur
Title:.. Vice President
<PAGE>
EXHIBIT 10.73
Interconnection and Integration Facilities Agreement
Between Southern California Edison Company
and China Lake Joint Venture
Navy 2 Project - QFID No. 3029
1. Parties:
This Interconnection and Integration Facilities Agreement ("Agreement") is
entered into by China Lake Joint Venture ("Seller") and Southern California
Edison Company, a California corporation ("Edison"), individually "Party",
collectively "Parties".
2. Recitals:
This Agreement is made with reference to the following facts, among others:
2.1 China Lake Joint Venture executed the Power Purchase Contract between
Southern California Edison Company and China Lake Joint Venture on February 1,
1985 ("Navy 2 Contract") for a 75 MW nameplate project ("Navy 2 Project").
2.2 In accordance with Decision 85-06-163 and Decision 88-10-032 of the
California Public Utilities Commission ("CPUC") the effective date of the
Contract is June 28, 1985.
2.3 The Navy 2 Contract was executed subsequent to January 16, 1985 and,
therefore, is governed by the provisions of the Qualifying Facility Milestone
Procedure ("QFMP") which is attached hereto and made a part hereof as Attachment
C.
2.4 Edison's Rule 21, in effect at the time the Contract was signed, ordered
appended to the Contract by CPUC Decision 83-10-093 and Rule 2, are attached
hereto and made a part hereof as Attachment B.
2.5 An Interconnection Facilities Agreement has not previously been executed for
the Project.
2.6 Edison has identified certain Interconnection an Integration Facilities,
consisting of substation, subtransmission, and transmission facilities, which it
believes are required to be constructed to permit Edison to accept and integrate
into its electric system the 75 MW of Nameplate Capacity represented by the
Project, along with 455 MW to be produced by six other qualifying facility
projects having equal transmission priority with Seller ("Other QF Projects").
Such other QF Projects are planned to be developed by Coso Energy Developers and
Luz Partnership Management ("Other QF Developers"). The Interconnection and
Integration Facilities are described in Attachment A which is attached hereto
and made a part hereof.
2.7 Edison has determined that the Interconnection and Integration Facilities
include the 220 kV transmission line from the project site to a point near
Edison's Inyokern Substation, the Inyokern-
<PAGE>
Kramer Circuit, facilities at Kramer Substation necessary to permit
interconnection and integration, Permanent 220 kV Facilities and Interim
Facilities. Edison has determined that the Interim Facilities are necessary to
provide for integration of the Project's 75 MW of Nameplate Capacity into the
Edison system until the Permanent 220 kV Facilities can be completed. Edison has
informed Seller that timely construction of the Interim Facilities is the only
viable method of accommodating Seller's generation schedule.
2.8 Seller has executed letters dated July 15, July 27, and August 10, 1988
indicating its agreement, under protest, to the provisions described in Sections
2.6 and 2.7.
2.9 The Interconnection and Integration Facilities identified in this Agreement
will permit the interconnection and integration of the Project with Edison's
electrical system.
2.10 The Interconnection and Integration Facilities for the Project shall be
installed and owned by Seller and Edison, respectively, as outlined in
Attachment A hereto.
2.11 Seller and Edison are in disagreement over several matters regarding the
method of interconnecting and integrating the Project with Edison's electric
system. Specifically, Seller and Edison are in disagreement on the following
points:
2.11.1 The allocation of cost between Seller and Edison for the Interim 115 kV
Facilities.
2.11.2 The allocation of cost between Seller and Edison for the Permanent 220 kV
Facilities.
2.11.3 The point at which Seller shall deliver its power to Edison.
2.11.4 The allocation of transmission line losses between Seller and Edison for
the Interim 115 kV Facilities.
2.12 As stated in Section 2.11.2 above, Seller and Edison disagree on the
allocation of costs between Seller and Edison for the Permanent 220 kV
Facilities. Seller believes that the full cost of the Permanent 220 kV
Facilities should be allocated to Edison's ratepayers in accordance with CPUC
rules and decisions, including Decisions 84-08-031, 85-09-058, and 87-05-060.
Edison does not believe the CPUC intends that Edison's ratepayers should bear
the cost of facilities required to interconnect and integrate QF power into the
utility system.
3. Definitions:
The following terms, when used herein with initial capitalization, whether in
the singular or in the plural, shall have the following meanings:
3.1 Added Facilities: Those portions of the Edison owned Interconnection and
Integration Facilities which will be owned and financed by Edison for the
benefit of the Project and to be paid for by Seller in accordance with the
attached Application and Contract for Interconnection
<PAGE>
and Integration Facilities plus Operation and Maintenance (Attachment A) and
Rule 2. The Interim 115 kV facilities are not Added Facilities.
3.2 Contract: The Navy 2 Contract.
3.3 CPUC Charges: Those expenses of the CPUC for performance of its
certification and environmental review activities for which Edison provides
reimbursement.
3.4 Generating Facilities: All of Seller's generators, together with all
protective and other associated equipment and improvements, necessary to produce
electrical power at the Project, excluding associated land, land rights, and
interests in land.
3.5 Interconnection and Integration Facilities: Those protection, metering,
electric line(s), and other facilities described in pages 8 through 10 of
Attachment A which Edison has determined to be necessary to permit the efficient
integration of power produced at Seller's Generating Facilities, along with that
power produced by the Other QF Projects into Edison's electric system.
3.6 Interim 115 kV Facilities: The removal, rebuild, and upgrade of Edison's
existing double-circuit Kramer-Victor 115 kV transmission line and related
termination facilities. The Interim 115 kV Facilities are a part of the Interim
Interconnection Facilities.
3.7 Interim Interconnection Facilities: Those Interconnection and Integration
Facilities which Edison has determined to be necessary to accommodate Seller's
scheduled operation date and to permit operation of Seller's Generating
Facilities in parallel with the Edison electric system pending construction of
all of the Permanent 220 kV Facilities. These facilities include, but are not
limited to, the Inyokern-Kramer Circuit, the Interim 115 kV Facilities, upgrades
at Kramer, Victor, and Lugo Substations, and all protection necessary in
Edison's sole judgment to effect the interconnection and integration of Seller's
Project.
3.8 Inyokern-Kramer Circuit: The 220 kV transmission circuit beginning near
Inyokern Substation and ending at Kramer Substation to be installed on the
vacant side of Edison's existing Inyokern-Kramer 220 kV tower line.
3.9 Nameplate Capacity: That rating specified in Section 1.2 of the Contract.
3.10 Permanent 220 kV Facilities: Those Interconnection and Integration
Facilities to be owned and operated by Edison which Edison has determined are
required for the permanent interconnection and integration of the Generating
Facilities and the Other QF Projects. These facilities include, but are not
limited to, the Inyokern-Kramer Circuit, the necessary substation upgrades at
Kramer, Victor, and Lugo Substations, a new double circuit 220 kV transmission
line from Kramer Substation to Victor Substation and all protection necessary in
Edison's sole judgment to effect the interconnection.
3.11 Project: The Navy 2 Project.
<PAGE>
4. Agreement:
In consideration of the premises and the mutual covenants and promises contained
herein, Edison and Seller agree that the Interconnection and Integration
Facilities shall be installed by Seller and Edison, respectively, as outlined in
Attachment A hereto for the purpose of interconnecting and integrating the
Generating Facilities to Edison's electrical system. The Parties further agree
as follows:
4.1 Interconnection and Integration Facilities:
4.1.1 Seller acknowledges that Seller has read Edison's Tariff Rule No. 21 and
the QFMP and understands Seller's obligations and the consequences to Seller, as
set forth in the QFMP, for failure to satisfy any of the milestones in the QFMP.
4.1.2 Seller, at its sole expense, shall design, purchase the required
equipment, construct, operate and maintain Seller-owned Interconnection and
Integration Facilities as outlined in page 8 of Attachment A. Edison shall
review the design of these facilities as to the adequacy of the protective
apparatus provided. Any additions or modifications required by Edison shall be
incorporated by Seller.
4.1.3 Seller, at its own initial expense, shall procure equipment for and
construct, to Edison specifications, the Inyokern-Kramer Circuit, as described
in Attachment A hereto. Within thirty days after completion of said facilities
and before said facilities are placed in service, Seller shall transfer
ownership of the Inyokern-Kramer Circuit to Edison in a manner acceptable to
Edison. The facilities shall be free and clear of liens and encumbrances. To the
extent that the CPUC determines, pursuant to Section 4.1.6, that Seller is cost
responsible for all or a portion of the cost of the Inyokern-Kramer Circuit,
Seller shall pay applicable Contribution in Aid of Construction ("CIAC") tax on
this transfer upon demand of Edison.
4.1.4 Edison shall design, purchase, construct, own, operate, and maintain the
Added Facilities and the Interim 115 kV Facilities. The cost of these facilities
shall be paid pursuant to the terms of this Agreement. Edison shall own,
operate, and maintain the Inyokern-Kramer circuit. Edison shall use its best
efforts to obtain a Certificate of Public Convenience and Necessity ("CPCN")
from the CPUC for a new double circuit 220 kV transmission line from Kramer
Substation to Victor Substation and shall obtain other necessary permits for the
Edison installed Interconnection and Integration Facilities as outlined on pages
8 and 9 of Attachment A.
4.1.5 Seller has informed Edison that it is imperative that a decision be
reached on the issue recited in Sections 2.11.2 and 2.12 at the earliest
opportunity in order to ensure that Seller can meet its financing deadlines,
obtain certain tax credits and satisfy other obligations. The Parties shall use
their best efforts and cooperate fully with each other in an effort to file a
pleading presenting the issue of cost allocation set forth in Sections 2.11.2
and 2.12 to the CPUC by January 11, 1989 in order to obtain a CPUC decision on
or before April 3, 1989. After such pleading has been filed with the CPUC:
<PAGE>
*If a CPUC decision is not obtained by that April 3, 1989, the Parties are
released from any further obligation to pursue the issue
*Should it become apparent that it will not be possible to obtain a decision by
April 3, 1989, Seller may elect to be released from any further obligation to
pursue the issue before the CPUC by (1) giving Edison 15 days written notice of
its intent to no longer pursue the issue before the CPUC and, (2) specifying in
such notice the reason(s) for providing such notice.
4.1.6 Cost Responsibility
4.1.6.1 Prior to the CPUC determination referenced in Section 4.1.5 above, cost
responsibility for the Permanent 220 kV Facilities shall be as follows:
a. All of Edison's costs related to the Inyokern-Kramer Circuit including
engineering, design, and line terminations, shall be shared equally between
Edison and Seller.
b. All costs of the Permanent 220 kV Facilities installed by Edison, except
those referred to in (a.) above, shall be shared between Seller, Edison and
Other QF Developers.
c. Seller shall pay its portion of the cost of the Permanent 220 kV Facilities
specified in Sections 4.1.6.1 (a) and (b) on the Added Facilities basis pursuant
to Section 1 of Attachment A. Seller agrees to post Added Facilities security
for its share of the cost in accordance with page A-13, Attachment A. Seller, at
its option and risk, may post additional Added Facilities security and request
Edison to accelerate engineering and procurement for the Permanent 220 kV
Facilities. In the event a CPCN is not granted, Seller shall forfeit the amount
of Added Facilities security which covers Edison's costs.
d. Upon completion of the Inyokern-Kramer Circuit and its transfer of ownership
pursuant to Section 4.1.3, the Inyokern-Kramer Circuit shall be considered as
Added Facilities. However, in consideration of Seller having paid the cost of
installing the Inyokern-Kramer Circuit, Edison will not require Seller to post
additional added facilities security for this facility. Additionally, Edison
shall not initially include the value of the Inyokern-Kramer Circuit in the
added investment base for determining Added Facilities charges pursuant to
Section 1 of Attachment A. Rather, Edison shall subtract the equivalent of a
monthly Added Facilities charge for the Inyokern-Kramer Circuit from the value
of the circuit, as determined by its installation cost, until the installation
cost balance is zero. At that time, the value of the Inyokern-Kramer Circuit
shall be added to the added investment base and Seller shall begin payment of a
monthly added facilities charge for this circuit pursuant to Section 1 of
Appendix A.
e. If the Other QF Developers refuse to or fail to fund their share of the cost
of the Permanent 220 kV Facilities to be installed by Edison prior to the CPUC
determination referenced in Section 4.1.5, Edison will review the scope of the
Permanent 220 kV Facilities. In the absence of development by Other QF
Developers, the scope of the Edison-installed Interconnection and Integration
Facilities and estimated costs as specified in Attachment A herein may be
modified by mutual agreement of the Parties.
<PAGE>
4.1.6.2 Following CPUC determination referenced in Section 4.1.5 above or the
decision of the California Supreme Court or the United States Supreme Court on
appeal, costs for the Permanent 220 kV Facilities which are so determined to be
Seller's responsibility shall be borne and paid for by Seller.
4.1.6.3 Following CPUC determination referenced in Section 4.1.5 above or the
decision of the California Supreme Court or the United States Supreme Court on
appeal, costs for the Permanent 220 kV Facilities which are so determined to be
Edison's responsibility shall be borne and paid for by Edison.
4.1.6.4 Adjustments in the amount of required Added Facilities security for the
Permanent 220 kV Facilities as a result of the CPUC determination referenced in
Section 4.1.5 shall be made in accordance with the provisions of Section 4 of
Attachment A.
4.1.7 Costs of the Interim 115 kV Facilities, which are being installed at the
request of Seller and Other QF Developers to avoid curtailment beyond that
provided for in the Contract, are intended to be shared between Seller and Other
QF Developers. Based on Seller's pro-rated share of transmission capacity on
these facilities, Seller shall be responsible for 24.2% of the cost of said
facilities. Seller shall pay applicable CIAC tax on this payment upon demand of
Edison.
4.1.8 Seller shall pay to Edison quarterly payments in the amount and according
to the schedule specified on page A-12 of Attachment A for Seller's share of the
estimated cost of the Interim 115 kV Facilities.
4.1.9 Upon issuance of a final order by the CPUC determining the cost
responsibility of the Parties and the exhaustion of any appeals of that
decision, Edison shall determine the final amount of Added Facilities security
required in accordance with Attachment A. Edison, as appropriate, shall invoice
Seller for any additional Added Facilities security required or release any
excess security. The additional Added Facilities security shall be provided
within sixty days following the date of said invoice. If Edison determines that
the amount of Added Facilities security required is less than the amount
previously posted by Seller, Seller may reduce the amount of Added Facilities
security accordingly.
4.1.9.1 Following determination of cost responsibility for the Permanent 220 kV
Facilities by the CPUC and the exhaustion of any appeals of that decision, if
Seller elects to amend this Agreement to provide for a capital contribution for
the facilities instead of continuing on an Added Facilities basis, Edison shall
determine the amount of capital contribution due and invoice Seller. Payment
shall be due 60 days following the date of said invoice. Seller may authorize
Edison to collect on the Added Facilities security and credit it as payment
toward the capital contribution. Any Added Facilities security which is not
applied toward said capital contribution shall be refunded by Edison within 60
days following Seller's payment of the entire capital contribution.
<PAGE>
4.1.9.2 If Seller chooses to pay a capital contribution for the facilities for
which costs are allocated to Seller, rather than pay on the Added Facilities
basis, Seller shall pay applicable CIAC tax as determined by Edison on its
contribution.
4.1.10 In addition to the payments and security specified in Sections 4.1.6.1
(c), 4.1.8 and 4.1.9 above, Seller shall establish and provide to Edison
security which shall cover the period of time the existing Kramer-Victor 115 kV
transmission line is being removed and engineering and construction are in
progress on the rebuild of the new Kramer-Victor 115 kV transmission line. The
security shall be in a form acceptable to Edison and shall be of an amount
sufficient to cover 24.2% the total cost of rebuilding the existing Kramer-
Victor 115 kV transmission line. The amount shall be determined by Edison.
Alternatively, Seller may elect to advance the quarterly payments specified in
the Payment Schedule (Interim 115 kV Facilities) in Attachment A-12 of
Attachment A to cover the cost of rebuilding the existing Kramer-Victor 115 kV
transmission line before removal of the existing 115 kV facilities is begun.
4.1.11 Notwithstanding the provisions of Section 13 of the Contract, Seller,
having elected to own, operate, and maintain a portion of the Interconnection
and Integration Facilities, shall accept all liability and release Edison from
and indemnify Edison against any liability for faults or damage to the Seller-
owned Interconnection and Integration Facilities, the Edison electric system and
the public as a result of the operation of Seller's Generating Facilities or the
Seller-owned Interconnection and Integration Facilities.
4.1.12 operation and maintenance of the Permanent 220 kV Facilities shall be
paid pursuant to the Attachment A.
4.1.13 Edison shall review any changes in the design of the Seller-installed
Interconnection and Integration Facilities and may require modifications to the
design as it deems necessary for proper protection and safe operation of the
Generating Facilities when in parallel with the Edison electric system. -Seller
shall be notified of the results of such review by Edison, in writing, within 30
days of the receipt of all specifications related to the proposed design
changes. Any comments by Edison regarding the proposed design changes shall be
described in the written notice.
4.1.14 Upon completion of the Interim Interconnection Facilities, Seller may
interconnect 75 MW of Nameplate Capacity to Edison's electric system at the
connection point of the Seller-owned 220 kV transmission line and the Inyokern-
Kramer Circuit near Inyokern Substation. During the period preceding the
completion of the Permanent 220 kV Facilities, Seller shall be responsible for
its share of transmission losses on the Interim Interconnection Facilities in
excess of normal Edison transmission losses. A loss compensation factor shall be
calculated by Edison, reviewed with Seller, and applied to Seller's meter
readings at Kramer Substation to cover losses to Victor Substation.
4.1.15 Upon the completion of the Interconnection and Integration Facilities
covered by this Agreement, Seller shall be entitled to interconnect the 75 MW of
Nameplate Capacity specified
<PAGE>
by the Contract to Edison's electrical system at the connection point of the
Seller-owned 220 kV transmission line and the Inyokern-Kramer Circuit near
Inyokern Substation.
4.1.16 The capacity and associated energy purchased under the Contract and that
of one of the Other QF Projects (Coso Energy Developers' BLM Project) shall be
metered at 220 kV at Kramer Substation for all kWh's received and purchased by
Edison. The Project and the BLM Project shall also be individually metered at
their project sites. Payment for capacity and associated energy shall be based
upon the Kramer Substation meter and said payment shall be prorated to the
Contract and the contract of the BLM Project based upon the project site meters.
4.1.17 To the extent that Edison deems it necessary to effect the arrangements
contemplated by this Agreement, Edison may, from time to time, design, install
operate, maintain, modify, replace, repair, or remove any or all of the
Interconnection and Integration Facilities. Any additions, modifications, or
replacement of equipment shall be treated as Interconnection and Integration
Facilities. If Edison modifies the Permanent 220 kV Facilities in accordance
with the foregoing prior to issuance of a final CPUC order on cost
responsibility or exhaustion of the rights of the Parties to appeal, the cost of
such change shall be shared by Edison, Seller, and the Other QF Projects and
shall be included in Seller's and Edison's joint application to the CPUC. If
Edison modifies the Permanent 220 kV Facilities following a final CPUC order on
cost responsibility or exhaustion of the rights of the Parties to appeal, such
costs will be paid by Seller consistent with said CPUC order or appeal. If
changes involve the Interim 115 kV Facilities prior to the completion of the
Permanent 220 kV Facilities, the cost of such additions, modifications, and
replacements shall be paid by Seller on a one-time basis and the material and
equipment costs added to this Agreement by amendment.
4.1.18 Equipment and/or protective apparatus which, in the opinion of Edison, is
no longer required shall be deleted from this Agreement and any Added Facilities
or operation and maintenance costs attributable to Seller shall be reduced
accordingly.
4.2 The Parties agree that nothing in this Agreement should be construed as a
waiver of Seller's rights to seek a CPUC or other judicial determination with
regard to the areas of disagreement stated in Sections 2.11.1, 2.11.3, 2.11. 4
or to appeal such determination to the appropriate appellate forum. If Seller
seeks such a determination and the determination differs from the arrangements
provided for in this Agreement, the Parties agree to amend this Agreement to
reflect such CPUC or judicial determination and make such payment and/or billing
adjustments as required. Should Seller choose to appeal a CPUC or judicial
determination, the Parties agree to amend this Agreement to reflect the results
of such appeal.
4.3 Upon its effective date, this Agreement shall become a part of the Contract.
Certain provisions of this Agreement are inconsistent with provisions of the
Contract. Where inconsistencies occur, the Parties agree that the provisions of
this Agreement shall control.
4.4 This Agreement contemplates that an Interconnection and Integration
Facilities Agreement will be entered into between Edison and the Other QF
Developers. In the event the Other QF Developers do not execute Agreements which
contain substantially the same agreement
<PAGE>
regarding cost and payment responsibility for the Interim 115 kV Facilities and
Permanent 220 kV Facilities as contained in this Agreement prior to or within 15
days after the execution of this Agreement or Edison determines that one or more
of the Other QF Developers has failed to make a payment under its Agreement with
Edison, then, Edison and Seller shall amend this Agreement to: (1) grant Seller
and those other QF Projects that have signed Interconnection and Integration
Facilities Agreements and made required payments to Edison, the exclusive use,
other than use by Edison occurring incidentally when the line is not loaded with
Seller's power and power generated by those Other QF Projects, of the Interim
115 kV Facilities. Such grant of exclusive use shall be for the contractually
specified nameplate capacity and for the full term of this Agreement; (2)
increase Seller's share of the cost of the Interim 115 kV Facilities to 50% and
(3) revise the terms of this Agreement as necessary to reflect the change in
facilities and cost including possible elimination of the need for the Permanent
220 kV Facilities.
5. Effective Date:
This Agreement shall become effective when it has been duly executed by the
Parties.
6. Termination:
Seller may terminate this Agreement at any time by providing Edison with written
notice. Such notice shall be sufficient if delivered in person or sent by
certified mail, postage prepaid, return receipt requested, to Edison as follows:
Southern California Edison Company,
Post Office Box 800,
Rosemead, CA 91770,
Attention: Secretary
In the event of such termination, Seller shall, pursuant to Sections 3 and 6 of
Attachment A, reimburse Edison for any expenses incurred.
7. Multiple Originals:
This Agreement is executed in two counterparts, each of which shall be deemed an
original.
8. Previous Communications
This Agreement contains the entire agreement and understanding between the
Parties, their agents, and employees as to the subject matter of this Agreement,
and merges and supersedes all prior agreements, commitments, representations,
and discussions between the Parties specifically
<PAGE>
including, but not limited to, the letters from Seller to Edison dated July 15,
July 27 and August 10, 1988 referenced in Section 2.8 herein. No Party shall be
bound to any other obligations, conditions, or representations with respect to
the subject matter of this Agreement.
9. Nonwaiver
None of the provisions of the Agreement shall be considered waived by either
Party except when such waiver is given in writing. The failure of either Edison
or Seller to insist on any one or more instances upon strict performance of any
of the provision of the Agreement or to take advantage of any of its rights
hereunder shall not be construed as a waiver of any such provisions or the
relinquishment of any such rights for the future, but the same shall continue to
remain in full force and effect.
10. Governing Law
This Agreement shall be interpreted, governed, and construed under the laws of
the State of California as if executed and to be performed wholly within the
State of California.
Signature
In witness whereof, the Parties hereto have executed this Agreement this 15th
day of December, 1988.
SOUTHERN CALIFORNIA EDISON COMPANY
By: /s/ Glenn J. Bjorklund
-----------------------
Name: Glenn J. Bjorklund
Title: Vice President
CHINA LAKE JOINT VENTURE
By CALIFORNIA ENERGY COMPANY, as
General Partner
By: /s/ David L. Ludvigson
----------------------
Name: David L. Ludvigson
Title: Executive Vice President
<PAGE>
Attachment A - Application And Contract For Interconnection Facilities Plus
Operation And Maintenance Added Facilities Basis
("Application and Contract")
Seller hereby requests Edison to provide the Added Facilities described on pages
A-8 thru A-10 hereof. Added Facilities shall be provided in accordance with the
applicable Tariff Schedules of Edison. In consideration of Edison's acceptance
of this Application and Contract, Seller hereby agrees to the following:
1. Seller shall pay a monthly charge for the Added Facilities in the amount of
.9% of the added investment as determined by Edison and as entered by Edison on
page A-11. The monthly charge does not include an operation and maintenance
expense. The monthly charge shall be adjusted periodically in accordance with
future CPUC determination pursuant to Rule 2. The monthly charge shall commence
on the date the Added Facilities are available for u M and may be based upon
estimated costs of the Added Facilities. When the recorded book cost of the
Added Facilities has been determined by Edison, the charges shall be adjusted
retroactively-to the date when such facilities were first available for use.
Additional charges resulting from such adjustment shall, unless otherwise
mutually agreed, be payable within thirty (30) days from the date of
presentation of a bill therefor. Any credits resulting from such adjustment
shall, unless otherwise mutually agreed, be refunded within thirty (30) days
following demand of Seller.
2. If the decision of the CPUC or California Supreme Court or United States
Supreme Court on appeal regarding cost responsibility pursuant to Section 4.1.5
of the Agreement directs that Seller is responsible for operation and
maintenance costs of some or all of the Permanent 220 kV Facilities, Seller
shall pay a monthly charge for such facilities' operation and maintenance in the
amount of 0.8% of that portion of the added investment for which Seller has so
been determined to be cost-responsible. The monthly operation and maintenance
charge shall be adjusted periodically in accordance with the pro-rated operation
and maintenance charges for added facilities pursuant to Tariff Rule No. 2. The
monthly charge may be based upon estimated costs of the facilities as entered on
page A-11 herein and when the recorded book cost of such facilities has been
determined by Edison, the charges shall be adjusted retroactively to the date
when such facilities were first available for use. Additional charges resulting
from such adjustment shall, unless other terms are mutually agreed upon, be
payable within thirty (30) days from the date of presentation of a bill
therefor. Any credits resulting from such adjustment shall, unless other terms
are mutually agreed upon, be refunded with thirty (30) days from presentation of
request by Seller.
3. In the event Seller abandons its plans for installation of the Project, for
any reason whatsoever, including failure to obtain any required permits, Seller
shall reimburse Edison upon receipt of supporting documentation for any and all
expenses incurred by Edison pursuant to this Application and Contract within
thirty (30) days after presentation of a bill therefor.
4. Whenever a change is made in the Added Facilities which results in changes in
the added investment, the monthly charges pursuant to Sections 1 and 2 and
security posted pursuant to
<PAGE>
Section 7 of this Application and Contract shall be adjusted on the basis of the
revised added investment. The description of the Added Facilities shall be
amended by Edison to reflect any changes in equipment, installation and removal
cost, amount of added investment, and monthly charge resulting from any such
change in the Added Facilities or adjustment as aforesaid.
5. All monthly charges payable hereunder shall commence upon the date when said
Added Facilities are available for use and shall first be payable fifteen (15)
days after Edison submits the first bill therefor and shall continue until the
termination of the Contract or the abandonment of the Project.
6. If the Interconnection and Integration Facilities are abandoned by
termination of service or otherwise, prior to five (5) years from the date said
facilities are available for use, Seller shall pay to Edison the estimated cost
of equipment installation plus the cost of removing the Added Facilities less
the estimated salvage value, within thirty (30) days after presentation of a
bill therefor. Alternatively, Seller may pay to Edison, as a single payment, the
sum of the monthly charges from Sections 1, 2, and 4 hereof for the period
beginning on the date on which said facilities are to be removed and ending on a
date five (5) years from the date on which monthly charges commenced pursuant to
provisions of Sections 1 and 2 hereof. Such alternative payment shall be made
within thirty (30) days of Seller's receipt of a bill from Edison. If the Added
Facilities have been only partially constructed prior to such abandonment,
Seller agrees to pay to Edison the amount expended by Edison (not exceeding the
estimated installation and removal cost) for installing and removing the
partially constructed Added Facilities within thirty (30) days after
presentation of a bill therefor. If the Added Facilities are abandoned solely by
Edison, as of the date of abandonment, Seller's obligation to pay monthly
charges, pursuant to Sections 1, 2 and 4 hereof, shall terminate and Seller
shall not have any obligation to pay the charges described in this Section 6.
Seller may apply the value of Seller's Added Facilities security pursuant to
Section 7 hereof, to the foregoing payments.
7. Seller shall provide evidence, to Edison's satisfaction, of Seller's ability
to perform its obligations pursuant to Section 6 above. Seller shall provide to
Edison said evidence by means of a performance bond, Letter of Credit, an escrow
account, or other evidence as agreed to by both Parties. Seller may post Added
Facilities security in quarterly increments identified on page A-13 of this
Attachment A. Seller shall post security in the amount indicated on page A-13 to
bring the payments current within fifteen (15) days following execution of this
Application and Contract.
8. Seller agrees to utilize the Added Facilities in accordance with good
operating practice and to reimburse Edison for damage to said facilities
occasioned or caused by the Seller or any of his agents, employees or licensees.
Failure so to exercise due diligence in the utilization of said Added Facilities
shall give Edison the right to terminate this Application and Contract, to
remove said facilities and to demand immediate reimbursement for the equipment
installation and removal costs, less the estimated salvage value if the
facilities are removed within five (5) years from the date of this Application
and Contract.
9. Edison's performance under this Application and Contract is subject to the
receipt of permits, including but not limited to a Certificate of Public
Convenience and Necessity for the Permanent
<PAGE>
220 kV facilities, the availability of materials required to provide the
Interconnection and Integration Facilities provided for herein and to all
applicable Tariff Schedules of Edison.
10. The Parties also understand and agree that due to equipment acquisition lead
time and construction time requirements, Edison requires a minimum of 24 months
from the execution of this Application and Contract to construct the Interim
Facilities and place them in operation and a minimum of 54 months from the time
of authorization to construct the Permanent 220 kV facilities and place them in
operation. Edison shall have no obligation to Seller with regard to any target
date established by Seller which is less than these 24 and 54 months,
respectively, from the date this Application and Contract is executed. However,
Edison shall exercise its best effort to meet Seller's target operation dates.
Edison's preliminary evaluation of equipment procurement lead times indicates
that Edison will not be able to complete the Interim Facilities until September
30,' 1990, or the Permanent 220 kV Facilities until December 31 1992
11. This Application and Contract shall to the extent provided by law at all
times be subject to such changes or modifications by the Public Utilities
Commission of the State of California as said Commission may, from time to time,
direct in the exercise of its jurisdiction.
DATED: December 15, 1988
CHINA LAKE JOINT VENTURE
By CALIFORNIA ENERGY COMPANY, As General Partner
By: /s/ David L. Ludvigson
----------------------
Name: David L. Ludvigson
Title: Executive Vice President
Approved and Accepted for
SOUTHERN CALIFORNIA EDISON COMPANY
By: /s/ Glenn J. Bjorklund
-----------------------
Name: Glenn J. Bjorklund
Title: Vice President
INTERCONNECTION AND INTEGRATION FACILITIES DESCRIPTION
PROJECT LOCATION: Navy 2 Project
China Lake Naval Weapons Center,
Ridgecrest, California
TARGET DATES APPLICANT DESIRES INTERCONNECTION AND INTEGRATION FACILITIES
AVAILABLE:
<PAGE>
Interim Interconnection Facilities: 12/89
Permanent 220 kV Facilities: 12/91
DATE APPLICANT BEGAN CONSTRUCTION OF THE GENERATING FACILITIES:
Navy 2:
DESCRIPTION OF INTERCONNECTION AND INTEGRATION FACILITIES:
Seller-owned Interconnection and Integration Facilities:
* 220 kV H-frame wood pole transmission line from Navy 2 project site to
connection point with Inyokern-Kramer Circuit near Inyokern Substation.
* Seller shall construct Seller-owned 220 kV transmission line to a point
designated by Edison near the southeast corner of Inyokern Substation.
* Seller shall provide proper voltage and VAR controlling equipment to maintain
unity power factor at Kramer Substation as determined by Edison.
*220 kV transformer at project site.
*Protection and relaying equipment.
Seller-installed Interconnection and Integration Facilities
(Inyokern-Kramer Circuit) to be transferred to Edison:
* Procure and construct Inyokern-Kramer Circuit,
including interconnection tower south of Inyokern
Edison-installed Interconnection and Integration Facilities:
Added Facilities
* Engineer Inyokern-Kramer Circuit
*Kramer Substation: engineer and construct 220 kV line position for Inyokern-
Kramer Circuit including transmission termination facilities.
*Telecommunications, Telemetering, Metering: Install telecommunication,
telemetering, and TOU metering equipment at Kramer Substation and project site,
provide voice channel equipment,
*Kramer Substation: engineer and construct 220 kV operating bus; remove and
relocate existing equipment.
<PAGE>
*Kramer and Victor Substations: Install 220 kV and 115 kV capacitor banks.
*Protection schemes as necessary to protect the integrity of Edison's electric
system.
*Relocate existing 33 kV and 115 kV transmission facilities as required to
construct new facilities.
*Lugo Substation: Engineer and construct capacity increase of "AA" transformers;
replace ten 220 kV circuit breakers.
*Conduct appropriate environmental reviews; provide appropriate mitigation.
*Acquire regulatory approvals, permits, licenses as necessary.
*Kramer Substation: Engineer and construct two 220 kV line positions for new
double circuit 220 kV Kramer-Victor line.
*Acquire right-of-way for new double circuit Kramer-Victor 220 kV line.
*Engineer and construct approximately 38 miles of 220 kV double-circuit tower
line between Kramer and Victor Substations. (Line length based on CPUC approval
of Edison's preferred route.)
*Victor Substation: Engineer and construct 220 kV switchrack, line and bank
positions.'
*Electrical/mechanical equipment room construction at Victor and Kramer
Substations.
Edison-installed Interconnection and Integration Facilities (cont.):
Interim 115 kV Facilities
* Engineer, design, and construct the Interim 115 kV Facilities.
ESTIMATED COST OF EDISON-INSTALLED INTERCONNECTION FACILITIES*:
Added Investment: 12,642,500
Capital Contribution: 3,387,500 **
Total Cost: 16,030,000
Installation and Removal: 15,575,000 **
In addition, the tax contribution component based upon final costs paid by
Seller as a capital contribution to Edison will be based on 28% CIAC tax.
<PAGE>
DATE SERVICE FIRST RENDERED BY MEANS OF THE INTERCONNECTION FACILITIES:
Interim Interconnection Facilities____________
Permanent 220 kV Facilities_______________
*Costs shown represent that portion of Edison's estimated expense to be
initially funded by Seller either by capital contribution or on an Added
Facilities basis.
**Costs stated are estimates only and are not binding. Final cost will be
adjusted based on actual cost.
<TABLE>
<CAPTION>
PAYMENT SCHEDULE
(INTERIM 115 kV FACILITIES)
<S> <C>
Payment Due Date Payment Due
11-01-88 $ 375,000
01-01-89 $ 850,000
04-01-89 $1,000,000
07-01-89 $1,000,000
10-01-89 $ 162,500
TOTAL $3,387,500
SECURITY POSTING SCHEDULE
(PERMANENT 220 kV FACILITIES)
Security Due Security Total
Date Increment Date Security Posted
11-01-88 $ 300,000 $ 300,000
01-01-89 $ 500,000 $ 800,000
04-01-89 $ 500,000 $1,300,000
07-01-89 $ 500,000 $1,800,000
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10-01-89 $ 500,000 $2,300,000
01-01-90 $ 900,000 $3,200,000
04-01-90 $ 900,000 $4,100,000
07-01-90 $ 900,000 $5,000,000
10-01-90 $ 900,000 $5,900,000
01-01-91 $ 900,000 $6,800,000
</TABLE>
Security shall remain in place in the amount of $6,800,000 until such time as
the Permanent 220 Facilities are placed in service. At that time, the amount of
security required shall be reduced quarterly by the amount of previous paid
monthly Added Facilities payments.
Map - See Image Pages 46-48
<PAGE>
Exhibit 10.74
FPL ENERGY OPERATING SERVICES, INC.
OPERATING FEE SUBORDINATION AGREEMENT (NAVY I)
Dated as of May 28, 1999
between
FPL ENERGY OPERATING SERVICES, INC.,
a Florida corporation,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
OPERATING FEE SUBORDINATION AGREEMENT (NAVY I)
----------------------------------------------
This OPERATING FEE SUBORDINATION AGREEMENT (this "Agreement") dated as
---------
of May 28, 1999, is entered into by and between FPL Energy Operating Services,
Inc., a Florida corporation (the "Junior Claimant") and U.S. BANK TRUST NATIONAL
---------------
ASSOCIATION in its capacity as collateral agent ("Collateral Agent") for U.S.
----------------
Bank Trust National Association as trustee ("Trustee") for the holders (the
-------
"Holders") of the senior secured notes (the "Senior Secured Notes") issued
------- --------------------
pursuant to that certain Indenture dated as of May 28, 1999 (the "Indenture"),
---------
among Trustee, Caithness Coso Funding Corp., a Delaware corporation (the
"Issuer"), Coso Finance Partners a California general partnership ("Navy I")
------
Coso Energy Developers, a California General partnership ("BLM"), Coso Power
---
Developers, a California general partnership ("Navy II" and together with Navy I
-------
and BLM the "Coso Partnerships") and all other Permitted Additional Senior
-----------------
Lenders. Unless otherwise defined herein, capitalized terms used herein shall
have the meanings set forth in the Indenture.
PREFACE
-------
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
---------
Holders of the Senior Secured Notes (the Trustee and the Holders being
collectively referred to herein as the "Senior Claimants") the payment and
----------------
performance of Issuer's obligations under the Senior Secured Notes and the
Indenture.
B. The Issuer, the Coso Partnerships, the Collateral Agent and U.S.
Bank Trust National Association in its capacity as Depositary (the "Depositary")
----------
have entered into that certain Deposit and Disbursement Agreement, dated as of
May 28, 1999 (the "Depositary Agreement").
--------------------
C. Navy I, Junior Claimant and Coso Operating Company LLC, a
Delaware limited liability company, have entered into that certain Operation and
Maintenance Agreement dated as of May 28, 1999 (the "Plant O&M Agreement").
-------------------
Pursuant to Section 5.3 of the Plant O&M Agreement, Navy I has agreed to pay
Junior Claimant the Annual Operating Fee, as defined in the Plant O&M Agreement
(the "Subordinated O&M Fees").
---------------------
D. The Holders have agreed 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.
1
<PAGE>
AGREEMENT
---------
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
-----------
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,
----------
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to Navy I, its property or its creditors as such, (b)
proceeding for any liquidation, dissolution or other winding-up of Navy I,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (c) assignment of all or substantially all of the assets of Navy I
for the benefit of creditors of Navy I or (d) other marshaling of the assets of
Navy I.
"Senior Claims" means (a) the principal of, and premium, if any, and
-------------
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 Navy I 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
-------------------
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
---------------------------
been paid in full, notwithstanding anything in the Plant O&M Agreement to the
contrary:
2.1. Junior Claimant acknowledges that, notwithstanding
anything in the Plant O&M Agreement to the contrary, Navy I 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 exceeding, in the aggregate with (a) all Subordinated O&M Fees due and
payable to Junior Claimant by Navy I 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 Coso Operating
Company, a Delaware limited liability company, by Navy I 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
2
<PAGE>
Deposit and Disbursement Agreement are satisfied, and (y) the Trustee has
received a certificate of a Responsible Officer of Navy I certifying to that
effect. Except as and to the extent expressly provided in this Section 2.1, Navy
I shall not, directly or indirectly, make any payment on or in respect of the
Subordinated O&M Fees, and Navy I 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, sue for, or
accept from Navy I 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 Navy I under the Plant O&M Agreement or otherwise against any part of
the Subordinated O&M Fees. Notwithstanding anything in the Plant O&M Agreement
to the contrary, the failure by Navy I 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 Plant O&M Agreement.
2.3. Neither Navy I 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 Navy I in commencing any Proceeding against Navy I;
provided that Junior Claimant shall not be so restricted with respect to claims
- --------
arising directly out of Navy I's failure to perform its obligations or make any
payments of amounts due to Junior Claimant under the Plant O&M Agreement other
than the Subordinated O&M Fees. At any general meeting of creditors of Navy I
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 Navy I 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 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);
3
<PAGE>
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 Navy
I 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 Plant
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
Navy I (the "Collateral Assignment") (or enter into a new agreement pursuant to
---------------------
Section 1(d) of the Collateral Assignment), then notwithstanding anything in the
Plant O&M Agreement to the contrary, (i) Navy I (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 Plant 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 Navy I 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 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 Navy I 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 Navy I 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 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
4
<PAGE>
("Deemed Notes") (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 Plant
O&M Agreement shall be deemed to be amended to reflect such arrangement.
2.6.2. If the Senior Claimants sell the Navy I Project
to a third party ("New Owner"), the New Owner shall apply to the outstanding
---------
balance, if any, of the Subordinated O&M Fees on (or promptly after) each Semi-
Annual Payment Date all revenues and other proceeds of Navy I 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 Navy I 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 Navy I 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 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
Plant 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 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 Navy I in the order of priority set forth in the Depositary
Agreement, including without limitation Section 3.1(c) thereof, notwithstanding
anything in the Plant O&M Agreement to the contrary.
4. Time of Filing. Notwithstanding the time of filing, attachment
--------------
or 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.
5. Wrongful Collections. Should any payment on account of, or any
--------------------
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
5
<PAGE>
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 Plant O&M
----------------------------------------------------------
Agreement.
- ----------
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 Plant 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 Plant O&M Agreement to
the contrary, Junior Claimant shall not in any material respect amend the Plant
O&M Agreement without Collateral Agent's prior written consent; provided that
the Junior Claimant shall not amend the Plant O&M Agreement to create additional
fees other than the Subordinated O&M Fee.
7. Waivers. Collateral Agent and the Senior Claimants are hereby
-------
authorized to demand specific performance of this Agreement, whether or not Navy
I 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.
8. Subrogation; No Impairment of Navy I's Obligations. Subject to
--------------------------------------------------
and 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
6
<PAGE>
subrogated to the rights of the Senior Claimants to receive payments or
distributions of cash, property or securities of Navy I 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 shared with any other subordinated creditor
of the Navy I 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 Navy I, its creditors other than the
Senior Claimants and Junior Claimant, the obligation of Navy I, 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 Plant O&M Agreement, or to affect the relative rights of Junior Claimant
and creditors of Navy I other than the Senior Claimants.
9. Reinstatement. The obligations of Junior Claimant under this
-------------
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, Navy
I 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 between the Junior Claimant and Senior Claimant notwithstanding the
occurrence of any Proceeding affecting Navy I.
11. Further Assurances. Navy I and Junior Claimant shall execute
------------------
and 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 hereunder are solely for their protection and nothing herein contained
shall impose on the Senior Claimants any duties with respect to any property of
Navy I 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
------------
counterparts, but all such counterparts shall together constitute but one
agreement. In making 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.
13.1. Governing Law. This Agreement is intended to take
-------------
effect as a sealed 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
7
<PAGE>
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 Navy I) notwithstanding the termination
(except upon the payment in full of Senior Claims) or unenforceability of this
Agreement as against Navy I.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Operating Fee
Subordination Agreement to be duly executed as of the date first above written.
FPL ENERGY OPERATING SERVICES, INC.
a Florida corporation,
as Junior Claimant
By: /s/ John A. Keener
----------------------------------------
Name: John A. Keener
Its: Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
----------------------------------------
Name: Judy P. Manansala
Title: Trust Officer
The undersigned acknowledges and agrees to the foregoing:
COSO FINANCE PARTNERS
a California general partnership
By: NEW CLOC COMPANY, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
------------------------------------------
Christopher T. McCallion
Executive Vice President
9
<PAGE>
By: ESCA, LLC
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
------------------------------------------
Christopher T. McCallion
Executive Vice President
10
<PAGE>
Exhibit 10.75
FPL ENERGY OPERATING SERVICES, INC.
OPERATING FEE SUBORDINATION AGREEMENT (BLM)
Dated as of May 28, 1999
between
FPL ENERGY OPERATING SERVICES, INC.,
a Florida corporation,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
OPERATING FEE SUBORDINATION AGREEMENT (BLM)
-------------------------------------------
This OPERATING FEE SUBORDINATION AGREEMENT (this "Agreement") dated as
---------
of May 28, 1999, is entered into by and between FPL Energy Operating Services,
Inc., a Florida corporation (the "Junior Claimant") and U.S. BANK TRUST NATIONAL
---------------
ASSOCIATION in its capacity as collateral agent ("Collateral Agent") for U.S.
----------------
Bank Trust National Association as trustee ("Trustee") for the holders (the
-------
"Holders") of the senior secured notes (the "Senior Secured Notes") issued
------- --------------------
pursuant to that certain Indenture dated as of May 28, 1999 (the "Indenture"),
---------
among Trustee, Caithness Coso Funding Corp., a Delaware corporation (the
"Issuer"), Coso Finance Partners a California general partnership ("Navy I")
------ ------
Coso Energy Developers, a California General partnership ("BLM"), Coso Power
---
Developers, a California general partnership ("Navy II" and together with Navy I
-------
and BLM the "Coso Partnerships") and all other Permitted Additional Senior
-----------------
Lenders. Unless otherwise defined herein, capitalized terms used herein shall
have the meanings set forth in the Indenture.
PREFACE
-------
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
---------
Holders of the Senior Secured Notes (the Trustee and the Holders being
collectively referred to herein as the "Senior Claimants") the payment and
----------------
performance of Issuer's obligations under the Senior Secured Notes and the
Indenture.
B. The Issuer, the Coso Partnerships, the Collateral Agent and U.S.
Bank Trust National Association in its capacity as Depositary (the "Depositary")
----------
have entered into that certain Deposit and Disbursement Agreement, dated as of
May 28, 1999 (the "Depositary Agreement").
--------------------
C. BLM, Junior Claimant and Coso Operating Company LLC, a Delaware
limited liability company, have entered into that certain Operation and
Maintenance Agreement dated as of May 28, 1999 (the "Plant O&M Agreement").
-------------------
Pursuant to Section 5.3 of the Plant O&M Agreement, BLM has agreed to pay Junior
Claimant the Annual Operating Fee, as defined in the Plant O&M Agreement (the
"Subordinated O&M Fees").
---------------------
D. The Holders have agreed 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.
1
<PAGE>
AGREEMENT
---------
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
-----------
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,
----------
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
-------------
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
-------------------
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
---------------------------
been paid in full, notwithstanding anything in the Plant O&M Agreement to the
contrary:
2.1. Junior Claimant acknowledges that, notwithstanding anything
in the Plant 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
--------
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 Coso Operating Company, a
Delaware limited liability company, 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
2
<PAGE>
Deposit and 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, sue 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 Plant O&M Agreement or otherwise against any part of the
Subordinated O&M Fees. Notwithstanding anything in the Plant 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 Plant 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
--------
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 Plant 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 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);
3
<PAGE>
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 Plant 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
----------
Assignment") (or enter into a new agreement pursuant to Section 1(d) of the
- ----------
Collateral Assignment), then notwithstanding anything in the Plant 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 Plant 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 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 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
4
<PAGE>
("Deemed Notes") (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 Plant
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 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 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
Plant 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 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 Plant O&M Agreement to the contrary.
4. Time of Filing. Notwithstanding the time of filing, attachment
--------------
or 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.
5. Wrongful Collections. Should any payment on account of, or any
--------------------
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
5
<PAGE>
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 Plant O&M
----------------------------------------------------------
Agreement.
- ----------
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 Plant 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 Plant O&M Agreement to the
contrary, Junior Claimant shall not in any material respect amend the Plant O&M
Agreement without Collateral Agent's prior written consent; provided that the
Junior Claimant shall not amend the Plant O&M Agreement to create additional
fees other than the Subordinated O&M Fee.
7. Waivers. Collateral Agent and the Senior Claimants are hereby
-------
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.
8. Subrogation; No Impairment of BLM's Obligations. Subject to and
-----------------------------------------------
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
6
<PAGE>
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 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
Plant 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
-------------
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 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
------------------
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 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
------------
counterparts, but all such counterparts shall together constitute but one
agreement. In making 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.
13.1. Governing Law. This Agreement is intended to take effect
-------------
as a sealed 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
7
<PAGE>
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.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Operating Fee
Subordination Agreement to be duly executed as of the date first above written.
FPL ENERGY OPERATING SERVICES, INC.
a Florida corporation,
as Junior Claimant
By: /s/ John A. Keener
------------------
Name: John A. Keener
Its: Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------
Name: Judy P. Manansala
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/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
9
<PAGE>
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
10
<PAGE>
Exhibit 10.76
FPL ENERGY OPERATING SERVICES, INC.
OPERATING FEE SUBORDINATION AGREEMENT (NAVY II)
Dated as of May 28, 1999
between
FPL ENERGY OPERATING SERVICES, INC.,
a Florida corporation,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
OPERATING FEE SUBORDINATION AGREEMENT (NAVY II)
-----------------------------------------------
This OPERATING FEE SUBORDINATION AGREEMENT (this "Agreement") dated as
---------
of May 28, 1999, is entered into by and between FPL Energy Operating Services,
Inc., a Florida corporation (the "Junior Claimant") and U.S. BANK TRUST NATIONAL
---------------
ASSOCIATION in its capacity as collateral agent ("Collateral Agent") for U.S.
----------------
Bank Trust National Association as trustee ("Trustee") for the holders (the
-------
"Holders") of the senior secured notes (the "Senior Secured Notes") issued
- -------- --------------------
pursuant to that certain Indenture dated as of May 28, 1999 (the "Indenture"),
---------
among Trustee, Caithness Coso Funding Corp., a Delaware corporation (the
"Issuer"), Coso Finance Partners a California general partnership ("Navy I")
- ------- ------
Coso Energy Developers, a California General partnership ("BLM"), Coso Power
---
Developers, a California general partnership ("Navy II" and together with Navy I
-------
and BLM the "Coso Partnerships") and all other Permitted Additional Senior
-----------------
Lenders. Unless otherwise defined herein, capitalized terms used herein shall
have the meanings set forth in the Indenture.
PREFACE
-------
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
---------
Holders of the Senior Secured Notes (the Trustee and the Holders being
collectively referred to herein as the "Senior Claimants") the payment and
----------------
performance of Issuer's obligations under the Senior Secured Notes and the
Indenture.
B. The Issuer, the Coso Partnerships, the Collateral Agent and U.S.
Bank Trust National Association in its capacity as Depositary (the "Depositary")
----------
have entered into that certain Deposit and Disbursement Agreement, dated as of
May 28, 1999 (the "Depositary Agreement").
--------------------
C. Navy II, Junior Claimant and Coso Operating Company LLC, a
Delaware limited liability company, have entered into that certain Operation and
Maintenance Agreement dated as of May 28, 1999 (the "Plant O&M Agreement").
-------------------
Pursuant to Section 5.3 of the Plant O&M Agreement, Navy II has agreed to pay
Junior Claimant the Annual Operating Fee, as defined in the Plant O&M Agreement
(the "Subordinated O&M Fees").
---------------------
D. The Holders have agreed 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.
1
<PAGE>
AGREEMENT
---------
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
-----------
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,
----------
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to Navy II, its property or its creditors as such, (b)
proceeding for any liquidation, dissolution or other winding-up of Navy II,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (c) assignment of all or substantially all of the assets of Navy II
for the benefit of creditors of Navy II or (d) other marshaling of the assets of
Navy II.
"Senior Claims" means (a) the principal of, and premium, if any, and
-------------
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 Navy II 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
-------------------
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
---------------------------
been paid in full, notwithstanding anything in the Plant O&M Agreement to the
contrary:
2.1 Junior Claimant acknowledges that, notwithstanding anything
in the Plant O&M Agreement to the contrary, Navy II 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
--------
exceeding, in the aggregate with (a) all Subordinated O&M Fees due and payable
to Junior Claimant by Navy II 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 Coso Operating Company, a
Delaware limited liability company, by Navy II 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
2
<PAGE>
Deposit and Disbursement Agreement are satisfied, and (y) the Trustee has
received a certificate of a Responsible Officer of Navy II certifying to that
effect. Except as and to the extent expressly provided in this Section 2.1, Navy
II shall not, directly or indirectly, make any payment on or in respect of the
Subordinated O&M Fees, and Navy II 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, sue for, or accept from
Navy II 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
Navy II under the Plant O&M Agreement or otherwise against any part of the
Subordinated O&M Fees. Notwithstanding anything in the Plant O&M Agreement to
the contrary, the failure by Navy II 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 Plant O&M Agreement.
2.3 Neither Navy II 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 Navy II in commencing any Proceeding against Navy II;
provided that Junior Claimant shall not be so restricted with respect to claims
- --------
arising directly out of Navy II's failure to perform its obligations or make any
payments of amounts due to Junior Claimant under the Plant O&M Agreement other
than the Subordinated O&M Fees. At any general meeting of creditors of Navy II
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 Navy II 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
3
<PAGE>
Senior 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 Navy II
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 Plant 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 Navy II (the
"Collateral Assignment") (or enter into a new agreement pursuant to Section 1(d)
---------------------
of the Collateral Assignment), then notwithstanding anything in the Plant O&M
Agreement to the contrary, (i) Navy II (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 Plant 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
Navy II 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 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 Navy II 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 Navy II 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 specified in subsections (ii) through (v) of Section 3.1(c) of the
Depositary Agreement as in
4
<PAGE>
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") (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 Plant O&M Agreement shall be deemed to be amended to reflect such
arrangement.
2.6.2 If the Senior Claimants sell the Navy II Project to a third
party ("New Owner"), the New Owner shall apply to the outstanding balance, if
---------
any, of the Subordinated O&M Fees on (or promptly after) each Semi-Annual
Payment Date all revenues and other proceeds of Navy II 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 Navy II 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 Navy II 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 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
Plant 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 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 Navy II in the order of priority set forth in the Depositary
Agreement, including without limitation Section 3.1(c) thereof, notwithstanding
anything in the Plant O&M Agreement to the contrary.
4. Time of Filing. Notwithstanding the time of filing, attachment or
--------------
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.
5
<PAGE>
5. Wrongful Collections. Should any payment on account of, or any
--------------------
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 Plant O&M
----------------------------------------------------------
Agreement.
- ----------
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 Plant 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 Plant O&M Agreement to the
contrary, Junior Claimant shall not in any material respect amend the Plant O&M
Agreement without Collateral Agent's prior written consent; provided that the
Junior Claimant shall not amend the Plant O&M Agreement to create additional
fees other than the Subordinated O&M Fee.
7. Waivers. Collateral Agent and the Senior Claimants are hereby
-------
authorized to demand specific performance of this Agreement, whether or not Navy
II 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.
6
<PAGE>
8. Subrogation; No Impairment of Navy II's Obligations. Subject to
---------------------------------------------------
and 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 Navy II 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
- --------
shared with any other subordinated creditor of the Navy II 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 Navy II, its creditors other than the Senior Claimants and
Junior Claimant, the obligation of Navy II, 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 Plant O&M
Agreement, or to affect the relative rights of Junior Claimant and creditors of
Navy II other than the Senior Claimants.
9. Reinstatement. The obligations of Junior Claimant under this
-------------
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, Navy
II 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 between the Junior Claimant and Senior Claimant notwithstanding the
occurrence of any Proceeding affecting Navy II.
11. Further Assurances. Navy II and Junior Claimant shall execute
------------------
and 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 hereunder are solely for their protection and nothing herein contained
shall impose on the Senior Claimants any duties with respect to any property of
Navy II 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
------------
counterparts, but all such counterparts shall together constitute but one
agreement. In making 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.
7
<PAGE>
13.1 Governing Law. This Agreement is intended to take effect as
-------------
a sealed 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 Navy II) notwithstanding the termination (except upon the payment in full
of Senior Claims) or unenforceability of this Agreement as against Navy II.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Operating Fee
Subordination Agreement to be duly executed as of the date first above written.
FPL ENERGY OPERATING SERVICES, INC.
a Florida corporation,
as Junior Claimant
By: /s/ John A. Keener
------------------
Name: John A. Keener
Its: Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------
Name: Judy P. Manansala
Title:
The undersigned acknowledges and agrees to the foregoing:
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
9
<PAGE>
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
10
<PAGE>
Exhibit 10.77
COSO OPERATING COMPANY LLC
OPERATING FEE SUBORDINATION AGREEMENT (NAVY I)
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
<PAGE>
OPERATING FEE SUBORDINATION AGREEMENT (NAVY I)
----------------------------------------------
This OPERATING FEE SUBORDINATION AGREEMENT (this "Agreement") dated as
---------
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
---------------
NATIONAL ASSOCIATION in its capacity as collateral agent ("Collateral Agent")
----------------
for U.S. Bank Trust National Association as trustee ("Trustee") for the holders
-------
(the "Holders") of the senior secured notes (the "Senior Secured Notes") issued
------- --------------------
pursuant to that certain Indenture dated as of May 28, 1999 (the "Indenture"),
---------
among Trustee, Caithness Coso Funding Corp., a Delaware corporation (the
"Issuer"), Coso Finance Partners a California general partnership ("Navy I"),
------ ------
Coso Energy Developers, a California General partnership ("BLM"), Coso Power
---
Developers, a California general partnership ("Navy II" and together with Navy I
-------
and BLM the "Coso Partnerships") and all other Permitted Additional Senior
-----------------
Lenders. Unless otherwise defined herein, capitalized terms used herein shall
have the meanings set forth in the Indenture.
PREFACE
-------
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
---------
Holders of the Senior Secured Notes (the Trustee and the Holders being
collectively referred to herein as the "Senior Claimants") the payment and
----------------
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
----------
entered into that certain Deposit and Disbursement Agreement, dated as of May
28, 1999 (the "Depositary Agreement").
--------------------
C. Navy I and Junior Claimant have entered into that certain Field
Operation and Maintenance Agreement dated as of May 28, 1999 (the "Field O&M
---------
Agreement") pursuant to which, subject to and upon the terms and conditions
- ---------
contained therein and herein, Navy I has agreed to pay to Junior Claimant the
Annual Operating Fee (as defined in the Field O&M Agreement) (the "Subordinated
------------
O&M Fees").
- --------
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.
1
<PAGE>
AGREEMENT
---------
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
-----------
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,
----------
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to Navy I, its property or its creditors as such, (b)
proceeding for any liquidation, dissolution or other winding-up of Navy I,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (c) assignment of all or substantially all of the assets of Navy I
for the benefit of creditors of Navy I or (d) other marshaling of the assets of
Navy I.
"Senior Claims" means (a) the principal of, and premium, if any, and
-------------
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 Navy I 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
-------------------
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
---------------------------
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, Navy I 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
--------
exceeding, in the aggregate with (a) all Subordinated O&M Fees due and payable
to Junior Claimant by Navy I 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 Navy I 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
2
<PAGE>
Deposit and Disbursement Agreement are satisfied, and (y) the Trustee has
received a certificate of a Responsible Officer of Navy I certifying to that
effect. Except as and to the extent expressly provided in this Section 2.1, Navy
I shall not, directly or indirectly, make any payment on or in respect of the
Subordinated O&M Fees, and Navy I 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, sue for, or accept from
Navy I 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
Navy I 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 Navy I 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 Navy I 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 Navy I in commencing any Proceeding against Navy I;
provided that Junior Claimant shall not be so restricted with respect to claims
- --------
arising directly out of Navy I'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 Navy I
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 Navy I 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 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);
3
<PAGE>
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 Navy
I 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
Navy I (the "Collateral Assignment") (or enter into a new agreement pursuant to
---------------------
Section 1(d) of the Collateral Assignment), then notwithstanding anything in the
Field O&M Agreement to the contrary, (i) Navy I (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
Navy I 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 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 Navy I 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 Navy I 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
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
4
<PAGE>
("Deemed Notes") (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 Navy I Project to a
third party ("New Owner"), the New Owner shall apply to the outstanding balance,
---------
if any, of the Subordinated O&M Fees on (or promptly after) each Semi-Annual
Payment Date all revenues and other proceeds of Navy I 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 Navy I 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 Navy I 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 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 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 Navy I 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
--------------
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.
5. Wrongful Collections. Should any payment on account of, or any
--------------------
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
5
<PAGE>
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.
- ---------
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
-------
authorized to demand specific performance of this Agreement, whether or not Navy
I 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.
8. Subrogation; No Impairment of Navy I's Obligations. Subject to
--------------------------------------------------
and 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 Navy I applicable to the Senior Claims until all amounts owing on the
6
<PAGE>
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
- --------
shared with any other subordinated creditor of the Navy I 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
Navy I, its creditors other than the Senior Claimants and Junior Claimant, the
obligation of Navy I, 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 Navy I other than
the Senior Claimants.
9. Reinstatement. The obligations of Junior Claimant under this
-------------
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, Navy
I 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 between the Junior Claimant and Senior Claimant notwithstanding the
occurrence of any Proceeding affecting Navy I.
11. Further Assurances. Navy I and Junior Claimant shall execute and
------------------
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 hereunder are solely for their protection and nothing herein contained
shall impose on the Senior Claimants any duties with respect to any property of
Navy I 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
------------
counterparts, but all such counterparts shall together constitute but one
agreement. In making 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 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
7
<PAGE>
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 Navy I) notwithstanding the termination (except upon the payment in full of
Senior Claims) or unenforceability of this Agreement as against Navy I.
8
<PAGE>
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/ Christopher T. McCallion
-------------------------------------
Christopher T. McCallion
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
-------------------------------------
Name: Judy P. Manansala
Title: Trust Officer
The undersigned acknowledges and agrees to the foregoing:
COSO FINANCE PARTNERS
a California general partnership
By: NEW CLOC COMPANY, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
-------------------------------------
Christopher T. McCallion
Executive Vice President
9
<PAGE>
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------------
Christopher T. McCallion
Executive Vice President
10
<PAGE>
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
<PAGE>
OPERATING FEE SUBORDINATION AGREEMENT (BLM)
-------------------------------------------
This OPERATING FEE SUBORDINATION AGREEMENT (this "Agreement") dated as
---------
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
---------------
NATIONAL ASSOCIATION in its capacity as collateral agent ("Collateral Agent")
----------------
for U.S. Bank Trust National Association as trustee ("Trustee") for the holders
-------
(the "Holders") of the senior secured notes (the "Senior Secured Notes") issued
------- --------------------
pursuant to that certain Indenture dated as of May 28, 1999 (the "Indenture"),
---------
among Trustee, Caithness Coso Funding Corp., a Delaware corporation (the
"Issuer"), Coso Finance Partners a California general partnership ("Navy I"),
- ------- ------
Coso Energy Developers, a California General partnership ("BLM"), Coso Power
---
Developers, a California general partnership ("Navy II" and together with Navy I
-------
and BLM the "Coso Partnerships") and all other Permitted Additional Senior
-----------------
Lenders. Unless otherwise defined herein, capitalized terms used herein shall
have the meanings set forth in the Indenture.
PREFACE
-------
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
---------
Holders of the Senior Secured Notes (the Trustee and the Holders being
collectively referred to herein as the "Senior Claimants") the payment and
----------------
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
----------
entered into that certain Deposit and Disbursement Agreement, dated as of May
28, 1999 (the "Depositary Agreement").
--------------------
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
---------
Agreement") pursuant to which, subject to and upon the terms and conditions
- ---------
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
------------
O&M Fees").
- --------
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.
1
<PAGE>
AGREEMENT
---------
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
-----------
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,
----------
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
-------------
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
-------------------
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
---------------------------
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
--------
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
2
<PAGE>
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, sue 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
--------
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
3
<PAGE>
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
----------
Assignment") (or enter into a new agreement pursuant to Section 1(d) of the
- ----------
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
------------------------
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
4
<PAGE>
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")
------------
(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
---------
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
--------
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
----------------------------------
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
--------------
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.
5
<PAGE>
5. Wrongful Collections. Should any payment on account of, or any
--------------------
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.
--------------------------------------------------------------------
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
-------
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.
6
<PAGE>
8. Subrogation; No Impairment of BLM's Obligations. Subject to and
-----------------------------------------------
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
- --------
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
-------------
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
----------
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
------------------
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
----------------------
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
------------
counterparts, but all such counterparts shall together constitute but one
agreement. In making
7
<PAGE>
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
-------------
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.
8
<PAGE>
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/ Christopher T. McCallion
---------------------------------
Christopher T. McCallion
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
--------------------------
Name: Judy P. Manansala
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/ Christopher T. McCallion
---------------------------------
Christopher T. McCallion
Executive Vice President
9
<PAGE>
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
---------------------------------
Christopher T. McCallion
Executive Vice President
10
<PAGE>
Exhibit 10.79
FPL ENERGY OPERATING SERVICES, INC.
OPERATING FEE SUBORDINATION AGREEMENT (NAVY II)
Dated as of May 28, 1999
between
FPL ENERGY OPERATING SERVICES, INC.,
a Florida corporation,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
OPERATING FEE SUBORDINATION AGREEMENT (NAVY II)
-----------------------------------------------
This OPERATING FEE SUBORDINATION AGREEMENT (this "Agreement") dated as
---------
of May 28, 1999, is entered into by and between FPL Energy Operating Services,
Inc., a Florida corporation (the "Junior Claimant") and U.S. BANK TRUST NATIONAL
---------------
ASSOCIATION in its capacity as collateral agent ("Collateral Agent") for U.S.
----------------
Bank Trust National Association as trustee ("Trustee") for the holders (the
-------
"Holders") of the senior secured notes (the "Senior Secured Notes") issued
------- --------------------
pursuant to that certain Indenture dated as of May 28, 1999 (the "Indenture"),
---------
among Trustee, Caithness Coso Funding Corp., a Delaware corporation (the
"Issuer"), Coso Finance Partners a California general partnership ("Navy I")
------ ------
Coso Energy Developers, a California General partnership ("BLM"), Coso Power
---
Developers, a California general partnership ("Navy II" and together with Navy I
-------
and BLM the "Coso Partnerships") and all other Permitted Additional Senior
-----------------
Lenders. Unless otherwise defined herein, capitalized terms used herein shall
have the meanings set forth in the Indenture.
PREFACE
-------
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
---------
Holders of the Senior Secured Notes (the Trustee and the Holders being
collectively referred to herein as the "Senior Claimants") the payment and
----------------
performance of Issuer's obligations under the Senior Secured Notes and the
Indenture.
B. The Issuer, the Coso Partnerships, the Collateral Agent and U.S.
Bank Trust National Association in its capacity as Depositary (the "Depositary")
----------
have entered into that certain Deposit and Disbursement Agreement, dated as of
May 28, 1999 (the "Depositary Agreement").
--------------------
C. Navy II, Junior Claimant and Coso Operating Company LLC, a
Delaware limited liability company, have entered into that certain Operation and
Maintenance Agreement dated as of May 28, 1999 (the "Plant O&M Agreement").
-------------------
Pursuant to Section 5.3 of the Plant O&M Agreement, Navy II has agreed to pay
Junior Claimant the Annual Operating Fee, as defined in the Plant O&M Agreement
(the "Subordinated O&M Fees").
---------------------
D. The Holders have agreed 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.
1
<PAGE>
AGREEMENT
---------
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
-----------
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,
----------
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to Navy II, its property or its creditors as such, (b)
proceeding for any liquidation, dissolution or other winding-up of Navy II,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (c) assignment of all or substantially all of the assets of Navy II
for the benefit of creditors of Navy II or (d) other marshaling of the assets of
Navy II.
"Senior Claims" means (a) the principal of, and premium, if any, and
-------------
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 Navy II 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
-------------------
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
---------------------------
been paid in full, notwithstanding anything in the Plant O&M Agreement to the
contrary:
2.1. Junior Claimant acknowledges that, notwithstanding anything
in the Plant O&M Agreement to the contrary, Navy II 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
--------
exceeding, in the aggregate with (a) all Subordinated O&M Fees due and payable
to Junior Claimant by Navy II 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 Coso Operating Company, a
Delaware limited liability company, by Navy II 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
2
<PAGE>
Deposit and Disbursement Agreement are satisfied, and (y) the Trustee has
received a certificate of a Responsible Officer of Navy II certifying to that
effect. Except as and to the extent expressly provided in this Section 2.1, Navy
II shall not, directly or indirectly, make any payment on or in respect of the
Subordinated O&M Fees, and Navy II 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, sue for, or
accept from Navy II 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 Navy II under the Plant O&M Agreement or otherwise against any part of
the Subordinated O&M Fees. Notwithstanding anything in the Plant O&M Agreement
to the contrary, the failure by Navy II 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 Plant O&M Agreement.
2.3. Neither Navy II 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 Navy II in commencing any Proceeding against Navy II;
provided that Junior Claimant shall not be so restricted with respect to claims
- --------
arising directly out of Navy II's failure to perform its obligations or make any
payments of amounts due to Junior Claimant under the Plant O&M Agreement other
than the Subordinated O&M Fees. At any general meeting of creditors of Navy II
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 Navy II 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
3
<PAGE>
Senior 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 Navy
II 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 Plant
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
Navy II (the "Collateral Assignment") (or enter into a new agreement pursuant to
---------------------
Section 1(d) of the Collateral Assignment), then notwithstanding anything in the
Plant O&M Agreement to the contrary, (i) Navy II (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 Plant 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
Navy II 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 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 Navy II 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 Navy II 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 specified in subsections (ii) through (v) of Section 3.1(c) of the
Depositary Agreement as in
4
<PAGE>
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") (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 Plant O&M Agreement shall be
deemed to be amended to reflect such arrangement.
2.6.2. If the Senior Claimants sell the Navy II Project to
a third party ("New Owner"), the New Owner shall apply to the outstanding
---------
balance, if any, of the Subordinated O&M Fees on (or promptly after) each Semi-
Annual Payment Date all revenues and other proceeds of Navy II 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 Navy II 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 Navy II 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 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 Plant 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 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 Navy II in the order of priority set forth in the Depositary
Agreement, including without limitation Section 3.1(c) thereof, notwithstanding
anything in the Plant O&M Agreement to the contrary.
4. Time of Filing. Notwithstanding the time of filing, attachment
--------------
or 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.
5
<PAGE>
5. Wrongful Collections. Should any payment on account of, or any
--------------------
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 Plant O&M
----------------------------------------------------------
Agreement.
- ----------
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 Plant 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 Plant O&M Agreement to the
contrary, Junior Claimant shall not in any material respect amend the Plant O&M
Agreement without Collateral Agent's prior written consent; provided that the
Junior Claimant shall not amend the Plant O&M Agreement to create additional
fees other than the Subordinated O&M Fee.
7. Waivers. Collateral Agent and the Senior Claimants are hereby
-------
authorized to demand specific performance of this Agreement, whether or not Navy
II 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.
6
<PAGE>
8. Subrogation; No Impairment of Navy II's Obligations. Subject to
---------------------------------------------------
and 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 Navy II 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
- --------
shared with any other subordinated creditor of the Navy II 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 Navy II, its creditors other than the Senior Claimants and
Junior Claimant, the obligation of Navy II, 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 Plant O&M
Agreement, or to affect the relative rights of Junior Claimant and creditors of
Navy II other than the Senior Claimants.
9. Reinstatement. The obligations of Junior Claimant under this
-------------
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, Navy
II 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 between the Junior Claimant and Senior Claimant notwithstanding the
occurrence of any Proceeding affecting Navy II.
11. Further Assurances. Navy II and Junior Claimant shall execute
------------------
and 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 hereunder are solely for their protection and nothing herein contained
shall impose on the Senior Claimants any duties with respect to any property of
Navy II 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
------------
counterparts, but all such counterparts shall together constitute but one
agreement. In making 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.
7
<PAGE>
13.1. Governing Law. This Agreement is intended to take effect
-------------
as a sealed 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 Navy II) notwithstanding the termination (except upon the payment in full
of Senior Claims) or unenforceability of this Agreement as against Navy II.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Operating Fee
Subordination Agreement to be duly executed as of the date first above written.
FPL ENERGY OPERATING SERVICES, INC.
a Florida corporation,
as Junior Claimant
By: /s/ James A. Keener
---------------------------------
Name: James A. Keener
Its: Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansula
---------------------------------
Name: Judy P. Manansula
Title: Trust Officer
The undersigned acknowledges and agrees to the foregoing:
COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
--------------------------------
Christopher T. McCallion
Executive Vice President
9
<PAGE>
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
--------------------------------
Christopher T. McCallion
Executive Vice President
10
<PAGE>
Exhibit 10.80
MANAGEMENT FEE SUBORDINATION AGREEMENT (NAVY I)
Dated as of May 28, 1999
between
NEW CLOC COMPANY, LLC,
a Delaware limited liability company,
ESCA, LLC,
a Delaware limited liability company,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
MANAGEMENT FEE SUBORDINATION AGREEMENT (NAVY I)
-----------------------------------------------
This MANAGEMENT FEE SUBORDINATION AGREEMENT (this "Agreement") dated
---------
as of May 28, 1999, is entered into by and between NEW CLOC COMPANY, LLC, a
Delaware limited liability company ("New CLOC"), ESCA, LLC, a Delaware limited
--------
liability company ("ESCA") (New CLOC and ESCA together the "Junior Claimant"),
---- ---------------
and U.S. BANK TRUST NATIONAL ASSOCIATION in its capacity as collateral agent
("Collateral Agent") for U.S. Bank Trust National Association as trustee
----------------
("Trustee") for the holders (the "Holders") of the senior secured notes (the
------- -------
"Senior Secured Notes") issued pursuant to that certain Indenture dated as of
--------------------
May 28, 1999 (the "Indenture"), among Trustee, Caithness Coso Funding Corp., a
---------
Delaware corporation (the "Issuer"), Coso Finance Partners, a California general
------
partnership ("Navy I"), Coso Energy Developers, a California General partnership
------
("BLM"), Coso Power Developers, a California general partnership ("Navy II," and
--- -------
together with Navy I and BLM, the "Coso Partnerships") and all other Permitted
-----------------
Additional Senior Lenders.
PREFACE
-------
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
---------
Holders of the Senior Secured Notes (the Trustee and the Holders being
collectively referred to herein as the "Senior Claimants") the payment and
----------------
performance of Issuer's obligations under the Senior Secured Notes and the
Indenture.
B. The Issuer, the Coso Partnerships, the Collateral Agent and U.S.
Bank Trust National Association, in its capacity as Depositary (the
"Depositary"), have entered into that certain Deposit and Disbursement
----------
Agreement, dated as of May 28, 1999 (the "Depositary Agreement").
--------------------
C. Navy I has agreed to pay Junior Claimant or their representative,
pursuant to the Third Amended and Restated Partnership Agreement of Navy I,
dated as of May 28, 1999, from time to time as set forth by resolution, document
or instrument of Navy I (such resolution, document or instrument, a "Management
----------
Fee Agreement"), certain management fees (the "Subordinated Management Fees").
- ------------- ----------------------------
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 Management Fees to all Senior Claims (as defined below) to
the extent set forth in this Agreement.
1
<PAGE>
AGREEMENT
---------
NOW THEREFORE, in consideration of the premises herein and other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Junior Claimant hereby agrees as follows:
1. Definitions. All capitalized terms used herein and not otherwise
-----------
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,
----------
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to Navy I, its property or its creditors as such, (b)
proceeding for any liquidation, dissolution or other winding-up of Navy I,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (c) assignment of all or substantially all of the assets of Navy I
for the benefit of creditors of Navy I or (d) other marshaling of the assets of
Navy I.
"Senior Claims" means (a) the principal of, and premium, if any, and
-------------
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 Navy I 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.
2. Certain Subordination Terms. Until all Senior Claims shall have
---------------------------
been paid in full, notwithstanding anything in a Management Agreement to the
contrary:
2.1. Junior Claimant acknowledges that, notwithstanding anything
in any Management Fee Agreement to the contrary, Navy I may pay to Junior
Claimant Subordinated Management Fee 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 (vii) of
Section 3.1(c) of the Deposit and Disbursement Agreement.
2.2. Except for the right to demand and accept payments set forth
in Section 2.1 hereof, Junior Claimant shall not demand, sue for, or accept from
Navy I 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 Management Fees, nor set off against obligations
owed to Navy I under a Management Fee Agreement or otherwise against any part of
the Subordinated Management Fees. Notwithstanding anything in a Management Fee
Agreement to the contrary, the failure by Navy I to pay any Subordinated
Management 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 a Management Fee Agreement.
2
<PAGE>
2.3. Neither Navy I 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 Management 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 Management 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 voluntarily permit Navy I
to commence or join with any other creditor or creditors of Navy I in commencing
any Proceeding against Navy I; provided that Junior Claimant shall not be so
--------
restricted with respect to claims arising directly out of Navy I's failure to
perform its obligations or make any payments of amounts due to Junior Claimant
under a Management Fee Agreement other than the Subordinated Management Fees.
At any general meeting of creditors of Navy I 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 Management
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 Navy I 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 Management 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 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
Management 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 Management 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 Management 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
Management 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 Management 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 Management Fees
3
<PAGE>
and take such further steps with respect thereto, not inconsistent with this
Agreement, as Junior Claimant may deem proper.
3. Deposit and Disbursement Agreement. Junior Claimant acknowledges
----------------------------------
that 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 Navy I in the order of priority set forth in the Depositary
Agreement, including without limitation Section 3.1(c) thereof, notwithstanding
anything in a Management Fee Agreement to the contrary.
4. Time of Filing. Notwithstanding the time of filing, attachment or
--------------
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 Management Fees.
5. Wrongful Collections. Should any payment on account of, or any
--------------------
collateral for any part of, the Subordinated Management 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 Management Fees.
-----------------------------------------
6.1. Junior Claimant represents and warrants that it is the
lawful owner of the right to receive the Subordinated Management 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 Management
Fees, its commitment under, or any of its rights or remedies under, a Management
Fee 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.
7. Waivers. Collateral Agent and the Senior Claimants are hereby
-------
authorized to demand specific performance of this Agreement, whether or not Navy
I 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 Management Fees to which Junior
4
<PAGE>
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 Management 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.
8. Subrogation; No Impairment of Navy I's Obligations. Subject to
--------------------------------------------------
and 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 Navy I applicable to the Senior Claims until all amounts owing on the
Subordinated Management 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
- --------
shared with any other subordinated creditor of the Navy I 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
Navy I, its creditors other than the Senior Claimants and Junior Claimant, the
obligation of Navy I, which is absolute and unconditional, to pay to Junior
Claimant the principal of and the premium, if any, and the interest on the
Subordinated Management Fees as and when the same shall become due and payable
in accordance with the terms of this Agreement and a Management Fee Agreement,
or to affect the relative rights of Junior Claimant and creditors of Navy I
other than the Senior Claimants.
9. Reinstatement. The obligations of Junior Claimant under this
-------------
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, Navy
I 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 between the Junior Claimant and Senior Claimant notwithstanding the
occurrence of any Proceeding affecting Navy I.
11. Further Assurances. Navy I and Junior Claimant shall execute and
------------------
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.
5
<PAGE>
12. Successors and Assigns. The rights granted to the Senior
----------------------
Claimants hereunder are solely for their protection and nothing herein contained
shall impose on the Senior Claimants any duties with respect to any property of
Navy I 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
------------
counterparts, but all such counterparts shall together constitute but one
agreement. In making 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.
13.1. Governing Law. This Agreement is intended to take effect as a
-------------
sealed 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 Navy
I) notwithstanding the termination (except upon the payment in full of Senior
Claims) or unenforceability of this Agreement as against Navy I.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Operating Fee
Subordination Agreement to be duly executed as of the date first above written.
NEW CLOC COMPANY, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
-----------------------------
Christopher T. McCallion
Executive Vice President
ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
-----------------------------
Christopher T. McCallion
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
-----------------------------
Name: Judy P. Manansala
Title: Trust Officer
7
<PAGE>
The undersigned acknowledges and agrees to the foregoing:
COSO FINANCE PARTNERS,
a California general partnership
By: NEW CLOC COMPANY, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
8
<PAGE>
Exhibit 10.81
MANAGEMENT FEE SUBORDINATION AGREEMENT (BLM)
Dated as of May 28, 1999
between
NEW CHIP COMPANY, LLC,
a Delaware limited liability company,
CAITHNESS COSO HOLDINGS, LLC,
a Delaware limited liability company,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
MANAGEMENT FEE SUBORDINATION AGREEMENT (BLM)
--------------------------------------------
This MANAGEMENT FEE SUBORDINATION AGREEMENT (this "Agreement") dated
---------
as of May 28, 1999, is entered into by and between NEW CHIP COMPANY, LLC, a
Delaware limited liability company ("New CHIP"), CAITHNESS COSO HOLDINGS, LLC, a
--------
Delaware limited liability company ("CCH") (New CHIP and CCH together the
---
"Junior Claimant"), and U.S. BANK TRUST NATIONAL ASSOCIATION in its capacity as
---------------
collateral agent ("Collateral Agent") for U.S. Bank Trust National Association
----------------
as trustee ("Trustee") for the holders (the "Holders") of the senior secured
------- -------
notes (the "Senior Secured Notes") issued pursuant to that certain Indenture
--------------------
dated as of May 28, 1999 (the "Indenture"), among Trustee, Caithness Coso
---------
Funding Corp., a Delaware corporation (the "Issuer"), Coso Finance Partners, a
------
California general partnership ("Navy I"), Coso Energy Developers, a California
------
General partnership ("BLM"), Coso Power Developers, a California general
---
partnership ("Navy II," and together with Navy I and BLM, the "Coso
------- ----
Partnerships") and all other Permitted Additional Senior Lenders.
- ------------
PREFACE
-------
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
---------
Holders of the Senior Secured Notes (the Trustee and the Holders being
collectively referred to herein as the "Senior Claimants") the payment and
----------------
performance of Issuer's obligations under the Senior Secured Notes and the
Indenture.
B. The Issuer, the Coso Partnerships, the Collateral Agent and U.S.
Bank Trust National Association, in its capacity as Depositary (the
"Depositary"), have entered into that certain Deposit and Disbursement
----------
Agreement, dated as of May 28, 1999 (the "Depositary Agreement").
--------------------
C. BLM has agreed to pay Junior Claimant or their representative,
pursuant to the Third Amended and Restated Partnership Agreement of BLM, dated
as of May 28, 1999, from time to time as set forth by resolution, document or
instrument of BLM (such resolution, document or instrument, a "Management Fee
--------------
Agreement"), certain management fees (the "Subordinated Management Fees").
- --------- ----------------------------
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 Management Fees to all Senior Claims (as defined below) to
the extent set forth in this Agreement.
AGREEMENT
---------
1
<PAGE>
NOW THEREFORE, in consideration of the premises herein and other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Junior Claimant hereby agrees as follows:
1. Definitions. All capitalized terms used herein and not otherwise
-----------
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,
----------
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
-------------
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.
2. Certain Subordination Terms. Until all Senior Claims shall have
---------------------------
been paid in full, notwithstanding anything in a Management Agreement to the
contrary:
2.1. Junior Claimant acknowledges that, notwithstanding anything
in any Management Fee Agreement to the contrary, BLM may pay to Junior Claimant
Subordinated Management Fee 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 (vii) of Section
3.1(c) of the Deposit and Disbursement Agreement.
2.2. Except for the right to demand and accept payments set forth
in Section 2.1 hereof, Junior Claimant shall not demand, sue 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 Management Fees, nor set off against obligations
owed to BLM under a Management Fee Agreement or otherwise against any part of
the Subordinated Management Fees. Notwithstanding anything in a Management Fee
Agreement to the contrary, the failure by BLM to pay any Subordinated Management
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 a Management Fee 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
<PAGE>
2.4. Each negotiable instrument or promissory note, if any,
evidencing Subordinated Management 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 Management 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 voluntarily permit BLM
to commence or join with any other creditor or creditors of BLM in commencing
any Proceeding against BLM; provided 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 a Management Fee Agreement other than the Subordinated Management 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
Management 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 Management 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 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 Management 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 Management 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 Management 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
Management 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 Management 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 Management Fees and take such
further steps with respect thereto, not inconsistent with this Agreement, as
Junior Claimant may deem proper.
3. Deposit and Disbursement Agreement. Junior Claimant acknowledges
----------------------------------
that 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.
3
<PAGE>
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 a Management Fee Agreement to the contrary.
4. Time of Filing. Notwithstanding the time of filing, attachment or
--------------
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 Management Fees.
5. Wrongful Collections. Should any payment on account of, or any
--------------------
collateral for any part of, the Subordinated Management 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 Management Fees.
-----------------------------------------
6.1. Junior Claimant represents and warrants that it is the lawful
owner of the right to receive the Subordinated Management 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 Management Fees, its
commitment under, or any of its rights or remedies under, a Management Fee
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.
7. Waivers. Collateral Agent and the Senior Claimants are hereby
-------
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 Management 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 Management Fees.
Junior Claimant hereby assents to any renewal, extension or postponement of the
time of payment of Senior Claims or any other
4
<PAGE>
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.
8. Subrogation; No Impairment of BLM's Obligations. Subject to and 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 Management 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
- --------
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 Management Fees as and when the same shall become due and payable
in accordance with the terms of this Agreement and a Management Fee 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 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 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 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
----------------------
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.
5
<PAGE>
13. Counterparts. This Agreement may be executed in any number of
------------
counterparts, but all such counterparts shall together constitute but one
agreement. In making 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.
13.1. Governing Law. This Agreement is intended to take effect as a
-------------
sealed 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.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Operating Fee
Subordination Agreement to be duly executed as of the date first above written.
NEW CHIP COMPANY, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
---------------------------------------------
Christopher T. McCallion
Executive Vice President
Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
---------------------------------------------
Christopher T. McCallion
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------------------------------
Name: Judy P. Manansala
Title: Trust Officer
7
<PAGE>
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/ Christopher T. McCallion
---------------------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
---------------------------------------
Christopher T. McCallion
Executive Vice President
8
<PAGE>
Exhibit 10.82
MANAGEMENT FEE SUBORDINATION AGREEMENT (NAVY II)
Dated as of May 28, 1999
between
NEW CTC COMPANY, LLC,
a Delaware limited liability company,
CAITHNESS NAVY II GROUP, LLC,
a Delaware limited liability company,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
MANAGEMENT FEE SUBORDINATION AGREEMENT (NAVY II)
------------------------------------------------
This MANAGEMENT FEE SUBORDINATION AGREEMENT (this "Agreement") dated
---------
as of May 28, 1999, is entered into by and between NEW CTC COMPANY, LLC, a
Delaware limited liability company ("New CTC"), CAITHNESS NAVY II GROUP, LLC, a
-------
Delaware limited liability company ("CNG") (New CTC and CNG together the "Junior
--- ------
Claimant"), and U.S. BANK TRUST NATIONAL ASSOCIATION in its capacity as
- --------
collateral agent ("Collateral Agent") for U.S. Bank Trust National Association
----------------
as trustee ("Trustee") for the holders (the "Holders") of the senior secured
------- -------
notes (the "Senior Secured Notes") issued pursuant to that certain Indenture
--------------------
dated as of May 28, 1999 (the "Indenture"), among Trustee, Caithness Coso
---------
Funding Corp., a Delaware corporation (the "Issuer"), Coso Finance Partners, a
------
California general partnership ("Navy I"), Coso Energy Developers, a California
------
General partnership ("BLM"), Coso Power Developers, a California general
---
partnership ("Navy II," and together with Navy I and BLM, the "Coso
------- ----
Partnerships") and all other Permitted Additional Senior Lenders.
- ------------
PREFACE
-------
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
---------
Holders of the Senior Secured Notes (the Trustee and the Holders being
collectively referred to herein as the "Senior Claimants") the payment and
----------------
performance of Issuer's obligations under the Senior Secured Notes and the
Indenture.
B. The Issuer, the Coso Partnerships, the Collateral Agent and U.S.
Bank Trust National Association, in its capacity as Depositary (the
"Depositary"), have entered into that certain Deposit and Disbursement
----------
Agreement, dated as of May 28, 1999 (the "Depositary Agreement").
--------------------
C. Navy II has agreed to pay Junior Claimant or their
representative, pursuant to the Third Amended and Restated Partnership Agreement
of Navy II, dated as of May 28, 1999, from time to time as set forth by
resolution, document or instrument of Navy II (such resolution, document or
instrument, a "Management Fee Agreement"), certain management fees (the
------------------------
"Subordinated Management Fees").
----------------------------
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 Management Fees to all Senior Claims (as defined below) to
the extent set forth in this Agreement.
AGREEMENT
---------
1
<PAGE>
NOW THEREFORE, in consideration of the premises herein and other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Junior Claimant hereby agrees as follows:
1. Definitions. All capitalized terms used herein and not otherwise
-----------
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,
----------
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to Navy II, its property or its creditors as such, (b)
proceeding for any liquidation, dissolution or other winding-up of Navy II,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (c) assignment of all or substantially all of the assets of Navy II
for the benefit of creditors of Navy II or (d) other marshaling of the assets of
Navy II.
"Senior Claims" means (a) the principal of, and premium, if any, and
-------------
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 Navy II 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.
2. Certain Subordination Terms. Until all Senior Claims shall have
---------------------------
been paid in full, notwithstanding anything in a Management Agreement to the
contrary:
2.1. Junior Claimant acknowledges that, notwithstanding anything
in any Management Fee Agreement to the contrary, Navy II may pay to Junior
Claimant Subordinated Management Fee 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 (vii) of
Section 3.1(c) of the Deposit and Disbursement Agreement.
2.2. Except for the right to demand and accept payments set
forth in Section 2.1 hereof, Junior Claimant shall not demand, sue for, or
accept from Navy II 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 Management Fees, nor set off against
obligations owed to Navy II under a Management Fee Agreement or otherwise
against any part of the Subordinated Management Fees. Notwithstanding anything
in a Management Fee Agreement to the contrary, the failure by Navy II to pay any
Subordinated Management 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 a Management Fee Agreement.
2.3. Neither Navy II nor Junior Claimant shall otherwise take
any action
2
<PAGE>
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 Management 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 Management 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 voluntarily permit
Navy II to commence or join with any other creditor or creditors of Navy II in
commencing any Proceeding against Navy II; provided that Junior Claimant shall
--------
not be so restricted with respect to claims arising directly out of Navy II's
failure to perform its obligations or make any payments of amounts due to Junior
Claimant under a Management Fee Agreement other than the Subordinated Management
Fees. At any general meeting of creditors of Navy II 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
Management 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 Navy II 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 Management 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
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 Management 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 Management 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 Management 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
Management 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 Management 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 Management Fees and take such
further steps with respect thereto, not inconsistent with this Agreement, as
Junior Claimant may deem proper.
3
<PAGE>
3. Deposit and Disbursement Agreement. Junior Claimant acknowledges
----------------------------------
that 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 Navy II in the order of priority set forth in the Depositary
Agreement, including without limitation Section 3.1(c) thereof, notwithstanding
anything in a Management Fee Agreement to the contrary.
4. Time of Filing. Notwithstanding the time of filing, attachment or
--------------
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 Management Fees.
5. Wrongful Collections. Should any payment on account of, or any
--------------------
collateral for any part of, the Subordinated Management 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 Management Fees.
-----------------------------------------
6.1. Junior Claimant represents and warrants that it is the
lawful owner of the right to receive the Subordinated Management 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 Management
Fees, its commitment under, or any of its rights or remedies under, a Management
Fee 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.
7. Waivers. Collateral Agent and the Senior Claimants are hereby
-------
authorized to demand specific performance of this Agreement, whether or not Navy
II 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 Management 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
4
<PAGE>
demands and notices of every kind in connection with this Agreement, Senior
Claims or time of payment of Senior Claims or Subordinated Management 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.
8. Subrogation; No Impairment of Navy II's Obligations. Subject to
---------------------------------------------------
and 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 Navy II applicable to the Senior Claims until all amounts owing on the
Subordinated Management 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
- --------
shared with any other subordinated creditor of the Navy II 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 Navy II, its creditors other than the Senior Claimants and
Junior Claimant, the obligation of Navy II, which is absolute and unconditional,
to pay to Junior Claimant the principal of and the premium, if any, and the
interest on the Subordinated Management Fees as and when the same shall become
due and payable in accordance with the terms of this Agreement and a Management
Fee Agreement, or to affect the relative rights of Junior Claimant and creditors
of Navy II other than the Senior Claimants.
9. Reinstatement. The obligations of Junior Claimant under this
-------------
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, Navy
II 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 between the Junior Claimant and Senior Claimant notwithstanding the
occurrence of any Proceeding affecting Navy II.
11. Further Assurances. Navy II and Junior Claimant shall execute and
------------------
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 hereunder are solely for their protection and nothing herein contained
shall impose on the Senior Claimants any
5
<PAGE>
duties with respect to any property of Navy II 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
------------
counterparts, but all such counterparts shall together constitute but one
agreement. In making 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.
13.1. Governing Law. This Agreement is intended to take effect
-------------
as a sealed 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 Navy II) notwithstanding the termination (except upon the payment in full
of Senior Claims) or unenforceability of this Agreement as against Navy II.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Operating Fee
Subordination Agreement to be duly executed as of the date first above written.
NEW CTC COMPANY, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Judy P. Manansala
---------------------
Name: Judy P. Manansala
Title: Trust Officer
7
<PAGE>
The undersigned acknowledges and agrees to the foregoing:
COSO POWER DEVELOPERS,
a California general partnership
By: NEW CTC COMPANY, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
---------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
8
<PAGE>
COTENANCY AGREEMENT Exhibit 10.83
THIS COTENANCY AGREEMENT (this "Agreement"), dated as of May 28, 1999 (the
"Effective Date"), is made and entered into by and among COSO ENERGY DEVELOPERS,
a California general partnership ("CED"), COSO POWER DEVELOPERS, a California
general partnership ("CPD") and COSO FINANCE PARTNERS, a California general
partnership ("CFP"; CED, CPD and CFP are occasionally referred to herein
individually as a "Project Partnership" and collectively as the "Project
Partnerships").
Recitals
A. The Project Partnerships and Coso Land Company, a California general
partnership ("Assignor"), are parties to that certain Acquisition Agreement
dated as of May 28, 1999 (the "Acquisition Agreement"), pursuant to which
Assignor has agreed to assign, transfer and convey to each of the Project
Partnerships an undivided one-third interest as a tenant in common in and to
those certain Geothermal Resources Leases described in Exhibit "A" attached
hereto (collectively, the "Leases"), issued by the United States of America
acting through the Bureau of Land Management of the Department of the Interior
(the "BLM"), relating to geothermal rights in real property located in the
County of Inyo, State of California, which real property is also described in
Exhibit "A" attached hereto (collectively, the "Leasehold Premises").
B. To implement the assignment, transfer and conveyance of the Leases to
the Project Partnerships, Assignor and the Project Partnerships have executed
and delivered to the BLM Assignments of Record Title Interest in a Lease for Oil
and Gas or Geothermal Resources for each of the Leases, and, upon the BLM's
approval thereof, Assignor has agreed to execute, deliver and cause to be
recorded an Assignment and Assumption Agreement memorializing such assignment,
transfer and conveyance in the Official Records of Inyo County, California.
Such Assignment and Assumption Agreement, together with such Assignments of
Record Title Interest in a Lease for Oil and Gas or Geothermal Resources, are
collectively referred to herein as the "Lease Assignment".
C. MidAmerican Energy Holdings Company, successor-in-interest to
CalEnergy Company Inc. ("MidAmerican") was the original holder of those certain
Right of Way Grants described in Exhibit "B" attached hereto (together, the
"Right of Way Grants"), issued by the BLM, relating to certain rights in real
property located in the County of Inyo, State of California, which real property
is also described in Exhibit "B" attached hereto (together, the "Right of Way
Property"). MidAmerican has assigned an undivided one-third interest in the
Right of Way Grants to each of the Project Partnerships by (i) executing (along
with the Project Partnerships) and delivering to the BLM Applications for
Transportation and Utility Systems and Facilities on Federal Lands and
associated documentation, which Applications have been approved by the BLM, and
(ii) executing and delivering to the Project Partnerships an Assignment and
Assumption Agreement memorializing such assignment, which the Project
Partnerships will cause to be recorded in the Official Records of Inyo County,
California. Such Assignment and Assumption Agreement, together with such
Applications for Transportation and Utility Systems and Facilities on Federal
Lands (with associated documentation), are collectively referred to herein as
the "Right of Way Assignment".
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D. Pursuant to the Acquisition Agreement, upon the BLM's approval of the
above-described assignment of the Leases, CLC has agreed to assign, transfer and
convey, to each of the Project Partnerships, an undivided one-third interest in
those certain wells, equipment and other property and assets described on
Exhibit "C" attached hereto, which are located on the Leasehold Premises (the
"CLC Pre-Existing Assets"). Further, MidAmerican has agreed to transfer to Coso
Operating Company LLC, a Delaware limited liability company ("Operator") that
certain building and other property and assets described on Exhibit "D" attached
hereto, which are located on the Right of Way Property (the "MidAmerican Pre-
Existing Assets"), and Operator has agreed to transfer an undivided one-third
interest in the MidAmerican Pre-Existing Assets to each of the Project
Partnerships (such transfers from MidAmerican and from Operator, collectively,
the "Operator Assignment"). The CLC Pre-Existing Assets and the MidAmerican
Pre-Existing Assets are collectively referred to herein as the "Pre-Existing
Assets". The documents and instruments by which the Pre-Existing Assets are
being or will be transferred to Operator and/or the Project Partnerships are
referred to herein as the "Asset Transfer Documents".
E. The Project Partnerships own the following geothermal electrical
generating projects (which include, without limitation, power generation
facilities, related geothermal steam fields, drilling pads, exploratory,
production and injection wells, pipelines, separators and other equipment (each,
a "Project")), and intend to utilize the Leases, the Jointly-Owned Assets (as
that term is defined below) and the Right of Way Grants (collectively, the
"Cotenancy Assets") in connection with the Projects. More specifically:
(1) CED owns the Project commonly known as the "BLM Project" (which
consists of the "BLM East" and "BLM West" facilities), which is located on
land in the vicinity of the Leasehold Premises, which land is leased from
the BLM and is included in the Coso Known Geothermal Resource Area in the
China Lake area of California (the "KGRA").
(2) CPD owns the Project commonly known as the "Navy II Project",
which is located on land in the vicinity of the Leasehold Premises, which
land is utilized with the consent of the China Lake Naval Air Weapons
Station, acting on behalf of the Department of the Navy (the "Navy"), and
is included in the KGRA.
(3) CFP owns the Project commonly known as the "Navy I Project", which
is located on land in the vicinity of the Leasehold Premises, which land is
utilized with the consent of the China Lake Naval Air Weapons Station,
acting on behalf of the Navy, and is included in the KGRA.
F. The Projects are in part operated and managed by Operator, pursuant to
various contracts (the "O&M Agreements" ) with the Project Partnerships.
G. To govern their respective rights and obligations as tenants in common
in and with respect to the Cotenancy Assets and the Property (as that term is
defined below), the Project Partnerships are entering into this Agreement, which
shall be the Project Partnerships' expression of their intention to establish
and impose mutually beneficial limitations, restrictions, covenants and
conditions as equitable servitudes to provide for the proper and orderly
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ownership, operation and management of the Cotenancy Assets and of their
respective Interests (as that term is defined below) therein.
AGREEMENT
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NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Project
Partnerships, and each of them, hereby agree as follows:
1. DECLARATION OF INTENTION. The Project Partnerships hereby declare that
their relationship in and to the Cotenancy Assets is and will be that of tenants
in common, expressly subject, however, to the terms, conditions, limitations and
requirements set forth in this Agreement. Nothing contained in this Agreement
shall be deemed to constitute the Project Partnerships as partners or joint
venturers. The Project Partnerships do not intend by this Agreement to create a
"subdivision" under any Law (as that term is defined below).
2. UNDIVIDED INTERESTS. Pursuant to the Lease Assignment, the Right of
Way Assignment, the Operator Assignment and the Asset Transfer Documents
(collectively, the "Conveyance Documents"), the Project Partnerships' fractional
undivided interests (each an "Interest") in the Right of Way Grants as of the
Effective Date, and in the Leases and the Pre-Existing Assets as of the date the
assignment, transfer and conveyance of the same to the Project Partnerships is
completed (the "Transfer Completion Date"), is and/or will be as follows:
Project
Partnership: Interest:
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CED 33-1/3;
CPD 33-1/3; and
CFP 33-1/3.
Each Project Partnership's Interest shall remain as set forth above regardless
of any Additional Assets (as that term is defined below) placed on the Leasehold
Premises or the Right of Way Property (collectively, the "Property").
3. TERM. The term of this Agreement shall commence on the Effective Date,
and, unless sooner terminated by the consolidation of ownership of the Cotenancy
Assets in a single Project Partnership, by the mutual agreement of the Project
Partnerships, by expiration of the Leases or the Right of Way Grants or
otherwise as provided herein, shall expire on the date which is forty (40) years
thereafter. In the event that one or more of the Leases or Right of Way Grants
should expire or otherwise terminate, this Agreement shall apply with respect to
the remaining Leases and Right of Way Grants.
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4. EFFECT OF ASSIGNMENT.
4.1. Assignment AS IS. In accepting its Interest pursuant to the
Conveyance Documents, each Project Partnership accepts the Right of Way Grants
and the Right of Way Property in their condition existing as of the Effective
Date, and accepts the Leases and the Pre-Existing Assets in their condition
existing as of the Transfer Completion Date, subject to (a) all applicable laws,
statutes, ordinances, rules, regulations, decrees, policies, orders, permits,
requirements, judgments, decisions, injunctions and findings of or issued by any
governmental authority (collectively, "Laws") governing or regulating the use of
the Cotenancy Assets, the Property or any thereof and (b) all covenants,
conditions, reservations, restrictions, easements, liens, encumbrances and other
matters affecting the Cotenancy Assets, the Property or any thereof.
4.2. Tax Attributes. By entering into the Lease Assignment, the
Project Partnerships intend that each Project Partnership shall have and obtain
an economic interest in the geothermal resources in and under the Leasehold
Premises to the extent of such Project Partnership's Plant Resource and Use
Requirement (as that term is defined below), sufficient for such Project
Partnership to claim, for federal and corresponding state income tax purposes,
(a) a deduction for intangible drilling and development costs incurred in the
development of the Leasehold Premises and (b) depletion deductions with respect
to the geothermal resources extracted by such Project Partnership. This
Agreement shall be construed to effectuate, and to result in the full
realization of, such intent of the Project Partnerships to the maximum degree
possible.
5. USE OF THE LEASES, THE RIGHT OF WAY GRANTS AND THE PROPERTY.
5.1. Use Rights. Subject to the terms and provisions of this
Agreement, the Project Partnerships shall have the right to jointly use the
Leases, the Right of Way Grants and the Property for any purposes permitted
under the Leases, the Right of Way Grants and/or under the Exchange Agreement
(as that term is defined below), so long as (a) such use is conducted in a
manner that does not unreasonably hinder the exercise of or encroach upon the
rights of any other Project Partnership, except to the extent permitted by such
other Project Partnership, and (b) such use is subject to and shall be conducted
in accordance with this Agreement and that certain (i) Service Contract N62474-
79-C5382 dated October 19, 1983 between China Lake Joint Venture and the Navy,
as heretofore and hereafter amended (the "Navy Agreement"), (ii) Agreement For
the Calculations of Mineral Royalties/Revenues - Coso Known Geothermal Resource
Area dated December 16, 1994, among the BLM, the Minerals Management Service
(the "MMS") and the predecessor in interest to Operator, as heretofore and
hereafter amended (the "MMS Agreement"), (iii) 1988 Plan of Utilization (P00-
060-87-11), Development (P00-060-87-14) and Disposal for Lease CA-11402, CA-
11383, CA-11384 and CA-11385, as amended (the "Plan of Operations") and (iv)
Coso Geothermal Project Exchange Agreement dated January 11, 1994, among CFP,
CPD, CED and the predecessor in interest to Operator, as heretofore and
hereafter amended (the "Exchange Agreement", and, collectively with the Leases,
the Right of Way Grants, the Navy Agreement, the Plan of Operations and the MMS
Agreement, the "Governing Documents").
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5.2. Plant Resource and Use Requirement. Notwithstanding any other
provision of this Agreement, each Project Partnership shall be entitled to enter
upon and use the Leasehold Premises for geothermal resource production and
injection purposes if such Project Partnership determines, in its exercise of
reasonable business judgement, that it has insufficient steam economically
available to it from other sources. If such a determination is made, then such
Project Partnership may utilize the geothermal resources on the Leasehold
Premises to the extent of the geothermal resources reasonably required to be
produced, or spent geothermal effluent reasonably required to be injected, in
order to maximize the operation and profitability of its Project (the "Plant
Resource and Use Requirement").
6. OWNERSHIP OF WELLS, IMPROVEMENTS AND PERSONAL PROPERTY.
6.1 The Leasehold Premises. Except as otherwise provided in this
Agreement, the Project Partnerships intend that any buildings, structures,
facilities, improvements, fixtures, wells, sumps, ponds, machinery, tools,
equipment or other real or personal property constructed, installed or placed
upon the Leasehold Premises shall belong exclusively to the Project Partnership
that paid for or funded the same. In that regard:
6.1.1 The CED Existing Wells. The Project Partnerships
acknowledge that the prior operator, on behalf of CED, drilled on the Leasehold
Premises those certain production wells designated as Well 58A-18 and Well 58B-
18, and installed on the Leasehold Premises certain wellhead valves, piping,
pipe supports and other equipment required to transport geothermal resources
from such wells to the BLM Project (collectively, the "CED Existing Wells"), all
of which were paid for by CED. Except as otherwise provided in this Agreement
or the Exchange Agreement, the CED Existing Wells shall belong exclusively to
CED, and no other Project Partnership shall have any right, title or interest
therein.
6.1.2 Additional Assets. Except as otherwise provided in this
Agreement or the Exchange Agreement, in the event that a Project Partnership
pays for or funds the development, drilling, installation or construction of any
additional buildings, structures, facilities, improvements, fixtures, wells
(whether production, injection or exploratory), sumps, ponds, machinery, tools,
equipment or any other real or personal property on the Leasehold Premises
(each, an "Additional Asset"), then such Additional Asset shall belong
exclusively to such Project Partnership, and no other Project Partnership shall
have any right, title or interest therein. The CED Existing Wells and all the
Additional Assets are individually and collectively referred to herein as the
"Individually-Owned Assets").
6.2 The Right of Way Property. The Project Partnerships intend that
any buildings, structures, facilities, improvements, fixtures, wells, sumps,
ponds, machinery, tools, equipment or other real or personal property
constructed, installed or placed upon the Right of Way Property (collectively,
the "Additional Right of Way Assets") shall be paid for and owned jointly by the
Project Partnerships and shall be deemed to be Jointly-Owned Assets (as defined
below).
6.3 The Jointly-Owned Assets. The Pre-Existing Assets, the
Additional Right of Way Assets and any other assets that are specifically
designated as jointly owned, or which are deemed jointly owned by virtue of
payment by all of the Project Partnerships for such assets
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pursuant to the Exchange Agreement or any other applicable document, shall be
designated the "Jointly-Owned Assets", shall be jointly owned by the Project
Partnerships as tenants in common, and shall be jointly used pursuant to and in
accordance with this Agreement and the Governing Documents.
7. ACTIVITIES WITH RESPECT TO THE LEASES AND THE RIGHT OF WAY GRANTS.
7.1. Compliance With Law and Governing Documents. Each Project
Partnership shall, at its own expense, conduct its activities and operations on
the Property in a safe manner, in accordance with good operating practice, and
in compliance with all Laws, and in compliance with all applicable
authorizations, consents, approvals, permissions, permits, franchises, licenses,
waivers, exceptions or variances of, and any filings, applications and
declarations submitted in order to obtain any of the same from, any governmental
authority.
7.2. Environmental Compliance.
7.2.1. Without limiting the generality of Section 7.1 hereof,
each Project Partnership shall, at its own expense, promptly comply in all
material respects with all applicable environmental Laws now in effect or which
may hereafter come into effect.
7.2.2. Each Project Partnership (the "Indemnifying Project
Partnership") shall indemnify, defend and hold harmless each other Project
Partnership (the "Indemnified Project Partnership") from and against any and all
losses, damages, liabilities, claims, judgments, liens, penalties, costs and
expenses, including, without limitation, reasonable attorneys' and consultants'
fees, which may be imposed upon or incurred by such Indemnified Project
Partnership or asserted against such Indemnified Project Partnership by any
third person or entity in connection with any violation of the provisions of
Section 7.2.1 hereof arising out of or attributable to the assets, business,
operations or activities of the Indemnifying Project Partnership on or with
respect to the Leases, the Right of Way Grants or the Property at any time after
the Effective Date.
7.2.3. Without in any way limiting the scope of each Project
Partnerships's obligations under Section 7.2.2 hereof, each Project Partnership
shall (to the extent such Project Partnership is otherwise obligated under
Sections 7.2.1 or 7.2.2 hereof) be responsible for all investigations, studies,
clean up, corrective action or response or remedial action required by any
governmental authority now or hereafter authorized to regulate environmental or
other matters or by any consent decree or court or administrative order now or
hereafter applicable to such Project Partnership's use, operation or ownership
of its Interest, its Plant Resource and Use Requirement or its Individually-
Owned Assets, and/or such Project Partnership's use of or operations or
activities on or with respect to the Leases, the Right of Way Grants or the
Property or by any Law now or hereafter in effect.
7.2.4. Each Project Partnership shall have the right (but not the
obligation, unless otherwise required above) to participate in the management
and control of all investigations and any environmental clean up, remediation or
related activities relating to the Leases, the Right of Way Grants or the
Property, as well as in any and all meetings, negotiations
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or decisions relevant to the investigation or remediation of any violation of
the foregoing provisions of this Section 7.2.
7.2.5. The Project Partnerships shall share equal responsibility
for any environmental clean up, remediation or related activities relating to
the waste disposal site located on BLM Lease CA-11385 and referred to in that
certain Affidavit Concerning Closure of Waste Disposal Site executed on October
30, 1979 by Captain Jon R. Ives, USN and recorded on November 15, 1979 in Book
243, Page 783, Official Records of Inyo County.
7.3. No Waste or Nuisance; Maintenance. No Project Partnership shall
use or permit the use of the Leases, the Right of Way Grants or the Property in
any manner that would create waste or nuisance, or that would increase the rate,
or jeopardize the issuance or maintenance, of any insurance policy relating
thereto. Each Project Partnership shall keep and maintain the Property and the
Jointly-Owned Assets in good condition and repair and shall cause all other acts
to be done which may be necessary to assure the preservation and maintenance of
the Leases, the Right of Way Grants, the Property and the Jointly-Owned Assets
in a manner that complies with the Governing Documents and the requirements of
the BLM; provided, however, that the maintenance and repair of each Project
Partnership's Individually-Owned Assets in good condition shall be that Project
Partnership's sole responsibility.
7.4. Minimization of Interference. At all times while conducting its
respective operations and activities on the Property, each Project Partnership
shall make reasonable efforts to minimize the impact of such operations and
activities upon the other Project Partnership's use of the Leases, the Right of
Way Grants and the Property.
7.5. Liens. No Project Partnership shall cause or permit any lien or
encumbrance to be levied against or attached to the Cotenancy Assets, the
Property or any part thereof, whether voluntarily or involuntarily, unless
agreed to by all of the Project Partnerships. Each Project Partnership shall
pay, when due, all claims for labor or materials furnished to or for said
Project Partnership at or for said Project Partnership's use on or in the
Property, which claims are or may be secured by any mechanic's or materialmen's
lien against the Cotenancy Assets, the Property, any Individually-Owned Assets,
any Interest or any portion of any thereof.
7.6. Restoration.
7.6.1 Upon the earlier to occur of (a) the date which is ninety
(90) days after a Project Partnership permanently ceases to utilize a Lease or a
Right of Way Grant and the portion of the Property affected thereby, (b) the
expiration or earlier termination of this Agreement, or (c) the expiration or
earlier termination of a Lease or a Right of Way Grant, each Project Partnership
shall, at its sole cost and expense, in accordance with good operating practice
and in compliance with Law, and in accordance with any restoration obligations
set forth in the Leases, the Right of Way Grants or otherwise imposed by the
BLM, (i) remove from such Lease or Right of Way Grant (or from all of the Leases
and Right of Way Grants in the case of the expiration or earlier termination of
this Agreement) and the portion(s) of the Property affected thereby, all such
Project Partnership's Individually-Owned Assets (except wells and casings), (ii)
level and fill all sump holes and mud pits and cap or plug all wells associated
with such Individually-Owned Assets and (iii) demolish and remove all
foundations and fix all excavations
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associated with such Individually-Owned Assets, return the applicable land
surface to grade, leave such land surface safe and free from debris, and
restore/revegetate such land surface to the standards imposed by the BLM.
7.6.2 Upon the expiration or earlier termination of a Lease or
Right of Way Grant, the Project Partnerships shall collectively perform all land
restoration activities required on the portion of the Property to which such
Lease or Right of Way Grant applies and that are associated with the Jointly-
Owned Assets, and shall bear the cost thereof as provided hereinbelow.
7.7. Insurance. From and at all times after the Effective Date, each
Project Partnership shall procure and maintain in place comprehensive public
liability insurance sufficient to fully protect the other Project Partnerships
from and against any and all liability incident to such Project Partnership's
ownership of (or of an interest in), use of and activities in connection with
the Cotenancy Assets, the Property or such Project Partnership's Individually-
Owned Assets, but in any event not less than one million dollars or such amount
as may be required by any Lender (as that term is defined below). Each such
policy of liability insurance shall name as additional insureds all of the other
Project Partnerships and the Lender as their respective interests may appear,
and shall include, if obtainable, a cross-liability or severability of interest
endorsement insuring each insured Project Partnership against liability to each
other insured Project Partnership.
7.8. Taxes. Each Project Partnership shall pay all real and personal
property taxes and assessments, general or special, levied against (a) its
Interest, (b) its Individually-Owned Assets or (c) the geothermal resources used
or extracted by such Project Partnership. All such taxes and assessments shall
be paid before delinquency and before any fine, interest or penalty shall become
due or be imposed for their non-payment.
7.9. Communications With the BLM. Except for emergency situations,
all requests, notices, correspondence and other communications from the Project
Partnerships to or with the BLM relating to the Cotenancy Assets, the Property
or any Individually-Owned Assets shall be directed to the BLM through the
Operator.
8. OPERATION AND MANAGEMENT. Operation and management of the Leases and
the Right of Way Grants and all activities of the Project Partnerships on the
Property shall be performed by the Operator in accordance with the terms of the
O&M Agreements.
9. COSTS AND EXPENSES
9.1. Determination and Allocation By Operator. All costs, expenses
and charges associated with the Cotenancy Assets and the Property shall be
allocated by the Operator to the Project Partnerships.
9.2. Separate Expenses. Each Project Partnership shall be solely
responsible for paying in a timely manner and when due all costs, expenses and
charges that directly relate to its or its Project's use of or activities with
respect to the Cotenancy Assets, the Property or its Individually-Owned Assets,
including, without limitation, all (a) costs and expenses of extracting,
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injecting and transporting geothermal resources or spent geothermal effluent
for, to or from its Project or disposing of scale and other waste products
resulting from its operations (except as otherwise provided in the Exchange
Agreement), (b) charges for electricity, water and other utilities and services,
(c) costs, expenses and charges associated with the development, construction,
installation, erection, drilling, use, operation, maintenance, repair,
alteration, reconstruction, dismantling, removal and replacement in, on or of
any Individually-Owned Property (except as otherwise provided in the Exchange
Agreement) and (d) royalties and other charges (except minimum royalties and
Right of Way rentals payable to the BLM or the MMS, which shall be paid pursuant
to Section 9.3 hereof) payable to or assessed by the BLM, the MMS, the Navy or
any other entity and that are attributable to such Project Partnership's use of,
activities with respect to or production of geothermal resources from the Leases
or the Leasehold Premises. Notwithstanding anything to the contrary contained
herein, any and all costs, expenses and charges associated with the Jointly-
Owned Assets (regardless whether such costs, expenses and charges are directly
related to a particular Project Partnership's use of or activities with respect
to the Cotenancy Assets or the Property) shall, unless otherwise agreed upon by
all of the Project Partnerships or otherwise provided for in the Exchange
Agreement, be payable by each Project Partnership in proportion to its Interest.
9.3. Common Expenses. Any and all costs, expenses and charges
associated with the Cotenancy Assets or the Property that are not directly
related to a particular Project Partnership's use of or activities with respect
to the Cotenancy Assets or the Property as described in Section 9.2 hereof,
shall, unless otherwise agreed upon by all of the Project Partnerships or
otherwise provided for in the Exchange Agreement, be payable by each Project
Partnership in proportion to its Interest, including, without limitation, (a)
except as otherwise provided in Section 7.7 hereof, all casualty, liability and
other insurance premiums and charges relating to the Cotenancy Assets or the
Property, (b) except as otherwise provided in Section 7.8 hereof, all real and
personal property taxes, assessments and other charges assessed against the
Cotenancy Assets or the Property, (c) all costs of dealing with the BLM and (d)
any minimum royalties and Right of Way rentals payable to or assessed by the BLM
or the MMS that are attributable to the Cotenancy Assets or the Property. Each
Project Partnership shall pay its share of such common costs, expenses and
charges within thirty (30) days after its receipt of an invoice from the
Operator therefor. The Operator may establish, maintain and assess the Project
Partnerships for reserves, in such amounts as it shall determine, to cover any
common expenses relating to the Cotenancy Assets or the Property.
9.4. Payment. Notwithstanding the foregoing, each Project Partnership
shall in any event pay all costs, expenses and charges, for which it is
responsible under this Agreement (whether separate expenses under Section 9.2
hereof or common expenses under Section 9.3 hereof), (a) before any penalty for
non-payment shall be assessed and (b) in a timely enough manner so that neither
the Cotenancy Assets nor the Interests of the other Project Partnerships will be
jeopardized or made subject to any lien or encumbrance.
9.5. Invoices and Accounting. The Operator shall prepare invoices to
the Project Partnerships and shall maintain an accounting of all costs payable
and paid by each Project Partnership under Sections 9.2 and 9.3 hereof.
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10. DAMAGE OR DESTRUCTION; CONDEMNATION
10.1. Damage or Destruction. The Project Partnerships shall
collectively bear the risk of damage to the Property, the Jointly-Owned Assets
or any part thereof, each in proportion to its Interest; except that each
Project Partnership shall bear the risk of damage to or destruction of its
Individually-Owned Assets. The Operator shall coordinate, manage and implement
all repairs and other matters associated with any such damage or destruction.
10.2. Condemnation. The Project Partnerships shall collectively
bear the risk of a taking of the Property, the Jointly-Owned Assets or any part
thereof by eminent domain, each in proportion to its Interest; except that each
Project Partnership shall bear the risk of a taking of its Individually-Owned
Assets. The Operator shall coordinate, manage and implement all matters
associated with any such taking.
11. SALE OR OTHER TRANSFER OF INTERESTS; WAIVER OF PARTITION
11.1. In General. In the circumstances set forth in this Section 11,
a Project Partnership may be compelled to offer to sell, and to then sell, its
Interest to one or more of the other Project Partnerships. In all such
circumstances, the offeror-Project Partnership is referred to herein as the
"Selling Project Partnership" and the offeree-Project Partnership or Project
Partnerships are collectively referred to herein as the "Remaining Project
Partnerships".
11.2. Voluntary Sales. (a) no partial sales or other partial
transfers of Interests shall be permitted except to other Project Partnerships;
(b) no Project Partnership shall be permitted to sell or otherwise transfer its
Interest separately from its Individually-Owned Assets; and (c) no Project
Partnership shall have the right to sell or otherwise transfer its entire
Interest to any other person or entity that is not a Project Partnership, or
surrender its interest in the Cotenancy Assets or any part thereof to the BLM,
unless it first offers to sell such Interest to the other Project Partnerships.
11.2.1. The Interest which the Selling Project Partnership
intends to sell, transfer or surrender shall first be offered in writing (such
written offer being hereafter referred to as the "Offering Notice") to all the
Remaining Project Partnerships at the stated price at which the Interest is
proposed to be sold or otherwise transferred to such third person or entity and
on the proposed terms thereof. The Remaining Project Partnerships, collectively
and individually, shall have a period of thirty (30) days after the giving of
the Offering Notice (as determined in accordance with Section 15.3 hereof) in
which to accept or reject said offer (the "Offer Period").
11.2.2. If the Remaining Project Partnerships, or any of them,
accepts the offer within the Offer Period, then the purchase and sale shall be
completed as soon as reasonably possible, and all costs and expenses associated
with such purchase and sale shall be borne by the Selling Project Partnership.
If no Remaining Project Partnership elects, within the Offer Period, to purchase
the Selling Project Partnership's Interest, then the Selling Project Partnership
may (a) surrender its interest in the Cotenancy Assets or any thereof to the BLM
or (b) sell or otherwise transfer its Interest to any third person or entity
during the three (3) month period immediately following the expiration of the
Offer Period, but not at a price lower than the
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proposed price or on terms more favorable to the purchaser than the proposed
terms set out in the Offering Notice. After the expiration of said three (3)
month period, the Selling Project Partnership's interest may not be sold,
transferred or surrendered without that Interest again first being re-offered to
the Remaining Project Partnerships in accordance with Section 11.2.1 hereof.
11.3. Other Events Constituting Offers to Sell.
11.3.1. Upon the occurrence of any of the following events
(each, an "Offer To Sell Event"), such event shall be deemed to constitute an
offer by the affected Project Partnership, or its principals or successors-in-
interest, or the trustee of its estate, as the case may be (the appropriate one
of which shall be deemed to be the Selling Project Partnership for purposes of
this Section), to sell its entire Interest to the other Project Partnerships, or
any of them, for the price determined under Section 11.3.2 hereof:
a. The dissolution of such Project Partnership;
b. The voluntary or involuntary filing of a petition in
bankruptcy or for protection under similar insolvency Laws, or any general
assignment of assets for the benefit of creditors; or
c. Any Default under (and as that term is defined in)
Section 13.1 hereof.
11.3.2. Upon an Offer To Sell Event, the Remaining Project
Partnerships, collectively or individually, shall have the right to purchase the
Selling Project Partnership's Interest for an amount equal to the sum of the
then-current fair market value of (a) such Interest and (b) any Individually-
Owned Assets owned by the Selling Project Partnership, by giving written notice
to the Selling Project Partnership within thirty (30) days after the occurrence
of the Offer To Sell Event. If the Selling Project Partnership and the
Remaining Project Partnerships cannot agree on such fair market value, then,
within fifteen (15) days after a written demand by the Selling Project
Partnership or the Remaining Partnerships, the parties shall either (i) jointly
appoint an M.A.I. appraiser for the purpose of determining said fair market
value or (ii) failing such joint action, each separately designate an M.A.I.
appraiser. In the latter case, within five (5) days after their appointment,
the designated appraisers shall jointly designate a third M.A.I. appraiser,
whose determination of such Interest's and Individually-Owned Assets' fair
market value shall be binding and conclusive. The failure of the Selling
Project Partnership or the Remaining Partnerships to timely appoint an appraiser
shall be deemed an express approval of the other party's appraiser, and such
appraiser's appraisal shall determine and be the fair market value. The fees of
the appraiser(s) shall be paid in equal shares by said parties.
11.4. Notwithstanding anything contained in this Agreement, the
Governing Documents or any rule of law or equity which would otherwise allow the
Project Partnerships to partition or to seek or obtain a partitioning of the
Cotenancy Assets, the Project Partnerships shall not have and hereby waive the
right to partition all or any portion of the Cotenancy Assets, or to make
application to any court or authority or to commence or prosecute any action or
proceeding for partition of the Cotenancy Assets. Each Project Partnership and
the Lender shall
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be entitled to a decree or order restraining or enjoining such partition,
application, action or proceeding upon any breach of the provisions of this
Section 11.4. The Project Partnerships acknowledge and agree that they have
been paid full consideration for the waiver herein provided. The Lender is
hereby made a third-party beneficiary of the waiver and covenants herein
provided; and the Project Partnerships agree that they will not participate in
or permit any revocation, termination or amendment of such waiver or covenants
without the prior written consent of the Lender.
12. TRANSFER, TERMINATION AND AMENDMENT OF THE LEASES AND THE RIGHT OF WAY
GRANTS. Except as expressly provided herein, the Cotenancy Assets or any
portion thereof may be sold or otherwise transferred, or may be amended or
terminated, only upon (a) the written agreement of all of the Project
Partnerships and (b) approval of the Lender if such approval is required under
Section 14 hereof. Subject to Section 14 hereof, each of the Project
Partnerships hereby covenants and agrees to execute all documents as may be
required to effect any such approved sale, other transfer, amendment or
termination. Subject to the terms and conditions of the Financing Documents (as
that term is defined in the Indenture), the proceeds from any sale of the
Cotenancy Assets or any specific portion thereof shall be divided among the
Project Partnerships in proportion to their respective Interests; provided,
however, that such division shall be equitably adjusted to take into account the
fair market value (which shall be determined in a manner consistent with Section
11.3.2 hereof) of any Individually-Owned Assets existing on the Property on the
date of such sale. All costs and expenses directly resulting from the sale or
other transfer of the Cotenancy Assets, including, without limitation, escrow
costs, title insurance premiums and documentary transfer taxes, shall be divided
among the Project Partnerships in proportion to their respective Interests.
13. DEFAULT AND REMEDIES
13.1. Events of Default; Default. If a Project Partnership shall fail
to perform its obligations hereunder in any material respect (an "Event of
Default"), then such Project Partnership shall not be in Default hereunder
unless such Project Partnership shall have failed to cure such Event of Default
within thirty (30) days after such Project Partnership has received written
notice of such Event of Default ("Notice of Default") from a non-defaulting
Project Partnership or the Operator; provided, however, that if the nature of
such obligation or obligations is such that more than thirty (30) days are
required, in the exercise of commercially reasonable diligence, for performance
of such obligation(s), then such Project Partnership shall not be in Default if
it commences such performance within such thirty (30) day period and thereafter
pursues the same to completion with commercially reasonable diligence. A
Project Partnership shall be in "Default" hereunder if its Event of Default is
not cured within the time set forth above in this Section.
13.2. Remedies. In addition to all other remedies permitted by Law
or under this Agreement (all of which shall be cumulative), the Project
Partnership or Project Partnerships, as the case may be, that is/are not in
Default hereunder, shall have the right to purchase the Interest of the Project
Partnership that is in Default hereunder, as provided in Section 11.3 hereof.
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13.3. Performance By Non-Defaulting Project Partnership(s). In the
event that any Project Partnership fails to make any payment or perform any
obligation required to be made or performed by such Project Partnership
hereunder, under the Leases or under the Right of Way Grants (regardless whether
the same constitutes a Default hereunder), then any other Project Partnership or
the Operator shall be entitled (but not obligated) to make the required payment
or perform the required obligation in fulfillment of such Project Partnership's
obligations, whereupon the defaulting Project Partnership shall, upon demand,
reimburse the paying or performing Project Partnership(s) or the Operator, as
the case may be, for the amount of such payment and the cost of such
performance.
13.4. Specific Performance. The Project Partnerships agree that
damages may be an inadequate remedy for a Default under this Agreement, the
Leases or the Right of Way Grants and that each Project Partnership shall be
entitled to seek injunctive and other equitable relief against any other Project
Partnership to prevent or eliminate such Default.
14. LENDER PROTECTIONS
14.1. The following provisions are for the benefit of the Lender, and
shall be in effect while there exists any outstanding amount payable, or any
performance required, under the Indenture (as that term is defined below),
including, without limitation, any amount payable under the Senior Secured Notes
(as that term is defined in the Indenture). Once all of the outstanding amounts
payable and all performance required under the Indenture have been fully paid
and performed, all references in this Agreement to the Lender shall be deemed
null and void and all such provisions shall, without any further actions, have
no further force and effect.
14.2. The Lender shall have the right, but not the obligation, upon
the occurrence of an Event of Default, to (a) make any payments due under this
Agreement or the Governing Documents, and (b) do any other act or thing that may
be necessary or appropriate to be done in the performance and observance of the
terms hereof. All payments so made and all things so done and performed by the
Lender shall be as effective to prevent or cure any Event of Default under this
Agreement and the Governing Documents as they would have been if made, done and
performed by the Project Partnerships, and each Project Partnership agrees to
accept such performance, payment and cure. Each Project Partnership agrees to
make all payments (if any) to be made by it to a defaulting Project Partnership
directly to the Lender upon receipt of the Lender's written instructions to that
effect.
14.3. As used herein, the term (a) "Lender" means U.S. Bank Trust
National Association, not in its individual capacity but solely as trustee and
collateral agent pursuant to the Indenture of even date herewith (the
"Indenture") among it, Caithness Coso Funding Corp., as issuer, and the Project
Partnerships as borrowers and guarantors, and its agents, representatives,
successors and assigns, (b) "Lender's Lien" means the hypothecation, mortgage or
pledge of all or any portion of the Project Partnership Assets (as that term is
defined below) to the Lender as security for the repayment of the indebtedness
and performance of the obligations under the Indenture, the Guarantees or any
other Financing Document (as those terms are defined in the Indenture) and (c)
"Project Partnership Assets" means, collectively, a Project Partnership's right,
title and interest in and under this Agreement and the Governing
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Documents and in and to the Property, the Cotenancy Assets and any Individually-
Owned Assets.
14.4. Each Project Partnership agrees for the benefit of the Lender
that it will not, without the prior written consent of the Lender (which consent
shall be given or withheld on the basis of the documents governing the
relationship between the Lender and such Project Partnership): (a) amend or
modify, or take any action causing, consenting to or accepting the amendment or
modification of this Agreement or the Governing Documents, if such amendment or
modification would reduce the rights or remedies of the Lender hereunder or
impair or reduce the security for the Lender's Lien, or (b) cancel, terminate or
suspend, or take any action causing, consenting to or accepting the
cancellation, termination or suspension of, this Agreement or the Governing
Documents.
14.5. Each Project Partnership shall deliver to the Lender a
duplicate copy of any and all Notices of Default that it may from time to time
deliver to a defaulting Project Partnership hereunder or under the Governing
Documents, and such copies shall be delivered to the Lender at the same time
such Notices of Default are delivered to such defaulting Project Partnership.
No such Notice of Default shall be deemed to have been given to a defaulting
Project Partnership hereunder unless and until a copy thereof shall have been
given to the Lender.
14.6. Upon a defaulting Project Partnership's failure to cure any
Event of Default hereunder or under any Governing Document within the time
provided in Section 13.1 hereof, then the Lender shall have an additional sixty
(60) days thereafter to cure such Event of Default; provided, however, that if
such Event of Default cannot reasonably be cured within such additional sixty
(60) day period, then the Lender shall have such additional time to cure such
Event of Default as may be reasonably necessary. Any Event of Default that
cannot be cured by the Lender shall nevertheless be deemed to have been cured
and remedied if (a) on or before sixty (60) days after receiving such Notice of
Default, the Lender shall have acquired the defaulting Project Partnership's
then-remaining Project Partnership Assets, or shall have commenced foreclosure
or other appropriate proceedings for such purposes and shall be prosecuting such
proceedings to completion with commercially reasonable diligence, (b) the Lender
shall have fully cured within such sixty (60) day period any failure on the part
of the defaulting Project Partnership to perform its monetary obligations
hereunder and shall thereafter continue to perform such monetary obligations and
(c) after obtaining the defaulting Project Partnership's then-remaining Project
Partnership Assets, the Lender commences performance of the obligations of the
defaulting Project Partnership hereunder. All rights of the Project
Partnerships to terminate this Agreement as a result of the occurrence of an
Event of Default hereunder shall be expressly conditioned upon (i) the Lender
having first received a copy of the Notice of Default as and when provided in
Section 14.5 hereof and (ii) the Lender having failed to cure the Event of
Default or acquire possession of the defaulting Project Partnership's Project
Partnership Assets or commence foreclosure or other appropriate proceedings as
set forth, and within the time specified, in this Section 14.6.
14.7. If the Lender is prohibited by any process or injunction issued
by, or by reason of any action of, any court having jurisdiction over any
bankruptcy, reorganization, insolvency or other debtor-relief proceeding from
commencing or prosecuting foreclosure or other appropriate proceedings, then the
times specified in Section 14.6 hereof for commencing or
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prosecuting such foreclosure or other proceedings shall be extended for the
period of such prohibition; provided, however, that the Lender shall have fully
cured, within the time specified in Section 14.6 hereof, any failure on the part
of the defaulting Project Partnership to perform its monetary obligations
hereunder, and shall thereafter continue to perform such monetary obligations
when and as due hereunder.
14.8. The transfer of a defaulting Project Partnership's Project
Partnership Assets or any part thereof to the Lender and/or to one or more
purchasers or grantees (a) at a foreclosure sale by judicial or nonjudicial
foreclosure and sale, (b) by a conveyance in lieu of foreclosure or (c) by any
other assignment or conveyance, including, without limitation, by the Lender or
such other purchaser(s) or grantee(s) following foreclosure and sale, or as a
result of any other legal proceeding, shall not require the consent of the other
Project Partnerships, and such other Project Partnerships agree that upon such
foreclosure, sale, conveyance, assignment or other proceeding, they shall
recognize the Lender or such other purchaser(s) or grantee(s) as the successor
to the defaulting Project Partnership under this Agreement and the Governing
Documents; provided, however, that, subject to Section 14.10 hereof, the Lender
or such purchaser(s) or grantee(s) assumes the obligations of the defaulting
Project Partnership under this Agreement, the Leases and/or the Exchange
Agreement and pays all amounts in arrears due from the defaulting Project
Partnership to the other Project Partnerships hereunder.
14.9. In the event that this Agreement or the Exchange Agreement is
rejected by a trustee or debtor-in-possession in any bankruptcy or insolvency
proceeding, or if this Agreement or the Exchange Agreement is terminated for any
reason other than an Event of Default which could have been but was not cured by
a Lender as provided in this Section 14, and if, within sixty (60) days after
receiving notice of such rejection or termination, the Lender shall so request,
then, so long as the Lender has cured any monetary default by the defaulting
Project Partnership and is making commercially reasonable efforts to cure any
non-monetary default by the defaulting Project Partnership as provided herein,
the other Project Partnerships shall execute and deliver to the Lender or its
designee one or more new agreements, which new agreement(s) shall be on the same
terms and conditions as this Agreement and/or the Exchange Agreement (as the
case may be), for the remaining term of this Agreement and/or the Exchange
Agreement (as the case may be) before giving effect to such rejection or
termination.
14.10. The Lender or any such purchaser(s) or grantee(s) shall not
have any duty, obligation or liability under this Agreement or the Governing
Documents prior to the time of its entry into physical possession of a Project
or its commencement of performance of a defaulting Project Partnership's
obligations under this Agreement or the Governing Documents or under a new
agreement entered into as provided in Section 14.9 hereof, and shall not
otherwise be required to perform (or be subject to any defenses or offsets by
reason of) any defaulting Project Partnership's other obligations under this
Agreement or the Governing Documents that were unperformed at such time. In the
event that the Lender elects to perform a defaulting Project Partnership's
obligations under this Agreement and/or the Governing Documents, or to enter
into a new agreement as provided in Section 14.9 hereof, then the Lender shall
not have any personal liability to any Project Partnership for the performance
of such obligations, and the sole recourse of such Project Partnerships in
seeking the enforcement of such obligations shall be to the Lender's interest in
the defaulting Project Partnership's Project Partnership Assets. In the event
that the Lender assigns its interest in this Agreement, the Governing Documents
or a new
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agreement entered into pursuant to Section 14.9 hereof to any person or entity,
then the Lender shall be released from any further liability hereunder.
14.11. The Project Partnerships shall cooperate in including herein,
by suitable amendment from time to time, any provision which the Lender
reasonably requests for the purpose of implementing or amending the provisions
of this Section 14 or affording the Lender reasonable protection of its Lender's
Lien in the event of a default by a Project Partnership; provided, however, that
the Project Partnerships shall not be required to include herein any additional
term or provision which materially impairs the rights of the non-defaulting
Project Partnerships under this Agreement. Each of the Project Partnerships
agrees to execute and deliver (and to acknowledge, if necessary for recording
purposes) any document or instrument reasonably necessary to give effect to any
such provision.
14.12. Each of the Project Partnerships and the Operator shall, upon
not less than ten (10) days prior written notice from a requesting Project
Partnership or from the Lender, execute an estoppel certificate (a) certifying
that this Agreement and the Governing Documents are in full force and effect and
have not been modified, (b) certifying that to the best of such Project
Partnership's knowledge there are no uncured events of default under this
Agreement or the Governing Documents (or, if any such uncured events of default
exist, stating with particularity the nature thereof) and (c) containing any
other certifications as may reasonably be requested. Any such statements may be
conclusively relied upon by the requesting Project Partnership or the Lender.
The failure of a Project Partnership or the Operator to deliver such statement
within such time shall be conclusive upon such Project Partnership and the
Operator that (i) this Agreement and the Governing Documents are in full force
and effect and have not been modified and (ii) there are no uncured events of
default by any Project Partnership under this Agreement or the Governing
Documents.
14.13. Each Project Partnership agrees to have its successor under
this Agreement and the Governing Documents assume in writing its obligations
under this Agreement and the Governing Documents; provided, however, that
nothing contained herein shall be deemed a consent by the Lender to any
assignment that is prohibited, or to which the Lender may withhold its consent,
under the Financing Documents (as that term is defined in the Indenture).
14.14. At the Lender's option, this Agreement, the Governing
Documents or any thereof shall be subordinated to the Lender's Lien and/or to
any encumbrance now of record or recorded after the date of this Agreement.
Further, at the Lender's option, the lien of any mortgage, deed of trust or
security interest hereafter encumbering all or any portion of a Project
Partnership's Project Partnership Assets shall be subordinated to this
Agreement, the Governing Documents or any thereof, and/or to the Lender's Lien.
14.15. All insurance and condemnation proceeds payable to the Project
Partnerships under this Agreement or any of the Governing Documents as a result
of damage, destruction or condemnation of any portion of the Property shall be
paid to the Lender for handling in accordance with the terms of the Financing
Documents. The Project Partnerships shall not enter into any settlement or
adjustment relating to such proceeds without the prior written consent of the
Lender.
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14.16. The Project Partnerships agree that, upon the occurrence of an
event of default hereunder, under a Governing Document or under any of the
Financing Documents, the Lender or a receiver shall have the right to enter,
possess and use the Project Partnership Assets at such reasonable times and
manner as are necessary or desirable to effectuate the remedies and enforce the
rights of the Lender under the Financing Documents.
14.17. This Agreement and the Conveyance Documents shall be binding
upon the successors and assigns of the Project Partnerships and shall inure,
together with the rights and remedies of the Lender hereunder, to the benefit of
the Project Partnerships and the Lender and their respective successors,
transferees and assigns. Each Project Partnership agrees to confirm such
continuing obligation in writing upon the reasonable request of any other
Project Partnership, the Lender or their respective successors, transferees or
assigns.
15 GENERAL PROVISIONS
15.1 Effect of This Agreement. This Agreement shall automatically
attach and apply (a) to the Leases and the CLC Pre-Existing Assets at such time
as the Lease Assignment is completed and (b) to the MidAmerican Pre-Existing
Assets at such time as the Operator Assignment is completed, in each case
without the need for any other documentation or consent by or from any party
hereto; and, at such time, each Project Partnership's rights in and to all of
the Cotenancy Assets, the Property and Individually-Owned Assets shall be
governed by this Agreement.
15.2 Indemnities.
15.2.1 In addition to any other indemnities set forth herein,
each Project Partnership (the "Indemnifying Project Partnership") shall
indemnify, defend and hold harmless the other Project Partnerships (each, an
"Indemnified Project Partnership") from and against any and all losses, damages,
liabilities, claims, judgments, liens, penalties, costs and expenses, including,
without limitation, reasonable attorneys' and consultants' fees, which may be
imposed upon or incurred by such the Indemnified Project Partnership or asserted
against such Indemnified Project Partnership by any third person or entity in
connection with (a) any acts, omissions, operations or activities of the
Indemnifying Project Partnership on or in connection with (i) the Cotenancy
Assets or the Property or (ii) such Indemnifying Project Partnership's
Individually-Owned Assets and (b) any Event of Default or Default by the
Indemnifying Project Partnership in the performance of its obligations under
this Agreement.
15.2.2 The Project Partnerships acknowledge that when CLC
acquired the Leases from the Los Angeles Department of Water and Power
("LADWP"), it made certain covenants and gave certain indemnities to LADWP.
Without limiting the generality of the Lease Assignment, the Project
Partnerships hereby agree to abide by such covenants and to assume such
indemnities in proportion to their respective Interests.
15.3 Notices. Any notices, statements, demands, correspondence or
other communications required or permitted to be given hereunder shall be in
writing and shall be given (a) personally, (b) by certified or registered mail,
postage prepaid, return receipt requested, or (c) by overnight or other courier
or delivery service, freight prepaid, (i) to the recipient Project
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Partnership or Project Partnerships c/o Caithness Energy, L.L.C., 1114 Avenue of
the Americas, 41st Floor, New York, New York 10036, or to such other address as
a Project Partnership may from time to time designate in writing to the other
Project Partnerships and the Lender and (ii) to the Lender at One California
Street, Suite 400, San Francisco, California 94111, Attention: Trust Officer,
or to such other address as the Lender may from time to time designate in
writing to the Project Partnerships. Notices delivered by hand shall be deemed
received when delivered, and notices sent by certified or registered mail or by
overnight or other courier or delivery service shall be deemed received on the
first to occur of: (A) two (2) days after deposit in the United States mail or
with such overnight or other courier or delivery service, addressed to such
address or addresses, (B) written acceptance of delivery by the recipient or (C)
written rejection of delivery by the recipient.
15.4 Third Party Beneficiaries. Except with respect to the rights
of the Operator as provided herein (which Operator shall be an express third
party beneficiary of the covenants contained in this Agreement, with rights and
benefits under, and the ability to enforce, this Agreement), the covenants
contained herein are made solely for the benefit of the parties hereto, the
Lender, and their respective successors and assigns as permitted herein, and
shall not be construed as having been intended to benefit any person or entity
who is not a party to this Agreement.
15.5 Attorney's Fees and Costs. If any Project Partnership institutes
any legal action or other proceeding for the enforcement, termination,
cancellation or rescission hereof, or for damages for the breach hereof, the
prevailing Project Partnership or Project Partnerships in such action or
proceeding shall be entitled to recover its/their reasonable attorney's fees and
all its/their court and other costs.
15.6 Amendment. Subject to Section 14 hereof, no amendment or
modification of this Agreement or any provision hereof shall be effective unless
in writing and signed by all of the Project Partnerships at the time of the
amendment.
15.7 Integration. This Agreement, the Conveyance Documents, the
Acquisition Agreement and the Governing Documents collectively contain all
agreements of the Project Partnerships with respect to the subject matter
hereof, and all other prior or contemporaneous agreements, understandings,
correspondence and negotiations among the Project Partnership, whether oral or
written, pertaining to the subject matter of this Agreement, shall be of no
further force or effect, and are superseded hereby.
15.8 Severability. The invalidity or unenforceability of any
provision hereof as determined by a court of competent jurisdiction shall in no
way affect the validity and enforceability of any other provision hereof; and in
the event that any part or provision of this Agreement shall be determined by a
court of competent jurisdiction to be invalid or unenforceable, then the
remaining portions of this Agreement which can be separated from the invalid,
unenforceable provisions shall, nevertheless, continue in full force and effect.
15.9 Successors and Assigns. The Cotenancy Assets, the Individually-
Owned Assets and the Interests shall be held, conveyed, assigned, hypothecated,
encumbered and leased, and the Property shall be used and occupied, subject to
the covenants, terms and
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provisions set forth in this Agreement, which covenants, terms and provisions
shall run with the land, and shall be binding upon and inure to the benefit of
each Project Partnership and each other person and entity having any interest
therein during their ownership thereof, and their respective permitted grantees,
heirs, successors and assigns, and shall create privity of contract and estate
among the Project Partnerships and their respective grantees, heirs, successors
and assigns.
15.10 Further Assurances; Cooperation. Each Project Partnership
shall, from time to time, execute, cause to be acknowledged and deliver such
documents or instruments, and provide such certificates, as any other Project
Partnership may reasonably request to carry out and fulfill the transactions,
and permit the exercise and performance of the rights and obligations, as are
contemplated hereunder. Each Project Partnership shall cooperate with each
other Project Partnership to fully effectuate the purposes and intent of this
Agreement.
15.11 Construction. This Agreement shall be subject to, governed by,
and construed in accordance with the Laws of the State of California and
applicable federal Law. This Agreement shall be construed equally as between
the parties hereto, and shall not be construed against the party responsible for
its drafting. Captions in this Agreement are inserted for convenience of
reference only, and do not define, describe or limit the scope or intent of this
Agreement or any of the terms hereof. No remedy or election of or by any
Project Partnership hereunder shall be deemed exclusive, but shall, wherever
possible, be cumulative with all other remedies available hereunder, at law or
in equity. As used herein, the neuter gender includes the masculine and the
feminine, the singular number includes the plural, and vice versa. Time is of
the essence with respect to the obligations to be performed under this
Agreement. All exhibits attached hereto are hereby incorporated herein by this
reference. The waiver, by any party hereto, of any covenant contained herein,
shall not be deemed a continuing waiver of such covenant or of any other
covenant contained herein, or of any subsequent breach by any other party
hereto. No party's acceptance of a payment or performance by any other party
hereto shall be deemed a waiver of any preceding breach by such other party of
any provisions hereof. Any obligations referred to herein to be performed at
any time after the expiration or termination of this Agreement, and all
indemnities and hold harmless agreements provided herein, shall survive the
expiration or earlier termination of this Agreement.
15.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed an original, and
all of which when taken together shall constitute one and the same instrument.
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, the Project Partnerships, and each of them, have
executed this Agreement as of the Effective Date.
CED: COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
CPD: COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
SIGNATURES CONTINUED ON NEXT PAGE
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CFP: COSO FINANCE PARTNERS,
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
ACCEPTANCE BY THE OPERATOR:
Coso Operating Company LLC, a Delaware limited liability company, hereby
accepts the duties and obligations of the Operator under the foregoing Cotenancy
Agreement.
COSO OPERATING COMPANY LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
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EXHIBIT "A"
Description of the Leases and the Leasehold Premises
----------------------------------------------------
1. LEASE CACA-11383:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11383) APPROVED ON
NOVEMBER 1, 1983 BY THE BLM AND ISSUED TO THE LOS ANGELES DEPARTMENT OF WATER
AND POWER, A CERTIFIED COPY OF WHICH WAS RECORDED ON OCTOBER 8, 1993 AS
INSTRUMENT NO. 93-4604 OF OFFICIAL RECORDS, INCLUDING ALL MODIFICATIONS,
AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF, WHICH LEASE AFFECTS THAT
CERTAIN REAL PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY OF
INYO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL 1:
ALL OF SECTION 32; THE NORTH HALF OF SECTION 33; THE NORTH HALF OF THE
SOUTH HALF OF SECTION 33; THE SOUTH HALF OF THE SOUTHWEST QUARTER OF
SECTION 33; AND THE SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER OF SECTION
33, ALL IN TOWNSHIP 21 SOUTH, RANGE 39 EAST, MOUNT DIABLO MERIDIAN, IN
THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT
THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND AND
THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 2:
LOTS 2, 3 AND 4 OF SECTION 4; LOTS 1 TO 4 INCLUSIVE OF SECTION 5; THE
SOUTH HALF OF THE NORTH HALF OF SECTION 5; AND THE NORTH HALF OF THE
SOUTH HALF OF SECTION 5, ALL IN TOWNSHIP 22 SOUTH, RANGE 39 EAST, MOUNT
DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND AND
THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
Exhibit "A"
Page 1 of 4
<PAGE>
2. LEASE CACA-11384:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11384) APPROVED BY
THE BLM ON FEBRUARY 1, 1982 AND ISSUED TO THE LOS ANGELES DEPARTMENT OF WATER
AND POWER, WHICH LEASE WAS RECORDED ON OCTOBER 8, 1993 AS INSTRUMENT NO. 93-
4605 OF OFFICIAL RECORDS, INCLUDING ALL MODIFICATIONS, AMENDMENTS AND
ASSIGNMENTS THERETO AND THEREOF, WHICH LEASE AFFECTS THAT CERTAIN REAL
PROPERTY LOCATED IN AN UNINCORPORATED AREA OF THE COUNTY OF INYO, STATE OF
CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL 1:
THE EAST HALF OF SECTION 11; ALL OF SECTIONS 12 AND 13; AND THE EAST HALF
OF SECTION 14, ALL IN TOWNSHIP 22 SOUTH, RANGE 38 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND AND
THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 2:
LOTS 1 TO 4, INCLUSIVE OF SECTION 7; THE EAST HALF OF THE WEST HALF OF
SECTION 7; LOTS 1 TO 4, INCLUSIVE OF SECTION 18; AND THE EAST HALF OF THE
WEST HALF OF SECTION 18, ALL IN TOWNSHIP 22 SOUTH, RANGE 39 EAST, MOUNT
DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO
THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND AND
THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
3. LEASE CACA-11385:
THAT CERTAIN GEOTHERMAL RESOURCES LEASE (SERIAL NO. CACA-11385) APPROVED BY
THE BLM ON FEBRUARY 1, 1982 AND ISSUED TO THE LOS ANGELES DEPARTMENT OF WATER
AND POWER, WHICH LEASE WAS RECORDED ON OCTOBER 8, 1993 AS INSTRUMENT NO. 93-
4606 OF OFFICIAL RECORDS, INCLUDING ALL MODIFICATIONS, AMENDMENTS AND
ASSIGNMENTS THERETO AND THEREOF, WHICH LEASE AFFECTS THAT CERTAIN REAL
PROPERTY LOCATED IN AN
Exhibit "A"
Page 2 of 4
<PAGE>
UNINCORPORATED AREA OF THE COUNTY OF INYO, STATE OF CALIFORNIA, DESCRIBED AS
FOLLOWS:
PARCEL 1:
ALL OF SECTION 36, TOWNSHIP 21 SOUTH, RANGE 38 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND AND
THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 2:
LOTS 1 TO 4 INCLUSIVE, THE SOUTH HALF OF THE NORTH HALF, AND THE SOUTH
HALF OF SECTION 1, TOWNSHIP 22 SOUTH, RANGE 38 EAST, MOUNT DIABLO
MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE
OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND AND
THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 3:
LOTS 1 TO 4 INCLUSIVE, THE EAST HALF, AND THE EAST HALF OF THE WEST HALF
OF SECTION 31, TOWNSHIP 21 SOUTH, RANGE 39 EAST, MOUNT DIABLO MERIDIAN,
IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL
PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND AND
THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
PARCEL 4:
LOTS 1 TO 7 INCLUSIVE, THE SOUTH HALF OF THE NORTHEAST QUARTER, THE
SOUTHEAST QUARTER OF THE NORTHWEST QUARTER, THE NORTHEAST QUARTER OF THE
SOUTHWEST QUARTER, AND THE NORTH HALF OF THE
Exhibit "A"
Page 3 of 4
<PAGE>
SOUTHEAST QUARTER OF SECTION 6, TOWNSHIP 22 SOUTH, RANGE 39 EAST, MOUNT
DIABLO MERIDIAN, IN THE COUNTY OF INYO, STATE OF CALIFORNIA, ACCORDING TO
THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THE OIL, HYDROCARBON GAS, AND HELIUM IN SAID LAND AND
THE RIGHT OF THE UNITED STATES OF AMERICA TO EXTRACT SAID OIL,
HYDROCARBON GAS, AND HELIUM FROM GEOTHERMAL STEAM AND ASSOCIATED
GEOTHERMAL RESOURCES PRODUCED FROM SAID LAND (30 U.S.C.A. 1025).
Exhibit "A"
Page 4 of 4
<PAGE>
EXHIBIT "B"
Description of the Right-of-Way Grants and the Right-of-Way Property
--------------------------------------------------------------------
1. RIGHT-OF-WAY CACA-13510:
THAT CERTAIN UNRECORDED RIGHT-OF-WAY GRANT (SERIAL NO. CACA-13510) APPROVED
BY THE BLM ON APRIL 12, 1984 AND ISSUED TO CALIFORNIA ENERGY COMPANY, INC.,
INCLUDING ALL MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF,
WHICH RIGHT-OF-WAY GRANT AFFECTS THAT CERTAIN REAL PROPERTY LOCATED IN AN
UNINCORPORATED AREA OF THE COUNTY OF INYO, STATE OF CALIFORNIA, DESCRIBED AS
FOLLOWS:
TOWNSHIP 21 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 36, E1/2
OF THE SE1/4;
TOWNSHIP 22 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 1, NW1/4
OF THE SW1/4; LOTS 1 AND 2 OF THE NE1/4; AND LOT 1 OF THE NW1/4; AND
TOWNSHIP 21 SOUTH, RANGE 38 EAST, MT. DIABLO MERIDIAN: SECTION 31, LOTS
9-12, 16; SECTION 32, LOTS 1-3,5,6 AND 8; AND SECTION 33, S1/2 OF THE
S1/2.
2. RIGHT-OF-WAY CACA-18885:
THAT CERTAIN UNRECORDED RIGHT-OF-WAY GRANT (SERIAL NO. CACA-18885) APPROVED
BY THE BLM ON MAY 7, 1986 AND ISSUED TO CALIFORNIA ENERGY COMPANY, INC.,
INCLUDING ALL MODIFICATIONS, AMENDMENTS AND ASSIGNMENTS THERETO AND THEREOF,
WHICH RIGHT-OF-WAY GRANT AFFECTS THAT CERTAIN REAL PROPERTY LOCATED IN AN
UNINCORPORATED AREA OF THE COUNTY OF INYO, STATE OF CALIFORNIA, DESCRIBED AS
FOLLOWS:
TOWNSHIP 22 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 1, LOTS 1
& 2 IN NE1/4, LOT 1 IN NW1/4, AND NW1/4SW1/4;
TOWNSHIP 21 SOUTH, RANGE 37 EAST, MT. DIABLO MERIDIAN: SECTION 36,
SE1/4SE1/4;
TOWNSHIP 21 SOUTH, RANGE 38 EAST, MT. DIABLO MERIDIAN: SECTION 31, LOTS
13-16; SECTION 32, LOTS 1-5, 8; SECTION 33, S1/2NE1/4, NE1/4SW1/4,
S1/2SW1/4, N1/2SE1/4; SECTION 34, N1/2SW1/4, SE1/4SW1/4 AND SW1/4SE1/4.
<PAGE>
EXHIBIT "C"
Description of the CLC Pre-Existing Assets
------------------------------------------
1. Well 43-7 and all associated equipment (including, without limitation,
all wellhead equipment, valves, piping, pipe supports, meters, pumps and
separators) located on Geothermal Resources Lease CA 11384 as of the Transfer
Completion Date.
2. Well 88-1 and all associated equipment (including, without limitation,
all wellhead equipment, valves, piping, pipe supports, meters, pumps and
separators) located on Geothermal Resources Lease CA 11385 as of the Transfer
Completion Date.
3. Well 66-6 and all associated equipment (including, without limitation,
all wellhead equipment, valves, piping, pipe supports, meters, pumps and
separators) located on Geothermal Resources Lease CA 11385 as of the Transfer
Completion Date.
4. All other wellhead equipment, valves, pipelines, pipe supports, meters,
pumps, separators, casings, vessels, fencing, gates, cattleguards, signs,
improvements, equipment, machinery and other real or personal property located
on the Leasehold Premises as of the Transfer Completion Date (except to the
extent the same constitute part of the CED Existing Wells).
<PAGE>
EXHIBIT "D"
Description of the MidAmerican Pre-Existing Assets
--------------------------------------------------
1. That certain administration building constructed on the Right of Way
Property, together with all equipment, machinery, fixtures, furniture, water
well, warehouse/shop, pipe yard, parking areas and other real or personal
property located therein or associated therewith.
2. That certain telephone cable and related improvements located on the
Right of Way Property, together with all equipment, machinery and other items
associated therewith.
3. All other wellhead equipment, valves, pipelines, pipe supports, meters,
pumps, separators, casings, vessels, fencing, gates, cattleguards, signs,
improvements, equipment, machinery and other real or personal property located
on the Right of Way Property.
<PAGE>
Exhibit 10.84
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (this "Agreement"), dated as of May 28, 1999
(the "Effective Date"), is made and entered into by and among COSO LAND COMPANY,
a California general partnership ("CLC"), COSO OPERATING COMPANY LLC, a Delaware
limited liability company ("Operator"), COSO ENERGY DEVELOPERS, a California
general partnership ("CED"), COSO FINANCE PARTNERS, a California general
partnership ("CFP") and COSO POWER DEVELOPERS, a California general partnership
("CPD", and together with CED and CFP, the "Project Partnerships") (CLC,
Operator, CED, CFP and CPD are referred to herein collectively as the "Parties"
and individually as a "Party"), with reference to the following recitals:
Recitals
A. CLC is the lessee under those certain Geothermal Resources Leases
described in Exhibit "A" attached hereto (collectively, the "LADWP Leases"),
issued by the United States of America acting through the Bureau of Land
Management of the Department of the Interior (the "BLM"), relating to geothermal
rights in real property located in the County of Inyo, State of California,
which real property is also described in Exhibit "A" attached hereto (the "LADWP
Leasehold Premises"). Since the acquisition of the LADWP Leases by CLC, CLC has
permitted the Project Partnerships to enter on and use the LADWP Leasehold
Premises and the geothermal resources located therein, which geothermal
resources have been utilized pursuant to that certain Coso Geothermal Project
Exchange Agreement dated January 11, 1994 by and among the Project Partnerships,
as amended (the "Exchange Agreement').
B. CLC has agreed that, upon the BLM's approval of assignment of the
LADWP Leases to the Project Partnerships, CLC will transfer, assign and convey
to each of the Project Partnerships an undivided one-third interest in (1) the
LADWP Leases and (2) those certain wells, equipment and other property and
assets described on Exhibit "B" attached hereto, which are located on the LADWP
Leasehold Premises (the "CLC Pre-Existing Assets"). (Such transfers, assignments
and conveyances (including of the CLC Pre-Existing Assets) to the Project
Partnerships are collectively referred to herein as the "LADWP Lease
Assignment".) To obtain such approval from the BLM, CLC and the Project
Partnerships have executed and delivered to the BLM Assignments of Record Title
Interest in a Lease for Oil and Gas or Geothermal Resources for each of the
LADWP Leases, and are currently awaiting the BLM's countersignature thereon.
C. MidAmerican Energy Holdings Company, as successor-in-interest to
CalEnergy Company Inc. ("MidAmerican"), was the original holder of those
certain Right of Way
<PAGE>
Grants described in Exhibit "C" attached hereto (together, the "Right of Way
Grants"), issued by the BLM, relating to certain rights in real property located
in the County of Inyo, State of California, which real property is also
described in Exhibit "C" attached hereto (together, the "Right of Way
Property"). MidAmerican has assigned an undivided one-third interest in the
Right of Way Grants to each of the Project Partnerships by (i) executing (along
with the Project Partnerships) and delivering to the BLM Applications for
Transportation and Utility Systems and Facilities on Federal Lands and
associated documentation, which Applications have been approved by the BLM, and
(ii) executing and delivering to the Project Partnerships an Assignment and
Assumption Agreement memorializing such assignment, which the Project
Partnerships will cause to be recorded in the Official Records of Inyo County,
California (the "Official Records"). Further, MidAmerican has agreed to transfer
to Operator that certain building and other property and assets described on
Exhibit "D" attached hereto, which are located on the Right of Way Property (the
"MidAmerican Pre-Existing Assets"), and Operator has agreed to transfer an
undivided one-third interest in the MidAmerican Pre-Existing Assets to each of
the Project Partnerships (such transfers from MidAmerican and from Operator,
collectively, the "Operator Assignment").
D. CLC is the lessee under that certain Geothermal Resources Lease
described in Exhibit "E" attached hereto ("Lease CA-11401"), issued by the BLM,
relating to geothermal rights in real property located in the County of Inyo,
State of California, which real property is also described in Exhibit "E"
attached hereto (the "CA-11401 Leasehold Premises"). Since the acquisition of
Lease CA-11401 by CLC, CLC has permitted CED to enter on and use the CA-11401
Leasehold Premises and the geothermal resources located therein.
E. CLC has agreed that, upon the BLM's approval of assignment of Lease
CA-11401 to CED, CLC will transfer, assign and convey Lease CA-11401 to CED (the
"CA-11401 Lease Assignment"). To obtain such approval from the BLM, CLC and CED
have executed and delivered to the BLM an Assignment of Record Title Interest in
a Lease for Oil and Gas or Geothermal Resources for Lease CA-11401, and are
currently awaiting the BLM's countersignature thereon. CLC and CED acknowledge
that CED has paid for and already owns any wells, wellhead equipment, valves,
pipelines, pipe supports, meters, pumps, casings, vessels, fencing, gates,
cattleguards, signs, improvements, equipment, machinery and other assets located
on the CA-11401 Leasehold Premises.
F. By this Agreement, the Parties now desire to set forth their agreement
with respect to the LADWP Lease Assignment, the Operator Assignment and the CA-
11401 Lease Assignment (collectively, the "Assignments").
Agreement
NOW THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Parties hereby
agree as follows:
2
<PAGE>
1. Assignment.
----------
1.1 CLC and the Project Partnerships shall obtain the BLM's approval
of assignment of the LADWP Leases to the Project Partnerships as soon as
possible after the Effective Date and, upon obtaining such approval, CLC shall
assign, transfer and convey to each of the Project Partnerships and its
successors and assigns, an undivided one-third interest as a tenant in common in
and to each of the LADWP Leases as set forth in Section 3 hereof. Said
assignment, transfer and conveyance shall expressly exclude the CED Existing
Wells (as that term is defined in the Cotenancy Agreement), title to which shall
remain in CED.
1.2 Operator and the Project Partnerships shall complete the transfer
from MidAmerican to Operator of the MidAmerican Pre-Existing Assets (by both
bill of sale and recorded quitclaim deed) as soon as possible after the
Effective Date and, upon completing such transfer, Operator shall assign,
transfer and convey to each of the Project Partnerships and its successors and
assigns, an undivided one-third interest as a tenant in common in and to each of
the MidAmerican Pre-Existing Assets as set forth in Section 3 hereof.
1.3 CLC and CED shall obtain the BLM's approval of assignment of
Lease CA-11401 to CED as soon as possible after the Effective Date and, upon
obtaining such approval, CLC shall assign, transfer and convey Lease CA-11401 to
CED and its successors and assigns as set forth in Section 3 hereof.
2. Payment. On the Effective Date, in consideration for the Assignments,
-------
the Project Partnerships shall pay to CLC the amount of One Million Dollars
($1,000,000), with each of the Project Partnerships paying one-third of this
amount.
3. Execution and Delivery of the Assignment Documents.
--------------------------------------------------
3.1 To effect the LADWP Lease Assignment, the following shall be
completed as soon as possible after the BLM approves the assignment of the LADWP
Leases to the Project Partnerships:
a. CLC and the Project Partnerships shall execute and deliver
an Assignment and Assumption Agreement in the form attached hereto as Exhibit
"F", pursuant to which (i) CLC shall transfer, assign and convey to each of the
Project Partnerships an undivided one-third interest in the LADWP Leases and
(ii) each of the Project Partnerships shall accept such assignment and shall
assume and agree to perform and fulfill all of the duties and obligations of CLC
under the LADWP Leases with respect to its respective undivided interest,
whereupon CLC and the Project Partnerships shall promptly cause the same to be
recorded in the Official Records;
b. CLC shall execute and deliver to the Project Partnerships a
Bill of Sale in the form attached hereto as Exhibit "G", pursuant to which CLC
shall transfer,
3
<PAGE>
assign and convey to each of the Project Partnerships an undivided one-third
interest in the CLC Pre-Existing Assets, to the extent that the CLC Pre-Existing
Assets constitute personal property; and
c. CLC shall execute and deliver to the Project Partnerships a
Quitclaim Deed in the form attached hereto as Exhibit "H", pursuant to which CLC
shall transfer, assign and convey to each of the Project Partnerships an
undivided one-third interest in the CLC Pre-Existing Assets, to the extent that
the CLC Pre-Existing Assets constitute real property, whereupon CLC and the
Project Partnerships shall promptly cause the same to be recorded in the
Official Records.
3.2 To effect the Operator Assignment, the following shall be
completed as soon as possible after MidAmerican transfers the MidAmerican Pre-
Existing Assets to Operator:
a. Operator shall execute and deliver to the Project
Partnerships a Bill of Sale in the form attached hereto as Exhibit "I", pursuant
to which Operator shall transfer, assign and convey to each of the Project
Partnerships an undivided one-third interest in the MidAmerican Pre-Existing
Assets, to the extent that the MidAmerican Pre-Existing Assets constitute
personal property; and
b. Operator shall execute and deliver to the Project
Partnerships a Quitclaim Deed in the form attached hereto as Exhibit "J",
pursuant to which Operator shall transfer, assign and convey to each of the
Project Partnerships an undivided one-third interest in the MidAmerican Pre-
Existing Assets, to the extent that the MidAmerican Pre-Existing Assets
constitute real property, whereupon Operator and the Project Partnerships shall
promptly cause the same to be recorded in the Official Records.
3.3 To effect the CA-11401 Lease Assignment, the following shall be
completed as soon as possible after the BLM approves the assignment of Lease CA-
11401 to CED:
a. CLC and CED shall execute and deliver an Assignment and
Assumption Agreement in the form attached hereto as Exhibit "K", pursuant to
which (i) CLC shall transfer, assign and convey Lease CA-11401 to CED and (ii)
CED shall accept such assignment and shall assume and agree to perform and
fulfill all of the duties and obligations of CLC under Lease CA-11401, whereupon
CLC and CED shall promptly cause the same to be recorded in the Official
Records.
b. CLC shall execute and deliver to CED a Quitclaim Deed in the
form attached hereto as Exhibit "L", pursuant to which CLC shall transfer,
assign and convey any remaining interest it may have in Lease CA-11401 to CED,
whereupon CLC and CED shall promptly cause the same to be recorded in the
Official Records.
4
<PAGE>
c. CLC and CED shall execute and deliver an Amended and
Restated Agreement Regarding Overriding Royalty in the form attached hereto as
Exhibit "M", whereupon CLC and CED shall promptly cause the same to be recorded
in the Official Records.
3.4 To the extent that: (a) the documents described in Sections 3.1
(a), (b) or (c) hereof are signed prior to the BLM's approval of the assignment
of the LADWP Leases to the Project Partnerships, then such documents shall not
be effective (and, if the same are to be recorded, then they shall not be
recorded) prior to the date on which the BLM approves such assignment; (b) the
documents described in Sections 3.2(a) or (b) hereof are signed prior to
completion of the transfer of the MidAmerican Pre-Existing Assets from
MidAmerican to Operator, then such documents shall not be effective (and, if the
same are to be recorded, then they shall not be recorded) prior to the date on
which such transfer is completed; and (c) the document described in Section 3.3
hereof is signed prior to the BLM's approval of the assignment of Lease CA-11401
to the Project Partnerships, then such document shall not be effective or
recorded prior to the date on which the BLM approves such assignment.
Notwithstanding the foregoing, once the foregoing conditions precedent have been
satisfied, each of the Assignment Documents, together with all rights and
liabilities thereunder, shall be deemed to have been effective as of the
Effective Date.
4. Amendment To Exchange Agreement. Concurrently with the execution and
-------------------------------
delivery of the Assignment and Assumption Agreement between CLC and the Project
Partnerships as described above, the Project Partnerships and the appropriate
operator shall execute and deliver, and shall promptly thereafter cause to be
recorded in the Official Records, a Second Amendment To Coso Exchange Agreement
in the form attached hereto as Exhibit "N".
5. Interim Use. Until such time as the LADWP Lease Assignment is
-----------
completed, the Project Partnerships shall continue to have the irrevocable and
unconditional right to enter on and use the LADWP Leasehold Premises and to
produce, inject and otherwise utilize the geothermal resources located therein,
as well as the CLC Pre-Existing Assets. Until such time as the Operator
Assignment is completed, Operator shall provide the Project Partnerships with
the right to use the MidAmerican Pre-Existing Assets. Until such time as the
CA-11401 Lease Assignment is completed, CED shall continue to have the
irrevocable and unconditional right to enter on and use the CA-11401 Leasehold
Premises and to produce, inject and otherwise utilize the geothermal resources
located therein.
6. General Provisions. This Agreement shall be construed and enforced in
------------------
accordance with internal laws of the State of California. Each Party hereto
shall, from time to time, execute such other documents and agreements, and
provide such certificates, as any other Party or the Collateral Agent (as
defined below) may reasonably request to carry out and fulfill the transactions,
and permit the exercise and performance of such rights and obligations, as are
contemplated hereunder. No waiver, modification or amendment of any provision
5
<PAGE>
hereof shall be effective unless it is in writing, signed by the Party against
whom it is sought to be enforced and approved by the Collateral Agent. U.S.
Bank Trust National Association ("Collateral Agent"), not in its individual
capacity but solely as trustee and collateral agent pursuant to the Indenture
(the "Indenture") among it, Caithness Coso Funding Corp., as issuer and the
Project Partnerships as borrowers and guarantors, shall be a third party
beneficiary of the covenants contained herein. This Agreement may be executed
in one or more counterparts, each of which when so executed shall be deemed an
original, and all of which when taken together shall constitute one and the same
instrument.
[SIGNATURES ON NEXT PAGE]
6
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Effective Date.
CLC: COSO LAND COMPANY
a California general partnership
By: Caithness Acquisition Company, LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Delaware Caithness Geothermal 1980, Ltd.,
a Delaware limited partnership
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
Operator: COSO OPERATING COMPANY, LLC,
a Delaware limited liability company
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
[SIGNATURES CONTINUE ON NEXT PAGE]
7
<PAGE>
CED: COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
CFP: COSO FINANCE PARTNERS
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
[SIGNATURES CONTINUE ON NEXT PAGE]
8
<PAGE>
CPD: COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
----------------------------
Christopher T. McCallion
Executive Vice President
9
<PAGE>
Exhibit 10.85
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
- ---------------------
Caithness Acquisition Company, LLC
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Attn: Christopher T. McCallion
MAIL TAX STATEMENTS TO:
- ----------------------
Caithness Acquisition Company, LLC
c/o Caithness Energy, L.L.C.
1114 Avenue of the Americas, 41st Floor
New York, New York 10036
Attn: Christopher T. McCallion
________________________________________________________________________________
The real property is located in unincorporated portions of the County of
Inyo, in the State of California.
See attached Transfer Tax Declaration.
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement"), dated as of
May 28, 1999 (the "Effective Date"), is made and entered into by and among
MIDAMERICAN ENERGY HOLDINGS COMPANY, as successor-in-interest to CalEnergy
Company, Inc. ("Assignor") and COSO ENERGY DEVELOPERS, a California general
partnership, COSO POWER DEVELOPERS, a California general partnership and COSO
FINANCE PARTNERS, a California general partnership (each an "Assignee" and
collectively "Assignees") (Assignor and Assignees are occasionally referred to
herein individually as a "Party" and collectively as the "Parties"), with
reference to the following recitals:
Recitals
1. Assignor is the assignee of the grantee under (1) that certain Right
of Way Grant No. CA-13510, issued by the United States of America, acting
through the Bureau of Land Management of the Department of the Interior (the
"BLM"), effective as of April 12, 1984, as amended (a copy of which is attached
hereto as Exhibit "A"), relating to rights in real property located in the
County of Inyo, State of California, which real property is described on Exhibit
"B" attached hereto and made a part hereof ("Right of Way Grant No. CA-13510")
and (2) that certain Right of Way Grant No. CA-18885, issued by the BLM,
effective as of May 7, 1986 as amended (a copy of which is attached hereto as
Exhibit "C"), relating to rights in real property located in the County of Inyo,
State of California, which real property is described on Exhibit "D" attached
hereto as made a part hereof ("Right of Way Grant No. CA-18885") (collectively,
Right of Way Grant CA-13510 and Right of Way Grant CA-18885 are collectively
referred to herein as the "Right of
<PAGE>
Way Grants").
2. In conjunction with that certain Purchase Agreement dated January 16,
1999, Assignor has agreed to transfer and assign to each Assignee an undivided
one-third interest in each of the Right of Way Grants. Each of the Assignees
has agreed to assume all of the Assigner=s obligations under the Right of Way
Grants.
Agreement
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Parties agree as
follows:
a. Assignment. Assignor hereby assigns, transfers and conveys to each
----------
Assignee and its successors and assigns an undivided one-third interest in and
to each of the Right of Way Grants.
b. Assumption. Assignee hereby accepts such assignment, and assumes and
----------
agrees to perform and fulfill all of the duties and obligations of Assignor
under the Right of Way Grants.
c. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the respective successors and assigns of the parties hereto.
d. General Provisions. This Agreement shall be construed and enforced in
------------------
accordance with internal laws of the State of California. Each Party shall,
from time to time, execute such other documents and agreements, and provide such
certificates, as any other Party may reasonably request to carry out and fulfill
the transactions, and permit the exercise and performance of such rights and
obligations, as are contemplated hereunder. No waiver, modification or
amendment of any provision hereof shall be effective unless it is in writing and
signed by the Party against whom it is sought to be enforced. This Agreement
may be executed in one or more counterparts, each of which when so executed
shall be deemed an original, and all of which when taken together shall
constitute one and the same instrument.
[SIGNATURES ON NEXT PAGE]
2
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Effective Date.
Assignor: MIDAMERICAN ENERGY HOLDINGS COMPANY
By: /s/ Douglas L. Anderson
-------------------------
Douglas L. Anderson
Vice President
Assignees: COSO POWER DEVELOPERS,
a California general partnership
By: New CTC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
-------------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Navy II Group, LLC,
a Delaware limited liability company
its General Partner
By: /s/ Christopher T. McCallion
------------------------------
Christopher T. McCallion
Executive Vice President
COSO FINANCE PARTNERS
a California general partnership
By: New CLOC Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
------------------------------
Christopher T. McCallion
Executive Vice President
By: ESCA, LLC,
a Delaware limited liability company
its General Partner
By: /s/ Christopher T. McCallion
------------------------------
Christopher T. McCallion
Executive Vice President
3
<PAGE>
COSO ENERGY DEVELOPERS,
a California general partnership
By: New CHIP Company, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Christopher T. McCallion
------------------------------
Christopher T. McCallion
Executive Vice President
By: Caithness Coso Holdings, LLC.,
a Delaware limited liability company,
its General Partner
By: /s/ Christopher T. McCallion
------------------------------
Christopher T. McCallion
Executive Vice President
4
<PAGE>
ACKNOWLEDGMENTS
STATE OF NEBRASKA )
) ss.
COUNTY OF DOUGLAS )
On May 25, 1999, before me Mitchell Pirnie, personally appeared
Douglas Anderson, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s) or the entity on behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature /s/ Mitchell L. Pirnie
------------------------
STATE OF ____________________________ )
) ss.
COUNTY OF ___________________________ )
On ________________________, before me _____________________________,
personally appeared __________________________________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s) or the entity on behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
Signature ___________________________________
5
<PAGE>
Exhibit 12.1
Coso Finance Partners and Coso Finance Partners II (Navy I Partnership)
Ratio of Earnings to Fixed Charges
Ratio of EBITDA before cumulative effect of accounting change to Fixed Charges
Ratio of EBITDA before cumulative effect of accounting change less
Capital Expenditures to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net income $54,517 $61,455 $76,477 $62,159 $16,588
Cumulative effect of accounting change - - - - 923
-------- -------- -------- -------- --------
Income before cumulative effect of
accounting change 54,517 61,455 76,477 62,159 17,511
Fixed charges 12,991 11,356 8,868 6,260 4,333
-------- -------- -------- -------- --------
Earnings plus fixed charges $67,508 $72,811 $85,345 $68,419 $21,844
======== ======== ======== ======== ========
Fixed charges (Interest expense which
includes amortization of debt issuance cost) $12,991 $11,356 $8,868 $6,260 $4,333
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 5.2x 6.4x 9.6x 10.9x 5.0x
======== ======== ======== ======== ========
Net income $54,517 $61,455 $76,477 $62,159 $16,588
Interest expense 12,991 11,356 8,868 6,260 4,333
Depreciation and amortization 12,109 12,770 13,325 12,814 11,772
Cumulative effect of accounting change - - - - 923
-------- -------- -------- -------- --------
EBITDA before cumulative effect of
accounting change $79,617 $85,581 $98,670 $81,233 $33,616
======== ======== ======== ======== ========
EBITDA before cumulative effect of
accounting change $79,617 $85,581 $98,670 $81,233 $33,616
Capital expenditures 14,417 6,965 2,294 4,589 6,683
-------- -------- -------- -------- --------
EBITDA before cumulative effect of
accounting change less capital
expenditures $65,200 $78,616 $96,376 $76,644 $26,933
======== ======== ======== ======== ========
Ratio of EBITDA before cumulative effect of
accounting change to fixed charges 6.1x 7.5x 11.1x 13.0x 7.8x
======== ======== ======== ======== ========
Ratio of EBITDA before cumulative effect of
accounting change less capital expenditures
to fixed charges 5.0x 6.9x 10.9x 12.2x 6.2x
======== ======== ======== ======== ========
<CAPTION>
Three Months Ended March 31, 1999
----------------------------------
Two Months One Month
Three Months Ended Ended
Ended February 28, March 31,
March 31, 1998 1999 1999 Total
<S> <C> <C> <C> <C>
Net income $2,395 $3,017 $1,141 $4,158
Cumulative effect of accounting change - - - -
-------- -------- ------- ------
Income before cumulative effect of
accounting change 2,395 3,017 1,141 4,158
Fixed charges 1,124 663 1,630 2,293
-------- -------- ------- ------
Earnings plus Fixed charges $3,519 $3,680 $2,771 $6,451
======== ======== ======= ======
Fixed charges (Interest expense which
includes amortization of debt issuance cost) $1,124 $ 663 $1,630 $2,293
======== ======== ======= ======
Ratio of earnings to fixed charges 3.1x 5.6x 1.7x 2.8x
======== ======== ======= ======
Net income $2,395 $3,017 $1,141 $4,158
Interest expense 1,124 663 1,630 2,293
Depreciation and amortization 2,957 1,604 783 2,387
Cumulative effect of accounting change - - - -
----------------------------------------------------
EBITDA before cumulative effect of
accounting change $6,476 $5,284 $3,554 $8,838
======== ======== ======= ======
EBITDA before cumulative effect of accounting
change $6,476 $5,284 $3,554 $8,838
Capital expenditures 24 538 271 809
----------------------------------------------------
EBITDA before cumulative effect of accounting
change less capital expenditures $6,452 $4,746 $3,283 $8,029
======== ======== ======= ======
Ratio of EBITDA before cumulative effect of
accounting change to fixed charges 5.8x 8.0x 2.2x 3.9x
======== ======== ======= ======
Ratio of EBITDA before cumulative effect of
accounting change less capital expenditures
to fixed charges 5.7x 7.2x 2.0x 3.5x
======== ======== ======= ======
</TABLE>
<PAGE>
Exhibit 12.2
Coso Energy Developers (BLM Partnership)
Ratio of Earnings to Fixed Charges
Ratio of EBITDA before cumulative effect of accounting change to Fixed Charges
Ratio of EBITDA before cumulative effect of accounting change less
Capital Expenditures to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------- -------- -------- -------- --------
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net income $35,243 $47,697 $51,264 $52,282 $56,473
Cumulative effect of accounting change - - - - 953
--------------------------------------------
Income before cumulative effect of
accounting change 35,243 47,697 51,264 52,282 57,426
Fixed charges 16,040 15,063 13,162 9,105 6,267
--------------------------------------------
Earnings plus fixed charges $51,283 $62,760 $64,426 $61,387 $63,693
======== ======== ======== ======== ========
Fixed charges (Interest expense which
includes amortization of debt issuance cost) $16,040 $15,063 $13,162 $ 9,105 $ 6,267
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 3.2x 4.2x 4.9x 6.7x 10.2x
======== ======== ======== ======== ========
Net income $35,243 $47,697 $51,264 $52,282 $56,473
Interest expense 16,040 15,063 13,162 9,105 6,267
Depreciation and amortization 12,292 13,170 13,931 14,257 14,308
Cumulative effect of accounting change - - - - 953
--------------------------------------------
EBITDA before cumulative effect of
accounting change $63,575 $75,930 $78,357 $75,644 $78,001
======== ======== ======== ======== ========
EBITDA before cumulative effect of
accounting change $63,575 $75,930 $78,357 $75,644 $78,001
Capital expenditures 17,437 8,425 6,033 3,728 20,302
--------------------------------------------
EBITDA before cumulative effect of
accounting change less capital expenditures $46,138 $67,505 $72,324 $71,916 $57,699
======== ======== ======== ======== ========
Ratio of EBITDA before cumulative effect of
accounting change to fixed charges 4.0x 5.0x 6.0x 8.3x 12.4x
======== ======== ======== ======== ========
Ratio of EBITDA before cumulative effect of
accounting change less capital expenditures
to fixed charges 2.9x 4.5x 5.5x 7.9x 9.2x
======== ======== ======== ======== ========
<CAPTION>
Three Months Ended March 31, 1999
-------------------------------------
Two Months One Month
Three Months Ended Ended
Ended February 28, March 31,
March 31, 1998 1999 1999 Total
<S> <C> <C> <C> <C>
Net income $ 9,917 $8,814 ($397) $8,417
Cumulative effect of accounting change - - - -
----------------------------------------------------
Income before cumulative effect of accounting
change $ 9,917 8,814 (397) 8,417
Fixed charges 1,786 616 1,233 1,849
----------------------------------------------------
Earnings plus fixed charges $11,703 $9,430 $ 836 $10,266
======== ======= ====== =======
Fixed charges (Interest expense which
includes amortization of debt issuance cost) $ 1,786 $ 616 $1,233 $ 1,849
======== ======= ====== =======
Ratio of earnings to fixed charges 6.6x 15.3x 0.7x 5.6x
======== ======= ====== =======
Net income $ 9,917 $8,814 $ (397) $ 8,417
Interest expense 1,786 616 1,233 1,849
Depreciation and amortization 3,642 2,550 1,175 3,725
Cumulative effect of accounting change - - - -
----------------------------------------------------
EBITDA before cumulative effect of accounting
change $15,345 $11,980 $2,011 $13,991
======== ======= ====== =======
EBITDA before cumulative effect of accounting change $15,345 $11,980 $2,011 $13,991
Capital expenditures 3,556 (120) 311 191
----------------------------------------------------
EBITDA before cumulative effect of accounting
change less capital expenditures $11,789 $12,100 $1,700 $13,800
======== ======= ====== =======
Ratio of EBITDA before cumulative effect of
accounting change to fixed charges 8.6x 19.4x 1.6x 7.6x
======== ======= ====== =======
Ratio of EBITDA before cumulative effect of
accounting change less capital expenditures
to fixed charges 6.6x 19.6x 1.4x 7.5x
======== ======= ====== =======
</TABLE>
<PAGE>
Exhibit 12.3
Coso Power Developers (Navy II Partnership)
Ratio of Earnings to Fixed Charges
Ratio of EBITDA before cumulative effect of accounting change to Fixed Charges
Ratio of EBITDA before cumulative effect of accounting change less
Capital Expenditures to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net income $51,934 $58,394 $68,240 $66,702 $70,457
Cumulative effect of accounting change - - - - 1,664
---------------------------------------------
Income before cumulative effect of
accounting change 51,934 58,394 68,240 66,702 72,121
Fixed charges 14,736 13,868 12,149 10,532 8,122
---------------------------------------------
Earnings plus fixed charges $66,670 $72,262 $80,389 $77,234 $80,243
======= ======= ======= ======= =======
Fixed charges (Interest expense which
includes amortization of debt issuance costs $14,736 $13,868 $12,149 $10,532 $ 8,122
======= ======= ======= ======= =======
Ratio of earnings to fixed charges 4.5x 5.2x 6.6x 7.3x 9.9x
======= ======= ======= ======= =======
Net income $51,934 $58,394 $68,240 $66,702 $70,457
Interest expense 14,736 13,868 12,149 10,532 8,122
Depreciation and amortization 11,800 12,848 13,054 13,354 13,744
Cumulative effect of accounting change - - - - 1,664
--------------------------------------------
EBITDA before cumulative effect of
accounting change $78,470 $85,110 $93,443 $90,588 $93,987
======= ======= ======= ======= =======
EBITDA before cumulative effect of accounting
change $78,470 $85,110 9$3,443 $90,588 $93,987
Capital expenditures 18,894 6,367 4,333 7,992 6,939
---------------------------------------------
EBITDA before cumulative effect of
accounting change less capital expenditures $59,576 $78,743 $89,110 $82,596 $87,048
======= ======= ======= ======= =======
Ratio of EBITDA before cumulative effect of
accounting change to fixed charges 5.3x 6.1x 7.7x 8.6x 11.6x
======= ======= ======= ======= =======
Ratio of EBITDA before cumulative effect of
accounting change less capital expenditures
to fixed charges 4.0x 5.7x 7.3x 7.8x 10.7x
======= ======= ======= ======= =======
<CAPTION>
Three Months Ended March 31, 1999
-----------------------------------
Two Months One Month
Three Months Ended Ended
Ended February March 31,
March 31, 1998 1999 1999 Total
<S> <C> <C> <C> <C>
Net income $14,104 $9,366 $1,947 $11,313
Cumulative effect of accounting change - - - -
--------------------------------------------------
Income before cumulative effect of
accounting change 14,104 9,366 1,947 11,313
Fixed charges 2,235 953 1,792 2,745
--------------------------------------------------
Earnings plus fixed charges $16,339 $10,319 $3,739 $14,058
======= ======= ====== =======
Fixed charges (Interest expense which
includes amortization of debt issuance costs $ 2,235 $ 953 $1,792 $ 2,745
======= ======= ====== =======
Ratio of earnings to fixed charges 7.3x 10.8x 2.1x 5.1x
======= ======= ====== =======
Net income $ 14,104 $ 9,366 $ ,947 $11,313
Interest expense 2,235 953 1,792 2,745
Depreciation and amortization 3,493 2,339 1,188 3,527
Cumulative effect of accounting change - - - -
--------------------------------------------------
EBITDA before cumulative effect of
accounting change $19,832 $12,658 $4,927 $17,585
======= ======= ====== =======
EBITDA before cumulative effect of accounting change $19,832 $12,658 $4,927 $17,585
Capital expenditures 808 1,126 191 1,317
--------------------------------------------------
EBITDA before cumulative effect of accounting change
less capital expenditures $19,024 $11,532 $4,736 $16,268
======= ======= ====== =======
Ratio of EBITDA before cumulative effect of accounting
change to fixed charges 8.9x 13.3x 2.7x 6.4x
======= ======= ====== =======
Ratio of EBITDA before cumulative effect of accounting
change less capital expenditures to fixed charges 8.5x 12.1x 2.6x 5.9x
======= ======= ====== =======
</TABLE>
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES OF THE REGISTRANTS
Subsidiaries of Caithness Coso Funding Corp.:
None.
Subsidiaries of Coso Finance Partners, a California general partnership:
None.
Subsidiaries of Coso Energy Developers, a California general partnership:
None.
Subsidiaries of Coso Power Developers, a California general partnership:
None.
<PAGE>
[LETTERHEAD OF KPMG]
Exhibit 23.1
The Board of Directors
Caithness Coso Funding Corp.:
We consent to the use of our report included herein for Caithness Coso Funding
Corp. dated April 23, 1999, relating to the balance sheet of Caithness Coso
Funding Corp. and to the reference to our firm under the heading "Experts" in
the registration statement.
/s/ KPMG
New York, NY
July 27, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-4 of
Caithness Coso Funding Corp. of our reports dated February 12, 1999 relating to
the combining and combined financial statements of Coso Finance Partners and
Coso Finance Partners II, the financial statements of Coso Energy Developers and
the financial statements of Coso Power Developers, which appear in such
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
July 26, 1999
<PAGE>
Exhibit 23.3
In connection with the Purchase Agreement, dated May 21, 1999 (the
"Purchase Agreement"), among Caithness Coso Funding Corp. (the "Issuer"), Coso
Finance Partners, a California general partnership, Coso Energy Developers, a
California general partnership, and Coso Power Developers, a California general
partnership (collectively, the "Guarantors"), the Donaldson, Lufkin & Jenrette
Securities Corporation (the "Initial Purchaser"), relating to the Issuer's 6.80%
Senior Secured Notes due 2001 (the "2001 Notes") and the Issuer's 9.05% Senior
Secured Notes due 2009 (the "2009 Notes" and, together with the 2001 Notes, the
"Notes") and each Guarantor's guarantee of the Notes, Sandwell Engineering Inc.
(the "Independent Engineer"), hereby certifies as follows:
1. The Independent Engineer has consented to the references to it in the
Exchange Offer Registration Statement (as defined in the Purchase
Agreement) and to the use of the report prepared by the Independent
Engineer, dated May 20, 1999, and contained in Exhibit A to the Exchange
Offer Registration Statement (the "Independent Engineer's Report").
Dated: July 22, 1999
SANDWELL ENGINEERING INC.
By: /s/ R. G. Low
------------------------------------------
Richard G. Low, P.Eng.
Project Manager
<PAGE>
Exhibit 23.4
In connection with the Purchase Agreement, dated May 21, 1999 (the
"Purchase Agreement"), among Caithness Coso Funding Corp. (the "Issuer"), Coso
Finance Partners, a California general partnership, Coso Energy Developers, a
California general partnership, and Coso Power Developers, a California general
partnership (collectively, the "Guarantors"), the Donaldson, Lufkin & Jenrette
Securities Corporation (the "Initial Purchaser"), relating to the Issuer's 6.80%
Senior Secured Notes due 2001 (the "2001 Notes") and the Issuer's 9.05% Senior
Secured Notes due 2009 (the "2009 Notes" and, together with the 2001 Notes, the
"Notes") and each Guarantor's guarantee of the Notes, Henwood Energy Services,
Inc. (the "Energy Markets Consultant"), hereby certifies as follows:
1. The Energy Markets Consultant has consented to the references to it in
the Exchange Offer Registration Statement (as defined in the Purchase
Agreement) and to the use of the report prepared by the Energy Markets
Consultant, dated May 20, 1999, and contained in Exhibit B to the
Exchange Offer Registration Statement (the "Energy Markets
Consultant's Report").
HENWOOD ENERGY SERVICES, INC.
By /s/ Kevin Woodruff
---------------------------------
Kevin Woodruff
Principal Consultant
Dated: July 22, 1999
<PAGE>
Exhibit 23.5
In connection with the Purchase Agreement, dated May 21, 1999 (the
"Purchase Agreement"), among Caithness Coso Funding Corp. (the "Issuer"), Coso
Finance Partners, a California general partnership, Coso Energy Developers, a
California general partnership, and Coso Power Developers, a California general
partnership (collectively, the "Guarantors"), and Donaldson, Lufkin & Jenrette
Securities Corporation (the "Initial Purchaser"), relating to the Issuer's 6.80%
Senior Secured Notes due 2001 (the "2001 Notes") and the Issuer's 9.05% Senior
Secured Notes due 2009 (the "2009 Notes" and, together with the 2001 Notes, the
"Notes") and each Guarantor's guarantee of the Notes, GeothermEx, Inc. (the
"Geothermal Consultant"), hereby certifies as follows:
1. The Geothermal Consultant has consented to the references to it in the
Exchange Offer Registration Statement (as defined in the Purchase
Agreement) and to the use of the report prepared by the Geothermal
Consultant, dated May 1999, and contained in Exhibit C to the Exchange
Offer Registration Statement (the "Geothermal Consultant's Report").
Dated: July 22, 1999
GEOTHERMEX, INC.
By /s/ Subir K. Sanyal
-------------------------------
Subir K. Sanyal
President
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------
FORM T-1
Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
----------------------
U.S. Bank Trust National Association
(Exact name of trustee as specified in its charter)
United States 94-3160100
(State of Incorporation) (IRS Employer Identification No.)
550 South Hope Street, Suite 500
Los Angeles, California 90071
(Address of principal executive offices and zip code)
----------------------
Caithness Coso Funding Corp.
(Exact name of obligor as specified in its charter)
Delaware
(State or other jurisdiction of Incorporation or organization)
94-3328762
(IRS Employer Identification No.)
1114 Avenue of the Americas, 41/st/ Floor
New York, New York 10036-7790
(Address of principal executive offices and Zip code)
Christopher T. McCallion
Executive Vice President & Chief Financial Officer
1114 Avenue of the Americas, 41/st/ Floor
New York, New York 10036-7790
(212) 921-9099
(Names, addresses and telephone numbers of agents for service)
6.80% Senior Secured Notes due 2001
9.05% Senior Secured Notes due 2009
(Title of the indenture securities)
<PAGE>
GENERAL
1. GENERAL INFORMATION Furnish the following information as to the trustee.
-------------------
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
Washington DC
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
------------------------------------------
underwriterfor the obligor is an affiliate of the trustee, describe each
such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
------------------------------------------------------------------
knowledge the obligor is not in default under any Indenture for which the
-------------------------------------------------------------------------
Trustee acts as Trustee.
-----------------------
16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement
----------------
of eligibility and qualification.
Exhibit 1 - Articles of Association of U.S. Bank Trust National Association
dated June 5, 1992. Incorporated herein by reference to Exhibit 1 filed
with Form T-1 statement, Registration No. 33-50826
Exhibit 2 - Certificate of the Comptroller of Currency as to authority of
U.S. Bank Trust National Association to commence the business of
banking. Incorporated herein by reference to Exhibit 2 filed with Form
T-1 Statement, Registration No.33-50826
Exhibit 3 - Authorization of the Comptroller of Currency granting U.S. Bank
Trust National Association the right to exercise corporate trust powers.
Incorporated herein by reference to Exhibit 3 filed with Form T-1
Statement, Registration No.33-50826
Exhibit 4 - By-Laws of U.S. Bank Trust National Association, dated June 15,
1992. Incorporated herein by reference to Exhibit 4 filed with Form T-1
Statement, Registration No.33-50826
Exhibit 5 - Not Applicable
Exhibit 6 - Consent of U.S. Bank Trust National Association required by
Section 321(b) of the Act. Incorporated herein by reference to Exhibit 6
filed with Form T-1 Statement, Registration No.33-50826
<PAGE>
Exhibit 7 - Report of Condition of U.S. Bank Trust National Association,
as of the close of business on March 31, 1999 published pursuant to
law or the requirements of its supervising or examining authority.
NOTE
The answers to this statement insofar as such answers relate to what persons
have been underwriters for any securities of the obligor within three years
prior to the date of filing this statement, or what persons are owners of 10% or
more of the voting securities of the obligor, or affiliates, are based upon
information furnished to the trustee by the obligor. While the trustee has no
reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
U.S. Bank Trust National Association, an Association organized and existing
under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Los Angeles and State of California on the 20th day of July 1999.
U.S. BANK TRUST NATIONAL ASSOCIATION
By: /s/ Tamara Mawn
--------------------------------
Tamara Mawn
Vice-President
Attest: /s/ Robert Schneider
-------------------------------
Robert Schneider
Assistant Vice President
<PAGE>
EXHIBIT 6
C O N S E N T
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the
undersigned, U.S. Bank Trust National Association, hereby consents that reports
of examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
Dated: July 20, 1999
U.S. BANK TRUST NATIONAL ASSOCIATION
By: /s/ Tamara Mawn
-------------------------------
Tamara Mawn
Vice-President
<PAGE>
U.S. Bank Trust National Association
Statement of Financial Condition
As of 03/31/99
($000's)
<TABLE>
<S> <C>
Assets:
Cash and Balances Due From Depository Institutions: 59,841
Federal Reserve Stock: 6,338
Fixed Assets: 491
Intangible Assets: 65,906
Other Assets: 8,162
-------
Total Assets: 140,738
=======
Liabilities:
Other Liabilities: 7,845
-------
Total Liabilities: 7,845
=======
Equity:
Common and Preferred Stock: 1,000
Surplus: 126,260
Undivided Profits and Capital Reserve: 5,641
Net unrealized holding gains (losses) on available-for-sale securities (8)
-------
Total Equity Capital: 132,893
=======
Total Liabilites and Equity Capital: 140,738
=======
</TABLE>
===============================================================================
To the best of the undersigned's determination, as of this date the above
financial information is true and correct.
U.S. Bank Trust National Association
By: /s/ Tamara Mawn
----------------
Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001088866
<NAME> CAITHNESS COSO FUNDING CORP.
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
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<SECURITIES> 0 0
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001088870
<NAME> COSO FINANCE PARTNERS
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 0 6,397
<SECURITIES> 7,524 7,808
<RECEIVABLES> 9,186 5,562
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 17,136 19,952
<PP&E> 298,916 223,409
<DEPRECIATION> 118,536 65,042
<TOTAL-ASSETS> 201,888 198,326
<CURRENT-LIABILITIES> 11,389 13,387
<BONDS> 40,566 118,176
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 201,888 198,326
<SALES> 53,153 13,208
<TOTAL-REVENUES> 53,738 14,859
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 31,894 7,689
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,333 2,293
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 16,588 4,158
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001088869
<NAME> COSO ENERGY DEVELOPERS
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 0 17,015
<SECURITIES> 290 247
<RECEIVABLES> 19,835 16,103
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 21,651 33,698
<PP&E> 311,940 222,819
<DEPRECIATION> 110,340 59,550
<TOTAL-ASSETS> 228,087 223,739
<CURRENT-LIABILITIES> 26,938 24,919
<BONDS> 37,958 93,214
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 228,087 223,739
<SALES> 107,199 21,377
<TOTAL-REVENUES> 108,380 21,573
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 44,687 11,307
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,267 1,849
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 56,473 8,417
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001088873
<NAME> COSO POWER DEVELOPERS
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 818 20,039
<SECURITIES> 0 0
<RECEIVABLES> 22,504 23,130
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 24,016 43,463
<PP&E> 287,789 200,960
<DEPRECIATION> 98,927 51,580
<TOTAL-ASSETS> 218,965 230,653
<CURRENT-LIABILITIES> 3,981 8,304
<BONDS> 61,323 139,957
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 218,965 230,653
<SALES> 119,564 24,637
<TOTAL-REVENUES> 121,363 24,943
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 41,120 10,885
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,122 2,745
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 70,457 11,313
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
